Economists have raised concerns over Tasmania’s challenging budget situation following the state treasurer’s delivery of an “interim” budget. Despite fears of a more severe fiscal outlook, the budget still indicates significant financial hurdles ahead. The forecast includes a debt projection reaching $10.4 billion by 2028-29, alongside a tentative return to a net operating surplus in the same year. However, the budget lacks detailed policy measures to achieve these targets.
Eric Abetz’s first budget as treasurer has been met with skepticism from experts. Independent economist Saul Eslake described the budget as “less worse” than the previously failed budget attempt in May, yet still “pretty dire.”
“And unfortunately this budget, although it foreshadows action down the track, doesn’t really include any new budget repair measures and makes some very conservative assumptions, very optimistic assumptions about the extent to which the government will be able to control government spending over the next four years,” said Eslake.
Economic Challenges and Expert Opinions
According to Cedric Hodges from Deloitte Access Economics, addressing the state’s budgetary issues will require a multifaceted approach. “There’s no easy way out of this. There’s going to have to be some combination of spending restraint and revenue measures,” Hodges stated.
Hodges further noted a sense of complacency within the Tasmanian community, which had been buoyed by a reasonably strong post-COVID economy and booming house prices. “The current fiscal position is bad enough that we need to be quite upfront with the Tasmanian community about what needs to be done over a relatively accelerated time frame,” he added.
Comparative Economic Position
Saul Eslake pointed out that Tasmania’s economic position is the worst among Australian states and territories when examining key budget metrics. The non-financial public sector, which includes government business enterprises (GBEs), is projected to incur cash deficits of $8.7 billion over the next four years. Furthermore, net debt is expected to rise to approximately $19 billion by mid-2029.
“The state’s net financial liabilities, which include debt carried by the GBEs and Tasmania’s unfunded superannuation liability, are projected to rise from $22.8 billion this financial year to $28.5 billion in 2028-29,” Eslake explained.
The government plans to continue drawing a significant portion of profits from Tasmania’s GBEs through dividend and tax equivalent payments. However, these profits are anticipated to be lower than previously expected, primarily due to reduced dividends from Hydro Tasmania amid dry weather conditions in 2024-25.
Future Prospects and Risks
The budget forecasts higher returns from Hydro Tasmania and TasNetworks over the next four years, based on assumptions of increased rainfall and improved profitability. However, Eslake cautioned that “weather forecasts, particularly over long periods, are at least as risky as economic forecasts.”
Tasmania’s state-owned businesses face additional challenges. Hydro Tasmania is grappling with rising debt, and the government recently increased TT-Line’s borrowing capacity by $400 million, alongside a $75 million equity injection, amid concerns about its financial stability.
Missed Opportunities and Future Actions
Eslake criticized the interim budget as a missed opportunity for significant fiscal reform. “If there had been a change of government at the last election, it might have been more understandable, but there’s been no shortage of advice on which the government could draw … from Treasury and other places,” he remarked.
Hodges emphasized the urgency of addressing Tasmania’s growing debt. “As that debt accumulates, so do the interest payments and the interest payments are money that we spend every year that don’t create a single job, they don’t provide a single hospital bed, they don’t educate a single Tasmanian,” he stated.
The announcement comes as Tasmania navigates a complex economic landscape, requiring decisive action to stabilize its finances and ensure long-term prosperity. The path forward will likely involve difficult decisions and strategic planning to mitigate risks and capitalize on potential opportunities.
