Prepared and presented by Saul Eslake

Prepared and presented by Saul Eslake

First the good news

Tasmania s economy is bigger than we knew Tasmania s gross state product before & after 6 55 5 45 $bn (current prices) 216-17 estimates 215-16 estimates Real growth in GSP before & after 5 4 3 2 1 % change from year earlier 215-16 estimates 216-17 estimates Tasmania s per capita GSP as pc of national average 82 8 78 76 74 % of national average 216-17 estimates 4 72 215-16 estimates 35 5 6 7 8 9 1 11 12 13 14 15 16 17-1 5 6 7 8 9 1 11 12 13 14 15 16 17 7 1 3 5 7 9 11 13 15 17 Financial years ended 3 June Financial years ended 3 June Financial years ended 3 June Source: ABS State Accounts.

Some sectors of the economy have been doing very well Sectors of Tasmania s economy with above-average growth in output and/or employment over the past three years 8 6 % pa (213-14 to 216-17) Output (real gross value added) Employment 1.8% 4 2-2 -4-6 Agriculture forestry & fishing Financial & insurance services Rental, hiring & real estate services Health care & social assistance IT, media & telcoms services Wholesale trade Retail trade Public admin & safety Accommodation & food services Construction Art & recreation services Source: ABS State Accounts.

Business is confident and it s investing SME business confidence Business investment 8 Net balance (%) 3 Real % change from year earlier (trend) 7 6 Tasmania 2 Tasmania 5 1 4 3 2 1 Australia 6 7 8 9 1 11 12 13 14 15 16 17 Sources: Sensis; ABS. -1-2 -3 Mainland 6 7 8 9 1 11 12 13 14 15 16 17

Confidence in State Government policies is high SME confidence in state/territory government polices, Sep qtr 217 SME confidence in Tasmanian government policies 2 15 Net balance (%), September qtr 217 4 3 Net balance (%) 1 2 5-5 -1-15 -2-25 -3 1-1 -2-3 -4-5 -6-7 1 3 5 7 9 11 13 15 17 Source: Sensis

Commercial construction is at a six-year high Value of non-residential building work done 4 35 3 25 2 15 1 5 $mn (current prices) 11 12 13 14 15 16 17 Financial years ended 3 June Short-term accommodation Offices Retail & wholesale premises Health & aged care facilities Factories & warehouses Primary industry buildings Education buildings All other Source: ABS.

Goods exports are rebounding, services are booming Merchandise exports Services exports 4 3 % change from year earlier (12-month moving total) Mainland 5 4 % change from year earlier Tasmania 2 3 1 2 1-1 Tasmania Mainland -2-1 -3 6 7 8 9 1 11 12 13 14 15 16 17 Source: ABS. -2 6 7 8 9 1 11 12 13 14 15 16 17

Tourism is the major driver of the services exports boom Visitors to Tasmania Spending by visitors to Tasmania 1,5 's 2.4 $bn 1,25 1, International Interstate 2.2 2. 75 1.8 1.6 5 1.4 25 1.2 7 8 9 1 11 12 13 14 15 16 17 1. 7 8 9 1 11 12 13 14 15 16 17 Financial years ended 3 June Financial years ended 3 June Source: Tourism Tasmania.

Tasmania s property market is doing well Capital city home values year to November Median sales prices Hobart vs mainland Median sale prices Hobart and regions 14 12 1 8 6 4 2-2 -4-6 % change National average 7 65 6 55 5 45 4 35 3 25 $ Five major capital cities Regional Australia Hobart 45 4 35 3 25 2 $ Hobart Launceston North-west Coast -8 SYD MEL BNE ADL PER HBA DRW CBR 2 6 7 8 9 1 11 12 13 14 15 16 17 15 6 7 8 9 1 11 12 13 14 15 16 17 Source: CoreLogic ; REIT.

Tasmania s labour market is improving Employment 25 s 245 24 Unemployment rate 9 % of labour force (trend) 8 Tasmania 7 73 72 71 Proportion of 15-64 year olds in employment % of civilian population aged 15-64 (12-month moving average) Mainland 235 6 7 69 23 225 Seasonally adjusted Trend 5 4 Mainland 68 67 Tasmania 22 6 7 8 9 1 11 12 13 14 15 16 17 3 6 7 8 9 1 11 12 13 14 15 16 17 66 6 7 8 9 1 11 12 13 14 15 16 17 Source: ABS.

The state s population growth is picking up Population growth Contributors to Tasmania s population growth 2.5 % change from year earlier 4 's (4-qtr moving total) 2. Australia 3 2 Natural increase 1.5 1. Tasmania 1 Overseas migration -1.5-2 Interstate migration. 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17-3 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Source: ABS.

Tasmania s public sector finances are in good shape Operating revenues and expenses Bottom line measures 8 7 6 % pa 'Operating' revenue 'Operating' expense 1..8.6 $bn Net operating balance Forward estimates 5 4.4.2 Fiscal balance 3 2 Forward estimates. -.2 1 21-2 to 29-1 21-11 to 213-14 214-15 to 216-17 217-18 to 22-21 -.4 -.6 'Underlying' net operating balance 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Source: Tasmanian Government Budget Papers and Treasurer s Annual Financial Report.

Tasmania s public sector finances are in good shape (mostly) General government net debt, 3 June 217 1 % of GSP Total non-financial public sector net debt, 3 June 217 16 % of GSP 8 6 Average of all states & territories 14 12 Average of all states & territories 4 1 2 8-2 6 4 2-4 Source: State and Territory Government Annual Financial Reports 216-17, exc. for Qld & SA, 217-18 Budget Papers.

But it s not all good news

Tasmania s per capita economic growth rate remains low Real per capita growth in Tasmanian gross state product (GSP) 6 % change from previous year Real per capita GSP growth in states and territories pre- and post-gfc 3.5 % per annum 5 4 3 2 Average 2.9% pa Average.6% pa 3. 2.5 2. 21-2 to 28-9 29-1 to 216-17 1 1.5-1 -2 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Financial years ended 3 June 1..5. Source: ABS

Most of the employment growth has been in part-time jobs Part-time employment Full-time employment Under-employment 1 95 9 85 8 75 7 s (trend) Mainland (right scale) Mns (trend) Tasmania (left scale) 4. 3.8 3.6 3.4 3.2 3. 2.8 17 165 16 155 15 145 s (trend) Mainland (right scale) Tasmania (left scale) Mns (trend) 8.4 8.2 8. 7.8 7.6 7.4 7.2 7. 13 12 11 1 9 8 7 6 % of total employment (trend) Tasmania Australia 65 6 7 8 9 1 11 12 13 14 15 16 17 2.6 14 6 7 8 9 1 11 12 13 14 15 16 17 6.8 5 6 7 8 9 1 11 12 13 14 15 16 17 Source: ABS.

Household spending remains soft Consumer confidence Retail sales 13 125 12 115 11 15 1 95 Ratio of optimists to pessimists (trend) Australia 12 1 8 6 4 2 % change from year earlier (trend) Tasmania Mainland 9-2 85 Tasmania -4 8 6 7 8 9 1 11 12 13 14 15 16 17-6 6 7 8 9 1 11 12 13 14 15 16 17 Sources: Westpac/Melbourne Institute ; ABS.

Housing activity has been particularly weak (and grants to first home buyers don t work) Residential building activity 25 2 15 1 5-5 -1-15 -2-25 Real % change from year earlier (trend) Mainland Tasmania 6 7 8 9 1 11 12 13 14 15 16 17 2. 1.8 1.6 1.4 1.2 Lending to Tasmanian first home buyers Number of loans (12-mth moving total, s) 11 12 13 14 15 16 17 14 13 12 11 1 Lending for construction or purchase of new homes 9 8 % of total finance commitments (12-month moving average) 6 7 8 9 1 11 12 13 14 15 16 17 Source: ABS.

Manufacturing and mining are still struggling Tasmanian manufacturing Tasmanian mining 2.3 2.2 2.1 $bn Employment (right scale) 24 23 22 1.4 1.3 1.2 $bn Real gross value added (left scale) 5. 4.5 4. 2. 21 1.1 3.5 1.9 2 1. 3. 1.8 19.9 2.5 1.7 1.6 Real gross value added (left scale) 18 17.8.7 Employment (right scale) 2. 1.5 1.5 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Financial years ended 3 June 16.6 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Financial years ended 3 June 1. Source: ABS.

Hobart s rental market is getting very tight Rental vacancy rates Median rents (3br houses) Rental affordability (low-income households) 6 5 % (4-quarter moving average) North-West Coast 4 35 $ per week (4-quarter moving average) Hobart 13 125 Index Mainland capitals 4 3 Launceston 12 115 3 2 Launceston Hobart 25 2 North-West Coast 11 15 Hobart 1 6 7 8 9 1 11 12 13 14 15 16 17 15 7 8 9 1 11 12 13 14 15 16 17 1 12 13 14 15 16 17 Sources: REIT ; SGS Economics & Planning

Tasmania has a huge unfunded superannuation liability Unfunded superannuation liabilities (as at 3 June 217) Annual cost of superannuation payments 35 3 % of GSP 216-17 25 2 15 1 Average of all states & territories 5 Source: State and Territory Annual Financial Reports and Budget Papers.

Tasmania faces a huge risk from the possibility of changes to the GST revenue-sharing arrangements

Tasmania does very well out of the existing arrangements GST revenue shares per head of population, 217-18 Differences in state & territory GST revenue shares from equal per capita 6 5 $' per capita $11.8K 3 2 $bn 4 3 Average of all states & territories 1-1 2-2 1-3 -4-5 Source: Federal Government Budget Paper No. 3, 217-18; Commonwealth Grants Commission.

Otherwise Tasmania would have to tax more & spend less State taxation revenue per head of population, 217-18 Government operating expenses per head of population, 217-18 5 $' per head, 217-18 16 $' per head, 217-18 $24,8 4 3 2 Average of all states & territories -$1,122 per head 12 8 Average of all States & Territories +$978 per head 1 4 Source: State and Territory Governments, 217-18 Budget Papers; ABS.

Who would lose so that WA can get more? Impact of alternative options on states and territories 217-18 GST revenues Equal per capita 5 $bn 4 3 2 3 2 7% floor Equalization to second strongest state $bn 4 3 2 $bn 1 1 1-1 -2-1 -3 NSW Vic Qld SA WA Tas NT ACT -1 NSW Vic Qld SA WA Tas NT ACT -2 NSW Vic Qld SA WA Tas NT ACT Source: Productivity Commission.

Tasmania s longer-run economic challenge remains daunting

We are Australia s poorest state - and still will be in 22-21 Gross state product per head, 216-17 Gross state product per head, 22-21 (budget forecasts) 14 $ per head, 216-17 14 $ per head, 22-21 12 12 1 8 6 National average $15.5K 1 8 6 National average $16.9K 4 4 2 2 Source: ABS; State and Territory Governments, 217-18 Budget Papers.

The federal tax-transfer system insulates us to some extent 1 8 6 4 2-2 Personal income tax payments less social security income, 216-17 $ per person, 216-17 National average 1 9 8 7 6 5 4 3 2 1 Household disposable income per person, 216-17 $ per person, 216-17 National average $6,4 Source: ABS; State and Territory Governments, 217-18 Budget Papers.

Poor (rich) households are over - ( under -) represented Low socio-economic status households, 215 High socio-economic status households, 215 6 5 4 % of population, December 215 National average 9 8 7 6 % of population, December 215 3 5 4 National average 2 3 1 2 1 Most disadvantaged 2nd most disadvantaged Least disadvantaged 2nd least disadvantaged Source: Commonwealth Grants Commission.

Why is there a $15,5 or 21½% GSP gap? employment population gross State product population = total hours worked employment = gross State product population gross State product total hours worked

Why is there a $15,5 or 21½% GSP gap? employment population participation rate gross State product population = total hours worked employment = average hours worked gross State product total hours worked labour productivity

The employment gap accounts for 37% of the GSP gap Employment as a pc of population, States & Territories, 216-17 56 54 % of (entire) population 52 5 Employment as a pc of population, Tasmania & Australia, 2-1 to 216-17 % of (entire) population Australia 52 5 48 46 44 The 3 pc point gap in employment participation rates accounts for $5,775 or 37% of the difference in per capita GSP between Tasmania and the national average Source: ABS. National average 3. pc pts 48 46 44 42 4 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Financial years ended 3 June Tasmania

The hours worked gap accounts for 42% of the GSP gap Average weekly hours worked, States & Territories, 216-17 35 34 33 32 31 Hours per week, 216-17 National average 1.4 hours 35 34 33 32 Average weekly hours worked, Tasmania & Australia, 2-1 to 216-17 Hours per week Australia 3 31 Tasmania 29 28 3 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Financial years ended 3 June The 1.4 hours per week gap in average hours worked (equivalent to more than 11 days per annum) accounts for $6,45 or 42% of the difference in per capita GSP between Tasmania and the national average Source: ABS.

The productivity gap accounts for 21% of the GSP gap Gross product per hour worked, States & Territories, 216-17 11 15 1 95 9 85 8 75 7 65 $ per hour worked National average $12.68 per hour 85 8 75 7 65 6 55 Gross product per hour worked, Tasmania & Australia, 2-1 to 216-17 $ per hour (215-16 prices) 1 3 5 7 9 11 13 15 17 Financial years ended 3 June Australia Tasmania The $12.68 per hour (or 12%) productivity gap accounts for $3,225 or 21% of the difference in per capita GSP between Tasmania and the national average Source: ABS.

Summary of the reasons for the $15,5 GSP gap Sources of the difference in per capita gross product between Tasmania and Australia, 216-17 75 $ per head 7 65 6 -$5,775 (37%) 55 5 -$6,45 (42%) -$3,225 (21%) 45 4 Source: ABS. Gross product per capita - Australia Difference in employment / population ratio Difference in average hours worked Difference in labour productivity Gross product per capita - Tasmania

Our employment rate is affected by our age profile Median age, states & territories (216 Census) 44 42 Years Proportion of working age population who are 65 or older 24 23 % of civilian population aged 15-64 (12-month moving average) Tasmania 4 38 36 National average 22 21 2 19 Mainland 34 18 17 32 16 3 15 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Source: ABS.

but there is still room to lift employment rates Employment rates by age group, Tasmania and mainland, 216-17 85 8 75 % of population in each age group, 216-17 Tasmania Mainland % 13 7 12 65 6 55 11 5 45 4 15-19 2-24 25-34 35-44 45-54 55-64 Age range 65+ (RHS) 1 Source: ABS.

High-productivity industries are under-represented Labour productivity by industry, Australia, 216-17 Employment by high, medium and low productivity industries, 216-17 Mining Financial & insurance services Electricity, gas & water Rental, hiring & real estate services Info, media & telcoms services Wholesale trade Administration & support services Public administration & safety Transport, postal & warehousing Agriculture, forestry & fishing Prof'nal, scientific & technical Construction Manufac turing Education & training Health care & social assistance Retail trade Art & recreation services Accommodation & food services Other services Source: ABS. All-industry average $ per hour worked 25 5 75 1 125 15 175 2 6 5 4 3 2 1 % of total employment (216-17) Industries where labour productivity is >1% of all industries average Industries where labour productivity is 67-1% of all industries average Tasmania Australia Industries where labour productivity is <67% of all industries average

but we could lift productivity in the industries we do have Tasmanian labour productivity as a pc of national industry averages, 216-17 Agriculture, forestry & fishing Info, media & telcoms services Health care & social assistance Financial & insurance services Education & training Art & recreation services Wholesale trade Other services Manufac turing Retail trade Electricity, gas & water Mining Public administration & safety Accommodation & food services Transport, postal & warehousing Administration & support services Construction Prof'nal, scientific & technical Rental, hiring & real estate services Source: ABS. % of national average for each industry 25 5 75 1 125 15 45 4 35 3 25 2 15 1 5 Tasmanian employment by industry productivity as pc of national, 216-17 % of total Tasmanian employment Industries where Tas labour productivity is above the national industry level Industries where Tas labour productivity is up to 2% below national industry level Industries where Tas labour productivity is more than 2% below national industry level

Should we be satisfied with being just another region? 25 2 15 1 5 Pc of population aged 65 & over % of total (216 Census) Rgnal NSW Rgnal Vic Rgnal Qld Rgnal SA Average Rgnal WA Sources: ABS ; SGS Economics & Planning Tas Employment-population ratio 6 55 5 45 4 35 3 % of total (216 Census) Average Rgnal NSW Rgnal Vic Rgnal Qld Rgnal SA Rgnal WA Tas 1 Gross regional product per capita 9 8 7 6 5 4 3 2 1 $, (216-17) Average excluding regional WA Rgnl NSW Rgnl Vic Rgnl Qld Rgnl SA $235K Rgnl WA Tas

Higher levels of educational participation and attainment would make a big difference to Tasmania s economic performance

Education boosts employment prospects and incomes Educational attainment and employment rate Educational attainment and average earnings 9 8 % of civilian population aged 15-74, May 216 1,6 1,5 1,4 $ per week, August 216 7 6 5 Average 1,3 1,2 1,1 1, 9 Average 4 8 7 3 Yr 1 or below Yr 11 Yr 12 Cert III/IV Diploma / Adv Dip 6 None Cert I/II Cert III/IV Undergrad degree Postgrad degree Diploma/ Adv Dip Grad dip / cert Bachelor degree Postgrad degree Source: ABS

Tasmania s population is the least educated in Australia Population aged 15-75 with bachelor degree or higher Population aged 15-75 with no qualification beyond Year 1 45 4 % of population aged 15-75 (May 217) 3 28 26 % of population aged 15-75 (May 217) 35 3 National average 24 22 2 National average 8.2 pc pts 25 2 15 7.6 pc pts 18 16 14 12 1 1 Source: ABS

Our Year 12 retention rates are still way below average Apparent retention rates to Year 12, 216 1 95 216 Year 12 enrolments as a % of 214 Year 1 enrolments 85 8 Apparent retention rates to Year 12, Tasmania and Australia Year 12 enrolments as a % of Year 1 enrolments two years earlier Australia 9 85 National average 75 7 8 75 7 12.1 pc pts 65 6 Tasmania 65 55 6 5 9 92 94 96 98 2 4 6 8 1 12 14 16 Source: ABS. X is retention rate for NT non-indigenous population.

Y12 certificate completion rates also well below average Year 12 completion rates, 215 9 85 8 75 7 65 6 55 5 45 % National average 24 pc pts Year 12 completion rates, Tasmania and Australia 8 75 7 65 6 55 5 45 4 % Australia Tasmania 4 Note: Completion rate is the number of students meeting the Y12 Certificate or equivalent requirements as a pc of potential Y12 population (defined as one-fifth of the 15-19 population). Source: Productivity Commission. 35 9 1 11 12 13 14 15 16

This isn t because we have relatively more rural students Year 12 completion rates by location, States and Territories, 215 9 8 7 6 5 Metropolitan % National average 2 pc pts 9 8 7 6 5 % Provincial 24 pc pts National average 9 8 7 6 5 % Remote 27 pc pts National average 4 4 4 3 3 3 2 2 2 1 na 1 na 1 na na na Source: Productivity Commission. na means population too small for statistical purposes.

Nor is it because we have more students from poor homes Year 12 completion rates by students backgrounds, States and Territories, 215 1 9 8 7 6 5 % Low SES Medium SES High SES 24 pc pts National average 1 9 8 7 6 5 % 22 pc pts National average 1 9 8 7 6 5 % National average 15 pc pts 4 4 4 3 3 3 2 1 na 2 1 na 2 1 na Source: Productivity Commission. na means population too small for statistical purposes.

Nor is it because we don t spend enough on education Government spending on school education per FTE student, 215-16 22 2 $ per FTE student, 215-16 Government spending on school education as a pc of GSP, 215-16 4.5 4. % of gross State product, 215-16 18 16 14 12 National average +$1,961 3.5 3. 2.5 National average +1.6 pc pts 1 2. 8 1.5 6 Source: ABS. 1.

The college system is no longer fit for purpose The college system may do a good job of providing Year 11 & 12 courses to the students who attend them But they are an expensive way of providing them and their existence represents an obstacle to matching the rest of Australia s Y12 attainment rates If Tasmania s college system is so good, why has no other state copied it (even for their regional areas)? The available evidence suggests that extending Y11 & 12 courses in rural & regional high schools has lifted completion rates... Extending the same opportunities to students at urban high schools is a good idea Y12 completion rates at extension schools 45 4 35 3 25 % of students enrolled 2 years earlier That probably will make the colleges unsustainable convert them to, or merge them with, Y7-12 schools 2 212 213 214 215 216 Source: TASC.

Some other suggestions

Set a target for Tasmania s economic performance It s highly unlikely that Tasmania could ever again achieve the same level of per capita gross product or income as the national average But we could, and should aim to, do better than we have been doing and are likely to do if nothing changes If we do nothing then our demographic profile means that we will continue to fall further behind A demanding but achievable target might be to raise Tasmania s per capita GSP relative to the national average to where SA is now (ie from 78½% to 83½%) That could be accomplished by 225-26 if Tasmania s economy grew ¾ pc pt pa faster than the national average which we have done before! Real per capita GSP growth Tasmania and Australia 3.5 3. 2.5 2. 1.5 1..5. % per annum 199-91 to 2-1 Source: ABS. 21-2 to 28-9 Tasmania Australia 29-1 to 213-14 214-15 to 216-17

Spend more on health and community services Tasmanian government spending relative to Grants Commission benchmarks for service provision at the same level as the average of all states and territories -5 Health Community services & welfare -5 9 8 7 $mn Services to industry -1-1 6 5-15 -15 4 3-2 -2 2-25 $mn 211-12 212-13 213-14 214-15 215-16 -25 $mn 211-12 212-13 213-14 214-15 215-16 1 211-12 212-13 213-14 214-15 215-16 Source: Commonwealth Grants Commission.

Do some serious state taxation reform 7. 6.5 6. 5.5 5. 4.5 4. 3.5 3. Payroll tax rates and thresholds % $ Tax rate (left scale) Threshold (right scale) Note: Qld, WA & NT phase out tax free thresholds on larger payrolls. WA to impose higher marginal rate of 6.5% on large employers from 218-19 through 222-23. Source: NSW Treasury. 2 175 15 125 1 75 5 25 Tasmania has the highest payroll tax rate of any state, levied on the narrowest tax base of any state (ie, the highest threshold) If all businesses paid payroll tax the rate could be lowered to less than 4%, the lowest in Australia There really isn t any valid economic reason for small businesses to be exempt from payroll tax If it is thought necessary to offer some kind of concession or exemption, much smarter (and cheaper) to offer it to new businesses Every enquiry that s ever looked at property taxation recommends replacing stamp duties with a broader land tax gradually, with transitional provisions and special provisions for asset-rich, income-poor people Tasmania should be a pioneer of reform

Consider asset sales to offset the unfunded super millstone IMF, RBA, OECD and others all advise governments should be willing to borrow more at very low interest rates to fund worthwhile infrastructure investment Tasmania has very low public sector net debt but its huge unfunded super liability is a major constraint on its ability to borrow for infrastructure spending The only ways of loosening this constraint are by running large budget surpluses or by selling assets and investing the proceeds to offset the liability Not all assets/businesses are suitable candidates Hydro Tas, TT-Line, Metro, TasRail, TasWater(?) But others should be considered TasNetworks, Aurora, TasPorts, MAIB similar entities sold in other states, could be attractive to super funds, can be regulated so as to avoid failings of other privatizations General government infrastructure investment 3. 2.5 2. 1.5 1..5. % of GSP All States & Territories Tasmania 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 21 Financial years ended 3 June Source: State & Territory Budget Papers; ABS. Forward estimates

The economic and social challenges facing Tasmania, over the next four years and well beyond, cannot be addressed by a government which has sought a mandate for doing nothing more than minding the store, however competently they promise to do that. Tasmania has made some genuine and tangible progress in recent years. There is a greater sense of optimism about what may be possible. This is a moment in Tasmania s history where those who seek to shape its future should be imaginative and bold, rather than cautious or timid. It is a time, to paraphrase Robert Kennedy, to think of what could be, and ask why not?

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