Our Say: Navigating a storm ahead

EDITORIAL: Tasmania’s finances are travelling well at the moment. With a projected surplus and negative net debt, it’s the equivalent of having a good job and cash in the bank.

TASMANIA’S finances are travelling well at the moment. With a projected surplus and negative net debt, it’s the equivalent of having a good job and cash in the bank.

But we live in uncertain times. Labor’s Treasury spokesman David O’Byrne points out that the budget is predicted to accumulate more than $1 billion in debt in the next three financial years.

As the Federal Government is currently learning — again — reality has a habit of making a fool of treasurers who sell predictions as certainties.

The promise of a surplus that was so boldly made on federal budget day last year now appears to have been wiped out by the downturn brought on by summer’s bushfires and the coronavirus outbreak.

Of course, Josh Frydenberg may console himself that he was the first federal treasurer in years to have handed down a budget surplus forecast — even though it now seems he has little chance of actually delivering it. What is true for the Federal Government is also true for Tasmania. There is every chance that by the time last year’s budget is finally reconciled in the 2019/20 Annual Financial Report due in October, the wafer-thin revised surplus predicted in the Revised Estimates Report will have disappeared altogether. The point, of which surely no treasurer needs reminding, is that Tasmania’s budget is profoundly affected by outside forces.

For example, the global financial crisis plunged the state budget into a tailspin from which it took years to recover. A downturn in GST receipts — caused by a drop in consumer spending nationwide — has an outsize effect on state revenue. Headwinds for the tourism industry nationally are inevitably felt on our shores. Herein lies the balancing act.

As Mr Gutwein rightly points out, a time of low interest rates is a good time for the state to take on debt in order to build productive infrastructure. A big boost in spending on roads arguably fits that bill. It’s like someone with a good job taking out a mortgage to buy an investment property. But running down the state’s cash reserves and increasing debt levels carries with it a level of risk — particularly if the budget is likely to run at a deficit. There is a limit on how many times the bottom line can be saved by raids on the coffers of Government Business Enterprises.

Tasmania has benefited from an extended period of economic growth. It is possible that a downturn could see the state left with high debt when it most needs cash reserves. That’s a bit like having a declining income plus a mortgage and maxed-out credit cards. That’s when people — and governments — start thinking about either spending cuts, more borrowing, or even what assets they might sell.

No doubt these are risks that are at the forefront of Mr Gutwein’s mind as he prepares the 2020/21 budget for release on June 4. Having given himself the dual roles of Premier and Treasurer, Mr Gutwein is clearly not a man who shies from a challenge. As storm clouds speed towards us, the state’s debt levels will be a challenge for whoever holds the purse strings when the crunch comes — whether that’s in the budget before, or just after, the 2022 state election.