Published: 04 June 2020

It was pleasing to hear the Prime Minister announce a continuation of the National Cabinet following its success as a decision-making forum during the pandemic. A continuation of cooperative federalism will be needed to ensure recovery of state government finances and is crucial to service delivery at the coalface. The plight of state governments has scarcely rated a mention as all focus has been on the millions of private businesses and their employees, but they have suffered similar revenue losses.

Next year the Tasmanian government will, according to figures from Treasury, spend $1.7 billion more than it receives. That's $1.29 of spending for every $1 received. The book value of Hydro Tasmania is only $1.8 billion. The government's cash deficit for 2020-21 will be roughly equal to the net worth of our most valuable business.
Even before the pandemic, Treasury was estimating likely cash deficits for up to 15 years ahead. With Tasmania comprising roughly two per cent of the nation's economy, if all states have similar fiscal challenges, which is quite likely, deficits across the nation for all levels of government will be considerable.

It has been noticeable that politicians of all persuasions have avoided discussing how the nation will pay. Behind the scenes the federal government has been raising money. Since mid-March the Australian government has raised $70 billion by issuing bonds. Bonds are simply IOUs which pay interest. But $40 billion of bonds have since been acquired from the original owners by the government's own bank, the Reserve Bank of Australia. The government's own bank is indirectly lending it money. The RBA is also acquiring bonds issued in the past by the various states including Tasmanian bonds issued by the government's finance company Tascorp. When new issues are needed to fund the looming cash deficits, some are expected to end up on RBA's balance sheet.
I am comforted to know that some of our debt will be owed to ourselves. A loan to ourselves represents equity in the nation. For too long we have been ear-bashed into accepting austerity as the answer. We now know there is another way. With a new spirit of cooperative federalism we might be able to catch up. Not despite the pandemic but because of it.

The Advocate Thursday 4 June, 2020

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