When Kerry Packer told a Parliamentary Committee back in 1991 that he did everything possible to ensure he paid a little tax as possible “….because as a government, I can tell you, you're not spending it that well that we should be donating extra…." it made it even harder for governments to gain acceptance from electors to increase taxes to pay for services everyone wants and many can’t do without.

What self-respecting political strategist couldn’t win an election if an opposition party even hinted at raising more revenue from increased taxes.

Public policy has been hijacked by political strategists more interested in winning elections than promoting sound policies.

And so it is that Tasmania’s own source revenue which principally comprises State taxes continues to decline as a proportion of our needs in a precipitous manner. The projections in PEFO mentioned only revenue in total, not its composition. Labor’s fiscal strategy was silent on the issue lest it become an election target.

Just to be clear, revenue is either own source or it comes via Federal grants including GST.

The government did have a fiscal strategy to achieve a minimum target for own source revenue as a % of total expenditure. The 2032/33 target is 37 per cent, part of the Liberal’s 2030 Strong Plan. Unfortunately, it was silent as how to achieve it.

In their first full year of government 2014/15 the Liberals achieved 39 per cent,

Since 2017 declining own source revenue has been propped up by including the gradual drawdown of the $730 million Mersey grant received in 2016/17 as own source income. Excluding it for consistency (NB it wasn’t there in 2014/15 and it won’t be there by the target date of 2032/33 having expired in 2027/28) shows expenditure from own source revenue has plummeted to 30 per cent in 24/25 and for the coming year 25/26 was estimated to fall to 29 per cent.

Any remedial action mentioned in the now abandoned 25/26 Budget?

Nope. Nothing.

Only a hope that Hydro Tasmania once again receives average rainfalls so that improved revenues can contribute more to own source revenue when received by the general government. The government was unable to come up with an estimate for future health spending when it prepared the 24/25 Revised Estimates in Feb 2025 but nevertheless managed to check with the weather gods, and pencilled in a return to average rainfall in the next few years thereby boosting general government returns from Hydro which were starting to wilt following recent below average rainfall. Budgeting can be so subjective. It shouldn’t be.

Given we’re talking about general government revenue of around $10 billion, an 8 per cent shortfall of own source revenue equates to roughly $800 million. The taxation share of own source revenue is around $1.8 billion or 60 per cent with the rest mainly coming from sales of goods and services and income from government businesses.

Let’s not forget, as PEFO reminded us, the turnaround to bring the general government into a cash surplus position in 25/26 is $2.7 billion. So even if were possible to raise an additional $800 million from own source revenue to take the percentage figure of spending from own source revenue to 37 per cent it would only be one-third of the way there, such is the enormity of the task. Hence reform will require radical and sustained changes.

Where to start?

The findings of the Fiscal Sustainability Report 2021were based on a Treasury model of historical growth rates for the various revenue categories (GST grants, specific purpose grants, state taxes, etc.) and for the various expenditure categories (health, education, etc.) which were then used the make 15-year projections for four scenarios. low revenue, high expenditure, etc.

Whether or not the same model is used it should be based on the same approach. It should be a 10-year model and it should be publicly available, accessible and updated on a rolling 10-year basis every year. As understanding of our position permeates, the chance for non-partisan public policy to solve our problems increases. Right now, we’re a thousand miles apart. One party, the Liberal Party, is stumbling along what it thinks and claims is a sustainable path but most independent observers see it heading towards a precipice, whilst the value if anything of the Labor plan for budget repair is not to be found in the numbers themselves but in the admission that we have a problem. They deserve a few marks for handing in their homework.

What we need before any discussion about reform is an agreed starting point. The Labor plan talks about budget savings but that assumes a base case. There isn’t one. The Liberals 25/26 proposed budget is smouldering in the bin. It is no longer accessible on the Treasury website. For all intents and purposes it’s a budget non grata. Thursday the 3rd July is D Day for the government to produce a fiscal strategy. Currently we’re in limbo land.

Tasmanians deserve continuity in their lives. An agreed working model which is updated every year would provide such a framework.

Once we have a model on the table for where we might head in the next 10 years we can look at the Commonwealth Grants Commission (CGC) approach for how it will assess our GST receipts, and use their modelling to assist how much we should be paying for services using other States as a benchmark, and more importantly how much we should be raising in revenue given our tax base. Again, this needs to be in a publicly available accessible form.

Whilst the CGC is determining our GST share in reality it is looking at overall Commonwealth assistance and squaring up for all the specific purposes payments (SPPs) States have received, some more and some less, than had the SPPs been allocated according to needs as assessed by the CGC. The GST carve up represents a squaring up of all assistance received by States each year.

We will then know the deficits in each year that will have to either funded with borrowings and/or increased own source revenues or expenditures reduced by cutting spending.

There is little doubt in my mind that because we have ignored the problem for so long it won’t be possible for us alone to solve our problems. It is also becoming apparent that other States are suffering from the same structural imbalances as we are in Tassie, evidenced by the inability of their revenue bases to fund services. To rule out any own source taxation increases is just plain dumb.

But we need a proper agreed framework describing where we are currently, otherwise its so easy for the scaremongers to snipe from the sidelines.

There is now talk about having a ‘right’ size public service. Is this what people want? What does it even mean? Or should it be a ‘right’ size level of public services. These are questions that demand answers as we look to the task ahead and agree on a ‘right’ path forward.

In which case there will be no alternative but for restructure of our Federal-State fiscal arrangements. That’s a topic for another day.