Kouts ‘staring down barrel’ of fifty billion-dollar debt
A state budget warning shot from Mike Smithson who lifts “a lid on the most notorious, economic dark cloud in SA’s history” with three Labor luminaries.
It’s back to the future for Treasurer Tom Koutsantonis on Thursday when he returns to centre stage to deliver his much-anticipated State Budget.
It’s his first time back to the “big show” since 2017 when he strode down North Terrace to the annual media lockup with then-Premier Jay Weatherill.
Back then our state debt seemed to have a whiff of concern when it climbed through $6 billion.
Now he’s staring down the barrel of a future $50 billion debt as the state grapples with massive projects, rising interest rates and an Auditor-General watching every dollar spent like a swooping hawk.
Last week, during a media conference, I asked the Premier about his rock-solid claim that the $15 billion South Road tunnel project was “on time and on budget.”
Rumour exists that it’s already blown out substantially, but he resolutely claims that all is economically on track.
He also confirmed the project has an approved double-digit contingency factor built in.
There’s nothing unusual about that.
It means that at least $1.5 billion is quarantined for cost overruns such as rising diesel and concrete prices or construction variations which are inevitable.
What isn’t known is whether any of those variables have already caused problems and will only get worse.
In the project’s infancy, any money spent is legitimately well within the approved overall amount.
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On the flipside, this contingency doesn’t last forever, especially over the long life of such a massive project.
I’m certain the Treasurer will be treading carefully around that topic on Budget day.
When looking at where our debt is headed and how we cope with an interest bill of more than $6 million dollars each day, I’ve had the unique opportunity of lifting a lid on the most notorious, economic dark cloud in SA’s history.
Each year, as part of the History Festival, the Australasian Study of Parliament Group (ASPG) invites key figures from the past to tell their stories, which are then entrenched in state archives for all time.
I interviewed three Labor luminaries, Chris Sumner, Don Hopgood and Greg Crafter about their recollections of the Bannon decade.
In many respects the 1980s are an echo of this decade.
John Bannon had to contend with a global economic downturn coming into office.
“This was exacerbated by the Iranian situation which saw oil prices sharply rise,” was from a newspaper report at that time.
“Central banks are tightening monetary policies by increasing interest rates in order to deal with inflation,” it concluded.
Does that sound very familiar?
Bannon was a passionate innovator and, just like Peter Malinauskas, wanted to attract big events to South Australia.
He stitched up a world Formula One race which put Adelaide on the map for a decade and gave us a true, international reputation.
That had much greater impetus than the latter-day LIV Golf event which also sees Adelaide as a global pace setter.
Bannon’s eventual downfall was the State Bank disaster which he presided over in his twin roles as Premier and Treasurer.
He was forced to resign after it was revealed that the bank’s questionable lending practices, in volatile economic times, left state taxpayers stepping in as guarantor for a $3 billion debt.
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It was a crushing time for the state but now seems like a drop in the bucket amount compared to the tens of billions of dollars of debt we all face today.
I’m not comparing the circumstances behind these two financial exposures in any way at all, but it was fascinating to hear firsthand explanations from the three former senior cabinet ministers under Bannon.
Former Deputy Premier Hopgood said there was little, to no, discussion around the cabinet table when the bank was secretly free falling into massive debt blamed on bad loans and investments.
I expressed incredulity at that notion, as the Liberal Opposition of the day was asking specific questions about bank rumours that it was hearing.
As I put to Hopgood, it’s usually the case that those probing the most vigorously in Question Time already know the answers, but just want to catch the government out, in this case the Premier and Treasurer.
Former Attorney-General Sumner launched a stunning explanation and partial defence into what went so wrong during the State Bank’s downfall.
He accepted some of his government’s blame for not seeing the warning signs, but largely defended Bannon.
But he was also quick to point out that the Premier was scurrilously misled by the bank’s managing director Tim Marcus Clark who’s been widely credited as the chief villain in this costly political saga.
Public opinion on Bannon’s culpability, or naivety, is mixed.
A report at the time claimed, “John Bannon had told his Treasury Department that he did not wish to be made formally aware of the bank’s performance and would rather gain his information directly from the bank.
“The combination of Tim Marcus Clark’s dominant personality and a lack of banking experience across the State Bank board proved to be lethal.
“Premier Bannon was mesmerised by Marcus Clark.”
That’s a sure-fire way for state-owned finances to crash, causing decades of pain and recovery.
But Sumner then startlingly revealed that, in his opinion, there were two prominent accounting and auditing firms still operating today, and even the Reserve Bank itself, which must have been aware of the impending disaster for SA, and did little.
Lessons which must be learned as we prepare for this week’s Budget, and for those beyond, are beware of what you bite off and what you’re prepared to leave for future generations to pay off.
The current Treasurer assures us that ballooning debt levels and interest payments are all within the bounds of prudent expenditure and investment (saying the government will maintain operating surpluses).
We trust him and the rest of cabinet to direct and spend our hard-earned taxes with relatively low risk and high reward.
I would hate to hear a similar tale of what went wrong when, and if, the ASPG is still trawling through our political history in another 40 years.
Mike Smithson is weekend presenter and political analyst for 7News.
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