It's not the economy, stupid

23 Feb 2006

IN OPENING the Liberal Party’s campaign for the 2006 state election, Rob Kerin declared that the state of the economy will be his primary focus. South Australia, he said, was lagging the nation in economic and employment growth and that exports had taken a nose dive. The problem for the Liberals is that South Australia is enjoying one of the longest periods of sustained economic and employment growth in the post war period, making the economy a small political target. Furthermore the Rann government is able to trumpet its AAA credit rating and successive state budget surpluses as major achievements.

The substantial growth in state tax revenue that Rob Kerin criticises as a tax grab is actually the product of a robust economy which gives the state government the capacity to spend more in priority areas like health and education. These solid economic foundations also enable the state government to embark on an infrastructure modernisation program using its capacity to borrow on favourable terms.

Where once there was a strategic vacuum under the Liberals, there is South Australia’s Strategic Plan. Feeding into the plan are the State Housing Plan, State Population Policy, Workforce Development Strategy, Ageing Strategy and the State Infrastructure Plan. This is a solid foundation for a more integrated and inclusive approach to state development.

Kerin argues that South Australia is lagging the nation in economic growth. Gross state product, the most commonly used measure of economic growth, has risen by around 7 per cent over the last three years compared to 10 per cent growth in GDP for the nation as a whole. The fact is that South Australian economic growth normally lags national growth. Growth of around 7 per cent is actually a good outcome given South Australia’s industry structure, the adverse impact of the recent drought and global pressures buffeting manufacturing industry. Stronger national growth is a function of spectacular growth in mineral exports in Western Australia and the larger scale property development booms taking place in Sydney, Melbourne, Brisbane and Perth. South Australia’s economic growth trajectory will always be less steep than that for the nation as a whole. The important thing to watch out for is whether South Australia is enjoying a reasonable share of national growth. On that score the news is good. After two decades of experiencing a declining share of national economic output, South Australia is poised to narrow the gap.

One of the spectacular economic achievements of the past two years has been the steady erosion of the gap between the national and South Australian unemployment rates. While the official unemployment rate is a poor indicator of the real level of unemployment (it defines people who have worked for just one hour or more per week as employed) significant inroads have been made into reducing unemployment in South Australia. Unemployment declined from around 8 per cent in January 1998 to 5 per cent late last year. It is set to fall further over the next few months due to the numerous festivals and events taking place in Adelaide.

Total employment rose from around 693,000 jobs in March 2002 to 743,000 jobs in January 2006. The most positive feature of recent employment growth has been solid growth in full time jobs, particularly over the last two years. The number of full time jobs in South Australia grew from around 490,000 to 514,000. For the first time in a decade male full time employment is showing signs of recovery from the 1990s recession. Around 8000 more full time male jobs exist in South Australia compared to two years ago. This has happened despite recent car industry jobs losses and the closure of the Port Stanvac Oil Refinery. Substantial new jobs will flow, however, from the $6 billion Air Warfare Destroyer Contract and the estimated $4 billion expansion of mining operations at Roxby Downs. Meanwhile sustained growth in new housing starts and higher grain yields will make an important short term contribution to growth.

Kerin rightly points out that export growth slowed earlier in the decade but this was a national trend, reflecting the impact of the drought on agricultural exports and instability in global markets following September 11. In dollar terms export growth has steadily risen over the past year two years and is set to return to levels experienced early this decade. The value of exported goods grew from around $7.4 billion in December 2003 to $8.2 billion at the end of last year. On top of this private business investment is strong and housing starts remain solid.

The challenge for the Liberal Party is to outline a credible strategy to support economic and employment growth. What seems to be forgotten, particularly at election time, is that state governments have a limited capacity to significantly influence rates of economic growth, which are largely determined by national and international conditions. One thing is for certain, it will not help South Australia if Rob Kerin adopts the federal government’s combative approach to industrial relations. This is a formula for industrial unrest, disturbing the relatively harmonious industrial relations landscape that has prevailed in South Australia over the past few decades. It would do well to outline a major program of infrastructure expenditure, funded by borrowings, to accelerate the modernisation of our ageing infrastructure. It could promote greater innovation by increasing the state governments investment in research and development.

The Liberal Party’s long held commitment to privatisation must surely be abandoned if it is to regain the trust of South Australians. Prior to the 1993 state election the Liberals promised that they would not privatise ETSA. The rest is history. The question for the 2006 state election is whether they would privatise the Lotteries Commission, HomeStart or Forestry SA if they won power? The privatisation of ETSA has become for the Liberals what the State Bank collapse was for Labor - a political albatross around the neck. The financial losses, price hikes and blackouts that followed privatisation have ensured that it will take a along time to shake that albatross off.

John Spoehr is executive director of the Australian Institute for Social Research, University of Adelaide. This article first appeared in the Adelaide Review.

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