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Take a look beyond the numbers

Publications, Tasmania | 24th October 2017

Saul Eslake | Hobart Mercury |24th October 2017

Op-ed piece published in the Hobart Mercury newspaper on 24th October 2017, discussing Tasmania’s ranking in a recent analysis of the economic performance of Australian states and territories, and suggesting some priorities for the next Tasmanian State Government

Talking Point: Take a look beyond the numbers

THE CommSec State of the States Report is one of a number of regular “snapshots” comparing the economic performance of Australia’s eight states and territories produced by a range of financial institutions and consulting firms, using a variety of different methods. CommSec ranks the performance of each state and territory across eight indicators relative to their respective 10-year averages, then assigns a ranking based on the average of each state or territory’s ranking on those eight indicators.

The advantage of CommSec’s approach is its simplicity. For example, its most recent report, released this week, shows NSW doing “the best” of all the states and territories, followed by Victoria, all the way down to Western Australia which ranks last. Tasmania’s ranking slipped to fifth, having ranked fourth in each of the three previous CommSec reports this year. But the margin between Tasmania and South Australia, which moved into fourth spot, was very small. And Tasmania’s ranking remains much better than the seventh or eighth spot, which we occupied throughout 2016.

The CommSec report has some quirks which are worth noting. Arguably, it assigns more importance to housing than it should — with two of its eight indicators (housing finance commitments and dwelling starts) and one-third of another (construction, including residential construction) relating to a sector which accounts for less than 6 per cent of gross domestic product, GDP.

It uses a peculiar combination of state final demand (spending by households, businesses and government) and international trade (in goods), unadjusted for inflation, as a proxy for overall economic growth (in the absence of quarterly measures of real gross state product). In the latest report, this gives the Northern Territory a number one ranking for economic growth, even though the NT ranks last on five of the other seven indicators.

And it judges labour market performance solely by reference to the unemployment rate, without considering jobs growth or labour force participation. Thus, NSW has “the strongest job market in the nation”, because its unemployment rate is lower relative to where it has been over the past decade — even though the fall in the NSW unemployment rate over the past year is entirely due to a decline in its participation rate, and employment growth in NSW over the past year has been below the national average (and below that in Tasmania).

Notwithstanding these quirks, Tasmania’s fourth placing in the latest CommSec rankings isn’t an unreasonable assessment. We’re clearly not doing as well as NSW or Victoria. We are doing better than Western Australia and the Northern Territory. You can argue over whether we are doing better than South Australia (which is not setting the bar very high) or Queensland. But, importantly, we are doing better than we have done for most of the past five years. The key economic questions in the lead-up to next year’s state election are can we sustain this improvement, and can we do even better? The answer to each of those questions is yes, provided that whoever wins government has a mandate to pursue economic and other policies which can make our economic performance stronger and more sustainable, in the face of unpredictable forces beyond the control or influence of any state government.

Of these policy areas, by far the most important is education. Despite spending considerably more per student and as a proportion of our state’s income on school education than the rest of Australia, Tasmania’s education system has consistently delivered poorer results in participation and attainment. This isn’t the fault of students, or teachers. It isn’t an inevitable result of Tasmania having a larger proportion of students from rural and regional areas, or from low socio-economic status households, than the rest of Australia. Students from Hobart are less likely to complete Year 12 than students from provincial or rural areas of any other state; and students from high socio-economic status households are less likely to complete Year 12 than students from low socio-economic status households in any other state.

The fault lies, rather, in a system which, for five decades, has failed to offer students entering high schools the same pathways and opportunities to a full secondary education as are available, almost universally, everywhere else in Australia. The Hodgman Government’s program of extending Year 11 and 12 courses to high schools in rural and regional areas is now showing welcome results. But those opportunities need to be extended to urban areas, where around three-quarters of Tasmanian students live — a step which would require an explicit mandate.

A government which wished to sustain and improve on Tasmania’s recent economic performance would also be aided by mandates to emulate other states in selling or leasing “poles and wires” or ports in order to invest more in growth-enhancing infrastructure, and to pursue growth-enhancing state tax reform, such as broadening the base and lowering the rate of payroll tax.

In other words, Tasmania’s medium-term economic prospects would be best served by having a government which sought, and received, a mandate to do more than simply “mind the store”.

Saul Eslake is an independent economist and Vice-Chancellor’s Fellow at the University of Tasmania.


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