Confident step along a rocky road

State budget likely to boost budget confidence as we face a volatile path until a vaccine is delivered, says Maria Yanotti

THE Tasmanian government budget is certainly aiming to boost economic confidence, grounded on current signs of recovery in a relatively lucky state. It has record high infrastructure expenditure, expenditure on health and education reflecting priorities highlighted by the COVID- 19 pandemic, and expenditure on social housing and renewables interpreting the community’s concerns. While not exactly following the employment focused rhetoric in the federal budget, the state budget promises to spend more than $ 1bn on measures that should stimulate the aggregate demand, and therefore employment and business activation. The measures in the budget are expected to generate 25,000 jobs in the next four years.

The budget, released on Thursday, is reliant on record state debt — $ 1.8bn reported for the current financial year, and an estimated $ 4.38bn debt over the next four years, with a forecasted return to surplus in 2022- 2023. If ever, it is certainly the ideal time to take on debt — with record low interest rates ( that may keep on falling) — to invest in longterm ( usually expensive and with high initial cost) projects that will see benefits in future generations. Moreover, the Tasmanian economy had been experiencing rapid growth before the COVID- 19 pandemic. The Tasmanian economy recorded the fastest rate of growth across all state and territory economies in 2018- 2019, leaving the state in a relatively good position to bear the economic downturn that resulted with the lockdown restrictions.

The state government announced investment in infrastructure of $ 5bn over four years, with most of the projects already announced and half of that expense going towards roads and bridges. These projects distributed across the state, together with the Construction Blitz initiative and the extended HomeBuilder scheme, are expected to boost employment in the state. However, there are concerns to whether there is enough capacity and sufficient skills in the industry to make this achievable.

Infrastructure investment in the budget will support industries, particularly tourism and agriculture, through irrigation and water developments, airport upgrades and investment in national parks and touristic attractions. Investment in local industries and business as well as in employment is also reflected through payroll rebate schemes for apprentices, trainees and young workforce and apprentice and trainee grants for small businesses. Unlike discussions in other states’ budget, the tourism industry is only receiving $ 1m over two years for an industry registered training organisation.

This small measure relative to others, adds to previously announced support through the travel vouchers and the Tasmanian Support and Stimulus Package. There wasn’t much for arts, creative industries and events, apart from the Cultural and Creative Industries Stimulus package released earlier in the year. A bit surprising may be the $ 8m for the racing industry.

Accommodation and food, and arts and recreation, along with rental, all industries feeding into the tourism sector, are big contributors to the Tasmanian economy. Tasmanian reliance on the tourism and recreation industries has been growing.

In September last year, Tasmania had 1.32m international and interstate visitors spending $ 2.08bn in the state ( Tourism Tasmania, 2019).

The government will expect that the boosts incentivise intra- and inter- state tourists ( proximity tourism) to spend in the island, in replacement for the foreign tourism that we saw in recent years.

It is certainly welcomed to see expenditure on health and education after the health crisis put in evidence the essential nature of these industries. Health expenditure is proposed to increase 21 per cent to $ 9.8bn. It will mainly be reflected through hospital infrastructure but also through an increase in elective surgeries, mental health support, and digital health transformation. The 30 per cent increase in education expenditure reaches $ 7.5bn and is also mainly directed towards infrastructure and towards increasing the number of school teachers.

Despite the emphasis on physical infrastructure, there are some budgeted expenses destined to ICT development ( particularly in health and crime) coherent with the needs during lockdown. Additional expenditure on border protection has also been factored in to support the budget measures.

Specific vulnerable groups are considered in the budget with $ 22m for apprentices, trainees and young workers, $ 2.5m to promote women participation in nontraditional women jobs, $ 1.2m for building capacity for Aboriginal communities, and $ 100m for 1000 social housing dwellings. It is uncertain the impact these initiatives will actually have on employment for young and female workforce, and we may expect to see them work more effectively after March. However, other vulnerable groups who have been severely impacted by income loss due to the lockdown restrictions include older cohorts and migrants ( who may have invested in Australian education and contribute to the local labour force).

Last but not least, the budget promises on climate change and renewable resources. The government is investing $ 2.3m towards a government electric vehicle fleet, $ 15m for public housing heating and energy efficiencies and $ 17.6m on bushfire mitigation and fire service support.

The budget is heavily

infrastructure focused and presents continuation of previous commitments without many news or surprises. A valid question to ask is whether the budget is lockdown proof. Will all these commitments continue under potential strict lockdown restrictions some time in the coming year? The Premier stated that the budget includes emergency funds. It is likely the budget will be able to boost business confidence as expected, despite an environment of high uncertainty for businesses, though most likely for the summer season. Until a safe vaccine is created and administered, we are expecting to see high seasonality intensity and volatility in business activity based on imposed restrictions.

Dr Maria Yanotti is a Senior Lecturer of Economics in the Tasmanian School of Business and Economics at the University of Tasmania.