The inevitable consequence of the SA government’s response to the global COVID-19 pandemic, in order to save as many lives, local jobs and businesses as possible, has been an increase in the level of state debt and forecast deficits.

The government’s commitment of $1 billion in economic stimulus to protect SA jobs and industry – including $10,000 cash grants for small businesses and not-for-profit organisations – increased health spending to prepare our hospitals for a forecast influx of COVID-19 patients as well as plummeting GST receipts and reduced state tax revenues have all impacted the 2019-20 budget bottom line.

The forecast $91 million surplus for 2019-20 (as at the Mid-Year Budget Review, pre COVID-19 pandemic) will deteriorate significantly to become a forecast net operating balance deficit of $1.9 billion for 2019-20 in the general government sector.

Total non-financial public sector net debt at June 30 is estimated to be around $18.1 billion, up $1.6 billion from the $16.5 billion estimated at the time of the Mid-Year Budget Review.

Treasurer Rob Lucas said significant budget deficits and increasing debt were the inevitable consequence of fighting the COVID-19 pandemic.

“They are the inevitable consequences of spending what was needed to prepare our health system to fight the virus, and also spending whatever was needed to save as many local jobs, businesses and community organisations as possible,” said Mr Lucas.

“In the grip of a global pandemic, we are doing what is needed to save lives and livelihoods, knowing we weren’t going to get a second chance to get this right.

“This wasn’t just a health crisis, this was the greatest economic challenge of our time and we are rising to that challenge, acting swiftly and decisively.

“All state and territory governments are in a similar position, with significant increases in debt and deficits as a result of COVID-19 and their necessary response.”

Mr Lucas said, at the time of the 2019-20 Budget, estimated GST revenue grants were around $6.8 billion in 2019-20 and $6.9 billion in 2020-21.

While it is still very difficult to estimate the impact of the pandemic on GST revenue grants, Treasury’s best estimates suggest that the state’s GST revenues will be in the order of $850 million lower in 2019-20 and around $1.1 billion lower in 2020-21.

“Estimates of GST revenue in 2020-21 will obviously be impacted by the easing of restrictions and the pace of economic recovery,” said Mr Lucas.

State taxes have also been impacted, with estimates showing payroll tax could be $90 million lower in 2019-20 and $100 million lower in 2020-21. Other state taxation revenue (including stamp duty and gambling taxes) could be $230 million lower in 2019-20 and down $360 million in 2020-21, compared with estimates at budget time.

Further, Mr Lucas said early estimates are that the net operating balance deficit in 2020-21 will be of a similar size to 2019-20, with non-financial public sector debt to be around $30 billion by the end of the forward estimates.

“Despite this, the government remains steadfast in our commitment to our record $12.9 billion job-creating infrastructure program. Obviously, it could have helped the budget, including the increase in debt, by cutting infrastructure spending – but that is not the response that is needed.

“Jobs are needed now, and our record infrastructure program will help provide that as our state manages a transition to an exciting future which will be influenced significantly by the massive new opportunities in the defence, space and IT industry sectors.”

The 2020-21 State Budget will be handed down on November 10.