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Itís time for a free trade agreement with Tasmania

By Andrew Baker - posted Tuesday, 14 August 2012

Should Australian taxpayers pay other Australians for choosing to live in hard to reach places? Should those who choose to live on a mountaintop, in the middle of the desert, or the heart of the bush receive subsidies for having food and other necessities shipped to their doorstep?

I think most Australians would say no, but the Gillard government has answered these questions with a resounding ‘yes’ for those who have chosen to live in the not so hard to reach Tasmania.

The Tasmanian Freight Equalisation Scheme (TFES) subsidises trade between Tasmania and the Australian mainland (and also between the main island of Tasmania and King Island and the Furneaux Group) to cover the additional cost imposed by transporting goods by sea over Bass Strait.


Goods that travel by sea, from, for example, Melbourne to Perth or Brisbane to Adelaide, do not get similar subsidies. The subsidies through TFES are in addition to the very generous allowances Tasmania receives through the redistribution of GST revenues.

Since the Fraser Liberal Government started the scheme in 1976, governments have doled out nearly $3 billion in subsidies to Tasmania; the program currently costs the taxpayer about $100 million every year. Both major parties take credit for starting the program, as the Liberal Fraser Government implemented the recommendations of a review initiated by the Whitlam Labor Government.

TFES provides subsidies for the usual goods that need shipping, such as agricultural, manufacturing and mining goods, but it also provides subsidies for professional sportspeople and entertainers to transport their equipment, and for Tasmanian horse breeders to transport brood mares to the Australian mainland for servicing and then return them home.

The question remains whether the Australian Government should be subsidising Tasmanians for choosing to live in Tasmania? Anywhere we choose to live, be it city or country, inner city or outer suburbs, the Australian mainland or Tasmania, there will be economic and lifestyle trade-offs that inform those decisions.

Inner-city hipsters may live within walking distance of work, but they pay for it through higher rents and smaller houses. Families that want to raise their children in a house with a big backyard choose to live in the outer suburbs of major cities and pay for it through longer commutes to work, school and the shops. Rural families enjoy lower property prices and rents but this is offset by the physical and social isolation of remote living.

There will always be pros and cons about where we choose to live, and the same goes for those who choose to live on either side of Bass Strait. The Tasmanian Government likes to tout “Tasmania’s exceptional natural heritage, its diverse range of arts and cultural experiences, its lifestyle and its public open spaces” to attract people to Tasmania. These are the benefits of living in Tasmania, but that does not mean their fellow Australians on the mainland should subsidise their grocery shopping.


A recent review of TFES by the National Infrastructure Coordinator, Michael Deegan, found that the program was “reactive, disjointed, fragmented and costly” and subject to numerous allegations of fraud. More importantly, the review pointed to a more fundamental problem with Tasmania’s economy because “the TFES acts as a barrier to Tasmania understanding the virtues of economic self-sufficiency. If Tasmania is to be a productive member of the Australian Commonwealth then it must take risks, and provide the opportunities that will give it a productivity boom.”

Deegan recommended that the Commonwealth withdraw direct funding (which is bureaucratese for abolishing) of the TFES and request the Commonwealth Grants Commission to consider Tasmania’s geographical issues with Bass Strait through the redistribution of GST. This would be better than the current arrangement, but the fundamental problem remains: Tasmanians will continue to be subsidised for living in Tasmania.

Tasmanians should not have their lifestyle subsidised because they have chosen to live in Tasmania, any more than people in the city or country should be subsidised for living in the city or country.

Abolishing the TFES program would save the Commonwealth $100 million every year, provide incentives for the Tasmanian Government to make their economy more efficient, and most importantly, Tasmanians will not be given favorable treatment over all other Australians because of where they have chosen to live.

It’s time for a free trade agreement with Tasmania. It would be a win for both sides of Bass Strait.

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About the Author

Andrew Baker is a Policy Analyst at The Centre for Independent Studies.

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