State Budget 2017

Overview

Business SA welcomes many aspects of the 2017-18 State Budget. This Budget takes promising action to spur employment, particularly of apprentices and trainees, and to encourage growth in South Australia. However, we remain concerned about the impact on South Australians of a further big bank levy imposed by this Government. We are also disappointed there were no new measures to help business with high energy costs, including gas.

This Budget contained an unexpected, but welcome, increase in money paid to employers through the Jobs Accelerator Grant. Currently, eligible employers can receive a grant of up to $10,000 for every new apprentice or trainee they employ. This year’s Budget adds up to $5,000 to this grant. This means eligible employers could receive a grant of up to $15,000 for every new apprentice and trainee hired.

There has also been payroll tax relief for small businesses. Small businesses will now pay the lowest payroll tax rate in Australia, though the tax will continue to be imposed at the lowest level of annual payroll in the country. Whilst Business SA is pleased that South Australia’s small businesses are receiving a degree of payroll tax relief, we maintain more can, and should, be done to make South Australia a more attractive place to do business.
This Budget introduces a $200 million ‘Future Jobs Fund’. This fund will be applied in a range of ways to drive employment growth and develop key industries such as: shipbuilding and defence; renewable energy and mining; tourism, food and wine; health and biomedical research; and IT and advanced manufacturing.

This Budget has mimicked the Federal Budget for 2017-18 by imposing a levy on Australia’s five largest banks. South Australia is the only jurisdiction to do this. This bank levy will apply in addition to the levy imposed by the Federal Government. Business SA is quite concerned that this additional levy will be passed onto South Australians and will send a damaging message to businesses interstate and internationally.

Business SA also remains concerned about this State’s bloated public sector and the ongoing cost this imposes on South Australian taxpayers. Business SA had called on the State Government to address this in our pre-Budget submission. Unfortunately, the State Government has not made courageous decisions in relation to our public sector’s size, cost and productivity.
 
 
 

Economy and Budget Position

The State Government delivered a budget surplus of $239 million for 2016-17, following on from a $300 million surplus in 2015-16. Although the State Government has announced some significant infrastructure and business/jobs grants funding, the 2017-18 Budget is still predicted to achieve a surplus of $72 million which is forecast to reach $462 million by 2020-21.  Prior to the Government’s Budget spending package, the forecast surplus for 2017-18 was $382 million at last December’s mid-year Budget review.

Following actual economic growth of 1.9 per cent in 2015-16, economic growth for 2016-17 is estimated to reach 2.25 per cent where the State Government expects it to remain across the forward estimates to 2020-21, despite the looming closure of Holden. By comparison, the Australian economy is forecast to grow at 2.75 per cent in 2017-18 and then remains at 3 per cent for the balance of the forward estimates.

State net debt as at 30 June 2017 is estimated to be $6.297 billion which is forecast to increase to $6.81 billion by 2020-21 and remain within the State Government’s 35 per cent net debt to total revenue ratio limit despite some major infrastructure investments over coming years including new and redeveloped hospitals.

Total General Government Sector revenue was estimated at $18.26 billion for 2016-17 which is expected to grow by 5.2 per cent this year and 4.8 per cent next year before levelling off towards 2020-21. By then, total revenue is forecast to reach $20.2 billion. Total General Government Sector expenses were estimated at $18.03 billion for 2016-17 and are expected to grow by 5.7 per cent in 2017-18 and 5.8 per cent in 2018-19 before receding to 0.5 per cent by 2019-20 and remaining subdued for the rest of the forward estimates to reach $19.74 billion by 2020-21.

Public Sector Full-Time Equivalents (FTEs) have increased from 81,388 to 82,190 over the past 12 months and although they are expected to decline to 81,785 by 2020-21, employee expenses of $8 billion today are forecast to increase to a massive $8.5 billion by 2020-21. Business SA also has deep concern about future declining FTE rates in the State Prime Sector as similar promises from recent budgets have all failed to materialise. Business SA’s pre-Budget submission made several recommendations on reducing public sector inefficiencies, including reducing the period that an ‘excess’ worker can remain in employment from 12 months to a maximum of three months. Unfortunately none of these were taken up. In fact, the State Government implemented no major savings initiatives in the 2017-18 State Budget. 

Jobs Accelerator Grant

Business SA commends the State Government’s announcement of increases in the Jobs Accelerator Grant (JAG) for apprentices and trainees. In its pre-Budget submission, Business SA proposed increases to the JAG for apprentices and trainees to help stem the alarming decline in numbers since 2012. The State Government has announced that businesses that register a new employee for a JAG will receive an extra $5,000 for an apprentice or trainee as part of a State Budget measure designed to boost employment amongst young people.

The expanded grant scheme means businesses with payrolls between $600,000 and $5 million will receive up to $15,000 for each apprentice/trainee above current staffing levels, while small businesses with payrolls up to $600,000 will receive up to $9,000. It is hoped this will drive about 2,000 new apprenticeship and traineeship positions.

New grants will be backdated so businesses that have already hired a new apprentice or trainee and registered for the scheme can claim the higher amount.

There have not been significant changes to the process of applying for the JAG and businesses must still register an additional employee within 90 days of the employee’s commencement date. There is no limit to the number of times a business can access the JAG.
Businesses must retain the new staff member for at least 12 months to receive funding under the JAG, and for at least two years to receive the full sum.

The grant, which is expected to cost an extra $8.1 million over four years, is a step in the right direction to reducing the significant decline in apprentice/trainee number over the last five years.

In areas where there are skills shortages, for example, regional South Australia, this grant will benefit employers and people entering the job market, especially young people in South Australia.  Since the reduction of Federal funding in 2012, South Australia has seen a significant reduction in apprentice and trainee numbers.  The ability for businesses to access additional funding, as well as some Federal funding, will make hiring new apprentices and trainees a more realistic option for South Australian businesses.  Business SA has concerns that issues with red tape in the application process have not been addressed and calls on the Government to simplify the application process to ensure the proposed funding is available and accessible to all businesses. 
 

 

Payroll Tax

Business SA welcomes the State Government’s commitment to payroll tax relief for small business. Payroll tax is a handbrake on employment and a barrier to jobs growth in South Australia. This Budget permanently decreases the payroll tax rate for small South Australian businesses to 2.5 per cent and increases the threshold at which the maximum rate of 4.95 per cent kicks in. In response Business SA CEO Nigel McBride has said: "A lot of small businesses, small employers, will really find this a relief”.

Business SA has long advocated for a reduction in payroll tax payable by small to medium sized businesses. Our latest pre-Budget submission called on the State Government to permanently increase the payroll tax threshold from its current level of $600,000 to $750,000.

The Government in this Budget has not delivered this kind of relief but has instead permanently lowered the payroll tax rate to 2.5 per cent for businesses with payrolls between $600,000 and $1 million. This measure replaces the 50 per cent small business payroll tax rebate. Businesses within this range previously paid payroll tax at 4.95 per cent, meaning the State Government has effectively halved the payroll tax rate payable by some small businesses.

In addition to making the tax relief permanent, the Budget has increased the threshold at which the maximum 4.95 per cent payroll tax rate kicks in, from an annual payroll of $1.2 million to $1.5 million.

The following table illustrates the newly adjusted payroll tax rates and the new payroll tax payable:
 
 
Annual payroll ($) Adjusted payroll tax rate (%) New payroll tax payable ($)
600,000 0 0
700,000 2.5 2,500
800,000 2.5 5,000
900,000 2.5 7,500
1,000,000 2.5 10,000
1,100,000 2.99 14,950
1,200,000 3.48 20,880
1,300,000 3.97 29,700
1,400,000 4.46 35,680
1,500,000 4.95 44,550
 

Unfortunately for South Australian businesses, the tax-free threshold for payroll tax will remain unchanged at a $600,000 annual payroll. This is now the lowest threshold in the nation. South Australian businesses start paying payroll tax at the earliest stage compared to all other Australian jurisdictions. Consequently, Business SA remains concerned about South Australia’s payroll tax competitiveness against other jurisdictions. In our submission for the 2017-18 State Budget we called on the Government to increase the threshold for payroll tax to a $750,000 annual payroll. This modest increase would have placed South Australia on even footing with New South Wales and bettered Victoria’s threshold of $650,000.

Overall, Business SA certainly welcomes this permanent relief for small business. However, we firmly maintain more can, and should, be done to ensure South Australia remains ‘open for business’ and an attractive place to employ.
 
 

 

Future Jobs Fund

The State Government has announced $200 million for a ‘Future Jobs Fund’ to drive employment growth. The first $120 million is made up of $50 million in grants and $70 million in low interest loans to business for job creation in key industries. Business SA is pleased the State Government is applying money to stimulate growth, but is also concerned certain industries and businesses may slip through the cracks. Applications for funding to build business cases to obtain a grant or loan are now open and close on 14 July.

Grants or loans will only be provided to projects which can create new additional jobs in South Australia which can be sustained beyond the original assistance period. Applicants may apply for both a grant and/or loan through the Future Jobs Fund.

Key industries are:
  • Ship building and defence
  • Renewable energy and mining
  • Tourism, food and wine
  • Health and biomedical research
  • IT and advanced manufacturing
Under the scheme:
  • A minimum of $100,000 and up to a maximum of $5 million grants are available per proposal.
  • A minimum of $100,000 and up to a maximum of $10 million loans are available per proposal.
  • Grants of up to $50,000 are available to assist applicants develop a business case in support of applications to the Future Job Fund for grants and or loans.
The funding is only available to businesses located in South Australia or who commit to relocate here within 12 months. 

The first tranche of the Jobs Fund is to provide support to apply for funding to build a business case.  This is due 14 July 2017 and will provide matched funding up to $50,000.  Application for the Future Jobs Grants and loans is due on 29 September 2017.

For further information and applications on the $120 million Future Jobs Fund go to http://www.treasury.sa.gov.au/taxes-and-rebates/subsidies,-grants-and-rebates/future-jobs-funds-grant

In addition, $60 million has been allocated to attract investment in key industries.  The $60 million is made up of $30 million in grant funding and $30 million in loans to promote job creation, capital investment, construction jobs and increased economic activity. $30 million will be used to attract more business to South Australia, specifically to further support and secure new investment in South Australia through the attraction of appropriate business projects to the state in key target industries.

The remaining $20 million will be spent by supporting the automotive diversification initiative with $5 million to support supply chain businesses to adapt to change and $2 million to extend the ‘I Choose SA’ campaign to encourage consumers to actively look for SA products and services and support local jobs.

Business SA is pleased the government has committed $14.5 million over four years to secure major events and business conventions. This initiative has two separate parts of funding.  The first funding is support for business and incentive events and conventions as follows: 
  • $3.5 million in 2017-18
  • $2.5 million in 2019-20
  • $2.5 million in 2020-21
To support the staging of new major events in South Australia as follows:
  • $1.0 million in 2018-19
  • $2.5 million in 2019-20
  • $2.5 million in 2020-21
The attraction of conventions and major events in South Australia has the potential to boost the economy through increased tourism and puts Adelaide and the South Australian regions on the international stage for such events.
Business SA in its pre-Budget submission called for the Convention Bid Fund to be extended across the forward estimates to provide certainty for the visitor economy, particularly given the Adelaide Convention Centre expansion will soon be completed.


 

Infrastructure

The Budget provides a $9.5 billion infrastructure spend over the next four years that includes spending on a new women's hospital, education facilities; road upgrades; stage 1 of the Northern Adelaide Irrigation Scheme and South Australia’s $673.9 million Transport Plan (including $552 million in pending Commonwealth contributions). The SA Transport Plan includes the Gawler Rail Electrification and the continuation of the North South Corridor (including an upgrade from Regency Road to Pym Street and Stage 1 of the Main South Road duplication from Seaford to Aldinga).

Unfortunately, there are no new major infrastructure announcements for regional South Australia.

In our pre-Budget submission, Business SA identified the need for a State Infrastructure Fund with an initial $150 million injection to ensure adequate reserves are in place to fund the Northern Adelaide Irrigation Scheme.

Business SA was pleased to note, in April this year, the Government’s commitment to a budgeted $155.6 million for the construction of stage 1 of the Northern Adelaide Irrigation Scheme (NAIS). The project is to be funded by SA Water along with a contribution of $45.6 million being sought from the Commonwealth Government through the National Water Infrastructure Development Fund.

The Budget also addresses the following infrastructure projects:

North South Corridor - $415 million will be spent over three years on upgrading South Road between Regency Road and Pym Street. The whole North South Corridor has been identified by Infrastructure Australia as a 'Priority Initiative'. The State Government has offered to pay 20 per cent of the cost of this particular project and requires the Federal Government pay the balance.

Gawler Rail Electrification —$242.5 million over five years has been allocated to stage two of the Gawler Electrification Project, which is approximately half the total cost of the project. The State Government will need the Federal Government to match its contribution to meet the $462.5 million cost for the project to go ahead.

$100 million over two years has been set aside for the first stage of the Main South Road Duplication Project from Seaford to Aldinga. Stage two will continue the duplication to Sellicks Beach.

Oaklands Rail Crossing Grade Separation has $174.3 million budgeted over three years to implement a rail underpass under Diagonal Road. The Commonwealth Government is contributing $95 million towards the project.

The State Government has included the alignment redesign of the Springbank, Daws and Goodwood roads intersection in the Budget Overview although this project has not been costed in the Budget.

$40 million over four years will be spent on a new 'Fund My Neighbourhood' program, to be used on community projects suggested by the public.

$60 million will be used to redevelop sporting facilities across the state.

About $9 million will be spent on upgrades to jetties at Port Bonython, Port Noarlunga, Whyalla, Henley Beach and Semaphore.

$528 million will be used to build a new Adelaide Women's Hospital, to be located next to the new Royal Adelaide Hospital on North Terrace.

Funding of $24 million has been provided over the forward estimates for the maintenance and improvement of facilities at the Women's and Children's Hospital site over this period for use as a Children’s hospital.

$52.5 million has been earmarked to expand the Lyell McEwin Hospital emergency department over four years including a dedicated area for behaviourally disturbed, substance abuse patients.

There will be a $250.6 million upgrade of the Queen Elizabeth Hospital, including a new emergency department, operating theatre, day surgery suite, new outpatients and medical imaging services, and a new brain and spinal injury rehabilitation service.

Business SA welcomes new infrastructure spending, particularly on the North-South Corridor, but we are concerned that much of it depends on significant Commonwealth co-contributions yet to be secured.

In our pre-Budget submission, Business SA called for the establishment of an Independent Infrastructure Authority for South Australia with a joint private/public board and an ability to assess both private and public infrastructure proposals. We recommended an independent infrastructure authority to analyse the costs and benefits of various project proposals in a transparent manner to ensure limited Government funding was appropriately prioritised. Unfortunately, the State Government has again not responded to this request, despite every other mainland State already having such an authority in place or under development.
 

 

Bank Levy

Business SA is very concerned about the State government’s proposed 'major bank levy' and the flow on damage this could cause South Australian businesses and consumers. As a significant revenue raiser, the State Government has announced a levy on Australia’s five biggest banks. This levy will apply in addition to the levy imposed by the Federal Government. South Australia is the only jurisdiction to apply an additional levy. Business SA sees a significant risk that banks will pass this additional levy on to business and consumers. We are also concerned about the reputation damage to South Australia as a higher risk investment destination.

The State Government has announced its intention to introduce this “major bank levy” from 1 July 2017, a little over one week’s time. The levy will be charged at a rate of 0.015 per cent per quarter and is planned to raise $370 million over four years. This levy is similar to the levy announced by the Federal Government in its latest Federal Budget and will be charged on bank bonds and bank deposits over $250,000, but will exclude mortgages and ordinary household deposits. The bonds and bank deposits targeted will be South Australia’s estimated relative share of liabilities held by Australia’s five biggest banks.

The five banks which will be hit by the State Government are the same banks targeted by the Federal Government levy: Commonwealth Bank, ANZ, Westpac, NAB and Macquarie bank.

Treasurer Koutsantonis has said he will ban the banks from passing on the charges through increased fees to SA customers. However, Business SA is sceptical as banks have a myriad of ways to make this happen. The Australian Bankers’ Association has responded swiftly to the State Budget, stating “Today’s announcement is the worst possible signal to the business community in South Australia and will make South Australia less competitive, potentially driving jobs to other states.”

Business SA has significant concerns that the Banks will pass this levy on, in part or in full, to local businesses and residents. Additional costs on local businesses and households is the last thing we need in this State.

Business SA is also concerned about the impact this levy will have on the perceptions of interstate and international businesses looking to invest in South Australia.  It may be appealing to the State Government to tax big banks. However, in the short term there needs to be consideration about what signal a tax like this sends outside South Australia when we are already trying to recover from the reputational damage caused by the energy crisis.

Business SA also notes the State Government plans to impose a 4 per cent conveyance duty surcharge on foreign buyers of residential property as an additional revenue raiser. At a time when South Australia should be seen as an attractive place to invest, this seems counterproductive to our aspirations, for example, to see greater development in the CBD.
 
 

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