Will Hodgman's legacy

The first task of the Hodgman government when it won the 2014 election was to request Treasury to report on State finances. The subsequent report, Analysis of Budget Risks, in April 2014, was essentially an update of the Revised Estimates Report for the 2013/14 year prepared in February 2014.

Budget reports always cover a four-year period, the budget year plus three years of forward estimates. The April 2014 report noted by the end of the forward estimates the  State was facing net debt of $400 million. The deterioration in net debt over the four-year period was $600 million. Net debt increases when spending is greater than receipts. Cash deficits totalling $600 million were projected over four years.

After whipping up outrage at the incompetence of the previous government, then Treasurer Peter Gutwein reassuringly told Parliament on 8^th May 2014: “We are committed to fixing the Budget”. Will Hodman’s resignation speech of 14^th January 2020 made the claim that “….we have delivered our plan…to manage our Budget, taking it from deficits to surpluses.” The release this week of the Revised Estimates Report for 2019/20 makes now a convenient time to check.

Revised Estimates Report shows problems ahead

The government’s cheer squads are not quite as raucous as they once were.

There’s a growing awareness that all is not well with Tasmania’s fiscal position. The Revised Estimates report for 2019/20 released this week confirms the State’s vulnerabilities.

Needless to say Premier and Treasurer Gutwein was unwavering in his claim that the government fifth surplus in a row “means more money to invest in essential services that Tasmanians need”. This is a complete untruth. The surplus as measured by Mr Gutwein doesn’t provide more money. Only a cash surplus does.

A new approach to fiscal policy

It’s been twelve years since the global financial crisis brought the world’s economy to its knees. However, after the greatest setback since the Great Depression of the 1930s, there’s little evidence remedies are working.

At the Federal level the government is determined to produce cash surpluses, a supposed indicator of responsible economic management. Yet cash surpluses mean draining more out of the economy by taxation than is returned by spending. When an economy is weak, wages flat, unemployment and under-employment a growing problem, and State governments all struggling to fund services, taking more out of the economy is unlikely to resuscitate the patient.

At the State level the government pretends it is running a surplus when it clearly spends more than it receives.  The government uses the word ‘surplus’ to describe its Net Operating Balance figure. But as its name suggests, this only includes recurrent operating spending, and omits capital spending and equity contributions into government businesses. It’s a misleading measure of the government’s fiscal position.

Shadow Treasurer David O’Byrne ridiculed the government claims of being able to achieve a surplus but in so doing gave tacit approval of the government’s version of a surplus as a desirable goal. It’s not. The unassailable reality is that Tasmania will be running cash deficits for the foreseeable future. There is no alternative. To do otherwise would be grossly remiss. To pretend it’s not is misleading. To continue to conduct an adversarial political exchange on a false premise is derelict. The public discussion should focus on how to fund the inevitable cash deficits of the State government. It’s not a problem unique to Tasmania. It will affect all States.