Doing business in SA

Published Aug 9, 2024, 1:33 AM

Matthew Pantelis speaks with Daniel Wild, Deputy Exec Dir, Institute of Public Affairs and Treasurer Stephen Mullighan on the IPA report on the ease of doing business in SA, with the biggest challenge we're facing is power costs.

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Let's talk about South Australia and here in the state. A new report card has ranked South Australia as doing particularly well. We've known this from things like COMSEC reports and others, but IPA has us as the second best state in the nation for doing business. That's the Institute of Public Affairs recognizing essay for the lowest taxes and red tape, which is good of other states. We're just behind WA for business friendly conditions. But this will not surprise you. The biggest challenge we're facing in South Australia is soaring energy costs. And you'll sit back and say, wow, I didn't see that coming. Daniel Wilde, Deputy Executive Director, Institute of Public Affairs, Daniel.

Good morning, Good morning, Nice to be with you.

Likewise, so it's pleasing really that we are doing pretty well in a whole range of factors, except well this issue that here in essay. We've talked about this forever in the day, cost of electricity.

That's exactly right. As you mentioned, South Australia from a business perspective is doing pretty well. From a tax advantage point, payroll land and stamp duty either the lowest or the second lowest in the nation and that's really a key factor when we talk about the ease of doing business. Now you hit on a key point though, which is the energy costs. And this is a real big one. As we all know, energy really is the lifeblood of an economy. It goes through everything and if your energy prices are high, then it's going to be harder to do business and get ahead. I'll give you an example. The electricity costs for a business in South Australia are about seventy five percent higher than across the border in Victoria, and that's having a big impact on doing business. It reduces the margins that gets passed on the customers as higher prices. That means you've got less capital to invest in your equipment and to expand and grow. So that is a real big black mark on the South Australian economy and I think businesses are feeling that pain.

Why is it so much more so here than Victoria? For instance? Five percent that's not a little bit, that's.

A lot, it's almost double. A couple of key reasons. The first was the destruction of the base load power supply with the Port Augusta coal station that was a bad move. It was shortsighted. And what it has meant is it doesn't mean that South Australia no longer uses coal. It just means that that coal is brought in from Victoria via the interconnector. And what that means is that if that interconnector should go down, or if Victoria says, look, we're not sending our power supplies across the border, then South Australia's lights will go out. Now, yes, it is true, and I will give full credit to Premier Alamascus in his discussion about the potential nuclear power future for South Australia. That's something that is contested but important and should be debated. But the main plan that the state government has so far is a hydrogen facility, a potential hydrogen power plant at Wayala. But even the government has said, well that's only going to bring prices down by ten percent, so we need a lot more than that in order to make sure that this Australia has this sovereign capability to make sure the lights don't go out.

The answer is baseload, isn't it. We're moving away from coal, as you're rightly saying, certainly here in Essay, we have and it really leaves just gas. And gas is expensive to turn on and off because generators need to be sought after and in other words, high demand, high price, and so they will switch on. So gas ends up costing a fortune and spiking the power prices. So we really need something that's on all the time. And the only thing that you think of to underpin renewables is nuclear.

Well, that's right, or coal, and I think that should be part of the debate. I mean, it really is the case that the sort of ultra super critical coal stations that they have in countries like Japan and elsewhere, we do need to look at that. And I know there's people in the community that will bulk at the idea of setting up a new coal station in South Australia, but there's nothing else. I mean, nuclear can be a part of the future, but under the best case scenario that's ten plus years away, and federally they're talking about a potential small scale option which could be very good but will not necessarily power the entire state. You're spot on in your observations abouts gas is critical, but as a baseload source is not as stable or reliable as coal, So you know, we saw earlier this week, for example, in South Australia wind and solar generation felter zero. So you know it does go to that point when the wind's not blowing, the sun's not shining, you're not getting energy out of that system. Yes, you can have batteries. Of course, you can have batteries, but they are very very expensive. So we do need to have that conversation. Well, do we need to rebuild a coal facility to make sure that baseload power supply is in the system, Daniel.

Let's move on from that to one other point here in South Australia that often comes up when you talk to business people, and that's payroll tax. How do we set how do we compare in that market?

Well, South Australia performs relatively well in that context compared to other states. That is in part because other states have very bad payroll tax systems, but nonetheless South Australia ranks relatively well. When we're talking about the small, medium, a large enterprise, the threshold in South Australia before you start paying is very high. It's one point five million, so that basically carves out a lot of small businesses from that regime, and so that's the key thing that's really driving South Australia's strong performance in that it's actually got the highest threshold. And really the higher threshold the better, because, like I say, you really want to be carving out as many particular smaller businesses. I mean, big businesses can handle some of these costs much better, but anyone in a small business will tell you that payroll tax is an absolute killer. I've never understood the point of payroll tax because it's effectively a tax on jobs. The more people you employ or the more wages you're paying, the higher at tax. So I think the more you can carve out, the better.

And I read a report from I reckon It was Business Essay that put this out earlier in the week, and they said that threshold is stopping small businesses from growing because they don't want to pay the tax. They grow to a certain point and then stay there.

Yeah, it's a really interesting point and I think that's right. You do see a clustering of businesses around the threshold, which does suggest that observation is correct. At the end of the day, I think the best solution is to remove the payroll tax and focus more on land tax. Land tax is a less inefficient tax than payroll tax. Ultimately, the state government needs to raise revenue from somewhere, so I don't think we'll be getting rid of payroll tax in the near future. So you're not going to have a perfect regime. But look, my perspective, certainly from a small business rationaleist, is to get that threshold high. Yes there's inefficiencies, but it's better than the other states.

All right, Daniel, really appreciate your time. Thank you, my pleasure. Thank you, Daniel Well. Deputy exec Director, Institute of Public Affairs. Listening to that has been the Treasurer of South Australia, Stephen Mulligan treasure a good mining.

Oh good morning.

That's well reasonably glowing assessment. And that's on the back of COMSECT reports that have put us at number one. Institute of Public Affairs just slightly below that but still you have to say that's if not an A minus, certainly a B plus. You'd take that. I imagine.

Yeah, this is really good news for the state's economy. I mean it's it. Never before have we been ranked by the concept Start of the State's reporters number one in the nation, and we've had that for the last three quarters in a row. We've also had the amz Stata Meter rate US and Western Australia as the two best performing economies in the nation. And now we've got today's report from the IA saying that again South Australia along with Western Australia are the top ranked jurisdictions to do business in. And we've also had the Business Council of Australia, you know, the national body representing all chambers of commerce around the country, rank US as having the best red tape bird in the country as well. So you know, South Australia is really performing well at the moment and we've put an enormous amount of effort into making sure that we are a good place to do business and that we will continue to be a good place to do business. We committed at the last selection not to increase taxes. We saw what happened in the previous term of government with the huge hike in land tax. And while I give credit to the previous government for increasing the payroll tax threshold, you know that comes on the back of what it had been a decade of persistent work of getting our payroll tax regime to the best in the nation, and on the IPA's report today, you know we do have the best payroll tax regime in the nation. We've got the highest tax free threshold and at higher payroll levels we've also got the lowest rate. So you know, the message that the Premier and I and the Minister for Investment and Trade Joe Sockarch and I are telling businesses around the nation and telling investors looking at investing in Australia is that if you want to do business in Australia and you want to do it cost effectively and easily, then you have to be doing it in South Australia.

That threshold is it holding businesses back? And you would have seen the report businesses cluster around there and don't want to put on more people because then they'll be paying payroll tax. Is that a consent?

Well, look, the total number of businesses in South Australia fluctuates, but it's between one hundred and forty five and one hundred and sixty thousand businesses that we've got across the entire state, and less than ten thousand of them pay payroll tax. So the vast majority of businesses, and in particular small businesses are not liable for payroll tax because they fall below that tax free threshold. But yes, I do accept the argument that some business owners will take into account what it will mean for them if they continue to increase their workforce. But right now, Matthew, our unemployment rate is lower than the national average. We're outperforming the nation in terms of how strong our labor market is, so we can see that there is a really strong demand by employers still to take on workers across the economy. And you know, I think we've got our payroll tax settings right. Of course, business will always make the case to pay less tax. They've been doing that for more than one hundred and fifty years here in South Australia, and I wouldn't expect any different, And you know that always needs scrutiny and pressure to make sure that we've got the right tax setting. But you know, the Premier and I have said that if we've got the capacity to cut taxes in the future, we'll look at it and we'll do it in a way which generates the best change of behavior in the economy. And what the way we've done that today is abolishing stamp duty for first home buyers when they build a new home or when they buy a new home again to incentivize that change of behavior by first home buyers to make the decision to get into the housing market, and to help overall by adding to supply. So we're open minded about tax changes, but we want to make sure it's going to lead to a positive behavioral change that's going to benefit our state generally.

All Right, the credit rating for South Australia at the moment, we want to get that back to triple A as soon as possible. Will we get there given levels of debt to increase to what was it forty four billion in four years time.

I'm sorry, Matthew, my line is breaking up. Can you hear me properly?

Yeah? I can. Maybe we need to call you back. You're You're as clear as day and I know I am here as well. Oh he's gone, he's dropped out. So his line was breaking up wherever he was. We'll try and get him back because we've got to talk about baseload power as well. One of the things the Institute of Public Affairs says we really need to improve, and we've got him. Stephen Mulligan, you're back. Yeah, obviously your line went you were great here, but you obviously couldn't hear me.

Yeah, sorry about that's all right.

I was asking you about the triple A rating. Are we going to get that back given our increasing levels of debt, because that would help in repayment of that debt, wouldn't it.

Well, I think it's going to be difficult for South Australia and the other states and territories to get back to where we were with triple A credit ratings before the global financial crisis. And you know, really we've seen two big shocks to the Australian economy and to states and territories around the country over the last fifteen years. First of all was that global financial crisis starting in two thousand and eight, where state and territory governments had to take on a lot of extra debt because they were running budget deficits, spending more money and getting less tax receipts during those difficult times. And then we've had the same experience again with COVID. So what we've seen over that fifteen year period is two big economic shocks which have led to states and territories carrying more debt, and now, of course, from that starting point, our government has got an agenda to really significantly expand the infrastructure in our community that we feel that we need. You know, we're building a new women's and children's hospital, and we're completing the last stage of the North South Corridor, building tunnels under that last stretch of South Road. And that's a similar approach to what we're seeing around the country where states and territories are really having to catch up with their infrastructure spending. So I think the expectation of state and territory treasurers is that, you know, we're not going to get back to triple A in the short term because we've got a lot of budget catch up to do. Other states are trying to get their budgets back into surplus after COVID. We've achieved that here during this government, and we've got a lot of infrastructure to build. There's only one state that's got a triple A credit rating, of course, and that's Western Australia, and that's because they've got the dual benefits of having a booming mining sector with huge royalty revenues pouring into their coffers. But of course they've got that massively preferential GST deal where there's a huge in fact, more than five billion dollars a year of extra GST goes to them every single year, so their budget's very healthy. But for the rest of us near mortals, we're trying to make sure that we can get our budgets back into shit while meeting that pressure of better support of a community through better services and more infrastructures.

And that's an absolutely ludicrous situation of state versus federal relations right there. But anyway, that's another story for another day. The other issue in the IPA report was baseload power and that's the elephant in the room and to me it just seems like given the Premier's position on nuclear, it seems to me it's just a no brainer, just an absolute opportunity for the government to say, look, we are going to look seriously at this, on the back of the Scarce Royal Commission as well into nuclear, we are going to take this by the horns and do something about this to secure cheap energy prices for South Australian's moving forward.

Yeah, well, we're very open minded about the prospect of nuclear and I think that's really important for our state because whether people realize it or not, we are involved in the nuclear industry. We've been exporting uranium out of South Australia for forty years now and I think once a week there'll be a shipment of uranium driven down Victoria Road on the La Fiva Peninsula to Outer Harbor for exports. So we are in the cycle and we're going to expand that as we start construction of nuclear powered submarines in the coming years, and I think that's good and exciting for our economy. But what we've said is we're open to nuclear for power generation if it stacks up economically, and what we saw from Kevin Scarse's World commissioned report back in twenty fifteen and twenty sixteen is that it didn't stack up then and it wasn't worth pursuing. And only in the last couple of months we've had another look at this by the CSIRO, an independent research agency funded by the Commonwealth Government to look at what stacks up best for power generation. And again nuclear's expensive, and the reason it's so expensive is because of its construction and installation cost very cheap to run once it's going, But there's a huge cost up front, and so I agree in part with what the IPA is saying that I got to get the mix of baseload right with renewables in your economy, and South Australia should have a pretty good advantage here. And while we don't have nuclear, and while we don't have coal, and I would strongly argue it doesn't make sense for us to have coal. You know, we don't have the coal mines of Queensland or New South Wales streak sample.

Not even smart plants.

Well, I mean, if you're going to have to truck coal in from other jurisdictions, you've got all of that added transport costs. But what we do have is gas. You know, we've got Santos, We've got the Moonber gas fields, We've got a long history and gas. And getting the mixed right between baseload gas vied power generation and then taking advantage of very very low cost renewable energy when the sun is shining and when the wind is blowing is a recipe for low power prices. But what we've seen in the last three or four years in particular is building additional interconnection into state has meant that the owners of those gas vide power plants. Origin and AGL have said, well, this is going to really threaten the viability of our gas vide power plants in South Australia and we're going to have to start switching off capacity. And so the comment that the IPA makes in their report is South Australia should not be held hostage by the energy networks that we now rely on in Victorian New South Wales and we agree with that. And while most of the focus about our hydrogen jobs plan has been about producing hydrogen, another important part of it was installing a gas fide power generator as well, which can either run on one hundred percent natural gas or one hundred percent hydrogen or everything in between. And that'll give us a bit more capacity to generate baseload gas vide power when we need it in the middle of the night or when the when the wind's not blowing. And that's you know, that re emphasizes how important based low capacity is for the state's economy but also to bring down power price all right.

So inclosing, then if Peter Dutton is elected in the future, whether it's this election one after, who knows, if he still has a nuclear policy and he's elected, will you be in the way of him building at Port Augusta or will you allow him to do it?

Well, you know, I think the community is going to want to run the ruler over his nuclear plants to make sure that they stack up financially, because if we're seeing huge amounts of taxpayers money funding power generation which is not economically efficient and it's more expensive than using gas or using renewables or using other sources of energy production, I mean that is that's what economists rail against, is inefficient use of scarce taxpayers fund.

But if he's elected, he's got that mandate, so people have presumably done that. So will you support him or will you be in the way? Will you stop it?

Well, well, so I guess just let me walk you through our consideration versus the economic Well, no, it is because you've got to consider it from an economic and an energy bill perspective. So that's test one. Test two is what does it mean for the local community and is there is there community consent for it up there in Portugusta. And there are mixed views about that. Some people think it's great, some people think it's it's dreadful and a waste of money. But the other part of it is how does it integrate into our energy networks, make them more resilient and bring down their power price. Now, Peter dunn't Peter Dunton has announced seven sites around the country. He hasn't said what the power plant's going to be. He hasn't said how much it's going to cost, and he hasn't said who's going to fund it, and he hasn't said what the impact on power bills will be. So, you know, it's an idea and for some people it's a nice idea, but there's no detail about it, Matthew. So I'm not in a position as the state's treasurer to say I'm going to come out and back these plans or on going to block them, because they're not really planned yet. They're just ideas. But it sounds like you're far from a thought bubble.

You're walking, you're talking the talk on New clear but when it comes time to do the walk, you don't want to do that.

Well, let me tell you how we're walking the walk on nuclear We've got an out and easy labor government that has committed to building nuclear powered submarines and expanding our nuclear industry in South Australia and they funded it in the federal budget. Now that, of course we can get behind because it's not an idea. It is a rock solid budget funded commitment of a federal government. So you know, when we get to that point, when we've got something in front of us with detail that's committed and funded, that's the point in time that we'll be in a position to give it proper consideration, not when we've got a press release from an opposition leader federally that hasn't got any detail, costings or commitments behind it.

All right, appreciate your time this morning, Stephen Mulligan, Thank you. Thanks Matthew Treasurer of South Australia on the independent public report that has come out, the Instant Rather of Public Affairs that has come out saying South Australia basically doing it right economically leading the nation along with Wa. Our biggest stumbling block power prices and as you heard the state government the treasurer, yeah, we're all for nuclear if it stacks up. But hang on Peter Dunton's plan. Now there's a lot to come