The 2025-26 State Budget promises a bright future while delivering accounting tricks, unrealistic assumptions, and a debt trajectory heading toward $20 billion
When Treasurer Eric Abetz delivered the 2025-26 State Budget on 6 November, he promised Tasmanians a bright future built on “realistic optimism.” What he actually delivered was a masterclass in fiscal illusion. A budget that relies on appropriation sleight-of-hand, unallocated savings that exist only on paper, and assumptions about workforce reductions and revenue growth that cannot withstand even moderate scrutiny.
Let’s start with how the Government manufactured its wafer-thin “surplus.” The Budget shows a Net Operating Balance surplus of just $5.6 million in 2028-29, barely material in a budget exceeding $10 billion, but politically crucial because it allows the Government to claim fiscal responsibility.
This is absolute illusion. The underlying net operating balance, which excludes one-off Commonwealth capital grants to provide a more accurate picture, shows deficits totalling $3.8 billion over the next four years. If infrastructure spending is excluded from net operating balance then so should grants to help fund it. The current year’s underlying deficit alone is $1.4 billion.
A net operating surplus in the general government sector is nowhere near the prerequisite for commencing to pay down debt, because it doesn’t include all infrastructure spending, it doesn’t include paying amounts toward unfunded superannuation or paying past liabilities such as the compensation for sexual abuse nor does it include equity contributions into government businesses.
How does the Treasurer create his mirage of future surplus, albeit limited and virtually meaningless? Through two egregious accounting manoeuvres:
First, the Treasurer’s Reserve has been reduced from $50 million to $25 million in 2025-26, then down to just $20 million in the Forward Estimates. For context, actual expenditure from this reserve in 2024-25 was $40 million. This reserve exists precisely to cover unforeseen circumstances and inevitable cost pressures. Cutting it doesn’t reduce government costs, it just removes the appropriation in this budget and forward estimates, that covers those costs when they arise.
It’s like cancelling your home insurance and claiming you’ve reduced household expenses. The house doesn’t become less likely to burn down. If unforeseen events occur you have to deal with them. Having a Treasurer’s Reserve is prudent. Cutting it is symbolic nonsense.
Here’s what will happen next, following the overwhelming pattern of recent history: agencies will face urgent pressures, Ministers will make “necessary” funding commitments, and before June 2026 arrives, we’ll see a Supplementary Appropriation bill restoring much of what was notionally “saved.”
In case anyone has forgotten the supplementary appropriation bill in the 2024-25 year was a whopping $467 million.
Second, the Budget includes unallocated “Budget Efficiency Measures” that exist only on paper. The May budget that never passed at least had the honesty to attach a specific figure: $150 million in annual savings. That target has now vanished, replaced by reduced appropriations with no identified programs being cut, no specific reforms being implemented, and no actual services being reduced despite the fact we know this will be the outcome.
The Budget Papers admit these measures are “modest in dollar terms” and “symbolic.” When you’re running an underlying deficit of $1.4 billion, symbolic savings are about as useful as bailing the Titanic with a teaspoon.
Both of these measures are taken from the manual How To Put Lipstick on a Pig . It’s been a frequent source of budget plans and election pitches. The savings in the Liberal Plan for a Brighter Future in 2013-14 for instance almost entirely comprised savings from a more efficient public service ($155 million) and cutting the Treasurer Reserve ($40 million). History repeats itself, first as a tragedy maybe, but now unfortunately as an absolute farce.
If the Treasurer were to have a closer look at the handbook covering lipstick application, he will notice a strategic action plan which the Labor government used to pretend to set aside money to pay future superannuation, but because there wasn’t enough cash they had to “borrow back’ what wasn’t there to balance the books. It looked to some as if it had been borrowed and spent but in reality, it wasn’t there in the first place. The essential point here is that just because an appropriation bill allows for something it doesn’t mean it will occur.
The Liberals don’t bother setting aside any superannuation for current defined benefit employees either, not even the mandatory 12 per cent superannuation guarantee levy. Since 2014 at least a billion dollars in super guarantee amounts for defined benefit employee has been spent elsewhere. For someone troubled by future generations having to pay for the sins and omissions of their forbears this no doubt keeps the Treasurer awake at night.
The Treasurer focuses relentlessly on General Government debt reaching $10.4 billion by June 2029, which he characterises as “peak debt.” This figure dominates the Budget Speech and public commentary. It’s designed to.
What the Treasurer conspicuously doesn’t mention is Total Public Non-Financial Corporations (PNFC) debt, the government businesses including Hydro Tasmania, TasNetworks, TasPorts, and TT-Line. These aren’t separate from government; they’re wholly owned by it. Their debts are guaranteed by the State.
When you look at the complete picture, the only honest way to assess government finances, the numbers become terrifying. Total PNFC borrowings increase by $9 billion over the Budget year and Forward Estimates. Even in 2028-29, the year the Treasurer claims General Government reaches “peak debt,” PNFC borrowings increase by a further $2 billion.
That’s right – in the year the Treasurer says we can start paying down debt, government businesses are still borrowing an additional $2 billion. Total government debt is heading toward $20 billion, not $10 billion.
The Government’s own Cash Flow Statement shows net borrowing of $735 million in 2028-29. You cannot pay down debt while you’re still accumulating it. This isn’t controversial economics – it’s basic maths.
Fiscal Strategy 10 would seem to Budget assume a reduction of 2,800 full-time equivalent State Service positions through vacancy control and natural attrition. Anyone with public sector workforce management experience knows this number is not achievable through attrition alone.
Natural attrition typically runs at 5-7 per cent annually. Even at the higher end, achieving 2,800 FTE reductions would require years beyond the Forward Estimates timeframe and that assumes you can leave every departing position unfilled, which is feasible only if you’re simultaneously reducing service levels.
Achieving these reductions in the Budget’s timeframe will require compulsory redundancies on a scale not seen in Tasmania for decades. Where is the funding for redundancy payouts? It’s not in the Budget. The cost of redundancies would also include an increase in the cost of General Government unfunded super contributions for redundant employees who commence their defined benefit pensions. And if such employees are replaced by employees, in slightly different roles perhaps, for whom the government has to set aside contributions every month as they do for all but Defined Benefits employees, then General Government’s cash flow will worsen rather than improve. The reality is redundancies cost significant money when you factor in accumulated leave, notice periods, redundancy payments themselves, and impact on superannuation contributions and payments, wreaking havoc on your cash flow and forward estimates.
Moreover, the Budget assumes wage growth of just 2.5 per cent. If actual wage outcomes are even 0.5 per cent higher at 3 per cent, the expenditure gap widens further. To accommodate higher wages within the expenditure envelope, even more positions would need to go, potentially 3,500 to 4,000 or more, still with no funding for redundancies.
This is an unfunded liability waiting to explode and would decimate service delivery.
If we turn our mind to the elephant – aka stadium – in the room.We are at zero economic growth, with a $1.4 billion underlying operating deficit, debt doubling to $10 billion in General Government and heading toward $20 billion overall, credit ratings on negative watch, and productive infrastructure being cut to manage debt pressures.
Yet the Government proposes to commit $609 million in equity funding for the Macquarie Point Stadium.
The Treasurer devotes more time in his Budget Speech to spruiking the stadium than to explaining how we’ll achieve the workforce reductions the Budget assumes. What’s conspicuously missing is any discussion of ongoing operational costs, the opportunity cost of tying up $609 million when we’re borrowing for operating expenses, or the risks if projected revenues don’t materialise.
Stadium economics are notoriously optimistic in projections and disappointing in reality. Cities and states around the world have discovered this the hard way.
When you’re maxing out the credit card to pay for groceries, buying a boat is not prudent financial management, even if you really, really want to go fishing.
Both major credit rating agencies, Moody’s and Standard & Poor’s, have downgraded Tasmania’s outlook from “Stable” to “Negative.” This is not political commentary. This is independent financial analysis concluding that Tasmania’s fiscal trajectory presents increased risk.
When both agencies put you on negative watch, that’s not a political opinion, it’s a financial fire alarm. The Government is hitting the snooze button while smoke fills the room.
The agencies see the structural deficits, the accumulating debt, the optimistic assumptions, the appropriation tricks disguised as savings. They see all of it, and they conclude Tasmania’s fiscal position is deteriorating with no credible plan to reverse it.
A negative outlook typically precedes an actual rating downgrade, which would mean higher borrowing costs on every bond issue and refinancing of existing debt. Higher borrowing costs mean more budget dollars servicing debt rather than delivering services, requiring deeper cuts or bigger deficits. This is how fiscal death spirals begin.
Even without revised credit ratings the picture is grim. This year $345 million of bonds will need to be rolled over. That means a new issue will be needed to repay bonds that have matured. The maturing bonds have an interest rate of 0.87 per cent. The new issue is expected to be at a rate of 5.39 per cent. That will apply to any additional borrowings as well. By 2028/29 the Budget Papers estimate borrowing costs will be 6.4 per cent. Currently the weighted average rate on much lower overall borrowings is just under 4 per cent. It’s the double whammy of increased borrowings and increased rates which will take much needed food from the table in the next few years. With no realistic counter plan in place.
The Government’s own 2021 Fiscal Sustainability Report states clearly: “Incurring debt to fund recurrent expenditure is not considered beneficial or sustainable in the long-term.”
Yet the Underlying Net Operating Balance shows a deficit of $1.4 billion in 2025-26. Tasmania is borrowing not just to build infrastructure for future generations, but to pay for today’s public service wages, today’s health system operations, today’s education costs—the groceries.
By the Government’s own analysis, published in its own policy framework, this is unsustainable and economically harmful. Borrowing for infrastructure builds the future; borrowing to pay today’s bills mortgages it.
Tasmanians don’t need symbolic savings, appropriation tricks, and partially funded initiatives designed to look fiscally responsible until after the next election. We don’t need a budget that focuses on partial debt figures while ignoring the complete $20 billion picture.
We need honest numbers that acknowledge the true scale of the challenge. We need structural reform that addresses unsustainable spending growth, not hiring freezes and illusory efficiency measures. We need a comprehensive revenue review examining whether we’re raising what we should from our revenue base. We need a realistic workforce strategy that either funds redundancies or acknowledges service reductions.
Most fundamentally, we need a government willing to level with Tasmanians about the choices ahead and the trade-offs required.
This Budget delivers none of that.
The trajectory from here is depressingly predictable. Within months, we’ll see supplementary appropriations covering cost pressures that the reduced Treasurers Reserve and unallocated savings were never going to accommodate. Within a year, revised Forward Estimates will push “peak debt” out another year. Within two years, we’ll face a genuine fiscal crisis that makes today’s problems look manageable.
The Treasurer promises us peak debt in 2028-29 while his own Cash Flow Statement shows net borrowing of $735million that year making this implausible. He promises reform while delivering an “interim budget” that defers every hard choice to a future date when, presumably, it’s no longer his problem.
When the reckoning comes, and it will, because maths is not subject to political spin, we should remember we were warned. The numbers were there in the Budget Papers, available for anyone willing to read past the press release. I, and many others, have warned of this for years. The credit rating agencies were explicit in their concerns. The pattern was clearly established over a decade of fiscal mismanagement.
Tasmania deserves better than a government that treats the State Budget as a political document to be managed through an election cycle rather than a fiscal plan to secure our economic future. There will be much more to be said in my budget reply this week.