Tasmania and the Global Financial Crisis

The amazing thing about the so-called Global Financial Crisis for us Tasmanians is that many people are saying to me, “what crisis?”

Now that a full year of scary predictions has passed, many people who are 1) on welfare payments 2) employed by the public service or 3) wage-earners in relatively stable industries feel that their own quality of life is not in any real danger.  After all, nothing bad happened to them in that scary 2008.

But consider the headlines:

This small sample of doom-and-gloom stories were published on news websites all on one day alone!  (March 10, 2009).  The avalanche of bad news shows no sign of abating any time soon.

So if mainstream news outlets are so focussed (infatuated?) with this oppressive rolling disaster, why do many Tasmanians struggle to see that life is any different at all?  And what should be the Tasmanian response?

The first thing that has to be recognised is that the GFC is real.  It’s happening and it affects every citizen in our global village.  It’s true that Tasmania is less prone to the highs and lows than mining boom states like Queensland and Western Australia.  Nonetheless, there is declining economic activity in Australia generally – and that means less spending, less sales, less profits and higher unemployment.

That’s bad news wherever you live.

Needless to say, the consequence of this is less money collected by the Commonwealth in three key areas:
1. GST which based on sales of goods and services;
2. income tax which is based on the number of people earning a wage; and
3. company tax which is based on company profits.

Unfortunately for Tasmanians, we are more heavily dependent on Commonwealth funding as a proportion of our state budget than any other state.  Most of the Tasmanian Government’s annual budget comes from the Commonwealth.  So Tasmanian Government services such as schools, hospitals, police and infrastructure are very highly subsidised by the rest of the country.

It’s not bad that we get that level of support.  I’ve always advocated for us to get as much support as possible; and besides, there are stringent processes in place at the federal level to ensure that all states are given fair levels of support and disadvantage is a key factor.

But our dependence is unfortunate for two reasons. Firstly, because Tasmania continues to be seen as “disadvantaged” by our interstate cousins. More importantly though, during times when the national economy is shrinking – beyond our control or influence – we stand to lose out due to significant potential reductions in federal payments.

It seems clear that the Tasmanian Government will not be able to withstand these pressures without reducing its own spending.  Without proper and careful management which seeks to find real efficiencies in current government spending (and cutting wasteful spending), valuable government services such as schools, hospitals, police and infrastructure will certainly suffer when sudden cuts have to be found in a hurry.

This will hurt every Tasmanian, even those who previously thought they were immune from the great global stuff-up started by risk-taking Wall St cowboys 16,000 km away.

It’s coming very close to home, and we need to be ready.

We need to review government spending and cut waste.

In part this means we need to make the public service a more productive and accountable entity. The State of Tasmania is one of the most expensive governments in the county, with its public service one of the largest per capita in Australia. Yes, we need government departments to be effective units to allow government decisions to be carried out as a force for good in the community (particularly for the more vulnerable in our community who rely on government support services). But no, we should not accept that ‘big government’ is better government unless it delivers for the common good and gives good value to Tasmanians who are footing the bill. I’m not an advocate for cutting jobs. I’m an advocate for accountability and productivity, ensuring that our public servants are given their due respect and that ordinary Tasmanians are not bearing the burden of a union-controlled Labor government which doesn’t know how to manage itself.

Government spending in areas other than employment have been exposed as excessive. There is a constant stream of ministers, ministerial advisers, bureau chiefs and polytechnic bosses travelling the world at huge expense as well as the Labor Government’s addiction to its expensive dozen-strong “media unit”. But the most galling of all is this Labor government’s obsessive love affair with building a new Royal Hobart Hospital (uncosted, but estimated to come in at more than $1,000,000,000). This is even though the community doesn’t want it, it would destroy the Hobart CBD and we Tasmanians simply cannot afford it. This is just another example of a State Government that is heading in the wrong direction and does not know how to set the right priorities.

We need to encourage an enterprise culture and remove unreasonable roadblocks to sustainable new industries being established.

Over the last ten years, Tasmania’s slack government, its outdated planning system, regulation and red tape has done the opposite of attracting sensible, sustainable, job creating development in our state. In fact, the Labor Party has though lethargy and abuse of process created a group of entrepreneurial ambassadors against Tasmania.

For example, I am thinking of Dick Smith who, after many years of trying to build sustainable eco-tourism facilities on his own land, was prevented at the last minute by vague and misty features of current planning laws. Our current system only guarantees one thing for significant, job-creating development plans: complete uncertainty as to what is allowed and what is not. Sadly, Labor doesn’t seem to care. Worse, the Greens love it because it gives them a negative platform.

In the words of Tasmania’s next Premier, Will Hodman, in his headland Agenda 09 speech responding to the State of the State address:

Now is the time to open our door to business and unlock our potential… I want government to get out of the road of small business to let them break through the barriers that have been holding us back…. Business is being strangled by bureaucratic red tape.

Right on! There is no need to chuck out due process and community expectation. We need to re-establish a coherent set of guidelines for different land types, communicate these to all concerned and then enforce them without fear or favour.

We need to reduce state-based taxes in areas which make us less competitive compared to other states.

Well let’s name some: stamp duty, payroll tax and land tax. Sure, they may well warrant some place in the state taxation landscape, but certainly not in their current un-competitive forms.

The problem is that the Tasmanian Government has, over 11 years of neglect, allowed its budget to become so dependent on these state-based taxes that they are seemingly incapable of reviewing them within any genuine reform agenda. Union control of Labor MPs together with this government’s crisis-driven political priorities leave necessary pro-enterprise, pro-employment reforms like these in the shadows of a previous century when the taxes were created.

No one should be surprised if emerging and/or sensitive industries decide to set up business somewhere other than Tassie if other states provide a more competitive deal. The Howard Government gradually reduced the Australian company tax rate down to the best international standard of 30%. Why? Well in the short-term it certainly did cost some tax-take, putting pressure on the federal budget.

However ultimately this measure alone saved countless businesses and jobs from going offshore and helped to secure the Australian economy. We Tasmanians must do what’s necessary to clear our own business blockages and commit to holding on to our enterprise magnetism. It can be done.

And finally, we need to convince Tasmanian families to reduce over-reliance on debt to pay for our lifestyle.

We need to teach our young people when they are still in school about how to be more self-reliant, how to budget, how to plan for long term goals and achieve them.  We need to tell parents that they should not feel guilty that their children don’t have everything the neighbours have.

Let’s not forget that the Global Financial Crisis was founded on unsustainable debt; buying overvalued assets on unserviceable loans.  We need to recognise that buying a plasma TV will look great on the wall, but will do more for the Chinese economy than our own.

Sadly, Mr Rudd is encouraging Australians to make a big mistake. He is wrongly teaching them that spending more money on consumer items is the answer to our financial problems here in Australia.  My personal advice (and I warn you, I’m not a licensed financial planner!) to anyone receiving a $900 bonus this month:  it’s your money – use it how you should not just how Mr Rudd tells you to. If you are smart, you’ll reduce credit card debt or other bills which are due.  After all, if our households are sustainable, so is Tasmania.

If you haven’t got any such bills then please spend in a way that the money will stay here in our own community: then take yourself on a Tasmanian holiday, get some landscaping done, get your home repairs done, get your car serviced, buy some Tasmanian-made craft or furniture.

If we follow these positive steps, in years to come there will be more jobs and less unemployment; less debt and more savings; less hardship and more taxpayer-funded services in health, education and infrastructure to give us the quality of life every Tasmanian family deserves.

So, no one can afford to think there is no crisis. This affects all of us. But it’s how we deal with it that will determine how successfully we emerge.

The Liberal team, led by Will Hodgman, have new ideas about how to tackle the many issues facing us, including the GFC. It’s through leadership and vision instead of scandals, crisis-management and the politics of division.

I’m proud to be a part of that team and call on you to join us in our quest to unlock Tasmania’s potential and make it a better, happier place for every Tasmanian.

More at www.willhodgman.com.au