Tasmania's demographic time bomb is ticking. The Tasmanian Chamber of Commerce and Industry's analysis of Tasmania's demographic time bomb clearly illustrates that the State Government will need to tighten its belt.
The time bomb will hit the Government on two broad fronts.
First, the population of the island state is projected to age significantly over the next four decades. This is expected to lead to increasing demand for age-related services such as health care.
The second component of the time bomb is the impact of declining labour market participation on government revenues. To put it simply, if there are fewer people of working age, then per-head fiscal burdens will skyrocket.
According to the TCCI analysis, if current policies are left unchanged then the cost of running the government would exceed the size of the entire Tasmanian economy by about 2050.
To avoid this time bomb, the productive capacity of the economy will need to expand significantly over time. This requires nothing less than a state government dedicated to cutting red tape and easing business costs whenever and wherever possible.
This productivity enhancement agenda would need to be complemented by reforms that cut government costs.
I stated in a report prepared for the TCCI last year that more efficient government services can deliver long-term cost reductions. But to increase efficiency, the government has to allow private sector providers to compete for the delivery of services. One way to do this is to allocate government funds, say in education and health, on the basis of a level playing field. When funding follows the student, or the patient, then the efficient private sector can deliver more services. This would deliver consequent savings to Tasmanian taxpayers.
The greater competition in government services will also pressure public providers to become more responsive to the needs of people throughout the state.
The need to cut costs through greater efficiency extends right through to government business enterprises and state-owned corporations. The TCCI study found that only four of 16 entities achieved returns exceeding the cost of capital.
Appointing administrators who can recommend ways for government business enterprises and state-owned companies to deliver better value for taxpayers could be the first step to achieve systemic cost reductions.
Ensuring that government finances remain in a sustainable position into the future will play a key role in avoiding the demographic time bomb. An annual balanced budget rule, combined with a requirement that government revenues not exceed state economic growth, will be vital in keeping the government on a fiscal leash.
The time bomb is starting to tick and there are many questions that need to be answered if the state is to avoid the economic double-whammy of population ageing and falling workforce participation.
Do people want a strong, growing economy with a diverse private sector that invests and creates attractive jobs? Should the government leverage the expertise and efficiency of business in delivering the services that Tasmanians want? Is it worthwhile to keep government budgets honest in the difficult circumstances ahead? How Tasmanians respond will determine whether or not the state can defuse the time bomb.
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