Economic knives sharpening for Adelaide

Adelaide has the smell of slow cooking frog about it. There are those who deny the frog is in boiling water, there are those who say the frog deserves its fate and those like me, who want to save it.

Like Cassandra the prophetess, standing outside Agamemnon's palace while his wife sharpens the knives inside, I fear for Adelaide's future.

Adelaide's economy is in deep trouble and its politicians are helpless to save it. Indeed, they are part of the problem. They lack the experience to deal with an endemic and wicked structural crisis that threatens to turn a once fine city, in to a shell of its former self.

Back in the 1960s, Adelaide was Australia's third largest city, both in population and economic influence. A Facebook page called 'Adelaide Remember When', is a glorious example of Boomer nostalgia, but it also carries a series of pictures that shows both King William Street and Rundle Street in the CBD packed with people and sales in the 1950s and 60s. The city was booming, in part because population was booming.

The state never really recovered from the fall of the State Bank in the 1990s. Adelaide has slipped to fifth behind Sydney, Melbourne Brisbane and Perth in terms of population and productivity. It has been hit hard by the forces of globalization, the deregulation of the national economy, the GFC, the high price of the Australian dollar, the decline of its manufacturing sector and tourism, outward population migration and investment moving to the eastern seaboard.

Some Adelaide people may say, 'that's fine by me. Small is beautiful. Lets whittle a while'. But if you want to make sure there is a broad tax base and jobs for your kids; if you want to make sure there are retirement homes and nursing care for your folks and if you want property prices to remain steady rather than freefall, then being a small whittler isn't the way to go. The contraction is due to external forces and structural inefficiencies as the icy winds of globalism blow jobs away from SA's 'analogue' economy.

Lets walk on the sunny side of the street. Adelaide has retained many fine buildings, particularly on North Terrace, King William Street and Pirie Street. This is something to crow about. Adelaide Oval will be a world-class sports stadium, linked to the city. Rundle Mall, Victoria Square and the east parklands are being refurbished. The new Adelaide Hospital is taking shape and is one of the most innovative pieces of architecture in the southern hemisphere.

Fiscals

Now back to that slow boiling frog. SA's rate of growth in gross state product is about 2.1 per cent a year - far below Australia's at 3.4 per cent. Entrepreneurialism has taken a back seat and private investors (excluding some large property developers) seem content to let the government take the lion's share of investment. This is extraordinarily dangerous as it means the state budget relies on the horizontal fiscal equalization of GST revenues from Canberra (getting money even though the state did not earn it), defence contracts and mining royalties.

You will see some booming and busting in the employment numbers every quarter but the trend - even with the ABS's dubious methodology of counting the unemployed working one hour a week as being employed - is downward. The SA unemployment rate is 6.0 per centand would be over 7 per cent if many in the 50+ and teen cohorts had not stopped looking for work. Youth unemployment (15-19) in the northern Adelaide region is 43.2 percent and across the state it's 25.4 per cent. Job advertisements are in free fall.

Government debt has climbed past the State Bank disaster level.The budget deficit for 2012-13 is just under $1 billion but the ratio of government debt to government revenues will exceed the government's target of 50 per cent. Further downgrades of the state's credit rating below AA+ are on the cards.

The South Australia's workers' compensation body WorkCover is carrying more than $1.36 billion in unfunded liabilities. Unfunded liability reached $843 million in 2007. In 2008 the unfunded liability blew out to $984 million. It just keeps going up. Why? The operation is inefficient and the levies it charges on employers are some of the highest in Australia. It is understood that the state government is considering winding up WorkCover before the next election.