Tasmanian budget: Island in a sea of red ink without a plan to pay

When challenged to say how or when Tasmania’s $5.2bn debt would be repaid, neither the Premier nor Treasurer could give a direct answer.

Tasmanian Treasurer Michael Ferguson. Picture: Chris Kidd

It can’t be fun being a treasurer in the wake of Covid.

Recently retired premier and treasurer Peter Gutwein blew $1.5bn on pandemic response and recovery measures before deciding to spend more time with his family.

While mostly justifiable to save the state economy, the spending spree on stimulus and support leaves his successors with little wriggle room, amid a whole new range of challenges.

Premier Jeremy Rockliff and Treasurer Michael Ferguson, like others in such roles, face a volatile economy.

With soaring inflation forcing up interest rates, the risk of a devastating impact on consumer spending and business confidence is real.

State Treasury is already forecasting slowing economic and employment growth.

Add to that the looming expiry of the no-worse-off guarantee for GST distribution – a measure currently worth about $250m to Tasmania over the forward estimates.

At the same time, the state is still struggling with a housing shortage, an affordability crisis and inadequate infrastructure, as well as a failing health system. It is hard to criticise spending focused on infrastructure and housing, but the rise in debt is eye-watering.

Net debt doubles in the space of 12 months, from $1.5bn in 2021-22 to $3bn in 2022-23. By the end of the forward estimates – 2025-26 – it will be $5.2bn. The cost of servicing borrowings rises from $48m to $206m over the same period, breaching the government’s own limits.

At the same time, wafer-thin surpluses forecast from 2023-24 are unlikely to withstand any blowout in public service wages.

Treasury has factored in annual 2.5 per cent increases in state service salaries. With inflation in the state currently running at 5.5 per cent, it seems unlikely unions will cop the cap.

And then just as the debt peaks, the GST “no-worse-off-guarantee” is due to end, from 2026-27. Ferguson flagged a push to persuade the Albanese government to extend the guarantee. Good luck with that, given the state of the national balance sheet and the federal election outcome (Tasmania swinging further to the Liberals and WA – the big beneficiary of the GST changes – catapulting Labor into power).

The debt-running duo ruled out “wholesale” asset sales. When challenged to say how or when the $5.2bn debt would be repaid by a small state reliant on the commonwealth for 65 per cent of its budget, neither could give a direct answer. Ferguson flagged “tax reform”, saying he was “open minded” on broadening the tax base. Rockliff gave a similar line, but when pushed ruled out new taxes. Presumably, that leaves hiking existing taxes. Hardly “reform”.