THE TASMANIAN ECONOMY OPPORTUNITIES AND CHALLENGES

Transcription

1 THE TASMANIAN ECONOMY OPPORTUNITIES AND CHALLENGES PRESENTATION TO TASMANIAN LEADERS PROGRAM NORTHERN TASMANIA INTEGRATED CARE SERVICE, LAUNCESTN 17 TH JUNE 216

2 For more details Recent developments in the Tasmanian economy

3 Broadest measures of economic activity suggest that the pick-up in Tasmania s economy is continuing Real gross State product Real State final demand 6 % change from previous year 16 % change from year earlier Mainland 8 Mainland 2 4 Tasmania 1 Tasmania Financial years ended 3 June Note: State final demand is the sum of spending by households, business and governments. It differs from gross State product by the sum of net interstate and international trade, and change in inventories. Source: ABS 522. and 526.

4 Consumer and government spending are growing in Tasmania but housing and business investment have slowed over the past six months Household consumption Real % change from year earlier (trend) Dwelling investment Mainland Real % change from year earlier (trend) Mainland Tasmania Tasmania Business investment 4 Real % change from year earlier (trend) 3 2 Tasmania 1-1 Mainland Public sector spending 15 Real % change from year earlier (trend) 1 5 Mainland Tasmania Source: ABS.

5 Tasmania s exports are doing particularly well International exports of goods International exports of services % change from previous year Mainland 2 15 % change from previous year Tasmania 2 15 Tasmania 1 Mainland Financial years ended 3 June Financial years ended 3 June Note: Data for exports of goods in are for the ten months July 215 through April 216. Data on exports of services in are for the first three quarters of the year. Exports of both goods and services are measured in current dollars. Sources: ABS, 526. and

6 Tourism is a major driver of the growth in services exports Visitors to Tasmania 1,25 's International Interstate 9 International visitors to Australia spending most time in Tasmania 12-mth moving total (s) 1, Sources: Tourism Tasmania Corporate; ABS 341..

7 The agricultural sector has also been a major contributor but now faces tougher times Agricultural income - Tasmania 9 Milk production Mn litres 6 $mn Volume Financial years ended 3 June Financial years ended 3 June Value $mn Financial years ended 3 June Sources: ABS 522.; Dairy Australia

8 Business confidence in Tasmania is at a high level and the State Government can claim at least some of the credit for that NAB Survey expected business conditions Sensis SME Survey business confidence Approval of State/Territory government policies 5 4 Net balance (%) Tasmania 8 7 % Tasmania 2 15 Net balance (%), March quarter Australia Australia Sources: Australia Bank; Sensis.

9 Against this background the weakness in the Tasmanian labourmarket is surprising, and hard to explain Employment growth % change from year earlier (trend) Unemployment rate % of labour force (trend) Australia Tasmania Tasmania Australia Labour force participation rate Job vacancies % of civilian working age population (trend) Australia Tasmania % change from year earlier (trend) Australia Tasmania Sources: ABS, 622.; Commonwealth Department of Employment.

10 For more details The longer-term economic challenge for Tasmania

11 Tasmania s per capita gross State product is $18,3 or 27% below the national Gross State product (GSP) per capita, States & Territories, Tasmanian GSP per capita as a pc of national, to $ per head, % of national $18.3K (27%) Financial years ended 3 June Source: ABS 522..

12 Tasmanian household incomes and wealth are 26-3% below the national Average gross household income per capita, States and Territories, Average net worth per household, States and Territories, $ per head, ,2 $ per household, , ($81K/h hold) ($51K/head) -$13.2K (-26%) $246K (-3%) Aus -2 Aus Wages & salaries Property income Small business income Other Home & contents and vehicles Other property Superannuation Other financial assets Debt Sources: ABS 522. and

13 The national tax-transfer system shields Tasmanian households from the full effects of Tasmania s economic under-performance Personal income tax payments per head, Social security benefits receipts per head, Household disposable income per head, $ per head, $ per head, $ per head, $3, $2, $5, Source: ABS 522.

14 Similarly the GST revenue-sharing system shields the State Government from the full impact of Tasmania s economic under-performance GST revenue-sharing payments per head, State government operating expenses per head, State taxation revenue per head, $' per head $13.4K 16 $' per head $23.5K 4 $' per head 5 14 Average of all States & Territories 4 $1, Average of all States & Territories $1,163 3 $1,15 3 Average of all States & Territories NSW Vic Qld SA WA Tas NT ACT Sources: Commonwealth, State and Territory Budget Papers and Mid-Year Reviews.

15 Tasmania has an above- proportion of low-ses households, and a below- proportion of high-ses households Percentage of households in lowest two national socio-economic status (SES) quintiles, December 214 Percentage of households in highest two national socio-economic status (SES) quintiles, December % of population, December % of population, December Total Total Most disadvantaged 2nd most disadvantaged Least disadvantaged 2nd least disadvantaged Source: Commonwealth Grants Commission.

16 Of course, GDP, income and wealth aren t everything Home ownership rates % of households, pc pts Commuting times 6 Hours per week, hours Feel able to have a say % able to have a say on Important Issues all, most or some of the time', pc pts Housing stress % of households, pc pts Contact with family & friends % once a week or more with family or friends outside the home, pc pts Feel safe walking alone at night %, pc pts Note: Housing stress means spending more than 3% of gross household income on housing costs. Sources: ABS, 413., AMP/NATSEM Race Against Time, ABS

17 but Tasmanians nonetheless have lower levels of well-being than other Australians on many other non-economic indicators Life expectancy at birth Years, mths Obesity % of population, pc pts Daily smoking % of population, High blood pressure % of population, pc pts 5.4 pc pts Mental or behavioural problems % of population, Suicide rate No. per 1, persons, pc pts 2.3 pc pts NSW Vic. Qld SA WA Tas. NT ACT Note: Obese means body mass index (BMI) of 3 or more. High blood pressure means 14/9 mmhg. Mental or behavioural problems includes organic mental problems, alcohol and drug problems, mood (affective) problems, anxiety related problems and other mental and behavioural problems. Sources: ABS, , , 333..

18 A useful way of thinking about the reasons for Tasmania s sub-par economic performance employment population gross State product population = total hours worked employment = gross State product population gross State product total hours worked

19 A useful way of thinking about the reasons for Tasmania s sub-par economic performance employment population participation rate gross State product population = total hours worked employment = hours worked gross State product total hours worked labour productivity

20 Tasmania s below- per capita GSP reflects below- employment participation, working hours, and productivity Employment-to-population ratio, Average weekly hours worked, Output per hour worked, % of population 36 Hours per week 12 $ per hour worked pc pts hours $16 per hour NSW Vic Qld SA WA Tas NT ACT 6 NSW Vic Qld SA WA Tas NT ACT Source: ABS 522. and 621.

21 Tasmania s below- workforce participation rate is partly the result of its older-than- population Population aged 65 and over, States and Territories, September 215 Median age of population, Tasmania and Australia, June 2 June % of total population 18.3% Years Tasmania 16 (15.%) ½ yrs Australia 36 1¼ yrs June Source: ABS 311. and

22 The structure of Tasmania s economy makes it very difficult for Tasmania to achieve the national level of labour productivity Labourproductivity by industry, Australia, Industry shares of gross value added, Tasmania and Australia, Gross value added ($) per hour worked % of gross valueadded Tasmania Australia All-industry Sources: ABS 526,, 522. and

23 For more details The importance of education

24 Educational attainment is unambiguously positively correlated with workforce participation, and inversely correlated with unemployment Educational attainment and labourforce participation, May 215 Educational attainment and unemployment, May % of civilian population aged % of civilian labour force aged Average Average Year 1 or below Year 11 Year 12 Cert III/IV Diploma / Adv Dip Bachelor Degree Post-grad degree Year 1 or below Year 11 Year 12 Cert III/IV Diploma / Adv Dip Bachelor Degree Post-grad degree Source: ABS

25 Educational attainment is also unambiguously correlated with earning capacity people who complete Year 12 have lifetime earnings which are 42% higher than those who leave school at Year 1, and 64% higher than those who do not go beyond Year 9; the lifetime of earnings of people who complete a bachelor s degree are 45-5% higher than those whose highest educational qualification is Year 12 while those of people with a higher degree are 66-74% higher than those of people whose highest educational qualification is Year 12. Source: Andrew Leigh, Returns to Education in Australia, Economic Papers, Volume 27, No. 3, September 28, pp

26 Tasmania s economic performance is clearly held down by below levels of educational attainment Proportion of population with bachelor s degree or higher, May 215 Proportion of population with no qualification beyond Year 1 of high school, May % of population aged % of population aged Source: ABS

27 Skill levels of Tasmania s workforce aren t likely to improve much while the retention rate to year 12 remains so far below the national School retention rates from Year 1 to Year 12, States & Territories, % School retention rates from Year 1 to Year 12, Tasmania vs national, % Australia Tasmania pc pts Source: ABS

28 Tasmania s poor educational participation and attainment rates are not primarily the result of an above- share of low SES households Year 12 completion rates, by socioeconomic status (SES), 214 Low Medium 9 % 9 % High 95 % pc pts pc pts pc pts NSW Vic Qld SA WA Tas np NT ACT 3 NSW Vic Qld SA WA Tas np NT ACT 6 np Note: Completion rates are estimated by calculating the number of students who meet the requirements of a year 12 certificate or equivalent expressed as a pc of the potential year 12 population. The potential year 12 population is an estimate of a single year age group which could have attended year 12 that year, calculated as the estimated resident population aged divided by five. WA figures in these charts are for 213, because WA changed the pre-year one entry age in 22 resulting in approximately half the normal intake of students for that year level, so that in 214, Year 12 in WA had significantly lower enrolments when compared to the population of the year 12 age group. Source: Productivity Commission, Report on Government Services 216 School Education, Table 4A.124.

29 Nor are Tasmania s poor educational participation and attainment rates the result of insufficient government spending on education State and Territory government spending on primary and secondary education, Per full-time equivalent student As a percentage of gross state product 2 $ per FTE student 4.5 % of gross State product (4.2%) ($11,7) ($12,643) (2.7%) Sources: ABS and

30 Rather, Tasmania spends what it does spend on school education inefficiently Number of full-time equivalent students per government school States and Territories, 215 Tasmania vs mainland, Number 39 Number Mainland Tasmania Sources: ABS

31 Tasmania spends about the same as the national on teachers, and has similar class sizes to the national Spending on teachers in government schools, per FTE student, Average class sizes in government schools, $ per FTE student 15. FTE students per teacher ($16,614) ($16,663) (14.2) (14.5) Source: Productivity Commission, Report on Government Services 216 School Education, Table 4A.14; ABS

32 Tasmania spends about 25% more per government school student on non-teaching staff and other costs than the national Spending on non-teaching staff per FTE government school student, Other operating expenses per FTE government school student, $ per FTE student 14 $ per FTE student ($3,695) ($4,74) (+27%) ($5,15) ($6,225) (+22%) Source: Productivity Commission, Report on Government Services 216 School Education, Table 4A.14..

33 Other reasons for Tasmania s poor Year 12 retention and completion rates Tasmanian children starting school at an older age than elsewhere with the result that a larger proportion of Tasmanian students reach the age at which they can legally leave school at a lower grade than in other parts of Australia the Government s proposed changes to the mandatory school starting and leaving ages prescribed by the Education Act seek to address this problem the structural break in the government high school system between Year 1 and Years 11&12 with the latter years traditionally being taught at separate colleges, a system which exists nowhere else in Australia than in the ACT which sends a signal that Year 1 is an acceptable exit point from education and which has historically been re-inforced by the common practice of describing end-of-year-1 celebrations as Leavers Dinners progressive roll-out of Year 11 & 12 courses at rural and regional High Schools addresses this problem where it is most severe but won t solve the problem in cities where three quarters of Tasmania s students live a culture in which relatively low levels of educational attainment have become the norm that is, one in which low expectations regarding educational participation and attainment are passed on from one generation to the next

34 For more details Tasmania s public sector

35 Tasmania has a relatively large public sector 1 State public sector assets as a pc of GSP, June %of GSP Average of all States & Territories pc pts State public sector spending as a pc of GSP, June %of GSP, Average of all States & Territories +14 pc pts State public sector employment as a pc of total % of total employment Average of all States & Territories +3.3 pc pts NSW Vic Qld SA WA Tas NT ACT Note: Data in these charts are for the non-financial public sector, ie includes departments and agencies, and government business enterprises (GBEs). Sources: Tasmanian and other State & Territory Governments, Budget Papers and Mid-Year Reviews; ABS 522. and

36 Tasmania s public finances are in most respects in reasonable shape General government operating balance General government net debt 1.5 % of gross state product (GSP) 5 % of gross stateproduct (GSP) 1. Tasmania All States & Territories All States & Territories Tasmania -1. Forecasts -3-4 Forecasts Financial years ended 3 June Financial years ended 3 June Note: General government refers to the core government departments and other agencies funded wholly or largely by taxes, fees and fines, GBE income or grants from the Commonwealth. The operating balance is the difference between those sources of revenue and operating expenses such as employee expenses, grants and subsidies, depreciation and interest. Sources: Tasmanian and other State & Territory Governments, Budget Papers and Mid-Year Reviews.

37 The Government made sensible choices as to what to do with last year s GST revenue windfall GST revenues 2,6 2,4 2,2 2, $ mn Actual Budget forecast Budget forecast Budget forecast +$8mn over 4 years to $55mn over 4 years to Infrastructure spending 8 $ mn Actual Budget forecast Budget forecast Budget forecast 1,8 4 1,6 1, Revenue from GBEs $ mn Actual Budget forecast Budget forecast Budget forecast Financial years ended 3 June Financial years ended 3 June , -1, Financial years ended 3 June Net debt $ mn Actual Budget forecast Budget forecast Budget forecast Financial years ended 3 June Sources: Tasmanian Government, Budget Paper No. 1, and previous years.

38 Even though Tasmania has a lot of debt in its GBEs, its total non-financial public sector debt is relatively smaller than most other States Non-financial public sector net debt, Tasmania vs all States & Territories Non-financial public sector net debt, States & Territories, 3 June % of gross state product All States & Territories 16 % of gross state product Tasmania Forecasts Financial years ended 3 June Note: The non-financial public sector includes non-financial GBEs such as Hydro Tasmania, TasNetworks and Aurora Energy (and equivalents in other States & Territories), but excludes financial enterprises such as RBF and MAIB. Sources: Tasmanian and other State & Territory Governments, Budget Papers and Mid-Year Reviews.

39 Where Tasmania really stands out badly is in relation to its unfunded public sector superannuation liabilities General government superannuation liability, States & Territories, 3 June 216 Superannuation expenses as a pc of operating revenue, % of gross state product % of operating revenue Note: General government refers to the core government departments and other agencies funded wholly or largely by taxes, fees and fines, GBE income or grants from the Commonwealth( operating revenues ). Sources: Tasmanian and other State & Territory Governments, Mid-Year Reviews and previous Budget Papers.

40 The unfunded superannuation liability is the major constraint on Tasmania s ability to finance more infrastructure spending Non-financial public sector net financial liabilities as a pc of operating revenue General government infrastructure spending as a pc of gross state product 16 % of operating revenue Forecasts 3.5 % of GSP Forecasts 15 Tasmania Tasmania All States & Territories All States & Territories Financial years ended 3 June Financial years ended 3 June Note: Net financial liabilities is total liabilities (including unfunded superannuation) less financial assets (excluding equity investments in public sector financial and non-financial corporations). General government refers to the core government departments and other agencies funded wholly or largely by taxes, fees and fines, GBE income or grants from the Commonwealth( operating revenues ). Sources: Tasmanian and other State & Territory Governments, Mid-Year Reviews and previous Budget Papers.

41 At some stage the Hodgman Government needs to start laying the ground work for a second term agenda The Hodgman Government is now in the second half of its first term in office it has thus far kept its promises (including promises notto do things) and, by and large, maintained the confidence and trust of the community like Mike Baird (and unlike Campbell Newman or Tony Abbott) and it has made important steps towards improving educational participation and attainment it should (ideally) be starting to give active consideration to the kind of mandate it wants to seek from the Tasmanian people for a second term in office knowing that it will have all the resources of government working for it, rather than arrayed against it The Government has the opportunity to seek a bolder mandate for a second term one which will enable it to make greater inroads into solving Tasmania s long-term problems it should surely want to be able to do more than minding the store The Government could start to develop and argue the case for significant state tax reforms for example, replacing stamp duties with a broadly-based land tax broadening the base and substantially lowering the rate of payroll tax Like Mike Baird, the Hodgman Government could seek a second-term mandate for asset sales to fund substantial new infrastructure investments and for forcing the pace on local government or school amalgamations

42 For more details Tasmania s economic future

43 The Tasmanian economy of tomorrow has to be different from yesterday s The old Tasmanian economy which Bob Cosgrove and Eric Reece built aided by Sir Allan Knight and Russ Ashton and which Robin Gray tried to prolong using borrowed money was only ever sustainable when the world (as far as Tasmania was concerned) consisted of other high-cost locations such as the rest of Australia, Europe, North America and Japan In the world that has been evolving since the mid-198s driven by globalization and the rise of emerging markets, and rapid technological change it s no longer economically sustainable for Tasmania to rely on the volume production of essentially undifferentiatedcommodities competing solely on the basis of price at least, not without paying much lower wages and taxes, and further despoiling the environment Instead, Tasmania s economic prosperity will increasingly depend on its ability to produce and market highly differentiatedgoods and services, embodying a significant intellectual content, for which customers can be persuaded to pay premium prices this is the only way producers based in Tasmania can overcome the disadvantages inherent in small scale and great distance from markets whilst still being able to pay decent wages, sufficient taxes to finance the public services Tasmanians want, and being able to maintain OHS, environmental and other standards That s not to say that there is no role for traditional commodity-based / energy intensive industries in Tasmania they make an important and valuable contribution to the economy and employment but we can t realistically expect them to be major drivers of future growth

44 The eight W s of Tasmania s economic future Wool: for >15 years Tasmania has been producing the finest, most expensive wool in Australia Water: Hydro s renewable energy sold at high prices to mainland wholesale markets (and commanding an additional premium when carbon pricing returns) plus irrigation (an enabler for expansion of the dairy industry) plus premium water (from Cape Grim) in Qantas First Class and expensive restaurants and products from water (like salmon, abalone and oysters) and boatbuilding, marine engineering, Antarctic science etc Wine: Tasmania now produces some of Australia s best, and most expensive, premium wines Whisky: high-priced distilled spirits branded using some of Tasmania s most distinctive characteristics Wasabi: and other horticultural products (cherries, onions, turnips, truffles, etc) sold to at high prices to customers in Northern Hemisphere countries (Japan, Germany, France) who are used to paying high prices, in their off-seasons Wagyu: high-priced beef (retailing in Japan for >A$8 per kilo) Walking (and Wilderness): unique experiences for which tourists will pay premium prices (should include adventure tourism like New Zealand) Walshy: the unique MONA experience (and others like it)

45 For more details

46 This document has been prepared by Saul Eslake on behalf of Corinna Economic Advisory Pty Ltd, ABN , whose registered office is located at Level 11, 114 William Street, Melbourne, Victoria 3 Australia. This document has been prepared for the use of the party or parties named on the first page hereof, and is not to be further circulated or distributed without permission. This document does not purport to constitute investment advice. It should not be used or interpreted as an invitation or offer to engage in any kind of financial or other transaction, nor relied upon in order to undertake, or in the course of undertaking, any such transaction. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable. The views expressed in this document accurately reflect the author s personal views, including those about any and all financial instruments referred to herein. Neither Saul Eslake nor Corinna Economic Advisory Pty Ltd however makes any representation as to its accuracy or completeness and the information should not be relied upon as such. All opinions and estimates herein reflect the author s judgement on the date of this document and are subject to change without notice. The author and Corinna Economic Advisory Pty Ltd expressly disclaim any responsibility, and shall not be liable, for any loss, damage, claim, liability, proceedings, cost or expense ( Liability ) arising directly or indirectly (and whether in tort (including negligence), contract, equity or otherwise) out of or in connection with the contents of and/or any omissions from this communication except where a Liability is made non-excludable by legislation. Any opinions expressed herein should not be attributed to any other organization with which Saul Eslake is affiliated.