• Rikki Lambert

Lucas' budget leaves Labor red with envy

While SA's Labor Opposition finds points of criticism of the 2021/22 State Budget, privately they would have to admit it is the kind of budget it would be proud of.

Credit to Labor, their criticisms of ambulance ramping and the arguably inadequate initial size of the new Women's and Children's Hospital on North Terrace in the CBD (beside the new Royal Adelaide Hospital) have paid off.

The government revealed on Tuesday a pricetag of $1.95 billion for the new hospital, and a capacity of 500 'treatment spaces' - previously concept designs had it at less than 400.

The state government will also recruit 74 more ambulance officers (at a cost of $8m to 11m per annum) in the likely hope they can stave off the ambulance officers' industrial action and slogans written on ambulances complaining about ramping.

During their 16 years in office, Labor spent big on health, particularly the new RAH which was, at the time it was built, the world's most expensive hospital construction project. At $1.95bn - easier to admit it is $2bn - the new WCH will likely blow out in cost as well, as the North-South corridor works have by $1bn this budget due to the addition of a third lane in the planning.

Labor also spent big on the Adelaide Oval redevelopent, selling off 'the silverware' of the Forestry SA plantations in a clever 'lease' to avoid the accusation it had 'privatised' the hospitals. Mr Rann had famously pledged, in opposition in 2002, not to privatise public assets, after all. Instead the Liberals are now building their own city stadium, an indoor arena at a cost of $700 million. With no more silverware to sell - other than public land it plans to hive off at $20 million per annum, going forward - the government has leant into cheap debt for its own form of 'bread and circuses'. No doubt, once the new facility is built, the 'old' Adelaide Entertainment Centre will be demolished and the land sold off to help blacken the books.

In government, Labor also spent little on regional South Australia in their budgets, and that rings true in this budget as well. Conventional thinking would be that the Liberals can take country SA seats for granted, notwithstanding this election sees a number of curly regional scenarios. Ex-Liberal independent incumbents Troy Bell and Fraser Ellis are recontesting their seats as independents, while long-standing Frome independent Geoff Brock is following Port Pirie into Dan van Holst Pellekan's Stuart. In other electorates such as Schubert and Flinders, greenhorn Liberals are looking to replace retirees. This budget suggests none of those scenarios are concerns for Liberal strategists.

Much of the infrastructure spending this budget commits into regional South Australia is to match where the federal government is doing the fiscal heavy lifting. In some cases, such as the Truro bypass for the Sturt Highway, the spending is in the 'out years' four years from now in the forward estimates. All the voters will be able to see are candidates promising the project will, one day, come.

Surprisingly - given the public relations spin from the Liberals and the local newspaper, - the Barossa will be disappointed to learn the vaunted '$6 million for a Barossa Hospital' sees only $1 million to be spent this financial year. The remainder is earmarked for the out year on the eve of the 2026 state election - if the Liberals are still in government then - and even then, only to buy land for the hospital. Far from the 'new Barossa hospital' the hype suggested.

Rome wasn't built in a day, the Liberals may say, but elections - and seats - can be lost quickly if electors are taken for granted.

Labor will be looking on with envy at this big-spending, debt-driven budget that makes no savage cuts. There are no traditional lines of attack for Labor, nothing to automatically energise the union movement to protest. Theoretically, ambulance and other health spending will neutralise health union concerns.

This Liberal budget may rankle the drier, fiscally conserative types within Liberal ranks that prefer their budgets black, not red. For the wetter types in the ascendancy in the SA Liberals, this is a dream budget. It puts repaying debt to one side, doing - as Labor did, and Lucas and others criticised them for it from opposition - lip service to a 'return to surplus' in the outermost year. In the midst of a pandemic, there can be as little serious confidence in that return to surplus as every time former Labor treasurer Kevin Foley and his successors promised it in the Rann-Weatherill years.

Where this budget differs from, say, the Andrews Victorian Labor government's recent budget is that it extends relief from government taxes and charges and lets the market decide who prevails. A Labor budget would adopt the more Keynesian approach of the government 'managing' the recovering economy by, as Andrews has (and, federally, Mr Albanese has promised). Labor would establish a host of 'funds' to grant government money to businesses who will jump through compliance and likely ideological hoops. If there was a 'winner' to be picked here by the Liberals, the opportunity appeared to be there in spending big in the regions - say, in the Barossa on actually building a hospital, or some other regional project in a safe Liberal seat. That it has not done so might be applauded on principle, but may not go down well with voters beyond 'Gepps Cross and the Toll Gate'. The closest the Marshall government has got to picking a winner is the $84.4 million rebuild of the prestigious Norwood-Morialta public high school at Rostrevor. This spending occurs in the leafy eastern suburbs that are, perhaps, the true South Australian Liberal heartland.

This budget may have staved off what - on face value - were horrific debt projections and debt-to-revenue ratios exceeding 133 per cent in the preceding 2020/21 budget, bringing that ratio back to 100.9 per cent in the 2025 out year. Even so, government debt to revenue is projected to be at levels this financial year unseen since Treasury started keeping track in 1999, at 68.5 per cent. The public sector, or 'size of government', in South Australia has grown permanently to 18 per cent of gross state product. Labor took it to that level in 2016 but the Liberals have done nothing about it, and plan to do nothing about it in the outbound years of this budget. The heavy hand of government, especially now in health and policing bureaucracies to monitor pandemics and the like, is here to stay.

Rob Lucas has crafted a budget that meets Labor on its own turf, especially on one of its traditional strengths, health. This budget's ambulance and WCH spending heads off a well-mounted Labor ambulance ramping campaign. The pressure will be on Health Minister Stephen Wade to get on top of ramping as swiftly as the funds become available.

Like former Liberal federal treasurer, Peter Costello, the retiring Mr Lucas could be leaving a poisoned chalice for the next treasurer - Labor's Stephen Mullighan or, say, the Liberal's Dan Van Holst Pellekan - to deal with the debt he has been left amid a recession.

However, unlike the Global Financial Crisis the incoming Rudd administration's Wayne Swan had to grapple with, debt is comparatively cheap for governments to obtain. The week after the 2007 election, the Reserve Bank cash rate used as the basis for interest rates was 6.75 per cent and peaked at 7.25 per cent the following August.

Right now, the rate could not be lower, at 0.1 per cent, where it has stood since falling 0.15 per cent in November.

The signs of economic recovery (such as imminent 'full employment') are adequate for the Reserve Bank of Australia to start talking about nudging interest rates up in the out years of this stage budget. At rates like this, however, it is very likely South Australia's debt - and debt-to-revenue ratio - will keep growing until the RBA makes it more unpalatable.

After all, South Australia's last S&P credit rating in November was AA+ with a negative outlook - when those poorer debt-to-revenue figures were projected. Victoria is worse, at AA, and New South Wales also on AA+ (with a negative outlook). During a pandemic it would be too much to expect a Triple-A rating could be maintained, although the federal government has managed it at AAA and stable with Moodys and S&P, albeit AAA with a negative outlook with Fitch.

Therein, perhaps, lies the value in a Liberal state government having a big brother in the Morrison Coalition in Canberra. For so long as it can convince a fiscally strong (relatively speaking) federal government to carry the spending load in South Australia on infrastructure projects like the Augusta and Sturt Highways, and South Road, it might ride on those coat-tails to a stronger fiscal - and electoral - futures.