Treasurer Stephen Mullighan has delivered Labor’s first South Australian budget since 2017, keeping to his promise of no tax surprises as the government banks on business confidence to boost its bottom line.
David Fechner, corporate finance partner at BDO in Australia, believes the government’s assumption of a 2.25 per cent growth in Gross State Product (GSP) for the next financial year could well be understated given business confidence remains high.
“The real growth in Gross State Product (GSP) is forecast at 2.25 per cent and CPI is forecast for the coming year at 5 per cent so that’s going to be a fair increase in the amount of economic activity in South Australia, along with the taxes and GST generated from the increased activity,” said Fechner.
“Given what we saw in the most recent BDO State Business Survey where we had the highest level of business confidence we’ve seen, the government is quite possibly understating the growth in GSP so there is even more upside for their revenue projections.”
“Businesses could be outperforming what the government is forecasting here in GSP.”
“The downside risks of increasing interest rates, combined with the continuing supply disruptions and employment constraints could ruin the party.”
The government’s $100 million Economic Recovery Fund will likely boost business confidence further, while the ongoing commitment to infrastructure spend will also increase economic activity in the state as the government looks to contain state debt that is set to grow to $33.9 billion in 2025-26.
“The previous and the current government have a significant commitment to above historical levels of infrastructure spend to assist economic activity, but we’ll only get the most benefit out of that if procurement is focused on local South Australian businesses where product is sourced locally, employment is engaged locally, and profits are reinvested locally,” said Fechner.
“The increased spending in road infrastructure projects will also help relieve hidden costs for business, in terms of freight, transport and access.
“The challenge, of course, is that businesses are already facing pressures around supply costs, accessing skilled labour, and supply chain issues – It will be interesting to see how much of the forecast infrastructure spending comes to fruition, depending on business’ ability to meet the further demand generated by these projects.”
In the short term, Fechner believes the government’s $39.3 million cost of living concession will “increase demand and provide direct flow to the economy” through increased consumer spending.
Businesses should see almost immediate business activity flow from substantial support measures for major events, arts and tourism sectors, including $45 million to boost tourism marketing and the $40 million major events fund.
The return of the Adelaide 500 in December 2022 will certainly provide increased foot traffic and hospitality spend to CBD businesses, but it remains to be seen whether scheduling the event, which is traditionally quite disruptive to CBD accessibility, during the peak Christmas period for retailers is a good idea or not.
It’s particularly pleasing to see $6.2 million to re-establish Brand SA, which many were dismayed to see axed in the first place, and also increased funding for the industry advocate.
“We especially applaud the commitment to review and report spending on SA and non-SA goods and services, which will make government local procurement more transparent than it has been to date”, said Fechner.
Further measures in support of business that we were pleased to see include:
- Support for women in small business with $4 million for support and training for SA female-owned businesses
- The continuing of our global leadership in the deployment of renewable energy sources by the investment of $593 million into the evolving hydrogen industry
- CTP reduction for taxi licence owners and operators, which should be welcome given the disruption in the industry from ride sharing platforms in recent years.
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