As government debt levels rise, a legitimate question regarding sustainability must be addressed.

While government debt, in and of itself, is a complex issue, concern can stem from two areas. The first is what the government spend its money on.

If the government goes into debt to spend on consumption items, such as things that won’t last or help generate growth and an improved living standard over time, then we need to be concerned.

The second is when debt levels become so large, servicing that debt in the form of interest payments becomes a major share of government revenue.

Here the word ‘share’ is important. If the debt is incurred for items that cause revenue to rise, then the share of interest would be a constant or even declining share of revenue and that’s a good thing. If, however, revenue remains flat or even starts to fall, then we enter a potentially vicious cycle of borrowing to payback past borrowing.

So what’s important for the South Australian budget is not so much the size of the debt, but the revenue sources and their potential growth.

Where is the government getting its revenue?

If we look at the projected revenue sources for the State, 30 per cent comes from GST.

That means the government is expecting that spending will continue to rise and maintain its contribution to revenue. This will, of course, depend on the state of the SA economy and overall business and household spending.

So far, SA households have maintained a healthy spending level. But GST is also a function of a formula determined........

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