4. Feb. 93 11: 17 No. 02' 0 P. 01
STATEMENT BY THE PRIME MINISTER THE HON P J KEATING, MP
SOUTH AUSTRALIA
All Australians at present should be thinking about which political party has the best
policies for Australia.
It is fair to say that South Australians have good reason to be thinking more deeply than
most. South Australia has some great strengths, including some of Australia's best industries
industries with excellent prospects for expansion both domestically and overseas.
However, South Australia has problems which the rest of Australia does not face and these
have to be addressed.
I do not say this lightly.
It is the reason why I have taken the opportunity to talk about South Australia and its
future.
Unless these problems are addressed properly, this State faces an uncertain future,
regardless of what happens elsewhere in Australia.
South Australia's additional problems stem from two principal causes.
First, its relatively narrow cconomic base has made it difficult to respond to the forces of
structural change.
This has been a problem bedevilling South Australia for the past two decades.
Since 1978 Australian employment has risen by 28 per cent.
Employmecnt in South Australia has risen by 15 per cent.
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Unfortunately for South Australia, many of Australia's expanding industries have tended
to be located elsewhere.
Queensland's employment has risen by 53 per cent Over the same period.
Western Australia's by 44 per cent.
The second cause of South Australia's additional misfortune is more recent and relates to
the State Bank.
I don't want to revisit all the traumia associated with that sorry debacle.
When John Bannon told me back in January 1991 of the losses of the State Bank it
seemed such an utter waste of public resources.
On that occasion, like many pcoplc I am sure, I fclt an immediate contempt for those who
managcd it.
Since then the losses in the State Bank have proved to be much larger than those that John
Bannon was made aware of in January 1991.
With the latest conimitmcnt of $ 850 million in the 1992-93 S1atc Budget the total amount
of assistance to the State Bank now stands at $ 3.15 billion.
This has imposed an enormious cost on thc State's public finances.
Inevitably it has restricted the State Government's ability to respond to the rcccision.
Nct public debt is now around $ 8.25 billion in South Australia, nearly 30 per cent of Gross
State Product, after having been around 15 per cent as recently as 1990.
Interest payments will take up 15 per cent of State revenue in 1992-93 even though
interest rates are much lower.
The drain on State resources of the State Bank is immense.
It may bc of a similar dollar amount as thc losscs in SB3V and Tricontinental, but the
revenuc base of the State of Victoria is more than 3 times larger.
And while Jeff Kennett is approaching the task wvith minimal finesse and maximum
disruption, Victoria does have scope to put its financial house in order.
The South Australian Government, on the other hand, ran a tight fiscal ship in the 1980s
and, apart from the State Bank, enjoyed a wcll-carned reputation as responsible fiscal
managers.
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This is good news in one scnse, as the State in terms of its recurrent budgets has been well
managed, but the bad news is that there is little fat in the South Australian budget to carry
the State Bank.
The State Bank's difficulties have sapped community and business confidence which has
added to South Australia's problems.
All of this has meant that the recession which has hit Australia badly has hit South
Australia particularly heavily.
Between July 1990 and Decmbcr 1992 employment in Australia fell by about 3 1/ 2 per
cent. In South Australia, the peak to trough fall was 5.1 per cent.
To get some perspective on how the recession has had a differing regional impact
employment in Wcstcrn Australia fell by well less than average at 1.7 per cent, while
employment in Queensland actually rose by 2.4 pc ccnt over the same period.
In thinking about the future, all South Australians should take as their starting point the
narrowness of the industrial base of the State and the financial burden of the State Bank.
But this is not the end of the stor)'.
South Australians should also recognise that two other potential calamitics hang over their
hcads. They will come care of Dr Ifewson and a Coalition Govcrnment if that misfortune were
ever to happen.
The first casualty would be South Australia's car companies.
For Dr Hcw'son's election would mcan an immediate and sharp setback for the car
industry. With two of Australia's car companies located in Adclaide that would be grim news for
South Australia.
Twenty thousand jobs would immediatcly be at risk.
Dr Hcwson's commitment to negligible tariffs by the y'ear 2000 and zero thereafter would
stall the investment plans of both GMH and Mitsubishi.
With excess car capacity all around the world, ncither GMIH nor Mitsubishi is going to be
willing to commit new resources to Adelaide if the long run viability of the car industry in
this country is made so unccrtain with zero tariffs.
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No car company is going to invest in Adelaide in the naive hope that Dr Hcwson's GST
will magically enable them to compete.
This is what the car companies have been saying and South Australians should heed their
warnings. But the potential problem is worse than that.
It is not just the car companies themselves that arc at risk from Dr Hewson's zero tariffs.
South Australia could well lose the impetus of the component industry as well.
The component industry is now operating at a tariff of 15 per cent. Over the last 5 years
these manufacturers have seen their tariff come back from 35 per cent, 25 per cent or
per cent to this level.
The important point is that under the Government's Car Plan these component
manufacturers will continue with a 15 per cent tariff from here on.
Under Dr Hlewson this tariff would be reduced to zero.
This sector of industry holds out great promise for South Australia with a number of key
companies already successful in manufacturing and exporting.
This is where Adelaide's future lies: building successful internationally-competitive,
export-oriented industries such as the motor vehicle component industry.
But as the component companies all Stress, they need the 15 per cent tariff and export
facilitation to make it all work.
Without such support the component industry is nowhere.
And unfortunately so is Adelaide.
This city will be denied the opportunity of building new industries and new export
markets in one of the key areas where Adelaide has expertise and has had recent success.
And these successes arc real.
Britax Rainsfords, for example, have doubled its sales over the past three years through
export success. Half of its sales now go offshore. ROHI Industries, Castalluy and Clyde
Apac are all small to medium size component companies who have built up successful
businesses through exporting.
The second great danger for South Australia is less obvious.
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But just like zero tariffs and the automotive Industry, it too has the potential to deal South
Australia another body blow.
Here I am talking about fiscal cqualisation the method by which Commonwealth
payments to the States arc distributcd in a way that benefits the smaller States.
It sounds complex, but when it is explained it has very disturbIng implications for South
Australia. In 1992-93 the Commonwealth will maike financial assistance grants to the States of
$ 17.3 billion.
Ilhcsc will be distributed amongst the States in a complicated fashion designed to even up
the fiscal disabilities faced by somc Statecs.
South Australia is a winner from this process to the tunc of $ 385 million in 1992-93.
In fact, over recent years the two largest States have become increasingly strident about
thc supposed burden upon their finances brought about by fiscal equalisation.
Victoria in particular has challenged the whole bañ sis of fiscal cqualisation, on the grounds
that it was originally designed as the quid pro quo that Victoria had to pay because of the
cost of the tariff to thc States which do not have a manufacturing base.
According to the Victorians, as the tariff declines in importance so too should fiscal
equal isat ion.
The very real risk for South Australia is that a iewvson Government will accede to
pressure from his Liberal counterparts, Fahey in Sydney and Kennett in Melbourne, and
start the process of winding back~ fiscal equalisat ion.
Fahey and Kennett may already have an understanding from H-cwson that he will look
sympathetically at their claimsh.
This spells massive problems for a South Australian budget already staggering under the
burden of the State Batik.
The State Batik is costing the South Australian budget about $ 280 million every year and
the burden of that cost is obv-ious.
Any further loss coming from thc phasing out of the $ 385 million of fiscal cqualisation
money would do enormous damage to South Australia.
Dr Hewson will of course say that he has no intention of removing fiscal equalisation.
South Australians have to ask can you trust him?
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Can you trust him when Fahey and Kennett will be on his back with their fiscal problems?
And can you trust him when he is philosophically opposed to notions of burden sharing?
He believes in straight per capita funding no allowance for evening up.
It would be a very brave South Australian who puts his trust in Dr Hcwson, and who
believes that Dr Hewson will fight for South Australia's fiscal rights at the expense of the
fiscal position of John Fahey and Jeff Kcnnett.
The obvious question to all of this is what can South Australia cxpect from a re-elected
Keating Govcrnment?
What would a Keating Govermcnt do for South Australia and how would it help South
Australia overcome its special difficulties?
There are no magic solutions but there arc things that can and should be done.
We will ensure that the Australian economy continues to strengthen and grow.
We will work to build new industries and forge the necessary links with the Asia Pacific
to generate jobs and exports.
But South Australia needs more than this.
The unfortunate reality is that even in a national rccovcry South Australia can bc left with
its particular problems.
It will still have to deal with its narrow industrial base and the need to build new industries
and strengthen old ones.
it will still have to absorb the Statc Bank losses.
The simple truth is that this can only be done with Federal assistance.
" rhc choice for South Australians is who will do this more sympathetically and effectively
a Keating Labor Government or a Hcwson Coalition Government?
Would Dr Hewson find additional Commonwealth funds for South Australia when he Is
committed, as he is, to a 5 per cent cut to general purpose payments to the States and to
total cuts to Commonwealth outlays of $ 9.4 billion?
Would Dr Hewson commilttd, as he is, to the doctrine of ' restructure or perish', find the
resources to help South Australian industry restructure?
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Would Dr Hewson committed, as he ist, o the doctrine of non-intervention intervene for
South Australia?
When the same question is asked of the Keating Governmcnt, the record is perhaps more
eloquent than any claims.
For a start the Government for a decade has supported fiscal equalisation to help the
smaller states including South Australia.
The Government has also been prepared to take active measures to build new industries in
South Australia in recognition of the particular difficulties facing that State.
And we will do morc in the future.
That is why we argued that the Australian Submarine Corporation be based in Osborne. It
now supports about 1200 jobs in South Australia and will inject some $ 1.8 billion into the
local economy over the 14 year construction period.
It will also crcatc a viable Australian ship building capability into the 21st century,
The Commonwealth has allocated over $ 50 million towards the cstablishmcnt of the MF:
and is pleased to bc associated with this important projcet.
The Commonwealth has also agrccd to:
build a standard gauge railway from Adclaide to Mclbourne linking South
Australia more into the eastern states economy
upgrade AN's Islington and Port Augusta workshops, at a cost of $ 7.9 million; and
refurbish the Indian Pacific, at a cost of $ 12 million.
On the roads front, the Commonwealth has providcd:
$ 35.8 million in 1992-93 for major arterial road projects including reconstruction
of South Road, the Salisbury Highway extcnsion, and the Western Gawler Bypass;
$ 27.3 million in 1992-93 for local roads as part of South Australia's general
purpose assistance allocation; and
$ 12.9 million under the three year Urban Public Transport program.
The Commonwealth has also assisted the wine industry through the Export Market
Development Grant scheme which has been used successfully by several wine exporters in
recent ), ears, and th e. stablishmcnt of the Co-operative Research Centre for Viticulture
which will receive $ 12.4 million in Commonwealth funding over seven ycars.
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South Australia will receive up to $ 69 million over the five years 1991-92 to 1995-96
under this Government's Building Better Cities Program.
This Program supports strategics designed to bring about effective and interactive urban
development and redevelopment in three areas Elizabetlh/ Munno Para, the MFP core
Site/ North West Crescent, and the Inner West of Adelaide. A southern area strategy is also
under consideration by the Commonwealth.
In the Elizabcth/ Munno Para area, for instance, Commonwealth funds arc being used to
encourage home ownership, create a more efficient city centre, Improve the housing stock
and better the physical environment through stormwater management and tree planting
programs. The key point is that Dr Hcwson in Fightback I is committed to abolish all of this.
South Australia fared very well out of the Commonwealth Local Capital Works Program,
relative to its proportion of the population, receiving $ 35.4 million ( over 10 per cent).
Among the areas to receive funding were:
S Northern Adelaide ($ 12.0 million) including Salisbury, Elizabeth and Gawler;
S Western Adelaide million) including Port Adelaide, Woodville and West
Torrcn. s;
Noarlunga million);
S the inner urban municipalities of Adelaide, Prospect and Glcnclg ( each between
million and $ 1 million) and
Whyalla, Port Pirie and Port Augusta ( again each between $ 0.5 million and $ 1
million).
South Australia has also successfully hid for several of the co-operative research centres
the Commonwealth has partly funded under the CRC program.
In all, eleven centres have activities based in South Australia, of which four are fully
based in South Australia:
S the CRC for viticulture I discussed earlier. This centre will concentrate on
improving the production of grapes with minimum chemical residues, and
developing techniques to process grapes with the minimum use of preservatives;
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the CRC for sensor Signal and information processing. The rcscarch covers signal
processing technologies, principally for nmicrowave and high frequency radar.
Commonwealth funding is $ 12.4 million over sev en years;
the CRC for tissue growth and repair to advance the manufacture and testing of
bloactivc proteins. C'ommronwealth funding is $ 10.2 million over seven years.
Dr Hewson will abolish most of these programs and the fu. ture of all of them is in doubt.
A Keatinig U ibor Government will sit down with the SoL~ h Australian Government after
the Federal election and help them deal with their fiscal problems and stabilise South
Australia's debt.
For a start, South Australia should sellI the State Ba3nk.
This is a view that I put to John Bannon and I know is sh3red by Lynn Arnold.
To assist this a Keating Government will negotiate tax COMPI] eSatiOn for South Australia
in return for the gain to Commronwealth reve-nucs.
Indeed, discussions between our twvo Govcnmcnts are already underway. Compensation
will be negotiated on the basis of current arrangcmcnts.
Lynn Arnold is committed to helping South Australia restructure and I believe he has the
strength and courage ( o do it.
I am prepared to lend him cvcry possible assistance in this.
A Keating Govcrncnt remains committed to fiscal cquiisatioll as an1 appropriate and fair
means of distributing, Commonwealth grants to thc Stts.
A Keating Government believes in an Australian car induistry and will not sacrifice a
major South Australian industry in the narrow pursuit of zero tarilffs and the level playing
field. In fact this Government believes in working wvith industry, providing a helping hand
where it is warranted to build a new industry or to expand an existing one.
Much ha3S been done already and nmore will bc done in the near future.
The problems for South Australia are bY no means insurmountable.
There arc signs of a pick-up in thc South Australian economly and after thc debilitation of
recent years attitudes sem to be growing mnorc positive. For this Premier Arnold descrvcs
credit.
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Since its trough in May 1992 employment in South Australia has been steadily improving
and has now risen by 1.0 per cent.
Much of this appears to be due to a strengthening of the car IndustrY in South Australia.
I am confident that South Australians can turn their State around.
They need the opportunity and the assistance to build new industries, to generate thc
income to deal with their problems and create jobs.
South Australians have done it hard over recent years.
Today I would ask them to think. carefully about which of the political partics will stand
by South Australia and its essential industries in the years ahead.
ADELAIDE/ CANBERRA
4 February 1993