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SA "trim its sails" « Previous | |Next »
November 8, 2008

If the financial and banking crisis train has left the station, then so has the global recession train, and it looks as if we are in for a long and severe and protracted two year global recession. Already the economic crisis is beginning to play havoc on state government budgets. NSW is now usually mentioned as on the way to becoming a basket.

The impact is also significant in South Australia, which is facing a $400 million budget blackhole that is expected to wipe out projected surpluses for some years into the future. Public sector job losses, spending cuts and deferment or cancellation of major capital works are now on the table, since SA has accepted that its cherished AAA credit rating will be under threat if it does not defer spending on capital works.

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Kevin Foley, the Treasurer, has quarantined from the chopping block plans for a series of superschools, the $1.7billion new central hospital and $1.4 billion desalination plant. However, the Rann Government is hoping that the Rudd Government will rescue the centrepiece of the last state budget -- a $2 billion electrification of Adelaide's rail network and extension of its tram lines.

It is a similar story in other states. All are hoping that the Rudd Government will finance their infrastructure projects, since it is the federal Government wants to fast-track new infrastructure projects to pump-prime the slowing economy.The global financial crisis had reduced federal budget surpluses by $60billion over the next four years continued to cause deep concern in state governments, which had been expecting big contributions from the commonwealth for infrastructure and new COAG funding deals on health and education.

The International Monetary Fund was expecting the global downturn would be "deeper and more prolonged" than previously anticipated. It projected that the developed world as a whole will move into recession in 2009. Rebuilding balance sheets and allowing house prices to fall back to sustainable levels will make for a grim time. Unemployment will rise. The IMF argued that politicians across the world should take measures to get people spending again.

Nouriel Roubini says:

For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.....For the last few months the first engine of global growth has effectively shut down ....More worrisome there are now increasing signs that the other main engine of the global economy – China - is also stalling.

He adds that with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters.

That prognosis applies equally to Australia.


| Posted by Gary Sauer-Thompson at 1:28 PM | | Comments (8)
Comments

Comments

Gary,
Is that why our dollar is falling? Because our economy is seen to be closely tied to China's?

yes. The guts has fallen out of the resources boom and Australia is a one trick pony (Quarry Australia) with a big balance of payments deficit. We at risk, as it were.

No worries though. India rises on the horizon. A sunny day beckons. We gotta sell lots of uranium to India. How long before that talking point endlessly repeated and recycled through the media?

That would be fairly typical. Instead of diversifying and thinking ahead we'll just find something else to dig up.

Especially for SA---it is hanging by a thread on the forthcoming mining boom at BHP's Olympic Dam. Uranium forever. South Australia is set to experience a mining boom. IPremier Mike Rann constantly proclaims that South Australia is “poised to be the new Western Australia” – a resource rich state fuelling the seemingly insatiable appetites of mineral hungry China and India.

If it proceeds on the scale proposed, the multi-billion dollar expansion of the Olympic Dam mining operation at Roxby Downs is expected to generate around 8000 jobs during the construction phase and up to 20,000 indirect jobs. If this eventuates then unemployment in South Australia could be driven down to around 4 per cent over the next five years.

Fostering industrial diversification, particularly climate change responsive diversification – a strategy that transforms South Australia from a carbon hungry economy into a climate change responsive economy--- is sjust not on the policy agenda. We have uranium. Hoorah. Dig baby dig.

"climate change responsive diversification"

I'm surprised to hear that. For some reason I've been under the impression that SA was streets ahead on renewable energy.

Maybe 'surprised' is too strong a word. This is, after all, politics.

Lyn,
that impression is mostly due to the spin from the Rann Government. Media Mike etc. There is some private investment in wind farms when it can be easily connected to the electricity grid, but there is little by way of seed funding to foster a solar industry. The policy wonks in SA still think in terms of a centralized national grid, rather than a more decentralised one. Nor is there any policy emphasis on energy efficiency for households and offices.

The SA Treasury is about costcutting and allowing markets to do their thing not innovative economic thinking to address a state experiencing warming temperatures and less water .


Gary,
The collapse in real estate transactions and an increase in unemployment will significantly erode the tax revenue of all states, as their income are based on property stamp duties and payroll taxes.

What is the point of the federal government announcing a massive fiscal stimulus packages if it’s all being undone by state governments doing the cut and trim to stay afloat and keep their credit ratings?

Of course they kept the tram plan.
It goes with the development of the giant Clipsal site for multi story apartment blocks with many, no doubt, pps's with developers on the way.