Tasmania's economy is in dire straits, and it's a ticking time bomb for all Australians. The numbers paint a grim picture: annual interest costs are projected to skyrocket by a staggering 202% between the last financial year and 2027-28. General government net debt is on a worrying upward trajectory, set to soar from $4.2 billion to a whopping $13 billion.
Spending has been on an unsustainable rise, growing at nearly 10% annually since the turn of the decade. Meanwhile, revenues have failed to keep pace with this spending explosion. Treasury officials, in their pre-election outlook report, have painted a bleak picture, likening it to the desolate Tasmanian wilderness in the depths of winter.
"The state budget has a structural problem. Expenses, largely driven by health demands and costs, are growing faster than the state's revenue sources," they warned.
This imbalance has been building for years, with state budgets and forward estimates defined by increasing deficits and debt. Tasmania is spending more than it earns, and the gap is widening.
Treasury has outlined some unpalatable options for Senator Abetz and Premier Rockliff. These include spending cuts, potential privatizations, and tax increases.
"A combination of revenue and expenditure measures is necessary. No single intervention is likely to be sufficient to put Tasmania on a sustainable fiscal path," the report stated.
But here's where it gets controversial: Treasury also cautioned against moving too quickly to repair the budget, as it could provide negative shocks to an already uncertain economic outlook.
So, what does this mean for taxpayers in Sydney or Melbourne? Well, if Tasmania fails to rein in its debt and interest levels, the federal government may be left holding the bag for Apple Isle taxpayers, just as it did during the Great Depression.
This could manifest as increased assistance to Tasmania, such as special grants to fund hospitals. But it could also lead to more serious consequences.
If Tasmania defaults on its debts, it's hard to imagine the federal government allowing such a scenario. Tasmania has around $1.3 billion in state government bonds maturing next February, including $265 million held by the Reserve Bank.
A default would impact the ratings of all other states, increasing borrowing costs for taxpayers across the country.
Senator Abetz and his team should brace for a credit rating downgrade, regardless of next week's outcome. S&P Global has already placed Tasmania on a negative outlook.
Tasmania's credit rating is likely to be cut to AA or lower, impacting its future borrowing costs. This should serve as a wake-up call to all states and territories, highlighting the importance of budget management.
Abetz's rhetorical flourish about not leaving debts for future generations is about to be put to the test. If he fails, we may see a desperate Premier searching for cash, with empty suitcases in hand.
Shane Wright, senior economics correspondent for The Age and The Sydney Morning Herald, brings this important story to light.
Sign up for The Morning Edition newsletter for more insightful analysis and stay informed.
