*Pic: ABC

Tasmania is experiencing a further $44 million blowout, bringing the 2013/14 FY deficit to $398.7 million:Mercury here

Prior to that the Hodgman government claimed it had inherited a $1.1 billion budget deficit and 1,000 job cuts embedded therein from the previous government.

Add to that at least a further $1.2 billion in cuts from Canberra that threatens to blowout the state budget (eg. remember the $81 billion hand grenade that Abbott and Hockey flick-passed to the states on future funding of schools and hospitals that goes on top of the $1.2 billion?).

Real gross state product growth slumped from 0.6 percent in 2011/12 FY to -0.7 percent in 2012/13 FY and in that time unemployment climbed from 6.3 to 7.3 percent (it is currently at 7.5 percent). http://dfat.gov.au/geo/fs/tas.pdf

Investment has slumped 21 percent in the 2013/14 FY.

All this makes for very challenging settings for developing a state budget that is to be delivered on 28 August.

Shall we all accept this downward spiral or bite the bullet?

Given the grim news, it will be impossible for Premier Will Hodgman to deliver on the $400 million in election commitments and he will have to postpone some.

Michael Bailey, the TCCI CEO, called for structural change in the state’s public service, and for a discussion on what services the public could do without, in order to rebalance the fiscal situation without compromising frontline services. Bailey called for broadening land and other taxes.

While the former is sensible, I disagree on the latter.

Unlike Canberra, Tasmania genuinely has a budget emergency, and faces deep-seated structural impediments to the Tasmanian economy.

Hodgman needs to foster a business-friendly environment that is low-taxing and jobs-creating. And his government will need to conduct a more strategic approach to attract sunrise industries or those that spinoff existing ‘paddock to plate’ or forestry industries, where value-adding is done elsewhere. Tax holidays, low energy costs, plentiful water, a stable workforce and low overheads compared to the mainland, a partially-built NBN, will all play key roles in making Tasmania an attractive destination for business.

Infrastructure bottlenecks need to be resolved quickly. For example, an efficient transport network (with additional capacity for ports) and an international shipping service will produce immediate results for exporters that are currently constrained.

Planning regulations is another area that is currently stunting the local economy, and a single, state-wide planning scheme would help turbo-charge development – environmentally sensitive of course.

In addition to his “buy local” procurement policy, Hodgman should look to harnessing and channelling Tasmanian superannuation funds into state assets, thereby freeing public funds for further infrastructure development in the state.

The public sector component of the budget is too high and unsustainable.

Hard decisions will have to be made.

Let’s hope Will Hodgman and his treasurer will be judicious.