This chapter will consider what is at stake for the fiscal future of Tasmania – when we consider the current energy sector and how it has and will operate into the future and the state’s reliance on Hydro Tasmania to provide significant financial support to the State budget.
I thank John Lawrence for his assistance in preparing this information, his attention to detail and research over many years as we have worked together to better understand one of the most complex areas that impact our state, economically and functionally.
Glossary of acronyms used in this chapter
IRR / IRRs – Inter‑Regional Revenues / Inter‑Regional Residues: The financial mechanism that captures price differences between NEM regions. Historically a major windfall for Hydro.
LGC – Large‑scale Generation Certificate: A renewable energy certificate created for each MWh of eligible renewable generation.
WoSBC – Whole‑of‑State Business Case: The Tasmanian Government’s business case for Marinus Link.
Chapter 16: The Fiscal Stakes for Tasmania
Tasmania’s energy debate is often framed as a technical argument about interconnectors, storage, firming, and market design. But beneath all of that sits a far more fundamental issue: the state’s fiscal independence. Hydro Tasmania is not just an energy business. It is the single most important financial asset the state owns. For decades, it has been the quiet stabiliser of the Budget – the entity that delivered dividends when other revenues faltered, the buffer that allowed Tasmania to maintain services without raising taxes or cutting spending.
That stabiliser is now under strain, and the consequences reach far beyond the energy sector.
Tasmania’s own‑source revenue has fallen to just 30 per cent of government spending – a level that would alarm any jurisdiction, let alone one with limited tax bases and high service demands. Treasury’s long‑term target is 37 per cent by 2032/33, but the trajectory is moving in the opposite direction. The gap is being filled by Commonwealth grants, which are inherently uncertain, politically contingent, and outside Tasmania’s control.
In this environment, the returns from government businesses matter more than ever. They are one of the few levers the state can pull to strengthen its fiscal position. Yet those returns have collapsed. Strip away the Mersey Hospital “dividend” – a disguised drawdown of an old federal grant – and the real contribution from government businesses in 2024/25 was just $141 million. Treasury’s forward estimates assume this will rebound to $448 million by 2028/29, but that projection rests overwhelmingly on Hydro. By then, Hydro alone is expected to deliver $250 million.
The problem is that nothing in Hydro’s reconstructed accounts supports that assumption. The underlying profit is negative. Operating cash has fallen sharply. Debt has risen. Liabilities have increased. Inter-Regional Revenues (IRRs) – the single largest source of revenue in 2024/25 – disappear entirely after June 2025. The Large Generation certificate (LGC) contract is structurally loss‑making. And the business is now more exposed to drought, market volatility, and settlement risk than at any time in recent memory.
The state is relying on Hydro to deliver a fiscal recovery at precisely the moment Hydro is least able to provide it.
This is not a theoretical concern. It is already visible in the Budget papers. The government has committed to major capital programs – in health, housing, roads, and energy – at a time when its revenue base is weakening. The forward estimates rely on optimistic assumptions about economic growth, population, and business returns. And the state’s debt trajectory is steepening. Hydro’s dividends and tax equivalents are not just helpful; they are essential to preventing further deterioration.
If Hydro cannot deliver the projected returns, the consequences will be immediate and unavoidable. The state will face a choice between deeper borrowing, higher taxes, or cuts to services. None of these options is politically attractive. All of them would erode Tasmania’s fiscal independence.
This is why transparency matters. It is why the Whole of State Business Case (WoSBC) redactions matter. It is why the refusal to disclose basic revenue and cost information matters. It is why the public repetition of myths about negative Victorian prices matters. These are not isolated frustrations. They are symptoms of a system that is making high‑stakes fiscal decisions without a clear, honest understanding of the risks.
Tasmania has been here before. The TT‑Line ferry procurement and the Berth 3 debacle were not just governance failures; they were fiscal failures. They imposed costs on the state that could have been avoided with better oversight, clearer information, and more honest public debate. The difference now is scale. Hydro is not a $200 million project. It is a multi‑billion‑dollar enterprise whose performance underpins the entire Budget.
The fiscal stakes are not abstract. They are measurable. They are visible in the reconstructed accounts. And they are growing.
The next chapter turns to the path forward – what transparency, governance, and reform would look like if Tasmania is to restore confidence in its energy system and protect its fiscal future. Because the numbers we have uncovered do not just describe a problem. They point to the changes needed to solve it.
The next Chapter 17 – The Path Forward will offer a credible way toward restoring transparency, confidence, and fiscal stability.