Tasmania’s economy continues to outperform rest of the nation, but economists warn the island state isn’t without challenges on the horizon.
- Tasmania was the best performing economy in the country for the third month in a row
- Population growth has helped contribute to its economic success
- Economists say Tasmania should focus on tackling unemployment and diversifying beyond tourism
It’s the second time in a row that Tasmania’s economy has topped CommSec’s quarterly State of the States report, which compares states and territories’ performances against their decade averages.
The report looks at eight performance indicators to gauge how each state’s economy is performing — population growth, retail spending, economic growth, unemployment, equipment investment, construction work, housing finance and dwelling starts — using data captured from the June quarter onwards.
Prior to July this year, the state was last awarded the top spot in its own right back in October 2009. It then entered a recession.
This quarter, along with the top spot, Tasmania also led the way on five of the eight indicators: population growth, equipment investment, housing finance, dwelling starts and retail trade.
Tasmania has now recorded 75 days without a new case of coronavirus, and CommSec chief economist Craig James said the state’s handling of the pandemic had contributed to its broader economic success.
“Certainly, that has been a contribution to the overall economic performance, but when we think about economic performance, we’re looking at something that evolves over a longer period of time,” he said.
“The fact that Tasmanian population growth has been picking up over the last couple of years, that’s created demand for homes, so home building has picked up, and we’ve seen a degree of improvement in terms of retail spending as well.”
He said population growth has an “element of power” that helps drive the state’s economy.
“If there’s more people coming to Tasmania, that creates demand for jobs, creates demand for homes for home building, all those related industries,” Mr James said.
Despite Tasmania maintaining its top-tier economic performance, it doesn’t necessarily mean the state now has a clear path out of recession.
“History does tell us that even though Tasmania might have been doing better than other states and territories heading into the present recession, that’s unfortunately no guarantee that we’ll come out of it better, earlier or faster than other states and territories do,” independent economist Saul Eslake said.
“If you look back over the last three recessions … on two of those three occasions, Tasmania went into it with a lower unemployment rate and in some other ways, faster economic growth than the rest of Australia,” he said.
“But on each of those three occasions, we took longer to come out of it and it took longer than the rest of Australia to regain the jobs that had been lost during the recession.
Tasmania’s narrow economy is what will present some of the biggest challenges for the island as it looks ahead.
Although the state will reopen its borders to low-risk jurisdictions today, tourism will likely remain one of the key industries that will require ongoing support, with about 17 per cent of Tasmania’s workforce employed in the sector.
“We know that one of the industries that has sustained long-term damage to its prospects from the pandemic and its aftermath has been tourism,” Mr Eslake said.
“That alone is probably one reason why, no matter how well we were doing before the pandemic and the recession hit us, it will be more of a struggle to get out of it than it will have been for other states and territories,” Mr Eslake said.
It is for that reason Mr Eslake said it will be important that the State Government announces ongoing support for Tasmanian households and businesses in its upcoming Budget.
“Tourism will continue to struggle to get back to where it was, if indeed, it ever does.”
Mr Eslake said the state should now consider broadening its horizons beyond its tourism drawcard
Those other areas, he said, could include agriculture and food, minerals processing, and “perhaps some areas of manufacturing in which we have a comparative advantage”.
It’s an idea supported by Mr James.
“Now you need to be focusing on broadening the base in terms of export industries, and also creating enough internal demand making sure that Tasmanians focus on Tasmanian products, rather than going elsewhere to either the mainland or even to the rest of the world,” Mr James said.
Mr James said unemployment would also remain one of the bigger long-term challenges for Tasmania, with the indicator a noted area of weakness for the state in the CommSec report.
“That’s always been the sticking point for Tasmania; the unemployment rate has been a little bit higher than compared with the rest of the nation,” he said.
“Hopefully, what we will see is that, given the degree of normalcy that exists in Tasmania, that more people return to their place of employment, they re-engage with the workforce, and there won’t be an issue.
“But I think what we are seeing, unlike other parts of the country like Victoria, Tasmanian workers are re-engaging with their workforces, and what we’re seeing is a degree of improvement for those people who had positions before COVID.”
In a statement, Premier Peter Gutwein said the report is evidence that the Government’s economic support package of more than $1 billion has helped sustain the Tasmanian economy.
“The Government is doing everything it can to support confidence, drive investment and create jobs, and this report is proof that we’re delivering on our plan and doing exactly that.”