Political parties continue their misinformation campaigns rather than honestly discussing our financial problems, writes Ruth Forrest

The gravity of the state's perilous fiscal position, as forensically detailed by Saul Eslake in his recent report, was rather predictably matched by the dismissiveness by major parties of the recommendation to raise more revenue from our own sources.

Mr Eslake spelt out what most of us knew, or at least strongly suspected, that we're spending more than we're receiving and that an increasing share of what we're spending are debt servicing costs and amounts to settle past accumulated liabilities rather than on current services. In real terms spending on current services is falling.

The evidence is everywhere.

No-one has disputed Mr Eslake's analysis of the challenges ahead.

Agreeing and implementing solutions is the problem.

In less than two weeks the government's budget plan to address the challenges will be revealed. We also wait with bated breath to discover how Labor's plan to increase revenue by growing the economy, rather than raising tax rates or broadening the base, which hasn't worked for the last 15 years, will now miraculously provide a solution.

Meanwhile, political parties continue their campaigns of misinformation rather than openly and honestly discussing our problems. The latest example was an opinion piece in Talking Point by Senator Chandler (Funds should be flowing to water scheme) slagging off her political opponents in the Federal Government for not funding the Greater South East Irrigation Scheme. Everyone who has followed the stadium debate knows, or should know, that any such funding is merely a short-term loan from the Commonwealth, because over time under Commonwealth Grants Commission rules, all but the state's per capita share is redistributed.

Tasmania in effect would forego untied GST revenue in exchange for tied Commonwealth funding.

I'm not singling out one political party for criticism. It could easily have been someone with a different jumper. It's difficult to distinguish who's who when the two leading sides are playing. At the start of a new quarter, it's often hard to work out if they've changed ends or merely swapped jumpers.

Infrastructure which includes irrigation schemes came in for some pointed recommendations by Mr Eslake. He reminded us that relative to our size the State's infrastructure spending program is more than we can sustainably manage given our reluctance to raise more revenue.

Prioritising projects based on benefits relative to costs was a sensible suggestion.

However, the shock announcement in recent days that the Federal government plans to shift some of the responsibility for funding national roads and railways to states will affect Tasmania even more so than other states. These grants tend to be given to states on a roughly per capita basis. When considered for GST purposes (50 per cent are assessed) Tasmania gets a square-up from the GST pool due to relativity factors, based on our inability to raise the same level of revenue and the higher costs to deliver equivalent services.

It'll be a double whammy. Less in infrastructure grants and less from the GST pool when squaring up with other states. The Eslake report showed we are nearing the point of no return if we don't start acting soon.

Any change in the grant system could well be the tipping point.

However, we can't complain too much about not getting enough from the Commonwealth if we are not prepared to fix our own revenue shortfall.

We may then have a chance to argue for a review of federal-state financial relations.

Rather than the Commonwealth shifting more infrastructure funding on to states, which will require more borrowings by already overburdened states, it's the Commonwealth which needs to do the borrowing, to be shared pro rata between states and spent on projects which qualify by meeting a benefit/cost threshold. If the Commonwealth is reluctant then the Reserve Bank (RBA) needs to widen its role from looking after private banks to providing more assistance to States. It already has over $60bn of states' debt on its books. Another $25bn per year, with Tasmania's share being $500m say, would give the state breathing room to fund its increasingly neglected service delivery.

Some public spending directly creates public assets, the rest flows through the economy creating private assets, while providing much needed services along the way.

Providing it's done in a way that promotes equality and delivers more we're better off. If extra spending leads to too much money circulating, then restrict the amounts private banks create most of which is used for largely unproductive house speculation.

At any stage the RBA can write off amounts owed by states. The write off wouldn't be inflationary as the amounts would have been spent long ago. It would be a painless book entry.

Currently we are failing to deliver the services Tasmanians require. We need to think differently. Our myopic leaders can't see the old ways no longer work. If we don't act soon we'll end up at the bottom of the cliff still slagging off and blaming each other.

The Mercury, Thursday 5 September 2024