Labor neutralises Libs in State Budget

A wily Labor State Government cut the ground from under the Liberals’ feet, winning plaudits from the business lobby. South Australia has now reduced its state business taxes to be among the lowest in the nation. All of this is a bit of a shock. Rusted-on Labor voters will be wondering why a Labor State Government has delivered such a windfall to businesses while conservatives must think they are living in a parallel universe – a place devoid of political certainties. They might even be strangely attracted to the radical pragmatism that Labor is displaying. One thing is for sure: the tax reforms introduced in the State Budget neutralise the Liberal Party’s argument that South Australian taxes on business are the highest in the nation. Analysis by the conservative Institute for Public Affairs had been used by the Liberal Party to hammer Labor over business taxes. Now it has been used by Labor to favourably benchmark its tax reforms. This is astute politics. The Liberals have now been forced to find other avenues of attack, shifting their focus to jobs and unemployment. Here they have a problem. Labor has committed to a minimum $1.3 billion per year infrastructure spend, which, combined with the business transaction cost-cuts, acts as a stimulus to the South Australian economy over the next four years. The Liberals, on the other hand, have not indicated that they would match the infrastructure spend, nor have they retreated from cutting harder into public sector employment than Labor has been over recent years. The difficulty we all face over the short term is making a sound judgement about how much additional spending will be needed to help offset the collapse of the automotive industry in the absence of any additional support from the Abbott Government. With unemployment rising to 7.2 percent in trend terms last month, there are good reasons to apply the precautionary principle in framing Budget policy. In other words, the State Government should not hesitate to boost its infrastructure spend to help boost employment growth over the short term. To the surprise of many, Labor’s State Budget contained a modest surplus, rising over the forward estimates. This provides some room for additional stimulus but much more could come from an expanded program of public investment in infrastructure funded from borrowings at historically low interest rates. Debt is low in South Australia and the costs of inaction are likely to be very high if we don’t bring forward some job rich urban regeneration and infrastructure projects at the same time as driving an industrial transformation agenda. On the latter, the State Budget can do much, much more. One of the policy success stories of recent times has been the State Government’s Manufacturing Works suite of industry and business modernisation programs. These have helped companies to better position their operations in an increasingly competitive and often hostile global trading environment. For so long as the Federal Government remains ambivalent about its role in industrial transformation, we must do everything we can to support it or risk losing much more than our automotive manufacturing industry. Our capacity to design, engineer and make the multitude of goods and services that generate thousands of jobs is compromised each time we lose a major manufacturing company in South Australia. Retaining expertise and skills in the face of the automotive closure is absolutely essential to our ability to successfully build the industries and jobs of the future. The State Budget included a $15m investment attraction fund, which while welcome, is very modest. This is one of the challenges we face in confronting the need to accelerate the transformation of the South Australian economy over the next few decades. It just can’t be done on the cheap. Modernising and transforming our economy requires much more action on the investment, rather than the cost, side of the business growth equation. With business costs radically lowered in the Budget, businesses are being asked to deliver on increased investment and jobs. While we all hope they invest more, there is a significant risk that many won’t, and will prefer to wait until they have a clearer understanding of what the impact of the automotive and other closures might be on their operations. We need to be concerned about the coincidence of a sharp reduction in manufacturing and related employment at the same time as engineering and construction project activity declines. If State and Federal Government investment in engineering and construction projects in South Australia is not substantially increased over the next two years, unemployment will surely rise. Alarm bells should be ringing. We need to build some consensus between the state and federal governments, business, unions and the wider community about the need to boost public sector investment to help simulate jobs growth in South Australia over the next five years. No doubt this will all be the focus of great contestation in the lead up to next year’s federal election. We need the major parties arguing over which side is able to offer the best package of support to help South Australia deal with the economic shock of auto closure and the necessity that flows from this for accelerated industrial transformation. Associate Professor John Spoehr is the Executive Director of the Australian Workplace Innovation and Social Research Centre at the University of Adelaide  @JohnSpoehr