The State Of The Tasmanian Economy | 2024 Overview

As of 2024 the Tasmanian economy and wider society has experienced a combination of both prosperity and struggle. For this year in review we will be exploring both the positive and negative factors at play in the Tasmanian economy, as well as compare Tasmania's economy performance over the last 20 years and determine the uncertain future for the state.

The Big Picture

Between 2023-2024 Financial Year, the Australian economy grew by 1%, marking the weakest growth since Q4 2020. Tasmania's GSP (Gross State Product) grew by 1.4%, behind Victoria (1.5%) and ahead of New South Wales (1.2%). as for per person performance, during this period the rest of the nation's GDP Per Capita fell by -1% while Tasmania grew by 1%, outperforming all other states and the national average except the two territories. As for the composition of Tasmania's growth, it was led by 5 of the 19 industry sectors comprising of farming, fishing, forestry (0.5ppt); mining (0.2ppt). logistics (0.5ppt); public admin (0.6ppt) and healthcare/social assistance (0.4ppt).

For employment, Australia had an unemployment rate of 4.2% while Tasmania was slightly above that at 4.3%. Tasmania has the lowest participation rate in the nation at 60.4% which is 6.8% below the national average. Tasmania also had the highest underemployment at 7.8% and the lowest employment:population ratio at 57.9%.

Tassie's Performance So Far, how have we done?

Over the last 10 year's Tasmania's economy grew by 26.3% while under Liberal governance, averaging around 2.63% GSP growth/yr, well within the 2-3% range for moderate growth. For comparison, Australia's GDP in 2014 was at $1.469 Trillion and in 2024 has grown to a figure of $1.802 Trillion, an increase of 22.66% (or 2.26%/yr on average). In many ways, Tasmania has grown faster than the national average but falls behind on many key metrics such as employment, education and private investment.

With reference to the graph above, Tasmanian economic growth has been very volatile which is mostly due to how susceptible Tasmania is to international forces and the global economy. Despite this, over the last 10 years the Liberal government has maintained positive consecutive economic growth. Between the periods of 2017-2019 saw a period of high economic growth. The Australia Dollar traded weaker, ranging between 0.8c to 0.65 US cents making it cheaper for foreign nations to purchase our exports and start up investment. The tourism industry boomed as a result and a combination of artisan/agricultural exports, population boom driving domestic demand, an increase in housing supply and government investment (primarily in infrastructure) were the key drivers in economic growth. Spending plans by both Federal and the State government kept Tasmania's GSP growth positive and Tasmania's advantages as an island and effective COVID policy allowed lockdown laws to be relaxed and the encouraged the local economy to expand faster than the other states.

Despite this, the impacts of inflation across the nation, the falling in educational standards, ageing population, high government spending and reforms to the GST guarantee (set to take effect in 2029-2030) has created uncertainty for the remainder of the decade.

If we compare these figures with the last 10 years of Labor governance in Tasmania (2004-2014), the state's GSP increased by 21.04% GSP, at an average increase of 2.1%/yr, which is both lower than the liberals and lower than the national growth of 77.24% (7.72%/yr average) between 2005-2014. The decline of economic growth during the 2000's is primarily attributed due to the strengthening of the Australian Dollar, due to high demands for Australia's exports (iron ore, coal, agriculture) the increase in logistics costs, increase in regulation and lack of a developed tourism industry (compared to today) combined made Tasmania less and less competitive in the international market. This is more pronounced between 2009-2012 where the Australian Dollar has been at it's strongest in recent history, making it very expensive for other countries buying our product.

Possibly one of the greatest factors was the lack of investment in Tasmania, due to both the shakeup of the 2008 financial crisis reducing demand for investment and exports, A lack of innovation and infrastructure as well as problems with domestic demand limited investment options for private enterprises. The potential investment redirected to mainland Australia or overseas.

If we compare the share of investment in 2014 to 2024, there has been a 2.6% increase in the share of public investment. Government support and spending during the COVID-19 Pandemic, investment in critical infrastructure roads, bridges as well as the health sector played a key role. As part of the Liberal Government's "2030 Strong Plan" it's likely the share of public investment may increase, with $5.1 billion to be committed in the 2024-2025 financial year. According to Labor Shadow Treasurer Josh Willie MP, there has been a 150% increase in business insolvencies over the last financial year, a jump from 38 to 94 Tasmanian businesses. In 2024 there are over 43,415 businesses operating in Tasmania, if we were to exclude sole traders, for every 174 businesses there would be 1 insolvency. Tasmania is becoming a place where it's getting harder to start up business, which threatens private investment in the Tassie economy,

Mr Willie states that the majority of business insolvencies were construction companies, and highlighted the importance of them due a housing crisis driven by a lack of housing supply. The Liberal government on the other hand has argued the investments in infrastructure is crucial for improving social outcomes, increasing the state's competitiveness and supporting future economic growth while also providing employment for Tasmanians.

looking at Tasmania's trade, Between 2014 and 2024 there has been a +5.24% change in exports in regards to the share of Tasmania's trade. This indicates Tasmania is in a trade surplus, essentially meaning we are exporting more than we are importing. The change has stimulated domestic industry, encouraging job creation and has encouraged innovation and scaling in our exporting industries, such as Incat which plans to double its current shipbuilding capacity and workforce after acquiring 12 hectares of land in the upper Derwent valley. The increase of international buyers for Australian Agricultural and Aquaculture and the removal of Chinese tariffs over the last few years has relieved pressure off those industry sectors.

A potential trade war between the US and China and/or the economic contraction of our major trading partners could threaten Tasmania (and the nation's) trade surplus, and President-Elect Donald Trump's interest in devaluing the US dollar to help rebuild US manufacturing could potentially impact our trade with Asia. In addition, the potential for more regulations on agriculture, aquaculture, racing and mining could have some impact on our trade balance.

If we look at the share of sector employment, between 2014-2024 there has been a 6.45% increase in the share of public sector employment over the last 10 years. If we look at the public service outright, it has increased by 44% in 10 years from 43,500 (2015) to 63,000. Tasmania's public sector has remained large due to the geography of Tasmania and it's relative population's dispersal, requiring more government involvement over a larger areas. limited private investment, low participation rate and an increase in expectations for government support/intervention has resulted in the expansion of the public sector.

Tasmania's Problems going forward

According to Saul Eslake (A Tasmanian economist), The state is projected to accumulate a net debt of $16 Billion (or roughly 205% of GSP) in the 2034-2035 financial year, with interest payments expected to be around $730 million in 2034-2035. It will also be around this time when the new GST redistribution deal will take effect, which has been described as "the worst public policy decision of the 21st century" (Saul Eslake, 2024) which has been accused of benefiting the richest state in the country (WA) at the expense of others. Under the new deal, Tasmania is set to be worse off by $100m every year, or 1000 teachers, police officer or nurses salaries, while WA will be $4 Billion better off each year.

Opposition leader Dean Winter has also stated his concerns, with him accusing the Liberal government "putting Tasmania on a credit card" (Dean Winter, 2024). Cost blowouts with current infrastructure projects and the proposed Stadium are likely to add strain to the state debt. An increasing state debt with an ageing population, as droves of domestic students and young adults seeking more opportunity on the mainland. It's estimated 15,000 people leave the state each year, with a majority of that being young people looking for better employment and education.

Labor has called out the surge in business closures as a lack of intervention by the Liberal government to support struggling businesses.

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References:

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