In the first article in this series I described how Tasmania’s economy had performed relatively well over the five years leading up to the onset of the Covid-19 pandemic, by comparison both with the rest of Australia over the same period and with its own performance over the preceding five years. I put this down to a combination of good management and good luck. And I noted that we had started to see a potentially self-reinforcing interaction between economic and population growth, cemented by confidence in Tasmania’s future on the part of those who live here already, and those thinking about coming here to live.
However, it’s also important, I think, to recognise that despite this relatively good economic performance in recent years, Tasmania remains, by a considerable margin, the poorest state in Australia by almost every yardstick. And while economic indicators have their shortcomings as measures of well-being, the message conveyed by those indicators gels with what is also obvious from comparisons between the lived experience of most Tasmanians and their counterparts in other states and territories.
The broadest measure of the economic performance of any Australian state or territory is what the Australian Statistics Bureau calls gross state product. As gross domestic product (or GDP) does for a nation, gross state product measures the value of goods and services produced within a state or territory’s borders during a given period (which in Australia is a financial year). Yes, GDP and its state counterpart are incomplete measures of well-being: they don’t account for the depletion of natural resources, for example, and they take no account of the distribution of the rewards from economic activity. But for the time being, at least, they are all we’ve got to facilitate comparisons among nations, and states.
And these figures tell us that in 2019-20, the most recent completed financial year, Tasmania’s per capita gross state product was $61,272 – which was $16,535, or 21.25 per cent, below the national average, and lower than that of any other state or territory.
From this perspective, all that Tasmania’s relatively good economic performance over the preceding five years had done had been to lift us from being almost 24 per cent below the national average on this metric, as we had been in 2012-13 (which was in turn better than 25 per cent below the national average, which we had been in 2000-01) back to where we had been in the late 1990s.
As a matter of arithmetic (not economic theory), the reasons for the persistently large differences between Tasmania’s economic performance (as summarised by per capita gross state product) and that of other states and territories, or Australia as a whole, can be diagnosed using the same framework that the Australian Treasury uses to prepare the long-range forecasts published in the Inter-Generational Reports every five years or so for the past two decades.
This is the so-called “three P’s” framework – because it shows how economic growth depends on population, participation (in employment) and (labour) productivity.
In simple terms, gross state product (which, remember, is a measure of the value of goods and services produced) or GSP per capita can be broken down as
Algebraically-minded readers will note that the population, employment and hours worked terms can all be cancelled out, leaving the tautological proposition that GSP = GSP, which is what I mean by saying that this is a matter of arithmetic rather than economic theory).
This proposition can be re-written as:
Using this framework allows us to identify three reasons why Tasmanians have the lowest standard of living (as measured, albeit imperfectly, by per capita gross product) of any state or territory:
- First, only 47 per cent of Tasmanians (in 2019-20) were in paid employment: that’s 3 percentage points less than the national average, and less than in any other state or territory
- Second, those Tasmanians who were in paid employment worked an average of 29.1 hours a week, which was less than in any other state or territory, and 2.2 hours a week below the national average – which might not sound very much, but over the course of a year is equivalent to almost four weeks’ less work
- Third, for each hour that they work, Tasmanians in employment produce on average $84 worth of goods or services – which is marginally above the corresponding figure for South Australia but less than for any other state or territory, and $9.50 or 10 per cent less than the national average.
These three factors account, arithmetically, for all of the difference in per capita gross product between Tasmania and other states and territories, and between Tasmania and Australia as a whole – the first two each for just over one-third of the difference, and the third for just under 30 per cent of the difference.
That’s not to say that it is either possible or desirable to eliminate all of these differences.
For example, one of the reasons why a smaller proportion of Tasmanians work is that a higher proportion of Tasmanians is aged 65 and over. No reasonable person thinks that older Tasmanians should be required to keep working in order to boost economic growth.
Likewise, one of the reasons labour productivity (output of goods and services per hour worked) in Tasmania is below the national average is that most of the intrinsically high labour-productivity industries (like mining, financial services, and professional, scientific and technical services) account for a smaller proportion of Tasmania’s economy than they do of Australia’s as a whole.
And there’s not much, if anything, that we can do about that. We can’t put minerals in the ground if they aren’t there. Financial services tend to be concentrated in large cities, or in tax havens – and there’s no great desire on the part of Tasmanians to be either of those.
However, there are things that we can do about each of these three factors if we choose to. In particular, one thing which is important in shaping how any economy or society fares on all of these three factors is educational attainment. An enormous body of evidence clearly shows that the more education a person has, the more likely she or he is to have a job, the more likely that job is to be a full-time one, and the higher that person’s productivity (as reflected in her or his pay) is likely to be.
If Tasmania had a better-performing education system – if more of us had acquired the skills that constitute functional literacy while we were in skill, if more of us had remained in school to Year 12 (and acquired a TCE), and if more of us had undertaken some form of post-secondary education or training – then a higher proportion of Tasmanians would have jobs, more of those jobs would be full-time, and Tasmanian workers would produce more value for each hour that they worked (and would get paid more.
Instead, we have an education system which, despite having more spent on it per student than in any state except Western Australia and the Northern Territory, produces the worst outcomes for pupils and students (and their families) of any part of the country (except the Northern Territory, where there are other factors at play).
That’s why the next article in this series will look more closely at what needs to be done to fix Tasmania’s education system – without which, we will likely remain the poorest state in Australia no matter what else we might succeed in doing.
Saul Eslake came to Tasmania with his parents as an eight-year old. He went to primary school in Smithton, and high school and university in Hobart (graduating with a First Class Honours degree in Economics from UTas). Like so many in that era, he went to the mainland for work, initially at the Treasury in Canberra, before spending almost 32 years in Melbourne, working as (among other things) chief economist of the ANZ Bank for 14 years and chief economist (Australia & New Zealand) for Bank of America Merrill Lynch for 3½ years. In 2015 he came home to establish his own business, Corinna Economic Advisory. Saul Eslake is a Vice-Chancellor’s Fellow at UTas, and a non-executive director of the Macquarie Point Development Corporation.
