Tasmania budget: State splurges $5bn on roads, bridges to get it out of a hole

Tasmania will embark on a record $5bn infrastructure splurge, plunging the state deep into debt.

Tasmania’s Liberal government will try to spend its way out of the COVID-19 economic slump, via a record $5bn infrastructure splurge, plunging the state deep into debt.

Delivering his seventh budget and first since taking the premiership on the eve of the coronavirus crisis, Peter Gutwein has thrown the taxpayer credit card to government departments to kickstart a moribund economy.

While expressing “quiet confidence and cautious optimism”, the Premier and Treasurer will allow his state — which was net debt-free in 2019-20 — to plunge $4.4bn into the red by June 2024.

“This debt will be manageable with interest rates remaining at ­record lows — and it will be the lowest level of net debt carried by any jurisdiction in the country,” Mr Gutwein said.

The infrastructure spend will focus largely on roads and bridges — $2.4bn — as well as hospital upgrades, public housing, schools and tourism sites.

Mr Gutwein said he believed Tasmanians would forgive him for the likely intergenerational lunge into debt, and back the largest ­infrastructure program in the state’s history. “What will concern Tasmanians is that they’ll get the health services and the education, as well as the support, that they need,” he said. “The unprecedented infrastructure program we are rolling out will drive jobs and drive opportunity.”

He declined to say when the debt would be paid off, but said it was roughly half the debt level of the ACT.

Budget papers reveal just now severely this year’s coronavirus lockdowns and border closures hit an economy which only two years ago was described as enjoying a “golden age”.

The state economy contracted 7.4 per cent in the June quarter, contributing to an overall .5 per cent shrinkage in 2019-20. State Treasury, whose powers of prediction have been stretched to the limit by the uncertainties of coronavirus, expects the economy to retreat 1.5 per cent in 2020-21.

 

The government is counting on its spending spree — leading to a deficit of $1.11bn — to rapidly lead from gloom to boom, with gross state product forecast to soar to 3.75 per cent in 2021-22.

However, the budget fine print has more disclaimers than a COVID-era travel insurance policy. The optimistic growth forecast is based on “favourable outcomes in relation to virus containment” and open state borders. Treasury also warns of dark clouds unrelated to COVID-19. With federal funding constituting 63 per cent of the state’s $6.42bn revenue, a change to GST distribution methodology is generating particular nervousness.

Tasmania, with three federal marginal seats, secured a “no worse off” guarantee under the shift from equalisation based on the richest state to that based on NSW or Victoria. However, this expires in 2026-27. As well, Treasury papers reveal the state, which spends almost half its entire $7.5bn budget on public service pay and entitlements, has an unfunded superannuation liability on track to exceed $12bn next year. However, Mr Gutwein said his COVID-19 support package — the nation’s largest on a per capita basis — created a “pathway back to the black”.