Interest, cost blowouts threaten SA budget surplus

Matt Turner/AAP PHOTOS

South Australia is at risk of missing out on a predicted budget surplus as rising interest rates and cost overruns on major infrastructure projects batter the state's bottom line.

The Malinauskas government in its June budget projected a return to an operating surplus of $250 million in 2023/24 after recording a $249 million deficit in 2022/23.

But the auditor-general says that figure is in doubt because of a stack of economic pressures.

"The challenging economic environment, including cost-of-living pressures on household budgets and the possibility of higher unemployment rates, increases the risk of unfavourable revisions to revenue budget forecasts, particularly for GST revenue and payroll tax," Acting Auditor-General Ian McGlen said in his report released on Tuesday.

As well as the risk to government income, the report found several factors threatening blowouts in expenditure.

It warned of ongoing pressures for health and child protection funding, inflation pressures on operating expenditures, rising interest expenses and increased assistance funding for severe weather events, including the River Murray floods.

The government's protracted wage negotiation with public teachers was also flagged as a potential risk.

The Australian Education Union on Tuesday revised its pay demands to a six per cent increase in the first year, followed by five per cent in the second year and four per cent in the third.

The government has previously stated its offer of four per cent in the first year, followed by rises of three per cent and 2.5 per cent would set the budget back $1.4 billion.

Treasurer Stephen Mullighan described a "challenging environment" for the state's economy with several enterprise bargaining negotiations with public sector groups, who have a "heightened expectation for wage outcomes", due to occur in the next 18 months.

But he said the government's priority remained getting the budget back into surplus so the state can afford to take on debt for infrastructure projects in future.

"While we've been able to significantly step up funding in key areas of government because we've had significant increases in revenues, we can't bank on that going forward," he told ABC Radio on Wednesday.

"And that means that expectations of further funding increases, particularly day-to-day funding - the operating funding increases - that can't continue at the pace that we've been able to establish because we're simply not going to have the revenue surges that we've been fortunate enough to experience over the last 18 months."

The state's "very large" capital program, including $21 billion in infrastructure spending over the next four years, has been hit by rising debt and interest costs and could limit the government's fiscal capacity and ability to deliver services, the auditor-general found.

Shadow Treasurer Matt Cowdrey said the report cast doubt over two of the government's marquee infrastructure projects - the North-South Corridor and the new Women's and Children's Hospital - which have already undergone large cost blowouts.

The state's ability to shoulder future infrastructure costs was further threatened when the federal government on Tuesday announced it would only contribute to major infrastructure projects on a 50-50 basis with states and territories, instead of the existing 80-20 split model.