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2024-25 Federal Budget: What it means for South Australia

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Dr Susan Stone

Credit Union SA Chair of Economics for UniSA

31 Aug 2021

| Education

The federal budget of 2024-25 has been released by the Australian government, containing several new measures. How will it affect individuals and businesses in South Australia? Dr Susan Stone, Credit Union SA Chair of Economics for Uni SA, unpacks key aspects of the budget and what they mean for us and our community.

Overall

The federal budget does include some cost-of-living relief, in the form of rental assistance and energy relief, but this is unlikely to make a large impact on either people’s daily cost pressures. On the positive side, it’s also unlikely to impact the measures the RBA uses to track inflation. This means its unlikely these policies will cause the RBA to raise interest rates. The Stage 3 tax cuts will have a larger impact but have long been announced and should be already factored into policy expectations. It remains to be seen how these cuts will impact household spending.

The tax cuts will impact South Australians relatively more than elsewhere in Australia given there are a relatively larger number of workers earning under $80,000 (biggest beneficiaries of revamped tax cuts). However, this may not impact overall spending in South Australia. Up until a few months ago, South Australia had been experiencing higher inflation and higher household spending than most of Australia, stemming from its relatively larger share of the population who are mortgage free and/or earn significant interest income. That spending has slowed of late and thus any potential additional spending in the State from the tax cut, may just keep those numbers high, rather than drive them higher. The difference will be in what is purchased. Where prior spending was on travel and eating out, the new spending will likely go to food, insurance and utilities.

The Economy

The Budget is based on some key forecasts for the Australian economy:

  1. Inflation reaches target rates sooner than the RBA is predicting (i.e. within the next fiscal year).
  2. GDP growth remains slow (i.e. under 2.5%) for the next 2.5 years.
  3. Commodity prices soften (so revenue softens but doesn’t collapse)
  4. Unemployment rises but wage growth remains relatively strong (so income tax revenue goes down but not significantly).

Total payments to States grow by 5.6% in 2024/25 which is the largest of the budget period (due to one-off energy relief and rental assistance). While SA’s payments grow by less than the average (only 4.5%) in 2024/25, they remain fairly steady over the rest of the projections.

One interesting item is that SA is getting $3.2m over the next four years to fund a government trial on social impact investing. This will help enterprises who are looking to maximise community benefits, not just private profits.

South Australian small business community will benefit from the extension of the small business support services, the extension of the instant asset write-off and the $10m in support for paternal leave enhancements. Income support recipients will benefit from a continued freeze on deeming rates (those are the rates Centrelink uses to predict how much interest income, and thus total income, will be received by clients).

Growth in Payments to States

The large increases in 2025 are due to the rental assistance and energy relief. Many of the larger spending programmes in the Federal Budget don’t get started until 2025/26 presumably after inflation reaches its target.

The budget clearly states that going forward, the largest demands on spending will be from health, aged care, NDIS, defence, and interest payments. If economic conditions are worse than expected (and interest rates remain high), this would have a detrimental impact on the Treasury’s projections for both income (unemployment increases but wage growth falls) and expenditures (deficits higher and interest payments higher). Right now Australia’s Debt situation is stable. As a share of GDP, it has one of the lowest of the OECD economies and maintains a AAA rating. However, when considering total government debt, the share of GDP gets higher (over 70%) and its ranking among OECD economies lower (above the median).

While there is nothing directly in the budget to support them, South Australia’s largest sectors, Agriculture and Mining, should remain strong. Projected growth of major export destinations for SA (India, Southeast Asia) is robust. While softening growth in China and the US could spell some weakening in SA exports, the nature of the goods exported (Barley, Wheat, Iron Ore) face consistent demand.

Weather will be a pivotal factor for SA farmers and while the budget contains several programmes for drought and other farm-related resilience measures, there is nothing new/going forward for SA. There is some money set aside for Urban River Catchments ($13m for SA or 14.5% of total) and Murray Darling (about $6.7 mil or 7% of total to SA).

GST distributions to SA have increased over the past three fiscal years. The budget estimates that GST revenue will grow more slowly in 2024/25 at 2.5% but then surpass the 2023/24 growth (3.7%) to reach 5.3%, 6.0% and 5.7% for the next three fiscal years. While Treasury is forecasting a decline in SA’s population, it may not overly impact the GST formula.

GST Distribution

Health

As noted, the government has indicated that spending on health and aged care are expected to grow significantly with around 40% of the projected increase due to demographic aging. SA has a higher burden of aged care population growth than Australia overall, with those 70+ expected to increase their share of the State’s population by 4.6 percentage points, compared with 2.7 pp for Australia overall. However, SA does not figure prominently in health and aged care spending in this budget. SA’s share of hospital services funding will drop from 7.1% this year to 6.7% going forward. SA is also seeing very little of the Palliative Aged Care money. SA is getting about 8% of the $103m that’s being put into Community Health infrastructure in 2024/25.

Adelaide will be getting money for two pilot programs. Roughly $4mil to fund a mental health program as well as $6.3mil on a program for end-of-life care. There is money going to Flinders and Cancer research more generally which should help the State’s reputation as a serious health research centre.

The freeze on PBS rates will help the large pensioner population in Adelaide. However, South Australia is getting no new urgent care clinics.

Education/Skills training

Some money will come to SA for preschool reform (about $48 million in the next two fiscal years which is about 5.7% of the total funding). School funding remains constant.

There is big money going into skills development through the National Skills Agreement (NSA) in 2024/25 (21% increase over this fiscal year) but little after that. Funding for the NSA includes National Partnership Payments for seven Specific Policy Initiatives: Closing the Gap, Ensuring Access to Foundational Skills Training, TAFE Centres of Excellence, National TAFE Network, Measures to Strengthen the VET Workforce, Enhanced VET Data and Evidence and Improved Completions – Especially for Priority Groups. SA is getting $821 million or about 6.8% of total funding.

Almost half of the funding for Fee-Free TAFE is being spent this year. Going forward it’s around $365m over the next three years. SA is getting about 7.5% of that or $27m.

Given the large share of Health workers in SA, the Prac payments will benefit whose workers. The government has promised $427.4 million over four years from 2024–25 (and an additional $1.2 billion from 2028–29 to 2034–35) and this will be means tested and start 1 July 2025.

The reconfiguration of HECS debt will help SA younger workers but it’s unlikely to make much of a difference in terms of their financial position or their ability to break into home ownership.

There is an additional $1.1b for support tertiary education develop needed skills for projects like AUKUS but the proposed cap on international student numbers will mean a significant decline in revenue for SA’s universities. Education is one of SA’s largest exports. The University of Adelaide, for example, gets 25% of its revenue from international students.

Housing

The National Agreement on Social Housing and Homelessness is giving $9.3b to States to support affordable housing. SA is getting $495m over that time, or about 8% of the funding (which is actually a bit more than the usual 7% seen in other federal programs). However, this money is subject to State matching so we will see how much the state actually has to spend when we see the SA budget in June.

However, the problems with housing supply are not due to a lack of money or incentives, but people and (in some cases) zoning laws. Thus, it is unlikely this spending will not have much of an impact on SA (or Australia’s for that matter) housing supply in the near future.

An additional nearly $800m in 2024/25 through National Partnership payments will support State affordable housing services was also announced, but there is no indication of how it will be distributed across states. There is note of ‘competitive application basis’ for some of the programs.

Infrastructure

The government indicated its continued support for the Adelaide City Deal (Tonsley, Osborne, etc) of over $96m in 2024/25 and a further $13m in 2025/26. There is money for Black spot safety (about $50m or 7% of total) and other major projects (about 6% of total) for SA. SA gets nothing for rail but rather large increases in road support. From about 12% this year to over 15% of the total amount in 2025/26 which includes $120m for the Mount Barker and Verdun Interchanges and $100m for enhancements to the Southeastern Freeway.

The Future Made in Australia

The money can be divided into Seven programs most over 10 years. South Australia has opportunities across the board but there is no funding earmarked for specific States at this stage.

  1. Attracting investment in ‘key’ industries. This $68m is mostly about setting up the infrastructure for the program as well as the criteria for choosing projects. Most (about $50m) is being spent in 2024/25.
  2. Investing in innovation, science and digital capabilities. This $1.7b including money for mapping minerals and the quantum computer. Most of that spending starts in 2025/26.
  3. ‘Accelerate’ investment in priority industries. This $19.7b fund is to support hydrogen development and processing and refining critical minerals, along with other, associated activities. It also includes support for solar and battery supply chain development. Again, the bulk of this money starts to come online in 2025/26. Much of the money is going through ARENA who don’t have an office in Adelaide. Although no specific States or territories are mentioned, but NSW has been mentioned with the Solar Sunshot program and Queensland with the batteries.
  4. Develop sustainable financing. This $17.3m fund will support the issuance of green bonds, improving regulatory regimes (including against ‘greenwashing’) and improving data.
  5. Develop efficient approval processes. This is getting almost $183m, some of which targets regional communities.
  6. Improve community engagement and ‘social license’. This close to $21m will develop voluntary standards and liaise with regional communities affected by the energy transition and cultural heritage.
  7. Develop skills. This is providing $218.4m over 8 years ($82.5 is being spent in 2024/25) for vocational education and training. Money is going to STEM programs, Building Women’s careers and various training centres. Most of this is going to DEWR and some to Treasury.

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