Fresh from Moody’s:
Sydney, June 06, 2013 — Moody’s Investors Service says that South
Australia’s 2013/14 budget — which was released today — shows a deterioration in the state’s expected financial performance for 2013/14, followed by an expected improvement in 2014/15.The state then anticipates moving into a surplus position by 2016/17, following a temporary widening in the deficit in 2015/16 to reflect the completion of the Royal Adelaide Hospital project.
The state forecasts a sizeable deficit (net lending/(borrowing) result–including capital expenditures) of AUD1.5 billion, or 9.5% of revenues in 2013/14, which would be larger than the AUD1.0 billion, or 6.7% of revenues, projected for this same time frame in last year’s budget. The projected deterioration reflects slower growing GST-backed Commonwealth grants, and weaker growth in some of the state’s own source revenues, including payroll and gambling taxes. Although current expenditures are now forecast to come in below original levels, the weaker performance in revenue, as well as an increase in capital expenditures, is expected to contribute to the projected deterioration.
However, in 2014/15, the state projects a significant narrowing in the deficit to a minor AUD118 million or 0.7% of revenues. These results rely upon revenue growth of 5.0%, lower expenditure growth of 1.7%, and a significant planned reduction in capital spending.
Over the medium term, the state’s deficits are projected to average 4.9% of revenues, peaking at 13.2% of revenues in 2015/16 due to the one-time impact of the hospital project, before moving into a surplus equal to 4.0% of revenues in 2016/17.
Risks to these improvements include the potential for weaker than anticipated revenues. Currently the state is counting on robust growth in property-related conveyancing duties, payroll tax and GST-backed grants to drive an average annual 4.9% rise in revenues during the next four years. In addition, the state’s ability to achieve the forecast low 1.8% annual average rise in expenditures will be challenged by demands for improved services and the wage expectations of public sector workers.
As part of Moody’s normal monitoring process, we will also conduct an in-depth analysis of the budget and its medium-term impact on the state’s financial and debt profile.
This announcement represents an update to markets and does not constitute a rating action.
Meanwhile, the state is expected to inflict further cuts to the public service. From the AFR:
The government expects to cut the number of employees in the public sector to drop by 5000 by 2017 with 2000 expected to depart this coming year.
“We made a decision not to cut too deeply into the public service,” Mr Weatherill said.
From July 1, 2014, public sector employees redundancy entitlements to a capped 52 weeks, 10 weeks base pay plus two weeks per year of service, saving $37.8 million between 2014 and 2017.
Mr Weatherill also reiterated his commitment to take a policy ending secure tenure for public sector employees to the election.
