by John Lawrence
Tasmania’s debt: Should we worry?
Viewing problems facing state governments through the same lens used to look at federal budgets run the very real risk of erroneous conclusions.
The Australia Institute wrote an opinion piece titled Tasmania’s fear of Government debt is hurting the State published in The Mercury on 22nd March reassuring Tasmanians that deficit spending was fine because our assets are growing. “That does not sound like a government about to go broke“ it was said, ignoring the fact insolvency isn’t triggered by a lack of assets, rather an inability to service liabilities.
There followed an assertion because our per capita net debt was lower than other states, despite other financial liabilities such as the much larger unfunded defined benefit scheme for government employees, Tasmania was sitting pretty. Our biggest challenge is to unshackle ourselves from a restrictive self-imposed borrowing constraint.
The pro-forma response to the Tony Abbott-Joe Hockey debt and deficit doomsday scenario was trotted out. Most economists agree with this knowing the Australian government is not revenue constrained and more significantly, controls its own currency, neither of which are true in the case of state governments.
The weeties-choking moment came when it was stated: “Tasmania currently is able to meet its spending commitment to pay teachers, nurses and other public sector workers. The ‘cash flow’ of the government is actually in surplus.”
That statement shows a complete misunderstanding of Tasmanian government financials. The suggestion that operating revenue is enough to cover operating spending is simply wrong.
This blog will pinpoint the errors whilst also having a look at the way state governments report their budget outcomes compared to the way the federal government does.
Read the full story here: https://tasfintalk.blogspot.com/2024/03/tasmanias-debt-should-we-worry.html#more.
