A New Direction

Recent statements by the Federal Minister for Health to provide special assistance to the State’s Health budget is in a very real sense an admission by a senior Commonwealth Minister that the formula for funding the States is not working.

The GST was introduced as a growth tax to compensate the states for the removal of a range of inefficient and regressive state taxes.  For some years, the plan worked, and worked well.  GST receipts grew at a rapid rate and so did the returns to State coffers.

In Tasmania, for some years this windfall was managed well.  The State was able to get out from under the burden of net debt.  It spent again in essential areas that had been neglected, and began to build up reserves, especially in funding the public sector superannuation schemes.

But in more recent times the reform agenda stalled.  Slowly but surely, payroll costs escalated beyond the GST returns, not only through an increase in the number of public servants, but also in their remuneration.  We soon reached a stage where we had to once again start dipping into the reserves, while at the same time we continued to increase the size of the payroll.  We were spending beyond our means!!!

From an economic point of view, we got lazy.  We seemed to have enough money to do all the things we wanted to do, as well as all the things we needed to do. 

Then, the world went crazy, and GST receipts crashed.  At a national level, consumers stopped spending, at least within Australia. The high value of the dollar put pressure on jobs, particularly in the manufacturing sector in this country.  In Tasmania, we even encouraged a loss of jobs through the approach taken over forestry, culminating in the loss of over 6000 jobs.  The high value of the dollar also meant that overseas travel was cheap and overseas goods were cheaper.  Many consumer purchases began to be made overseas, from overseas travel and by purchases over the internet.

Both the Government and the Opposition have now recognized this fact.  Both have talked long and hard about the changed circumstances and the reduction in revenues to the State.    However both have talked up an improvement in receipts as being the cornerstone of their budget approach.  A risky business indeed.  Because for this to occur it will require both an increase in GST receipts, and continuance of the formula for the divvying up of the pool between the states.  Already there are interstate rumblings that Tasmanian is getting more than its fair share.

Outside of official figures, most pundits are pessimistic of an improvement in GST receipts anytime soon.  GST receipts are dependent on consumers buying goods and services within the country.  For that to happen, consumers need to be confident that they can afford to spend. That confidence has dissipated.  Furthermore, the budgets are relying on the continuing rude health of the Chinese economy to maintain the mining boom.  Again, a somewhat risky scenario considering the world economic environment at this time.  Europe is in meltdown, and Europe is a market for Chinese exports.  Not that the mining boom will end any time soon, because China’s domestic economy will still demand inputs, will but it will come under increasing market pressure.

Having defined the problem, let’s consider some solutions.

From the State perspective, the States and the Commonwealth need to come up with a new formula that ensures growth in returns to the States commensurate with growth in the economy.  To not do so will only cause the States to have to continue to contract its service delivery activities (health, education, law and order), with added suffering to the public.

Tasmania is at the cutting edge of this problem, so it is in the box seat to be leading the charge.

 At the same time, the States will need to rein in expenditure and ensure they get best value for the dollars spent. 

It is a recognised fact that Tasmania economically is in the slow lane. The mining states are booming, all else is lagging behind.  The question needs to be asked, and I don’t hear it being asked by anybody really, how can Tasmania benefit from the mining boom?  How can we leverage off the good fortune of the mining states?  For that to be answered, we need to ask a further question.  What is it that we have got that they want, that we could supply that they cannot supply themselves.  For example, what can we produce with our surplus labour that they cannot provide because of their shortage of labour?

So, an avenue to explore.  Every mining town has a chronic shortage of housing.  Considering the nature of mining towns, there is a desperate shortage of mobile kit homes, or prefabricated housing to ship over as panels and erect on-site. We are good at making panels.

They need skilled labour.  We are good at training labour.  In fact we already have schools of expertise in various forms of metalwork, and properly marketed, they might even end up being funded by the mining companies.  It will obviously mean the export for a period of skilled labour, but at least the labour is skilled and employable.  Promoting such schools of excellence would also encourage an intake from interstate, and this would to some extent counterbalance the drift.  We already promote education as an export industry – here at our back door is a ready-made market. 

I have argued in this column for the Commonwealth to spend more of its defence and immigration funds in this state.  Tasmania is in fact the poor cousin when it comes to this form of funding.  Much better to have real jobs paid for by the government than not have the jobs at all.  A marine maintenance facility, supporting and supported by the navy, could be an ideal   addition to our Maritime College, CSIRO, fishing and Antarctic activities.

An area that requires a significant overhaul is in the area of microeconomic reform.  Our regulatory environment is a nightmare, and although some may argue it is no worse than other States, that does not excuse the appalling disregard for being efficient.  If the state is to be “open for business” as some politicians keep muttering, then their priority must be to make it easier to do business here.

My attention has recently been drawn to the details of the Parliament Square development, a matter that has dragged through the Resource Management Appeals Tribunal and the Supreme Court for over 3 years.  Three years, and still no permit. Three years to get a decision.  It’s farcical.

A simple solution could be to give to the Appeals Tribunal the powers of the Supreme Court, and for it to become a final court of appeal.  That way the Tribunal is the final arbiter.  If this were the case, it would have saved this project at least 2 years, and still given objectors an opportunity to have their day in court.

Columnist Greg Barns recently wrote of an incident is Bellerive, which has so far cost the property owner, who has wanted to build an extension on his house, over a hundred thousand dollars in costs and still no decision.  This is just wrong.

Examples such as these amply demonstrate that Tasmania is not open for business.  And fixing these problems would not cost the government one red cent.  Making Tasmania an interesting place to invest would change the nature and the mood of the investment community, it would create thousands of jobs, and set us on the growth path we so desperately need.

Where there is a will, there is a way.  It’s time for some action.