Tasmania's financial position is on track to "become worse than that of any other state or territory over the next three years", and the deterioration is "entirely attributable" to state government policy, an independent review of the state's finances has found.
Economist Saul Eslake's review has warned against slashing the budget — instead calling for higher taxes — but admits returning to a sustainable position will be a "substantial" and "politically challenging" task.
The Treasury Department's own preliminary outcomes report for 2023-24, released last week, revealed Tasmania's net debt currently stands at $3.5 billion.
Mr Eslake's report projected net debt would hit $16 billion by 2035, at which time, the state would be paying $750 million per year in interest payments — more than the estimated total cost of the Macquarie Point stadium.
"Such an outcome would almost certainly result in Tasmania's credit rating being downgraded, probably by more than one 'notch', if it were allowed to happen," the report reads.
Mr Eslake was commissioned in May to conduct an independent review of the state's finances, agreed to by the Liberal government and Jacqui Lambie Network as part of the confidence and supply deal that helped Jeremy Rockliff remain as premier.
The final report made 26 recommendations to turn the ship around — with a focus on raising revenue, rather than cutting expenses.
Economist Saul Eslake says returning the state's finances to a sustainable position will be a "politically challenging task." (ABC News: Owain Stia-James)
He said measures like efficiency dividends and vacancy control — both of which the government has employed — are "crude" and "very poor means of achieving meaningful and lasting expenditure savings".
"Cutting 'operating' expenses would have a bigger adverse impact on the Tasmanian economy, and on the most needy or vulnerable Tasmanians, than raising revenues by an equivalent amount," Mr Eslake said.
The review recommended increasing revenue through:
- Lowering payroll tax thresholds for businesses
- Replacing stamp duty with land tax
- Increasing motor vehicle registration costs
- Mining royalties
How did Tasmania get here?
Tasmania's economy grew faster than any jurisdiction except the ACT in the five years to 2021, but the review found it now lags the nation on most economic indicators, risking a "vicious cycle".
Mr Eslake found an over-reliance on economic growth, with the deterioration in the financial position "entirely attributable" to the state government's policy decisions.
Treasurer Michael Ferguson (left) last week said he was committed to delivering savings measures. (ABC News: Luke Bowden )
While the COVID-19 pandemic did force high levels of government spending to keep the economy afloat, he said it cannot shoulder all of the blame, with $1.4 billion of election commitments added to the forward estimates in the 2018 and 2021 campaigns.
"The government chose not to offset those additional spending commitments with spending reductions in other areas, or with measures to raise additional revenues."
He also said successive Tasmanian governments have had trouble sticking to the spending plans laid out in the budget.
"This suggests either a persistent tendency to underestimate expense trends in formulating the annual budget, or an inability to control spending during the year," he said.
Forty per cent of Tasmania's revenue comes from the national GST pool, compared with the national average of 23.5 per cent.
While Mr Eslake found this has insulated the Tasmanian economy from some of its structural weaknesses, he noted the reliance on federal funding made the looming expiry of the GST "no worse off guarantee" in 2029-30 a risk.
"Tasmania's finances would be in a stronger and more resilient position if Tasmania's economic performance were not so far behind that of the other states and territories," Mr Eslake wrote.
Mr Eslake questions whether the state government can afford its $921 million infrastructure program, which includes the contentious Macquarie Point stadium in Hobart. (Supplied: Tasmanian government)
The review also questioned whether Tasmania could afford its infrastructure program ($921 million last financial year) – projected to be larger than any other state or territory over the next three years.
It also found the program had become "an accumulation of individual decisions to proceed with what is now a large number of projects", rather than a set budget being allocated to projects with the most benefit.
How can Tasmania recover?
The review concluded that the state is on a trajectory towards an unsustainable financial position, and that previous warnings by Treasury have gone "unheeded".
"Returning Tasmania's public finances to a sustainable position — and no less importantly, keeping them there — represents a substantial and, the review readily acknowledges, politically challenging, task," Mr Eslake wrote.
He warned a return to financial sustainability would be unlikely to come through savings alone, with Tasmanian government already spending around $880 less per head on services than the national average, while any reduction would hit vulnerable people most.
"The revenue side of the budget offers more opportunities to return Tasmania's public finances to a sustainable position than the expense side," Mr Eslake wrote.
The report has advised of increasing the state's revenue through higher payroll, land and mining taxes. ( ABC News: Maren Preuss )
The report recommended methods of increasing revenue such as by collecting more payroll tax from businesses, raising car rego costs, switching from stamp duty to a land tax and from mining royalties.
Mr Eslake also recommended the government employs a new medium-term fiscal strategy, with the support of other political parties.
He said the focus should be increasing "own source revenue" to 40 per cent, recording an underlying operating surplus, and reducing net debt and financial liabilities.
No new or increased taxes, treasurer says
In response, Treasurer Michael Ferguson thanked Mr Eslake for his "comprehensive review".
"The Tasmanian government will consider the contents of the review and the recommendations and will provide a response in the budget on September 12," he said.
But he immediately ruled out some of Mr Eslake's revenue-raising recommendations.
"There will be no new or increased taxes under the Tasmanian Liberal government, as committed to at the 2024 election," Mr Ferguson said.
"The Tasmanian government is committed to providing cost-of-living relief while delivering the services Tasmanians deserve as part of our 2030 Strong Plan for Tasmania's Future."
Last week, Mr Ferguson said the government would continue to pursue savings measures, sensible debt management and economic growth to shore up the state's finances.
Jacqui Lambie Network MPs Andrew Jenner, Miriam Beswick and Rebekah Pentland, who secured the independent review in their deal with the government. (ABC News: Luke Bowden)
Jacqui Lambie Network (JLN) MP Rebekah Pentland said Mr Eslake's review showed "the current budget trajectory has Tasmania heading off a cliff".
Fellow JLN MP Andrew Jenner said the election campaign "spend-a-thon" from the major parties had to stop.
"The JLN is proud to have demanded this report on coming to government," JLN MP Miriam Beswick said.
"We thank Saul Eslake for his hard work and honest assessment, but it shouldn't have taken the JLN to call for a report like this to be done."