2015-16 Mid-Year Budget Review

On Monday 7 December 2015 Treasurer Tom Koutsantonis handed down the 2015-16 Mid-Year Budget Review (MYBR).

The MYBR shows the State Government continuing to forecast a return to surplus in 2015-16 while delivering $518 million in economic initiatives – including the bringing forward of tax cuts for business – to encourage investment, grow the economy and create jobs.

These economic initiatives build on the $985 million stimulus package of tax reforms and targeted investments in growth industries announced in the 2015-16 State Budget in June.

Mr Koutsantonis said the 2015-16 MYBR:

• Meets all the State Government’s fiscal targets and forecasts a $355 million surplus in 2015-16 with growing surpluses across the forward estimates.
• Brings forward the first â…“ reduction in non-residential stamp duty. The tax cut will take immediate effect, making South Australia the lowest taxing State in Australia for commercial property transfers.
• Delivers major investments in housing and transport infrastructure to stimulate the construction sector to boost the economy and create jobs.

“The end of our auto manufacturing sector, coupled with a dramatic collapse in global commodity prices means South Australia faces significant economic challenges,” Mr Koutsantonis said.

“That is why we have an economic plan that is underpinned by 10 economic priorities to transition from the old economy to the new economy.

“We are reducing barriers to investment, building our capabilities and driving growth in key sectors like premium food and wine, tourism, health and ageing and education.

“We are also making targeted investments in housing and transport infrastructure to stimulate the construction industry and boost productivity to create jobs.

“Our focus is on job creation both in the short term and the long term.

“That is why we are ensuring our State Budget is in a strong position with growing surpluses across the forward estimates so we can respond to the challenges ahead as we transition from the old to the new economy.”

Mr Koutsantonis said the final outcome for 2014-15 was a net operating deficit of $189 million, which was an improvement of $90 million compared to the estimated result.

“For 2015-16, the net operating balance has also improved by $312 million, and is now a surplus of $355 million compared to $43 million in the 2015-16 State Budget.”

Other key metrics in the 2015-16 MYBR include:

• A surplus of $0 million in 2016-17, increasing to $897 million 2017-18 and $978million in 2018-19.
• Net debt is now $3.59 billion in 2015-16, an improvement of $652 million compared to$4.24 billion in the 2015-16 State Budget.
• A reduction in the net debt to revenue ratio in 2015-16. It is now 20.6% compared to24.8% in the 2015-16 State Budget, well below the maximum 35% ratio target set by the State Government.

Mr Koutsantonis said the net debt to revenue ratio is now below 35% in every year of the forward estimates, declining to 29.7% in 2018-19.

The ratio improvements (compared to the 2015-16 State Budget), are driven by the return of funds from the Motor Accident Commission (MAC).

“From the identification of significant liability releases by the CTP Funds actuary and stronger investment returns, another $448.5 million is available to be paid in 2015-16 from surplus assets into the State Government’s Highways Fund, to improve the safety of roads in South Australia,” Mr Koutsantonis said.

“A further contribution of $300 million is predicted for 2016-17 following the transition to the new CTP arrangements, which includes an initial market share allocation fee of approximately$260 million from the approved CTP insurance providers.”

State tax and royalty revenues have reduced by $578 million across the forward estimates, mainly reflecting a softer outlook for payroll and gambling taxes and insurance duty revenues, and lower than expected petroleum prices and production volumes.

The revenue reduction has been partially offset by additional GST revenue of $114 million.

Mr Koutsantonis said the improved 2014-15 result, along with a stronger surplus in 2015-16, has enabled the Budget to absorb a reduction in State revenues and put in place measures to further promote economic growth and jobs creation, without increasing net debt over the forward estimates.

Economic initiatives included in the 2015-16 MYBR include:

• $985 million for the jointly-funded Northern Connector Road Project ($788 million Federal Government and $197 million State Government) to create an average 480 jobs per year over the five-year project.
• $208 million for the construction of 1000 South Australian Housing Trust homes over the next three years. This will be funded from the sale of existing housing stock and create an average of about 4 jobs per year.
• $24.8 million to bring forward the first â…“ reduction in the non-residential conveyance duty from 1 July 2016 to take immediate effect.

“Bringing forward this tax cut means any business that now purchases a commercial property in South Australia pays the lowest stamp duty costs of any other state in the country,” Mr Koutsantonis said.

“A further â…“ reduction in non-residential stamp duty will occur on 1 July 2017; while on 1 July 2018 the tax will be completely abolished, making all non-residential commercial property transfers in South Australia stamp duty free.

“We are creating a State tax system that will attract business to South Australia and reduce costs to business in South Australia so they can invest, grow and employ more South Australians.”

Other initiatives totalling $88 million over four years will further boost the economy, encourage investment and deliver new jobs including:

• $20 million for a new PACE Copper initiative.
• $19.2 million for Last Mile Road Projects to improve freight access.
• $12 million for new infrastructure at Tonsley.
• $10 million to further support international engagement activities.
• $6.4 million for critical bridge repairs.
• $6.4 million of extra funding for the Regional Development Fund.

Full-time equivalents (FTEs) in the general government sector are estimated to decrease by1622 between 30 June 2015 and 30 June 2019. This compares to 2971 at the time of the2015-16 State Budget.

“This change largely reflects the decision to increase frontline staff in the Department for Education and Child Development to deliver key reforms such as the Gonski funding agreement (National Education Reform Agreement), along with increased staff in the Department for Correctional Services,” Mr Koutsantonis said.