For nearly a century, Hydro Tasmania has been the fiscal workhorse of the state, underwriting services and cushioning budgets when other revenues faltered. That legacy is now under strain. Own‑source revenue has slumped to just 30 per cent of general government expenditure, well below the 37 per cent target set for 2032/33. This gap is not academic – it measures Tasmania’s fiscal independence, and it is shrinking.
Receipts from government businesses are a crucial component of own source revenue alongside State taxes. Yet in 2025/26, they collapsed to their lowest point. Strip away the Mersey Hospital ‘dividend’ from Tascorp – a disguised drawdown of an eight‑year‑old federal grant – and receipts fell to just $141 million. Treasury’s forward estimates promise a rebound to $448 million by 2028/29, but that projection rests overwhelmingly on Hydro. By then, Hydro alone is expected to deliver $250 million.
Underlying profits from operations, not headline accounting gains, determine the income tax equivalents and dividends that flow from government businesses to the state. Those payments account for 93 per cent of underlying profit. Operationally, 2025 was disastrous for Hydro. Subsidiaries Momentum Energy and AETV posted small profits, but hydro storages were battered by a second consecutive record dry year. Hydro generation fell to 6,343 GWh – imports of 2,458 GWh, with wind providing most of the remainder. We consume around 10,000 GWh pa. Booked profit for the parent company of $448.6 million before tax was achieved by revaluations and impairment reversals, not cash. Net cash from operations covered only half of the $277 million in capital expenditure, and even that required squeezing $31 million from working capital. Hydro cashed in $28 million of hedges early and drew down more debt to fund the $122 million dividend owing from the previous year plus capex. Net debt ballooned to $1,023 million.
Although drought was significant, the year was defined by opportunistic trading. Hydro imported record volumes of electricity from Victoria, capturing all the Inter‑Regional Revenues (IRRs) under Basslink’s unregulated model. This windfall of over $100 million after fees to Basslink cushioned the impact of reduced hydro generation, but it was opportunistic, not structural. Hydro has not boasted about its good fortune – perhaps because it might invite too many questions about its business model. Despite the $100 million Basslink windfall, Hydro still made an underlying loss of $14.7 million.
From July 2025 Basslink reverted to APA’s control, and from July 2026 it will become a regulated transmission asset in the NEM. The windfalls that delivered headline profits in 2025 will not recur. Hydro’s future depends on competitive bidding in Victoria and disciplined management of storages, not arbitrage. Imports will become a survival tool to help conserve water and avoid gas, but Hydro may also have to prop up new on‑island renewables which makes profits harder to achieve. Exports will not automatically deliver gains either. Bids must be accepted, and even then, bidders receive the Tasmanian price. To share presumed higher Victorian prices requires bidding at auction for IRRs. Past experience from the regulated Murraylink interconnector linking SA and Victoria reveals successful bidders had to outlay $25 million to receive $30 million in IRRs – hardly a windfall.
The statement from Ministers Duigan and Ogilvie on 28 November 2025 that “an additional $470 million will be added to the State’s bottom line each year on average, ensuring we can invest more in hospitals, schools, roads and keep power prices low” due to Marinus was extraordinary. The words were unambiguous: $470 million will flow to the bottom line, available to fund services. Yet the figure comes from Marinus business case modelling. All we know from heavily redacted reports is that it represents possible benefits across the NEM based on undisclosed assumptions, not cash inflows into Hydro’s coffers. Has there even been such a scandalous level of duplicity: system‑wide modelling is being deliberately construed as government revenue.
The rhetoric is reminiscent of the Coordinator General’s analysis of the Macquarie Point stadium, which claimed $221 million in annual economic activity – five times the annual interest costs. That figure was not stadium operator profit – it was gross economic activity. We have entered a new era in which project promoters inflate headline benefit figures, exploiting the gap between broad economic impact modelling, cost‑benefit analyses, and the harsher reality of actual cash flows.
Hydro’s dressed‑up 2025 financials expose the gap between rhetoric and reality. Losses, operating cash flow under stress, and rising debt are the facts. It’s the new normal whenever we look at anything this government touches. Nothing heard during scrutiny hearings confirmed there is a plan to address the problems. Paying out such a high proportion of underlying profits to owners while maintaining aging assets was bound to lead to future problems. The chickens always return home to roost.
The stakes are bigger than Hydro alone. Energy security, Tasmania’s renewable ambitions, and the state’s fiscal future all rest on Hydro’s ability to deliver real cash profits, not just modelled benefits and revaluations dressed up as bottom‑line surpluses. Without opportunistic IRR windfalls, Hydro must rely on disciplined bidding, rainfall, and market competitiveness. And without Hydro delivering genuine surpluses, Tasmania’s fiscal independence will continue to shrink.
That independence is measured by own source revenue as a share of total government spending. Increasing it now depends on two strategies: electricity interconnector benefits flowing directly into Hydro’s coffers to lift the numerator, and reductions in real spending under the 2025/26 Budget to shrink the denominator. One is high risk, the other guarantees diminished services. Neither offers a sustainable path.
This is the future that awaits until a Federal bail‑out can be arranged. Hydro’s survival as more than a defensive custodian is critical, but the wider fiscal story is just as stark. Without genuine surpluses from Hydro, Tasmania remains lashed to a single mast in stormy seas, its budgetary independence eroded and its promises of prosperity built on little more than modelled benefits and political spin.
The Mercury, 19 December 2025