AS tension between states over the carve-up of the GST rivers of gold intensifies, some are increasingly casting a suspicious, hostile eye south, across Bass Strait.
When West Australian Premier Colin Barnett this week accused Tasmania of being a mendicant state, he was giving vent to growing frustration among the larger and resource rich states.
You can see Barnett’s point. For every dollar raised in GST in the west, WA — source of much of the nation’s resource export earnings — will receive only 71c.
Tasmania, reliant on federal taxpayers to prop up almost 70 per cent of its budget, is rewarded for its lack of self-sufficiency by receiving $1.59 per $1 raised in GST.
“Tasmania has become Australia’s national park,” Barnett spat to Sky News. “If they continue to reject any sort of development, well, what right is there to simply take the spoils of hard work in other states?”
While Barnett’s reference to development has puzzled some — the current problems of the Gunns pulp mill and the timber industry owe more to global markets than forest protection — the sentiment that the island is bludging off the rest of the nation is becoming entrenched.
In NSW, Queensland and Victoria — all states that receive less back in GST than they raise — there is also mounting disquiet at being short-changed to sustain basket-case economies in Tasmania, South Australia and the territories.
What some of these cranky mainlanders may not realise is that despite the feisty protestations of Tasmanian Premier Lara Giddings, many on the island share their view.
Some Tasmanians, such as Troy Harper, chairman of the peak Tasmanian Chamber of Commerce and Industry, are now willing to speak out loud thoughts others see as treasonous.
Harper, a Hobart property developer, tells Inquirer that Tasmania is “a mendicant state and should grow up and take responsibility for ourselves, or else surrender its statehood.
“Historically, Tasmania has been brilliant at selling itself as a special case to the federal government: the laws of economics don’t apply here; we don’t need to do things considered best practice in other areas; we just need assistance,” Harper says.
“The bulk of our budget funds come from federal sources. We’ve done nothing with it. We’ve got runaway costs in the health and education sectors. Tasmania had an opportunity to look at wiping out state taxation and almost squeeze the state in under GST and have it as an extremely competitive place to invest. We haven’t done that.
“We’ve kept taking all the money that is given, asking for more each time, significantly in excess of what we contribute, and it’s just been wasted.
“It’s gone in wages. Over 50 per cent of the state budget is public service wages. Less than every 1c earned by the state government goes on infrastructure in this state. It’s just horrifying.”
He believes the review of GST distribution forced by the population and resource-rich states has “opened a hornets’ nest” and that Tasmania is in real danger of losing the argument and the funds.
“At some stage the state can’t continue to do what it’s doing and lurch from debt to budget crisis, budget crisis back to …
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How did things come to this? Only a few years ago, Tasmania was painting itself as a tiger economy. In 2009-10, it was the nation’s fastest growing state economy, while in August 2009 it broke a lifetime of habit by recording the lowest unemployment rate of any state, 4.8 per cent (compared with 5.9 per cent nationally).
According to Tasmanian Chamber of Commerce and Industry chief economist Mark Bowles, (Mark Bowles on Tasmanian Times: Where do jobs come from, HERE) the tiger economy tag was misleading; a mask constructed of simple growth figures, rising off a very low base, to hide an economy of ugly fundamentals. “Tasmania was not out-performing the national economy; it was playing catch-up,” Bowles says. Its growth rates were faster because it was so much further behind in terms of productivity and gross state product. “We have had some good gains since the 90s but we have, since the global financial crisis, lost the ingredients for growth: business investment.”
Business investment in Tasmania is 24 per cent down on pre-GFC levels, housing starts are down 36 per cent, while retail spending has dropped 2.6 per cent in the past 12 months. Growth is still relatively solid — 1.1 per cent in trend terms in the December 2010 quarter — but unemployment has risen to 5.8 per cent.
Worse, the state budget is approaching crisis, facing a return to net debt and a $495 million underlying net deficit unless drastic action is taken.
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In other words, Tasmania has little ability to raise revenue but above average cost of providing services. Harper and the TCCI, backed by expatriate Tasmanian economist Saul Eslake, (Saul Eslake’s extensive observations, on Tasmanian Times, HERE) believe Tasmania needs to consider broadening its land tax base if it is to continue providing services.
At present, the land tax burden falls largely on business. Harper points out that just 500 companies pay 33 per cent of all land tax. Shifting the burden to shack and home owners would be deeply unpopular in the electorate, already facing escalating electricity, water and sewerage charges.
But nor does slashing the public service go down well in a state where the government makes up 21 per cent of the economy. Eslake, productivity growth director at the Grattan Institute, fears the present round of public service cuts will be superficial or ill directed, with the budget scalpel missing the cancer.
“It costs Tasmania more per head of population to deliver what every Tasmanian thinks is a poorer range of public services, while paying the people who deliver them less than other states do,” he says.
He wants Giddings to ask the Productivity Commission to investigate why service delivery costs in Tasmania account for 20 per cent of GSP, compared with 14.5 per cent nationally and 10.5 per cent in Victoria.
Tasmania has the highest proportion of public servants per head of all states. Their number has increased from 20,166 in 1999-2000 to 25,001 — a 24 per cent rise — during a period in which public sector productivity fell.
Economists and business leaders are also in furious agreement about the need to cut the number of local councils in Tasmania — 29 — and further reform the planning process. Giddings prefers to encourage, rather than compel, amalgamations and cites ongoing planning reform, including harmonisation of planning schemes. However, business argues there is simply no need for 31 separate planning schemes in a state of 500,000 people.
Another measure urged by Eslake and other economists, as well as business, is further reform of the state’s education system. Tasmania is the only jurisdiction, apart from the ACT, to send students to separate colleges to complete Years 11 and 12.
This has led to a culture of school-leaver celebrations after Year 10. As a result, Tasmania has the highest proportion of people of working age who have not completed post-Year 10 eduction: 34 per cent compared with the national average of 22 per cent.
Another big cultural barrier to higher productivity (at present only 85 per cent of the national average) is a seemingly intractable welfare dependency in suburbs of all the main cities, including Hobart, as well as regional centres, such as the Huon Valley.
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