Tasmania: a province of Victoria

Having once lived there, I know Tasmania is a pleasant place to live. But so is Greece. And if Tasmania was an independent country, it would be in more trouble than Greece.

There was quite a lot of discussion about this in 2013. A good summary came in an article by Jonathan West, director of the Australian Innovation Research Centre and a resident of Tasmania, who described the state as follow: "Tasmania ranks at the bottom among Australian states on virtually every dimension of economic, social, and cultural performance: highest unemployment, lowest incomes, languishing investment, lowest home prices, least educated, lowest literacy, most chronic disease, poorest longevity, most likely to smoke, greatest obesity, highest teenage pregnancy, highest petty crime, worst domestic violence."

Tasmania is also a mendicant state, highly reliant on the rest of the country. It generates about a third of its state budget, the rest being GST allocations and specific purpose payments from the commonwealth. GST and income tax originating within the state fall well short of what it receives, meaning the government effectively receives welfare from the rest of the country. When the NSW economy goes into recession, one of the consequences is less money for Tasmania.

This is on top of the higher proportions of welfare that Tasmanian individuals receive.

None of this is new. Tasmania has been a claimant state since the inception of the Commonwealth Grants Commission in 1933. Apart from brief spurts of growth due to mining, Tasmania's income has rarely lived up to its aspirations since federation.

Every year, many of the state's best and brightest move away. Between 1900 and 1935, Tasmania's population grew at less than 0.7% per year, about the same as its current growth rate. It nonetheless has politicians in abundance. In addition to local government and an upper and lower house in the state parliament, it is constitutionally guaranteed five seats in the House of Representatives and twelve seats in the Senate. And while each federal electorate in NSW has about 95,000 voters, in Tasmania there are less than 70,000.

It also has a long history of anti-development policies. Indeed, rather than offering a low tax and less regulatory environment to attract investment and generate jobs, it has repeatedly done the opposite. Among many examples, utility charges since 1998 have increased on average 6.1% per annum, electricity 6.4% and property rates and charges 5.5% compared to the CPI in Hobart of 2.7%.

So what should be done about Tasmania? I have four suggestions.

First, the federal government should provide fewer transfers to state governments. There is no need for 'special purpose payments' that come with strings attached, as if Canberra knows how to run hospitals, schools and the like. With reduced commonwealth taxes, states should raise their own taxes to fund their spending, creating a far more effective discipline on it. If the federal government were to treat the states less like children, they might start behaving like grown-ups.

Second, to the extent that the federal government still transfers money to state governments, such as GST revenues, it should return the money to the state where the revenue was generated. This would immediately prompt states like Tasmania to introduce growth-promoting policies.

Third, subsidies for shipping to and from Tasmania should be abolished. If islands such as Hong Kong and Singapore can become wealthy without them, so can Tasmania. Bass Strait is not a cruel plot for which mainland Australians should compensate Tasmanians. The solution is cheaper shipping, such as by abolishing industrial relations laws introduced specifically for the shipping industry.

Finally, respect for the principles of equality before the law and one vote one value should be embedded in the constitution, giving Tasmania the same representation as other Australians. Such a reform would reflect the proud egalitarian spirit of Australians on both sides of the Strait.

Of course, if it ever chose to get really serious about its situation it could become an unincorporated territory as part of Victoria, like French Island. Eliminating all those state and local politicians along with thousands of bureaucrats would save a fortune.