Restarting economies through independence

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Australian Financial Review 14th March, 2014

On Saturday there are state elections in two of the poorest and worst-run states. Labor has been in power for 12 years in South Australia, and 16 years in Tasmania.

The two states are bottom of nearly every ranking of economic performance. They have the country's highest unemployment: South Australia's unemployment rate is 6.6 per cent and Tasmania's is 7.6 per cent (the national unemployment rate is 6 per cent).

As Julie Novak, a senior fellow at the Institute of Public Affairs identified in January in her report on economic freedom in Australia, the two states have, per head, the biggest government, the highest number of people on welfare, and the most public servants. In Tasmania one in three people in full-time employment works for the federal, state, or local government. (Across the Australia as a whole there's one public servant for every four full-time workers.)

House prices demonstrate the size of the gap between South Australia and Tasmania and the rest of the country. Last year the median house across Australian capital cities cost $540,000. In Sydney the median house price was $655,000. In Adelaide the median house price was $386,000, and in Hobart it was $330,000.

If South Australia or Tasmania were countries, they would at least be able to devalue their currency to improve their economic competitiveness. (Unless of course they were unfortunate enough to have the euro.) But they are more like Greece and don't have that option.

Nor do South Australia or Tasmania have control over taxes or industrial relations. A state that could cut the company tax levied on its businesses would gain a huge competitive advantage. As would a state that could free its employers from the so-called Fair Work Act. Flexible labour laws have been the key to the economic renaissance of the south-eastern states in the United States.


The reality is, in this country, states can only tinker at the margins unless they want to deindustrialise. The federal government allows them to add rules and regulations but not cut them. Tasmania has shunned economic development and now 60 per cent of its annual $4.7 billion budget is paid by the mainland. Yet, if Will Hodgman wanted to cut red tape disproportionately hurting Tasmania, he couldn't.

One of South Australia's competitive advantages is its abundant and cheap land. Adelaide should be a magnet of interstate and overseas migrants, yet South Australia is hostage to a population settlement policy set in Canberra.

Before the federal election, the Coalition launched its "Economic Growth Plan for Tasmania". It pointed out that since 1901 there had been at least 75 different reports into Tasmania. There's much that's worthwhile in the plan, but it has the tendency to see the "solution" as more, and better-targeted handouts from Canberra. There's not much in the plan about allowing Tasmania to help itself. The same applies to South Australia and the Abbott government's inquiry into the state's economy announced after the closure of Holden. A $100 million "growth fund" has been promised but there's precious little about the regulations made by Canberra that stop the state being competitive.

Centralisation and uniformity have been forced upon the states over decades of Coalition and Labor rule in Canberra. Competition and experimentation between states, and diversity in the public services they provide is now a thing of the past.

The quality of a state's education system was once a factor in attracting migration to the state, and states had an incentive to improve their education performance. Julia Gillard's "National Curriculum" ensures all states now teach the same thing in the same way.

The Abbott government is soon to settle the details of a new inquiry into the federal system. If Steve Marshall and Will Hodgman are premiers after tomorrow, they should work to ensure they're allowed to try something new. Gaining back the industrial relations powers state governments once had would be a start.

A new approach is needed. More handouts from Canberra to South Australia and Tasmania are no more likely to secure a prosperous future for those states than were Canberra's handouts to the car companies likely to secure long-term jobs in automotive manufacturing.

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