The coronavirus crisis is pushing Tasmania towards a recession, with deficits of $716.4 million predicted this year and more than $1 billion next year, according to the latest figures released by the Treasury Department — but a prominent economist has said the state has been in far worse positions in the past.
The economic and fiscal update gives an indication of the impact of COVID-19 on the state’s economy, and has been provided because the annual state budget — usually held in May — has been delayed until November.
Last year’s state budget had predicted a surplus of $57.4 million, but the state is now expecting to go into deficit, meaning it will spend more than it receives.
According to the update, the state will be in net debt of $645.9 million by the end of this financial year, up from the $284.5 million that had been predicted.
The net debt estimate for 2020-21 rises to $2.348 billion.
Treasury has warned the update relies on more assumptions than usual, and said the state’s budget position will be impacted by reduced GST receipts and state revenues.
Treasury is predicting the state’s unemployment rate will be 12.23 per cent in June this year, with a fall in employment headcount of 27,500 people.
Gross state product (GSP) is now expected to decline by 1.75 per cent in 2019-20, after last year’s budget predicted growth of 3 per cent.
If realised, it would be the first decline in GSP in Tasmania since 2012-13 and the largest decline in the history of state accounts systems instituted in 1989-90.
Premier Peter Gutwein, who is also the Treasurer, ruled out a period of coming strict austerity for Tasmania, but would not be drawn on whether public service jobs might be cut.
“We will need to look at the budget situation as we go forward,” Mr Gutwein said. “We will need to be responsible.
Over 470k would have become ill, modelling says
Mr Gutwein stressed the number of public service jobs was not under consideration at present, and any measures that might hamper spending were not being discussed now.
“At this stage I haven’t considered introducing any new taxes,” he said. “We are going to build ourselves out of it.
“That’s why today I’m announcing that in the coming weeks and months, we’re going to lay out the most aggressive construction program in Tasmania’s history.
“This week I’ve tasked Treasury to do an immediate review of our $3.7 billion infrastructure program and identify those projects that can be brought forward and commenced swiftly.”
The Tasmanian Government said the financial update needed to be considered within the context of coronavirus modelling provided to National Cabinet.
The modelling indicated that if far-reaching action to reduce the spread of coronavirus had not been taken, up to 89.1 percent of Australians could have become infected.
In Tasmania, that would have equated to 477,000 people infected with COVID-19, 29,400 hospitalised, and 4,700 dead.
Economist says state can carry debt
Independent economist Saul Eslake said there was no doubt Tasmania was now in recession for the first time since the collapse of the forestry industry earlier this decade.
Be he believed the state can bounce back.
“The recovery will initially be fragile, especially while our borders remain closed.”
Mr Eslake said while the state’s debt was predicted to be more than $2 billion by June next year, Tasmania has been in far worse positions in the past.
“As a proportion of our state’s annual income, it represents a little over 6 per cent. We’ve had much worse than that in living memory,” he said.
“Tasmania’s net debt peaked at a little over 15 per cent of annual state income in 1994/95 and as recently as 2001 it was still higher as a proportion of our state’s income than it will be on these forecasts in June next year.
“In my view, at least for the near term, we can afford to carry this debt, given that interest rates are, and probably will be, much lower than they have been in the recent past.”
Mr Eslake also said Tasmania might experience fewer job losses than the predicted 27,500.
“Even if we lost as many jobs in May as we did in April, that should be the bottom of it … now that we’re beginning gradually open the economy up,” he said.
“So, it’s possible that the net loss of jobs and increase in unemployment, bad though it is, will not be as bad as the forecast.”
Call to rule out public service cuts
Shadow Treasurer David O’Byrne said the figures were “devastating,” and called on the Premier to rule out public sector job cuts.
“Before COVID-19, we were careering towards a deficit, and careering towards next year $600m in net debt, so the Government and the budget is very thin in terms of its ability to respond,” Mr O’Byrne said.
“The measurement will be how they treat the labour market, how they respond to the jobs challenge, and that must be around the unemployment rate, the underemployment rate, and the participation rate.
“It must also be measured on the delivery of good public services, particularly around health, housing and education.”
The Tasmanian Greens said the construction agenda should focus on affordable housing.
Tasmanian Chamber of Commerce and Industry chief executive Michael Bailey said it will be a long-haul to get the economy back on track, calling on the Government to reduce taxes to help businesses rebuild.
“We believe the Government should focus on three key areas — supporting businesses to reopen and stay open, investing in our people, and investing in infrastructure,” he said.
“If the Government gets its policy settings right in these three areas, we believe it will give the business community the best chance to recover as quickly as possible.”
But Mr Gutwein had said Tasmania was in a good economic situation before coronavirus and that would hold it in good stead.
“Coronavirus has brought to the world, [to] our country, and [to] our state both a health crisis and an economic crisis,” he said.
“Whilst it was only in March last year that our economy was the envy of the nation, it’s imperative that we moved as we did to protect Tasmanian lives and to take the action that we did to restrict the movement of people to contain the virus.
“We took Tasmania to the position of the fastest growing state in the country, equal with Victoria. Rebuilding it from the coronavirus is our next challenge.”
The next state budget will be delivered on November 12 this year.