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Tasmania on the up and up

By Saul Eslake - posted Monday, 10 January 2005

Tasmania’s economic performance has improved substantially over the past few years. After growing by an average of just 1.6 per cent per annum in the 1980s, and 1.5 per cent per annum in the 1990s, Tasmania’s real gross state product (the broadest measure of economic activity) has grown by an average of 3.3 per cent per annum over the 3 years to 2003-04. That’s the fastest growth over any three-year period in nearly two decades.

This improved economic performance has delivered tangible benefits to Tasmanians. Over the 3 years to November 2004, the number of jobs in Tasmania increased by 16,200 (of which nearly half were full-time jobs), or by an average of 2.6 per cent per annum - nearly 0.5 percentage points faster than on the mainland. As a result, Tasmania’s trend unemployment rate has fallen to a 24-year low of 6.2 per cent - less than 1 percentage point below the mainland’s rate for the first time in 12 years. Per capita household disposable income rose from 80.6 per cent of the national average in 2000-01 to 84.6 per cent in 2003-04, which is the largest increase in this measure of Tasmanian living standards relative to those on the mainland in at least 24 years, and enough to reverse nearly all of the decline in this measure between 1994-95 and 2000-01.

These gains are, in part, a reflection of the strong performance of the national economy over this period flowing through to Tasmania. But they are also in large measure the result of good economic policy at the state level since the mid-1990s. This is important since, in my view, Tasmania’s poor economic performance over the two decades prior to the current one was not (as some would have it) largely due to “bad luck”, but was instead the outcome of persistently poor economic and fiscal policy choices made at the state level for most of the period between the early 1970s and the mid-1990s (the early 1990s being an honourable exception).


By contrast with the poor quality of economic and financial management during that period, in recent years the state budget has been kept in surplus and debt has been reduced - allowing the proportion of state revenues diverted to interest payments (rather than to more productive spending) to fall from over 10 per cent in 1993-94 to less than 2 per cent in the current financial year. And that has been achieved without increases in state taxes. Indeed, Tasmania has been the only state not to increase existing state taxes, or introduce any new ones, in the past four years. And Tasmania now has the lowest level of state taxes and charges, relative to its capacity to raise them, of any jurisdiction except Queensland and the Northern Territory.

But of course good economic management isn’t simply about good housekeeping. It also entails promoting economic growth through structural reforms; nurturing the economy’s competitive strengths; removing impediments to economic growth; and ensuring that the benefits of economic growth are widely distributed through the community. And there has, to varying degrees, been progress in all of these areas in recent years.

There is, of course, still a long way to go. Tasmanian living standards are still more than 15 per cent below the national average; the proportion of Tasmanians of working age who have a job is nearly 5 percentage points below the national average; and the proportion of Tasmanian children living in households where no adult has a job is over 5 percentage points above the national average.

In thinking about their future, Tasmanians must be careful to avoid putting all their economic eggs in a single basket (or in a small number of them). That’s what it did from the 1950s through the late 1980s, and it left - and would again leave - Tasmania vulnerable to economic, technological, and political or corporate changes far beyond its power to control or influence. 

As I’ve said or written a number of times before, Tasmania’s future cannot possibly lie predominantly in the volume production of essentially unprocessed commodities at lower prices than competitors with better access to larger and cheaper natural resources, labour and capital, or markets. That doesn’t mean that commodity-based industries have no part in Tasmania’s future; it’s just that it’s unlikely to be a significant one. Rather, Tasmania’s future economic prospects depend on its capacity to produce highly differentiated goods and services embodying a relatively high intellectual content and for which customers are willing to pay premium prices.

That’s why, in my view, Tasmania ought to be picking up the message spread by Richard Florida, Professor of Regional Economic Growth in Pittsburgh, USA, which shows that the fortunes of different sub-regions depend on their ability to attract members of what he calls the “creative classes” - that is, scientists and engineers; architects and designers; educators and artists; musicians and entertainers; business, finance, law and health care professionals; and the technicians and para-professionals who support their work.


Tasmania has many of the characteristics which Florida’s research identifies as intrinsically attractive to these people - including authenticity and uniqueness, established neighbourhoods, and (to a somewhat lesser extent) specific cultural attributes and openness to immigration and diversity.

But these characteristics have to be valued, nurtured, strengthened and promoted if Tasmania is to realise its potential as a magnet for the “creative classes”.

Tasmania therefore needs to be less resistant to social and economic change than they traditionally have been; to be more conscious of the value of education; to be more willing to embrace scientific and technological progress; and to be tolerant of diversity and the “clash of ideas”.

Tasmania also needs to avoid monopoly or excessive concentrations of economic power, always a greater risk in a small economy. And, especially in the economic sunshine, which it is now enjoying, it must avoid complacency or hubris. It should not be imagined that the task of undoing the effects of more than 25 years of bad economic policy can be achieved by less than 5 years of good policy.

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This article was prepared for publication in the Tasmanian Business Reporter, the monthly magazine of the Tasmanian Chamber of Commerce and Industry, in January 2005. It was in turn based on a presentation Saul Eslake gave to a Forum on the Tasmanian Economy organised by the Tasmanian Branch of the Economics Society on December 10, 2004.

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About the Author

Saul Eslake is a Vice-Chancellor’s Fellow at the University of Tasmania.

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