THE noises from the Tasmanian government suggest they are getting out of their depth charting Tasmania’s economic path through stormy waters.

Financial sage Warren Buffet forewarned of the financial crisis and the danger of derivatives with the saying “You only find out who is swimming naked when the tide goes out.” In the coming months we find out whether the Bacon-Lennon-Bartlett succession have been preparing for the storm, or simply partying while the economic weather was fine. So far the signs are not good.

First off there is no need for Tasmania or Australia to have a recession or a slow-down because of the financial crisis in the US. There will only be a recession if everybody gets too scared to spend money, thereby putting other people out of work. When businesses get concerned about investing and consumers start putting off making major purchases then it is up to the government to take up the slack. This can be done by monetary policy, reducing interest rates and by fiscal policy, increasing spending, transfers and reducing taxes. This is fundamental Keynesian macroeconomics, something you would expect a Tasmanian Labor government to be well aware of. In fact the Tasmanian growth story of the Bacon era can be partly explained by the encouragement of investment with government guarantees and spending backed by GST revenues.

The Rudd Federal government clearly understands this and gets a B+ for economic management. Rudd has boosted consumer confidence with increases in family tax benefit payments, first-home buyer grants and plans to bring forward big-spending infrastructure packages. Steps to protect the financial sector have if anything been overzealous, over-stepping the mark on bank guarantees and not being quick enough to fine tune the policy detail. Otherwise they would get an A. The Reserve Bank is also on track for a High Distinction throwing an excellent hand-brake turn on interest rate policy and letting the Australian dollar fall, nicely boosting Australia’s competitiveness without creating panic.

Aird and Bartlett are looking at a C- for their group project, the Tasmanian economy.

First off they create uncertainty in the labour market by talking up a moratorium on new public service positions, apparently in response to criticism from the Opposition and Greens. While daily revelations from the Legislative Council inquiry show that senior appointments fail the test of probity, knee-jerk responses to criticism show weak economic management. The state government needs a plan to boost efficiency and output from the public sector without reducing the public service payroll that drives the economy. The state government must achieve more with the same, not more with less.

Now we have reports that spending cuts will be announced after the mid-year report is received on the Tasmanian economy and budget. Apparently “the waves of the crisis have come crashing onto Tasmanian shores.” If the problem is a fall-off in conveyancing duty and higher than expected public service wages then this crisis has nothing to do Wall Street but the lazy state budgets over the last three years. Reliance on duty as a major source of revenue is systemically flawed, as revenues collapse just when the government needs to boost spending. They are also inefficient, discouraging people from adjusting housing to suit their actual requirements, thereby exacerbating the housing crisis. It is only now that the government is talking about tax reform.

Irrespective of the cause of any impending shortfall, a state budget faced with a fall in business and consumer confidence cannot cut spending. This is why a government pays down debt and improves their credit rating when times are good, so that they can spend strongly when times are bad. If the state government is net debt free then there is no need to cut spending. If the economy is genuinely on the cusp of a slow-down then deficits become a good thing, boosting demand by spending more than is taken away by taxes and charges.

The major problem the government faces is the ability to deliver on infrastructure spending in a timely manner. An economic slow-down should be seen as an opportunity to invest in public infrastructure, so that the economy’s productivity is higher when demand improves. Road, rail, schools, health and energy efficiency are all opportunities for public investment, but the government is slow off the mark and exudes indecision rather than confidence.

Actually 2009 should be a great year for Tasmania, particularly for tourism. The dollar is cheaper and the Bay of Fires has been recognised as a must see tourist destination by Lonely Planet.  Instead we have a mayor grumbling, a tourism minister missing in action, a Premier with foot-in-mouth on the forestry debate, and squabbling in the Tarkine. Does anybody see the glass half-full?

Did I mention that Baz Luhrmann has just released a multi-million dollar Australian tourism commercial starring Hugh Jackman and Nicole Kidman?

The Tasmanian economy has been handed a ‘Get out of recession free’ card while the captain is calling abandon ship.

What the Treasurer and Premier need to do is to clear the decks on the forestry debate, at least for 2009. Declare some National Parks (Tarkine? Styx?), get a peace deal in the Southern Forests and abandon the Tamar pulp mill ( see Back to the drawing board ). Getting a deal with Rudd on greenhouse would also sell very well.

Then we advertise: clean, green, protected and absolutely beautiful. Piggy-backing off ‘Australia’ and the Lonely Planet endorsement so that those people that will be taking a holiday in 2009 (New York bankers taking a break?) will try to get to Tassie if they can. Once they get here, we send them to the Tarkine, the West Coast, the Huon and the Tahune, Port Arthur, Hobart, Stanley, Penguin, the Gorge, the Tamar …did I mention the Bay of Fires?

Like ‘Australia’ this is a story, but the audience is not just the international travellers of the world, but the Tasmanian consumer and investor. There is no need to have any slow-down in the Tasmanian economy; the Premier just needs the confidence to lead.

Alex Wadsley
is a consultant and contract lecturer in economics and finance at the University of Tasmania. He has worked previously for BOS International in Sydney arranging finance for major resource projects, as well as for Woodside Petroleum in business analysis, gas marketing and business development. The author holds an MBA from the University of Western Australia and has submitted a PhD for examination at the University of Tasmania.

Alex Wadsley
The Tasmanian economy has been handed a ‘Get out of recession free’ card while the captain is calling abandon ship.  What the Treasurer and Premier need to do is to clear the decks on the forestry debate, at least for 2009. Declare some National Parks (Tarkine? Styx?), get a peace deal in the Southern Forests and abandon the Tamar pulp mill ( see Back to the drawing board ). Getting a deal with Rudd on greenhouse would also sell very well.  Then we advertise: clean, green, protected and absolutely beautiful. Piggy-backing off ‘Australia’ and the Lonely Planet endorsement so that those people that will be taking a holiday in 2009 (New York bankers taking a break?) will try to get to Tassie if they can. Once they get here, we send them to the Tarkine, the West Coast, the Huon and the Tahune, Port Arthur, Hobart, Stanley, Penguin, the Gorge, the Tamar …did I mention the Bay of Fires?