Institute for Social Change News

The magnitude of the challenge was highlighted by Tasmanian economist Saul Eslake who calculated that per capita spending will grow at just 0.4 per cent a year until 2019-2020. This figure is less than a third the level of other states and a fraction of the 6 per cent spending growth experienced in the years of the financial crisis.

Treasury’s own fiscal sustainability report argues that this unprecedented level of budget restraint will have to be maintained until 2030 if we are to avoid large deficits.

The bottom line is that Tasmania, like most other states in the federation, has a significant revenue problem.

The state’s taxes are narrow and inefficient and unlikely to grow even if the economic recovery is sustained.

The bleak outlook for GST revenue growth compounds the problem and future state treasurers are likely to regret the Hodgman Government’s decision to oppose increasing its rate to 15 per cent.

Finally, Canberra seems determined to rein in the specific payments to the states on which our health and education systems depend. This brand of fend for yourself federalism may help repair the Federal Budget, but won’t benefit the nation as a whole.

What does this mean?

While increased spending on social housing, new school buildings and family violence initiatives announced in last week’s budget are welcome, the sobering fact is they will have to be offset with cuts in other areas.

Similarly, any public sector wage increases above 2 per cent will result in job losses or growing deficits.

I agree that balancing the budget is important.

However, in an environment in which funding available to the state is unlikely to meet the costs of delivering services over the longer term, future state governments will have the unenviable task of managing decline.

On the expenditure side, health costs are rising, despite some sensible reform, and education and the National Disability Insurance Scheme need more funding.

As Tasmanian Council of Social Service chief executive Kym Goodes argued in Talking Point (Mercury, May 30), there is growing recognition disadvantaged Tasmanians need more intensive, holistic support if they are to capitalise on the opportunities available in the knowledge and service economy of the 21st century.

What needs to be done?

All sides of politics need to acknowledge Tasmania has a medium-term budget problem and that we need to consider new, efficient ways to fund state government sustainably.

In terms of state taxation, Tasmania needs to join the national push to introduce broad-based land taxes to replace stamp duties and broaden the payroll tax base while lowering rates.

The aim of this reform agenda is to ensure taxes are more efficient and increase in line with growth in the Tasmanian economy.

Given our high dependence on federal funding, the State Government must make a more ambitious contribution to the national debate on tax and federalism reform after July’s Federal Election. Simply trying to maintain the status quo will leave Tasmania short.

The state also needs to be more willing to consider privatisation and public sector reform. While both of these agendas are complex and contested, we can’t afford to leave them in the too-hard basket.

Clearly, these proposals involve a high degree of political risk, but now is the time for political leadership.

Like Mike Baird in NSW, Premier Will Hodgman is liked and trusted by most Tasmanians. This is a rare commodity in modern Australian politics and the Premier and his team should use some of this political capital to develop a more ambitious reform agenda for its second term in government.

It is time to throw caution to the wind and lead Tasmania into the 21st century.

Professor Richard Eccleston is director of the Institute for the Study of Social Change at the University of Tasmania and is a specialist in tax policy and budget politics.

This article originally appeared in The Mercury on 1 June 2016.