Business SA submission
to the State Government:
2017/18 State Budget
March 2017
Executive Summary
2
‒
The State’s economy is facing considerable headwinds as business grapples with high energy prices,
security of supply and the reality of the exit of auto-manufacturing looming ever closer. The SA Energy Plan
will provide some relief to business with $150 million to assist dispatchable renewable power, which can
provide contracts to industry, and an extra $24 million incentive for gas producers to serve the domestic
market. Business SA also welcomes 200 MW of temporary generation to shore up reliability from this winter
but we are concerned that a new $360 million Government owned gas fired generator may be unnecessary
if other measures to secure reliability and introduce competition are fully effective, including the
Government’s tender for its own use. Furthermore, introducing additional regulatory powers to increase
South Australia’s control in the national market may also cause retaliatory moves from other States and
ultimately work against the effective functioning of a national market. Our strong recommendation is that all
of these measures should be considered through the independent COAG Finkel Review process.
‒
The $31 million Energy Productivity Program has also provided some hope to energy intensive businesses
and, while we recognise the program is gaining traction with business, we are aware that many such
businesses are also struggling with high gas costs off the back of the wholesale gas price more than
doubling in the past three years. Consequently, gas efficiency measures must now be included to ensure
that South Australian businesses can be more efficient in consuming all forms of energy, including gas.
Many such businesses are also water intensive and they must all be supported to cope with trade waste
reforms through Green Industries SA grants, now currently limited to food & beverage manufacturers.
‒
South Australia’s economic growth forecasts still lag the rest of the nation and we note that every other
State and Territory has raised its payroll tax threshold since the GFC by between $100,000 and $500,000.
Although the payroll tax rebate for very small employers is helpful, with a return to surplus for a consecutive
year, now is the time to send a more permanent signal to existing businesses, and new investors, that
South Australia is serious about ensuring its payroll tax system is at least competitive with the national
average by lifting the threshold to $750,000. Combined with the third lowest payroll tax rate of the States
and Territories, this will ensure we stay competitive and demonstrate we are still ‘open for business’.
‒
Positive economic reforms such as abolishing stamp duty on business transfers will help with the difficult
task of transitioning South Australia through structural change. However, this reform must be accompanied
by expediting the final tranche of commercial stamp duty cuts to 1 July, aligning with the pending threshold
rise for Federal small business restructure rollover relief to $10 million under the Enterprise Tax Plan.
‒
Jobs for young people must be at the centre of South Australia’s economic policy to stem the damage from
Holden’s exit and the substantial fall in apprentice and trainee commencements since 2012. Specifically
targeted incentives to adequately remunerate employers’ time and risk for employing apprentices, trainees
and University graduates should be introduced by enhancing the Jobs Accelerator Grant.
‒
Business SA has long advocated for an independent infrastructure authority and South Australia’s poor
showing in Infrastructure Australia’s 2017 priority list indicates that we can no longer wait for this reform.
Adequately establishing such an authority will take some time and a more immediate priority in this budget
is creating a State Infrastructure Fund with an initial $150 million injection to ensure adequate reserves are
in place to fund the Northern Adelaide Irrigation Scheme. This game changer project for the northern flank
of Adelaide has long been supported by Business SA and is poised to deliver sustainable industry and jobs.
Business SA’s 2017/18 State Budget Submission, March 2017
Contents
Energy, Water & Sustainability .................................................................................................................. 6
Taxation ....................................................................................................................................................... 9
Workforce Skills &Training ..................................................................................................................... 11
Infrastructure............................................................................................................................................ 13
Public Sector Reform & Governance ..................................................................................................... 14
Visitor Economy....................................................................................................................................... 18
Conclusion ............................................................................................................................................... 19
3
Business SA’s 2017/18 State Budget Submission, March 2017
Introduction
Business SA, South Australia’s Chamber of Commerce and Industry, was formed in 1839 and has approximately
4,000 members across every industry sector, from micro businesses through to listed companies which employ
about 140,000 South Australians. We are a not-for-profit business membership organisation which works on behalf of
members and the broader business community in pursuit of economic prosperity for South Australia and the nation.
Business SA constantly engages members through a variety of mediums, including member reference groups in key
policy areas. Our pre-State budget submission is written in the context of what the Government can realistically
achieve now on the basis of existing financial capacity, including a $360 million increase in GST revenues in
2017/181, mindful of the time taken to implement wholesale reforms which will extend into the next Government term.
Our submission is against backdrop of a South Australian economy which had been showing signs of revival, but
unfortunately the momentum gained over 2015/16 has largely dissipated. The State-wide blackout in September
2016 set the scene for a difficult fourth quarter for South Australia’s economy, albeit softened by a record grain crop.
Business SA’s December quarter Survey of Business Expectations showed business confidence at both a State and
national level declining by 15 and 25 percent respectively, while actual business conditions declined by 10 percent.
Looking forward, Business SA expects growth to reach only 1 percent for 2016/172 as the impact of high electricity
prices and reliability concerns weigh heavily on businesses. Thereafter, 2017/18’s economic growth forecast has
additional downside pressure with the full impact of Holden’s exit from the market and the realisation of plans for
many associated component manufacturers. While CPI pressure in the December quarter was muted, up only 0.3
percent, Business SA expects increasing cost pressures from utility costs to continue to hamper economic growth.
Retail turnover has remained surprisingly resilient and although growth was only 0.3 percent over the December
quarter, year on year growth remains at a healthy 3.8 percent. Furthermore, a strong tourism sector nationally is
benefiting South Australia with international visitor numbers up 10% year on year to September 2016 and
expenditure up 19% over the same period, with particularly strong growth emanating from the United States.
Unemployment for South Australia at 6.6% remains well above the national average at 5.9% with underemployment
at 10.2 %.3 This means there are 148,100 South Australians either without work or seeking more work despite a
labour force participation rate of 62.4 percent which is remains below the national average of 64.6 percent. These
challenges must drive budget measures to not only assure existing jobs in the short to medium term, but to continue
building a platform for sustainable job creation and prosperity.
As South Australia begins to transition beyond traditional manufacturing, the environment needs to be right for all
businesses to maintain viability and, where possible, expand. This will require every effort to reduce key input costs
such as electricity, gas and trade waste across the economy. Tax measures which signal South Australia’s move to
stay competitive should also be in place. We also need to encourage employers to take on that new trainee,
apprentice or graduate and ensure we have the skill base to realise our long term economic growth potential. All this
must happen concurrently with a renewed push to drive the State’s infrastructure needs through an independent
authority supported by private and public sector expertise. South Australia will only succeed when it is adequately
positioned for success and the 2017/18 State Budget can play an integral role in that move.
Commonwealth Grants Commission, Report on GST Revenue Sharing Relativities, Page 2
Supported by NAB forecasts in State Economic Handbook, March 2017, P3
3 ABS, Labour Force, February 2017, seasonally adjusted data.
1
2
4
Business SA’s 2017/18 State Budget Submission, March 2017
Summary of Recommendations
Energy, Water & Sustainability:
1. Extend the South Australian Energy Productivity Program to cover gas, a key source of energy for many
manufacturing businesses, including food & beverage, and particularly those which are also electricity.
intensive
2. Extend the Implementation Grants under the Green Industries SA Waste Initiative to businesses outside the
Food and Beverage Manufacturing sector which are also dealing with fast rising trade waste costs.
Taxation:
3. Permanently increase the payroll tax threshold by $150,000 to $750,000 effective from 1 July 2017.
4. Bring forward scheduled cuts to stamp duty on commercial property transfers to abolish by 1 July 2017.
Workforce Skills &Training:
5. Improve access and cut red tape for the Job Accelerator Grant to encourage hiring of apprentices, trainees
and University graduates.
6. Significantly increase and fast track funding to Non-TAFE RTOs, especially in regional areas.
Infrastructure:
7. Establish an independent Infrastructure Authority for South Australia with a joint private/public board and an
ability to assess both private and public infrastructure proposals.
8. Establish a State Infrastructure Fund with an initial capital injection of $150 million, particularly to ensure
major economic infrastructure proposals such as the Northern Adelaide Irrigation Scheme are assured of
appropriate financial support.
Public Sector Reform & Governance:
9. Reduce the period an “excess” worker can remain in employment from 12 months to a maximum of 3 months.
10. Limit the period of income maintenance for excess workers transferred to lower paid duties to 3 months and
no longer ‘peg’ the employee’s higher rate of pay at the expiry of the income maintenance period.
11. Review the applicable agency list for the Late Payment of Government Debts (Interest) Act 2013 and remove
the annual turnover limit.
Visitor Economy:
12. Extend the Convention Bid Fund beyond 2018/19 to provide ongoing support for this important enabler of our
visitor economy.
5
Business SA’s 2017/18 State Budget Submission, March 2017
Energy, Water & Sustainability
1. Extend the South Australian Energy Productivity Program to cover gas, a key source of energy for
many manufacturing businesses, including food & beverage, and particularly those which are also
electricity intensive
In December 2016, the State Government announced it would provide $31 million to assist large energy using
businesses to manage their electricity costs and contribute to energy supply benefits to the State. This came in
response to both energy reliability issues in South Australia and also to the ongoing wholesale electricity market rises
which began in Mid-2015 following Alinta’s announcement that the Northern Power Station would close.
Business SA welcomed this initiative to ease the cost pressure on South Australia’s 5,500 large market business
consumers after most have experienced total bill increases in the order of 50 to 75 percent in the past two years on
the back of wholesale prices more than doubling. Unfortunately, many of those same businesses have also had to
contend with a more than doubling of the wholesale price of gas in the past four years. This has been predominantly
driven by the establishment of Australia’s LNG export market and increasingly levels of gas moratoria interstate
which have prevented new supply coming on stream to meet the structural shift in demand.
One Business SA manufacturing member consuming 120,000 GJ of gas has had to contend with their wholesale gas
price increasing from $4.73/gigajoule in 2013 to $9.49/GJ at the beginning of 2017. In the last two years alone when
the electricity price increases have impacted most, this businesses’ wholesale gas price has increased by 52%. This
has resulted in a $389,000 wholesale cost increase which translates to a 41% increase in total gas costs, including
network and supply charges, bringing their total bill to just over $1.6 million.
At the time of delivering this submission in late March, Business SA was aware of major retailers offering gas to
commercial customers as high as $18/GJ which is genuinely threatening the viability of these businesses.
The Energy Productivity Program (‘EPP’), as the name states, should look at the optimisation of all energy costs for
business, which primarily incorporates both electricity and gas. While the Government is currently funding energy
audits under this program, from the businesses’ perspective, it is far more beneficial to have independent experts
assess potential efficiencies in both their gas and electricity use.
Extending the EPP to gas will open up opportunities for business to invest in more gas efficient plant and equipment,
particularly in relation to heat and steam generation in a variety of manufacturing or processing businesses. For
example, there is much that can be done to improve boiler efficiency, such as installing steam accumulators. There
are also many heat recovery opportunities such as installing economisers, flue gas condensers and recuperators 4
although installations of this nature can be complex and accordingly require more investment than conventional
energy efficiency options, a factor that needs to be considered in how the Government funds EPP grants.
Business SA recognises the State Government has since released a more comprehensive energy plan which we
review below, but our recommendation in relation to the EPP remains valid.
4
6
Winery Energy Saver Toolkit, SA Wine Industry Association, July 2014, P58.
Business SA’s 2017/18 State Budget Submission, March 2017
The SA Energy Plan has introduced important measures to increase electricity reliability and reduce cost and
Business SA welcomes a comprehensive response to the substantive concerns of businesses and households which
have experienced unprecedented price rises and reliability shortfalls, particularly over the past 18 months:
•
•
•
Firstly, introducing 200 MW of temporary generation is necessary to ensure reliability as Hazelwood Power
Station in Victoria withdraws from the market and to alleviate businesses’ concerns after experiencing three
load shedding events in addition to a State-wide blackout and several widespread distribution system
outages in just 18 months. Considering there were only three load shedding events in the fifteen years prior
to 2015, the deterioration in reliability must be urgently addressed.
In the medium to long term we are yet to be convinced that a $360 million gas fired generator owned by the
State Government only to be activated in emergencies is the optimum use of finite public resources to shore
up reliability. We are also concerned about what market signal that will send to private investors which are
proposing options to solve South Australia’s security issues, particularly AGL, albeit recognising that some
of these solutions will require changes to national electricity market rules. The Productivity Commission has
previously found that the private sector is more efficient at operating electricity network assets5 and we have
strong reservations about a State-owned generator eventually re-entering the market. Furthermore, it is
likely to take up to two years to construct a gas generator of this size by which time there should be a much
clearer national transition plan in place towards a low carbon market.
Incentivising gas producers with an additional $24 million is welcome as long as it means those incentives
are specifically linked to contracts to deliver to gas to generators and South Australian based industry.
Business SA does not support a general gas reservation policy, nor any blanket moratoria. We maintain
that each proposal for gas extraction should be judged on its individual merits.
•
•
•
•
5
7
While the State Government’s tender for its own use has been out for some 18 months now, we continue to
support this policy to introduce more competition for dispatchable power to provide contracts for industry.
A $150 million battery storage and renewable technology fund to make renewable energy available 24/7 is
what industry needs to ensure better reliability at times of peak demand. However, any investment
from this fund also needs to be structured to increase competition to provide firm contracts within the
South Australian market.
Business SA supports improved scrutiny of generation projects by the State Government but we are
concerned that giving the State Energy Minister of the day greater local powers over national market
operators and privately owned generators could result in retaliatory responses from other states and reduce
the capacity of South Australia to benefit from cheaper interstate generation through the interconnector and
to leverage off interstate generation at times of low wind and solar generation. We are also concerned about
how efficiently AEMO will be able to operate the NEM in the national interest of consumers with the
introduction of additional State level powers.
An Energy Security Target is along the lines of what is needed at a national level and Business SA
recognises the State Government’s intention to transition this policy towards an Emissions Intensity Scheme
or Lower Emissions Target should national policy change, which we support. It is critical that state
governments work towards a national solution through the existing COAG Finkel Review process,
particularly given the Review Panel is undertaking a comprehensive study of all options to transition the
national electricity market to low carbon and investigating a range of reputable systems around the world.
Productivity Commission Inquiry, Electricity Network Regulatory Frameworks Inquiry Report, page 3
Business SA’s 2017/18 State Budget Submission, March 2017
2. Extend the Implementation Grants under the Green Industries SA Waste Initiative to businesses
outside the Food and Beverage Manufacturing sector which are also dealing with fast rising trade
waste costs
The Green Industries Fund, formerly known as the Waste to Resources Fund, is a fund comprised of 50 per cent of
the revenue collected from the solid waste levy, the balance being used to fund EPA activities. Since 2013/14 the
solid waste levy has increased from $47 per tonne to $76 per tonne now, with further scheduled increases up to $103
per tonne by 2019/20. Consequently, the 2016/17 State Budget advised the Green Industries Fund had net assets of
$84 million, up $18 million from the year prior. The Government also advised at the time that the use of the fund
would be expanded.
In 2014, the Essential Services Commission of South Australia (ESCOSA) conducted an Inquiry into Reform Options
for SA Water’s Drinking Water and Sewerage Prices, including trade waste charges. The aim of this inquiry was to
investigate reform options to improve economic efficiency and water security for South Australia, albeit based on the
value of SA Water’s assets being held constant. In summary, the inquiry affirmed that the move to cost-reflective
pricing provided a sound means of improving economic efficiency. However, ESCOSA advised that moving to a “final
state of reform” would present challenges and proposed various identification pathways. For one, ESCOSA identified
that to move SA Water’s volume and load based customers to cost-reflective trade-waste charges would increase
bills by an average of 400%,6 subsequent to such businesses having already absorbed at least a decade of steady
increases.
Following ESCOSA’s report, and in an attempt to transition trade waste customers to cost-reflective pricing, SA
Water have outlined increases to trade waste charges of between 9 and 10 percent over the next three years. To
assist businesses to transition to more cost-reflective trade-waste pricing, Green Industries SA have introduced a
program of funding ‘productivity assessments’ for all large trade waste generators, and a more restricted program of
funding ‘implementation grants’ for businesses in the Food and Beverage Manufacturing Sector only.
While Business SA welcomes the support of Government to assist businesses in reducing trade waste costs, we
recognise that restricting the implementation grants to the Food and Beverage Manufacturing Sector covers just
under half of SA Water’s volume and load based trade waste customers which will be impacted by SA Water’s move
towards cost-reflective pricing.
Given the challenges ahead for the South Australian economy are broad and overcoming the loss of the automanufacturing sector will not come down to one sector or another, it is important that the cost base for all sectors is
as efficient as possible. Business SA recommends the implementation grants be extended to cover all SA Water’s
volume and load based trade waste customers to ensure we do not miss any opportunity for economic growth,
regardless of the sector. Business SA recognises the State Government has economic priorities, but neither can it
afford to disadvantage businesses in other manufacturing and processing sectors during a transition period where
every job and every business will be critical to avoiding a deeper economic downturn.
6
8
Inquiry into Reform Options for SA Water’s Drinking Water and Sewerage Prices Final Inquiry Report, ESCOSA, P162.
Business SA’s 2017/18 State Budget Submission, March 2017
Taxation
3. Permanently increase the payroll tax threshold by $150,000 to $750,000 effective from 1 July 2017
The last structural change to South Australia’s payroll tax system was introduced on 1 July 2009 when the rate was
reduced from 5% to 4.95% and the threshold raised from $552,000 to $600,000. These changes were estimated to
have saved businesses approximately $20 million a year7. By 1 July 2017, it will be eight years since that adjustment
was made which, unfortunately, was not subject to indexation.
Considering South Australia’s inflation rate has increased by approximately 17.3% over that period, even an
equivalent indexed rate today would be over $700,000.
Over the past eight years, every other State and Territory has increased their payroll tax threshold:
•
•
•
•
•
•
•
New South Wales - $638,000 to $750,000 ($112,000 increase)
Victoria - $550,000 to $650,0008 ($100,000 increase)
Queensland - $1,000,000 to $1,100,000 ($100,000 increase)
Western Australia - $750,000 to $850,000 ($100,000 increase)
Tasmania - $1,010,000 to $1,250,000 ($240,000 increase)
Australian Capital Territory - $1,500,000 to $2,000,000 ($500,000 increase)
Northern Territory - $1,250,000 to $1,500,000 ($250,000 increase)
Business SA acknowledges the 50% payroll tax rebate introduced in 2013/14 for very small employers9 was
extended last year by four years to provide more long term certainty to those businesses. This was a welcome
decision after the first rebate had only been available for two years and then extended for one more year in 2015/16.
Now that the State Government is close to delivering a consecutive budget surplus and forecast surpluses across the
forward estimates, the time is right to revisit structural changes in the payroll tax system. This should commence with
a $150,000 increase to the payroll tax threshold. This will not only ensure South Australia has a more competitive
threshold with other States and Territories, but will also send an investment signal to interstate and overseas
investors to demonstrate that we are matching the rate of change in permanent business tax relief amongst
Australian investment jurisdictions.
South Australia Budget 2009/10, Budget Statement, P3.3
Victoria’s current tranche of increases will complete by 1 July 2019.
9 Businesses with payrolls between $600,000 and $1,000,000 receive full 50% rebate and this rebate reduces to phase out for payrolls higher than $1,200,000.
7
8
9
Business SA’s 2017/18 State Budget Submission, March 2017
Payroll Tax threshold
State / Territory
Rate
New South Wales
Payroll Tax
Paid for SME
with 10
employees
at existing
SA
threshold*
Current
Rank
Payroll Tax
Paid for SME
with 10
employees
at proposed
SA
threshold*
New
Rank
2008
Current
Difference
5.45%
$638,000
$750,000
$112,000
$3,296
5
$3,296
6
Victoria
4.85%
$550,000
$650,000
$100,000
7
4.75%
$1,000,000
$1,100,000
$100,000
Western Australia
5.50%
$750,000
$850,000
$100,000
Tasmania
6.10%
$1,010,000
$1,250,000
$240,000
1 to 4
$6,819
No payroll
tax
$4,799
No payroll
tax
8
Queensland
$6,819
No payroll
tax
1 to 4
No payroll
tax
1 to 4
1 to 4
No payroll
tax
1 to 4
8
$386
5
Australian Capital
Territory
$4,799
No payroll
tax
Northern Territory
5.50%
$1,250,000
$1,500,000
$250,000
No payroll
tax
No payroll
tax
South Australia
4.95%
$552,000
$600,000
Proposed $750,000
$150,000
$7,811
6.85%
$1,500,000
$2,000,000
$500,000
1 to 4
6
1 to 4
7
1 to 4
*Interstate comparisons are based on average weekly full-time earnings in each respective State10
With a payroll tax rate of 4.95%, behind only Queensland’s at 4.75% and Victoria’s at 4.85%, and a new $750,000
threshold equivalent to New South Wales’ and bettering Victoria’s $650,000, South Australia will at least compete at
the national average when looking to attract new investment. This is particularly important when considering we are
still lagging with other key input costs such as WorkCover premiums, notwithstanding good progress under new Act.
Business SA recognises the existing budget constraints of the State Government, and accordingly, we are not
proposing that we immediately move to having Australia’s most competitive payroll tax system. However, with a
$750,000 threshold we will at least no longer remain at a competitive disadvantage.
The existing 50% rebate for small businesses until 2019/20 will also enable this reform to occur with less budgetary
impact across the forward estimates, at a time when South Australia will face its most significant economic structural
adjustment in decades following the closure of local auto-manufacturing.
4. Bring forward scheduled cuts to stamp duty on commercial property transfers to abolish by 1 July
2017.
Comparable to the stamp duty cuts on business transfers which Business SA had been advocating for over many
years, the phase out of commercial property stamp duty through to 1 July 2018 is a welcome tax reform for South
Australia’s economy and will act more broadly to increase business activity once complete. The absence of stamp
duty will allow businesses more flexibility in terms of choosing optimum locations and will assist in attracting
interstate and international businesses. Further, more immediate and obvious opportunities relate to business restructures in the auto-sector and other business restructures which can provide a short-term boost to economic
activity as South Australia transitions away from auto-manufacturing.
10 ABS, Average weekly earnings, November 2016
10
Business SA’s 2017/18 State Budget Submission, March 2017
Business SA understands a significant number of business re-structures are being delayed due to the phase in of
commercial stamp duty cuts which are not scheduled for completion until 1 July 2018. Furthermore, there are many
property developments on hold at a time the economy most needs this stimulus. The State Government must do
everything possible to enable flexibility for business during the coming period of economic structural change. While
we accept the revenue implications associated with the commercial property stamp duty abolition, it still needs to be
completed by 1 July 2017 to ensure it can take full effect prior to the closure of Holden’s manufacturing operations
this coming October. If in the example of the automotive sector the Government wants to encourage mergers and
acquisitions, the tax system needs to be supportive of such business endeavours. Furthermore, with the pending
changes at a Federal level to increase most small business tax concessions to a $10 million revenue threshold,
including small business restructure rollover relief, it would be an advantage for South Australia to align its
commercial property stamp duty cuts with other incentives to ensure the State’s business sector is facing the fewest
barriers possible to adapt in a transitioning economy. Stamp duty is already removed for business transfers, a sound
economic policy decision, and now is the time to move on executing in full the decision to abolish commercial
property stamp duty.
Workforce Skills &Training
5. Improve access and cut red tape for the Job Accelerator Grant to encourage hiring of apprentices,
trainees and University graduates.
The reduction of Federal government funding for apprentices and trainees marked a significant decline in
commencement numbers across Australia. In South Australia, the number of commencements dropped from 28,600
in 2012 to 9,600 in 2016.11 While commencement numbers do not provide a complete picture, the number of workers
in an apprenticeship or traineeship has also dropped significantly from 40,400 in 2012 to 16,700 in 2016. There was
previously a sharp fall from 2012 to 2013 and the decline has continued year upon year with no sign of abating.
Business SA encourages the South Australian government to commit to our youth and regions by providing greater
incentives for businesses to take on apprentices/trainees. If significant changes are not implemented, South Australia
faces a significant skills shortage in many trade areas as well as a “brain drain” of our university graduates as they
pursue opportunities interstate and overseas.
Business SA acknowledges the State Government's Job Accelerator Grant is a step in in the right direction for South
Australian businesses as the grant is available to businesses that take on apprentices and trainees, as well as other
employees. According to recent reports, 4,600 jobs have been registered for this scheme. However, Business SA
has received feedback from some members that the grant is not attractive due to the payment schedule and red
tape.
The first instalment of the Jobs Accelerator Grant is paid after the first 12 months and the remainder after 2 years.
This payment model, combined with the amount of the grant, is not encouraging enough for businesses to take on
additional employees above and beyond existing operational requirements. Businesses respond better to receiving
money upfront to assist with the cost of employment. If funding such as this grant is going to realise its potential in
providing South Australians with jobs, it must be enough of an incentive for a business to employ a person when they
would not have otherwise.
11
11
NCVER, Table 4 Commencement in 12 months ending 30 June by state and territory, 1963-2016.
Business SA’s 2017/18 State Budget Submission, March 2017
For a start, Business SA recommends the State government review the payment period of the grant for apprentices,
trainees and university graduates, whereby businesses receive funding in 3 instalments. The first instalment after 4
weeks of continuous employment, the second after 26 weeks and the third after 52 weeks.
In addition, Business SA recommends the State Government increase the payments made to businesses, especially
small businesses, who take on apprentices, trainees and University graduates. Small businesses currently receive
$4,000 from the Grant. The first payment of $2,000 after 12 months is not significant enough to encourage a small
business to take on an apprentice, trainee or University graduate they would not have otherwise considered.
Business SA recommends that under these circumstances, the payment for small, payroll tax exempt businesses be
increased to $8,000 and for larger businesses to $12,000.
The increased funding for apprentices, trainees and university graduates, in addition to a better payment structure,
will significantly incentivise South Australian businesses to invest in the future of South Australia’s youth.
Currently, the Jobs Accelerator Grant is difficult for businesses to access due to the requirement to register each new
position. The registration of each new position is time consuming and it is not always clear if it is a growth position,
so businesses tend to register all new positions. An alternative to increasing the regularity of payments, as detailed
above, is reconciling growth in positions at the end of a financial year. This can be achieved by comparing full-time
equivalents at the end of the financial year and paying a grant based on any growth. This would remove the
requirement to register new positions and allow for accurate prorate of part-time positions. This would reduce the
time-consuming requirement for businesses to make claims numerous times a year, based on anniversary dates.
6. Significantly increase and fast track funding to Non-TAFE RTOs, especially in regional areas.
In July 2015 WorkReady replaced Skills for All as the new training program in South Australia. At the time Business
SA raised serious concerns about WorkReady which allocated 90 per cent of the 51,000 subsidised training places to
TAFE. This caused direct implications for private training sector and resulted in downsizing and closure of private
training providers; many of them in regional areas.
In August 2016 Business SA released "The Regional Voice", an in-depth survey into regional businesses. 29% of
businesses felt skills shortages are a key issue facing regional business. Since the implementation of WorkReady,
Business SA Members have raised concerns about the lack of training provided in regional areas and the distances
apprentices are required to travel. In addition, specialised training courses scheduled by TAFE are not being run due
to lack of numbers or qualified trainers. This raises concerns that TAFE is not adequately providing specialised
training in regional areas.
Business SA recognises that non-TAFE subsidised training places are intended to be phased back into WorkReady
during year three and four of operation, however we do not believe the training sector and business can afford to
wait. Of significant concern is the ability for reputable RTOs to survive for a significant period with limited funding.
The allocation of funding to TAFE has forced many RTOs to shut their doors. If funding is not ramped up at a
significantly increased rate, when additional funding is released to non-TAFE RTOs, the opportunities for non-TAFE
RTOs will be picked up by interstate, rather than South Australian based RTOs.
Business SA acknowledges there is a current inquiry into TAFE SA by the Statutory Authorities Review Committee.
The inquiry commenced in May 2016 and 10 months later has yet to be finalised. Considering the current declining
apprenticeship/traineeship numbers in South Australia, Business SA calls on the outcome of this review to be
expedited. Businesses cannot afford to allow the South Australian Government any more time to fix the State’s
training system.
12
Business SA’s 2017/18 State Budget Submission, March 2017
Infrastructure
7. Establish an independent Infrastructure Authority for South Australia with a joint private/public
board and an ability to assess both private and public infrastructure proposals.
In Business SA’s member survey to inform our 2014 Charter for a More Prosperous South Australia, 78% of
respondents supported an independent infrastructure authority to advise the State Government on infrastructure
priorities. South Australia’s infrastructure needs must be determined by objective cost-benefit analysis of specific
project proposals without the influence of electoral boundaries or any incumbent Governments’ political priorities of
the day.
It is now clear that all States are moving towards this model. Independent infrastructure authorities already exist in
New South Wales, Queensland and Victoria and one will now be established in Western Australia following the
recent change in Government.
In Infrastructure Australia’s 2017 priority list released in February, Business SA notes that South Australia had:
-
Not one high priority project (ie where business case completed) – 7 for country
Two priority projects out of 11 being the Adelaide–Tarcoola Rail Upgrade Acceleration and an Eyre
Peninsula deep sea port which would be contingent on the Iron Road mining proposal
Only one high priority initiative out of 20 state based initiatives being the Gawler Line rail upgrade, not
an economic infrastructure project; and
Eight priority initiatives out of 55 state based initiatives including Adelink, remaining North-South corridor
upgrades, Gawler Craton rail access, a Melbourne/Adelaide/Perth rail upgrade, the Northern Adelaide
Irrigation Scheme, Truro bypass, SA regional mineral port development and the Strzelecki Track upgrade.
Business SA recognises that Infrastructure Australia can assess project proposals put forward by both the public and
private sector, but the vast majority of projects on its priority list are proposed by State Governments with the
remaining projects nominated by Local Government or some other form of Government entity. Infrastructure Australia
itself does propose projects identified from its 2015 Australian Infrastructure Audit, however, we note that no such
projects are proposed for South Australia and the only South Australian projects on the priority list are proposed by
the State Government.
Notwithstanding the State Government will ultimately control the projects it funds either solely or in conjunction with
the Federal Government, having an independent statutory authority govern the assessment of infrastructure
proposals would provide an improved level of public transparency over how projects are ranked and would also
encourage private sector proponents to advance projects independently of the State Government. Business SA
acknowledges the recently established Infrastructure Victoria has a strategic focus on soliciting project proposals
from both the private and public sectors. Business SA is not suggesting the State Government cannot advance good
infrastructure proposals, and in fact we have strongly supported the Northern Adelaide Irrigation Scheme, but the
Government is not and should not be the sole purveyor of infrastructure project proposals in an increasingly dynamic
world where funding of projects requires more complex models to attract private capital, particularly from the
Superannuation sector.
Business SA is also aware of the increasing dialogue between independent State infrastructure authorities and we
want to see South Australia compete in this space on an equal footing. Developing good economic infrastructure
projects is a challenging task and we encourage the State Government to involve the private sector to a larger extent
and ensure that together, the State can achieve the level of economic prosperity we are capable of.
13
Business SA’s 2017/18 State Budget Submission, March 2017
An Independent State Infrastructure Authority would also provide strategic advice to the State Government on how to
invest from a State Infrastructure Fund. This has been the case with Restart NSW, which we acknowledge was one
of the first economic policy decisions the New South Wales State Government made upon coming to power in 2011.
This was a clear recognition of the importance of strategic infrastructure investment in turning around that state’s
economic fortunes. It is little wonder that New South Wales now exhibits the strongest economy in the nation with a
significant pipeline of infrastructure investment in train.
8. Establish a State Infrastructure Fund with an initial capital injection of $150 million, particularly to
ensure major economic infrastructure proposals such as the Northern Adelaide Irrigation Scheme
are assured of appropriate financial support.
At least 50% of future budget surpluses should be directed to a State Infrastructure Fund, beginning with an initial
funding injection equivalent to half the 2015/16 budget surplus. Establishing this fund will send a clear signal to
business and infrastructure investors that the South Australian Government is putting its money where its mouth is
and positioning the State for long term economic prosperity. Ensuring this money is available is critical to progressing
with available infrastructure opportunities, particularly the Northern Adelaide Irrigation Scheme (‘NAIS’).
Business SA has long supported the advancement of the NAIS on the basis that it represents a genuine long term
sustainable economic growth opportunity which leverages off the Northern Connector, another critical piece of
infrastructure we consistently advocated for prior to its funding in September 2015. The NAIS also plays to South
Australia’s comparative advantage in food and beverage exports while simultaneously solving a future environmental
constraint by avoiding continued flows of treated waste water into Gulf St Vincent.
We have welcomed the bi-partisan approach to the NAIS and the willingness of the Federal Government to
financially support the feasibility study under way to investigate how the additional 20 gigalitres of recycled waste
water from the Bolivar Waste Water Treatment plant can be used to optimise economic outcomes.
While the exact scope of the project is still being worked through by the preferred proponents, the latest publicly
available information suggests that a high tech green-house project has the potential to create more than 5,000 jobs.
These jobs are not only vital for South Australia’s economy but equally, they will be primarily located in the northern
suburbs of Adelaide where the fallout from Holden’s exit will be felt most acutely.
There will be a substantial need for enabling infrastructure, including plant and mains, and Business SA recommends
the State Government ensure there is capacity in its 2017/18 budget to provide an appropriate level of support in
conjunction with the Federal Government.
Public Sector Reform & Governance
9. Reduce the period an “excess” worker can remain in employment from 12 months to a maximum of
3 months.
Business SA recommends the period in which an “excess” public sector employee can remain in employment be
reduced to 3 months. We acknowledge the State Government’s 2014 decision to abolish permanent tenure in the
public sector in accordance with the recommendation in our 2014 Charter. This welcome change brought the public
sector closer to private sector employment standards. However, more needs to be done in this area.
14
Business SA’s 2017/18 State Budget Submission, March 2017
The current time limit for dealing with excess employees is inappropriately long. Where an employee is declared
“excess”, a 12-month period will commence which seeks to retrain and redeploy that employee. During these 12
months the employee continues to draw a wage; despite being declared redundant by their agency. This 12-month
period is inappropriate. In contrast, the private sector does not provide an “excess pool” and current redundancy
provisions are for a maximum period of 12 weeks (3 months).12
Business SA strongly supports employment within South Australia; however, this should be meaningful employment.
While being made redundant can be upsetting for an excess employee, keeping that excess employee in ‘limbo’ for
up to a year, at the taxpayer’s expense, is not an appropriate response. The redundancy period for an excess
employee should be reduced to 3 months. Three months is more than sufficient to determine whether an excess
employee can be redeployed elsewhere in the public sector.
The fact that redundancy entitlements are paid enables the employee to prepare for and seek alternative
employment. We note New South Wales operates with a 3-month retention period for public sector employees.13 By
providing a maximum 3 month redeployment period for excess employees the State Government will strike a fair and
sensible balance between the need to protect a person’s meaningful employment, and the need to run the public
sector efficiently using taxpayer’s money.
As per the latest figures, South Australia’s public sector remains of disproportionate size to other States and the
Government must investigate all options to improve its efficiency, beginning with the modest change we have
proposed above.
Size of State public sectors as at June 201614
State
Employed full-time
(total)
General Public
Sector FTEs
Percentage of total
full-time employed
SA
519,800
81,305
15.6%
TAS
154,400
22,135
14.3%
NSW
2.6 Million
326,706
12.4%
QLD
1.6 million
212,132
13.0%
VIC
2 million
222,507
11.1%
WA
National Average of
States
916,097
107,809
11.8%
1.3 million
163,266
12.4%
Fair Work Act 2009 (Cth) s 119(2).
Public Service Commission, Workforce transition (including managing excess employees) (May 2014) New South Wales Government
<http://www.psc.nsw.gov.au/ArticleDocuments/780/GSEActFactsheet--WorkforceTransition.pdf.aspx>.
14 General Public Sector Data compiled from various Government sources within respective States, Employment data from ABS, Labour Force January 2017
12
13
15
Business SA’s 2017/18 State Budget Submission, March 2017
10. Limit the period of income maintenance for excess workers transferred to lower paid duties to 3
months.
Business SA recommends the period of income maintenance for an excess public sector employee transferred to a
lower paid position/classification be limited to three months, after which the excess employee’s pay must actually
adjust to the lower rate. Currently an excess employee’s remuneration is not adjusted downward, regardless of their
new classification level or the expiration of their income maintenance period.
Where an excess employee is transferred to a new role, duties or position at a lower remuneration/classification
level, they continue to be remunerated at the rate they were being paid before the transfer.15 Business SA supports a
sensible transition period which helps a worker adjust to their new remuneration level. However, the transition period
and income maintenance practices for South Australian public sector employees are grossly out of step with the
private sector.
In the public sector, where an excess employee has provided at least one year of continuous service but less than
ten years of service they will continue to be remunerated at the higher rate for a period of six months. Where an
employee has provided more than ten years continuous service they will continue to be remunerated at the higher
rate for a period of twelve months.16 These periods are in stark contrast to the private sector and are of little practical
effect. The maximum period of income maintenance available for a private sector employee transferred to lower paid
duties by reason of redundancy is 12 weeks (3 months).17 This maximum entitlement is only available to private
sector employees who have provided at least 10 years continuous service with the employer. The two systems are
significantly unaligned; after one year of continuous service the excess public sector employee has an entitlement
double the most generous private sector transition period. Additionally, despite this gross disparity a South Australian
public service employee will not have their remuneration level adjusted downward; even when their income
maintenance period has expired.
Where, at the expiry of the above income maintenance periods the excess employee is not performing duties at the
‘relevant substantive remuneration level’, that excess employee’s remuneration will be ‘pegged’ at the higher rate.18
The excess employee’s remuneration will remain pegged at that level, and will not increase until the remuneration
applicable to their lower paid position matches or exceeds the pegged rate of pay or they are transferred to a more
appropriate position or duties. The practical consequence of this regime is that an excess employee, despite being
transferred to lower paid duties by reason of redundancy and whose generous income maintenance period has
expired, is never paid at that lower rate. This peg system is unnecessary as the substantial transition periods
highlighted above give the employee extremely ample time to adapt to the adjusted remuneration attached to their
new duties or position.
Both the excessive income maintenance periods, and the practice of ‘pegging’ an employee’s pay result from
Determination 2 of the Commissioner for Public Sector Employment. Under section 17(1) of the Public Sector Act
2009 the Minister has power to direct the Commissioner. The Minister must direct the Commissioner to bring these
practices in line with the private sector and community expectations. These changes should be made in conjunction
with a limit to the maximum period an excess employee can remain in the redeployment pool.
Commissioner for Public Sector Employment, Determination 2: Excess Employees – Income Maintenance <http://publicsector.sa.gov.au/wpcontent/uploads/20150601-Determination-2-Excess-Employees-Income-Maintenance.pdf>, [2.1].
16 Commissioner for Public Sector Employment, Determination 2: Excess Employees – Income Maintenance, [2.1].
17 Fair Work Act 2009 (Cth) s 119(2).
18 Commissioner for Public Sector Employment, Determination 2: Excess Employees – Income Maintenance, [2.6].
15
16
Business SA’s 2017/18 State Budget Submission, March 2017
11. Review the applicable agency list for the Late Payment of Government Debts (Interest) Act 2013 (the
Act) and remove the annual turnover limit.
Business SA acknowledges the performance of State Government agency account payments has improved over the
past several years with the percentage of invoices paid on time increasing to 97.20 percent in 2014/1519, albeit this
number declined to 94.8 percent in 2015/1620. Last year the Government’s largest agency by aggregated invoice
value, Department of Planning, Transport and Infrastructure paid 92 percent of invoices within 30 days.
This general period of improvement for the Government coincides with the introduction of the Late Payment of
Government Debts (Interest) Act 2013 which Business SA first called for in our 2010 Charter for a Prosperous South
Australia.
However, we acknowledge the figures above exclude ‘exempt entities’ such as SA Health and while we have
observed improved performance in recent years, two key health agencies, Central Adelaide Local Health Network
and Country Health SA Local Health Network still only pay 88 and 86 percent of invoices on time respectively.
Business SA recommends the State Government review the excluded authority list to ensure there is a consistent
approach across Government to paying invoices on time, particularly considering one State Government economic
priority is to make South Australia ‘A global leader in health research and ageing’.
To date, no small business has claimed interest for a late payment by a State Government authority under the Act
and as per Business SA’s recommendation from our 2014 Charter, the annual $5 million turnover limit for eligibility
should be removed. The level of a businesses’ turnover should not dictate whether or not the Government is
penalised for not paying its bills on time. Considering cashflow constraints, the late payment of bills can have a
greater relative impact on small business, but by the same token, there should be no presumption that once a
businesses’ turnover reaches a specified level, that they no longer require their bills to be paid on time.
Removing the annual turnover limit would also send a clear message to all sized businesses, and future investors
into the State, that the Government is genuine about making South Australia the best jurisdiction in Australia in which
to do business.
19
20
17
State Government, Automation of Late Payment Interest Report, Page 5
SA Treasury, 2015/16 Account Payment Performance by Agency
Business SA’s 2017/18 State Budget Submission, March 2017
Visitor Economy
12. Extend the Convention Bid Fund beyond 2018/19 to provide ongoing support for this important
enabler of our visitor economy
Following a $2 million over 2 years Convention Bid Fund announced in November 2013, the current $5 million
Convention Bid Fund was established in 2015/16 for two years and has since been extended to 2018/19. The basis
of this funding was to support Adelaide when competing in a market for globally sought after business events where
financial support as part of convention bids is considered the norm.21
For 2015/16 alone, analysis from the Adelaide Convention Bureau shows that the Convention Bid Fund was a key
contributor in attracting 50,964 delegates staying 220,900 bed nights and delivering an economic benefit of $210
million to South Australia22. This is up 60% on the economic benefit achieved five years prior before the Convention
Bid Fund was established.23
Among the key events recently secured for South Australia is the World Routes 2019 conference which will attract
key players in the aviation industry, being the world’s largest aviation trade business event. More than 3,000
delegates from major airlines, airports, tourism and aviation businesses from international and interstate markets will
be in Adelaide to attend World Routes. It will be the first time this event has been held in Australasia and follows on
from South Australia having successfully hosted the Routes Asia conference in 2010.24
The benefits these events bring to the State extend far beyond the direct commercial outcomes. They help build
stronger business links for South Australia with the world, showcase our intellectual and human capital, our
infrastructure capabilities and highlight that South Australia is still ‘open for business’.
The Convention Bid Fund has no budget allocation beyond 2018-19 and it is vital that it be extended across the
forward estimates to provide certainty for the visitor economy, particularly given the Adelaide Convention Centre
expansion will soon be completed.
Consideration should also be given as to how the State Government can support business development in key
locations where South Australia can leverage the capacity of the Convention Bid Fund.
Adelaide Convention Bureau, Media Release on Convention Bid Fund, 15 June 2015
Adelaide Convention Bureau, Annual Report 2015/16, Page 5
23 Adelaide Convention Bureau, Annual Report 2015/16, Page 6
24 Adelaide Convention Bureau, Media Release, 24 October 2016
21
22
18
Business SA’s 2017/18 State Budget Submission, March 2017
Conclusion
Business SA has been listening to the concerns and ideas of our membership base, which covers every industry
sector, and the broader employer community since 1839. Our policy positions are predicated on what is best for
business more broadly and the economic prosperity of the State, not just to benefit individual businesses or
industries. We are quite concerned that while the State and Federal Governments have endeavoured to assist in
South Australia’s economic transition beyond auto-manufacturing, that the enormity of this challenge requires much
more than targeted programs, rather a much broader economic policy construct which incentives all businesses to
succeed and expand. The recommendations in this submission form the basis of the sound public policy decisions
necessary to help our State realise its potential on the back of private sector led economic growth. From helping
business to adapt with rising electricity, gas and trade waste costs to providing the flexibility to adapt to new business
structures and markets through eliminating barriers such as stamp duty, this submission is about building up
business confidence to adapt to challenging times. Raising the payroll tax threshold for the first time since 2009 will
also send a signal to employers, particularly small businesses, that hiring that extra worker does not come with a tax
penalty attached.
The decline in apprentice and trainee numbers in South Australia and beyond is well documented, but arresting that
trend has, to date, seemed elusive. This budget provides the opportunity for the State Government to be bold and
ensure that our existing rate of youth unemployment, twice the State average, does not result in a lost generation.
The future jobs for our young people also requires long term planning and funding of key economic infrastructure and
our recommendations to establish a State Infrastructure Fund receiving advice from an Independent Infrastructure
Authority will ensure we get the right infrastructure from limited public funds; the least we owe to future generations of
South Australians.
Business SA recognises that overhauling South Australia’s public sector will not happen overnight and if recent
success rates of budget promises made to reduce headcount are any guide, using such blunt instruments is unlikely
to realise transformational change. While a more strategic rethink of how public services are delivered in South
Australia to ensure we do not have a disproportionate public sector relative to competitor States will take time,
Business SA has outlined some straightforward steps that can set us on the right path.
Once Holden finally leaves Adelaide in late 2017, the full extent of the challenge of transitioning the State’s economy
to absorb the loss of auto-manufacturing will be realised. Waiting any longer to implement good economic policy
decisions to lessen the impact is not an option. Business always takes time to adapt to changes in economic policy
and we cannot afford for South Australia’s economic prospects to be hanging on announcements in the midst of a
downturn.
19
Business SA’s 2017/18 State Budget Submission, March 2017