Image for Why is Tasmania’s per capita gross State product 21% below the mainland’s?

In the 2009-10 financial year, the latest for which complete figures are available, the dollar value of goods and services produced in the Tasmanian economy – what economists and statisticians refer to as ‘gross State product’ – amounted to $23.3 billion.

That was equivalent to $46,185 for each the roughly 505,000 men, women and children living in the State at the time. This figure was almost 21 % below the average of $58,239 worth of goods and services produced in the 2009-10 financial year for each of the roughly 21.6 million people living on the mainland.

This sizeable difference in wealth creation isn’t obvious to most Tasmanians, because although most of us are aware that we aren’t as well as off as people on the mainland, our per capita household disposable income (of $36,102 in 2009-10) was only 4.4% below the corresponding mainland figure. That difference is much smaller than the difference between Tasmanian and mainland per capita gross product, because Tasmanians paid almost $1,800 (or 30%) less per head in income tax than people on the mainland, and received about $1,200 (or 27%) more per head in social security payments and benefits than people on the mainland. Those differences would be smaller – that is, Tasmanians would contribute more to the national ‘pot’, and draw less from it – if our economy were stronger than it is.

The ‘3Ps’ framework devised by the Commonwealth Treasury for use in its Intergenerational Reports – which dissects the sources of economic growth into the contributions made by population, (labour force) participation and (labour) productivity – suggests that there are three major reasons why per capita gross product is so much less in Tasmania than it is on the mainland.

First, only 46.4% of Tasmania’s population in Tasmania was in employment during the 2009-10 financial year, 4.6 percentage points lower than the proportion of the mainland’s population. About half of this lower participation rate is due to a higher proportion of Tasmania’s older age profile: a larger proportion of Tasmanians are beyond the traditional retirement ages, after which participation in the labour force typically declines sharply. The rest is due to other causes, including a higher incidence of work-restricting disabilities and below-average levels of educational attainment. Below-average participation in employment accounts for almost $4,000 (or 33%) of the difference between Tasmanian and mainland per capita gross product.

Second, those Tasmanians who were employed worked an average of 1.8 hours fewer hours per week than those with jobs on the mainland. This difference in average hours worked accounts for almost $4,500 (or 37%) of the difference between Tasmanian and mainland per capita gross product.

Third, those Tasmanians in employment produced $6.50 (or 9.5%) less by value of goods and services, on average for each hour that they worked, than their counterparts on the mainland. This difference partly reflects differences in the structure of Tasmania’s economy compared with that of the mainland (for example, a smaller proportion of Tasmania’s economy is accounted for by the high-productivity mining sector, while a larger share is made up of sectors with below-average productivity); but it also reflects the fact that, in most individual industries, output per hour worked is lower in Tasmania than in the same industries on the mainland. This difference in labour productivity accounted for almost $3,300 (or over 27%) of the difference between Tasmanian and mainland gross product per capita.

There’s not much that any Tasmanian government can do about our age profile, and only a limited extent to which it can alter the structure of our economy, at least in the short- to medium-term.

However there’s a great deal that a Tasmanian government could do, over the medium- to longer-term, to improve the capacity and inclination of Tasmanians of working age to seek and obtain employment, and their productivity in employment, if it were so inclined.

Particularly important in that regard is an increase in the amount of time that Tasmanians, both those yet to enter the workforce and those already in it, spend acquiring and upgrading skills that are needed for the contemporary world of work (which will also, more often than not, make them more engaged citizens as well), and improving the quality of what is imparted to Tasmanians by our educational and training institutions.

Tonight’s federal Budget will reportedly include some measures designed to induce more Tasmanians to take up fly-in fly-out jobs at resources projects on the mainland. That will benefit the national economy, and be of some undoubted benefit to any individuals who are thereby enabled to obtain well-paid work, and their families. But it’s no substitute for measures designed to improve the participation and productivity of Tasmanians here at home.

Download: Per_capita_GSP_drivers_2009-10.xls

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Last weekend marked the retirement from political life of Don Wing (above), after 29 years representing the people of Launceston in the Legislative Council, and twelve years on the Launceston City Council (including four years as Mayor). Don Wing has been a strong, dedicated and fiercely independent servant and representative of the people of Launceston, and of Tasmania, a member and supporter of a wide variety of community organizations, an active promoter of personal links between Tasmania and countries as diverse as Japan and Zimbabwe, and a mentor and friend to countless people from all walks of life, including me for 35 years. If ever there was a politician who deserves to carry the term ‘honourable’ for the rest of his days, it’s Mr Wing. I am sure I’m joining thousands of others in saluting his service and wishing him well in retirement.

Article by Saul Eslake published in the Launceston Examiner, Tuesday 10th May 2011