Tasmania is struggling to keep up.
The human cost of allowing Tasmania to languish is real. Tasmania’s life expectancy is lower than all other jurisdictions except the Northern Territory.
The lack of jobs perpetuates the cycle, by depressing Tasmanians’ will to get educated. In Tasmania, 30.5 per cent of people have year 10 qualifications or below, compared to 21.9 per cent in the second-worst performing jurisdiction, the Northern Territory.
Tasmania may still have its renowned contemporary art gallery MONA, but one of my favourite things about Hobart was a tea shop called Chado owned by Violent Femmes bassist Brian Ritchie. It announced its closure in August.
What can Tassie do? The one big stimulator left in the box for the Tasmanian government is fiscal policy, but it is already struggling to control the deficit, which blew out by over $100 million last financial year to $426 million. Its credit rating is below triple-A and could be set to fall further. With WA champing at the bit for a greater slice of GST revenues, Tassie’s spending capacity is at risk.
It’s clear Tasmania needs a kick up the bum. If the economy as a whole was travelling as poorly as Tasmania’s the Reserve Bank would be slashing rates faster than the Iron Chef chops up a daikon.
But when the RBA sits around the big marble board table in Martin Place tomorrow to set the interest rates that control inflation and economic growth, they can’t consider Tasmania on its own. Monetary policy covers the whole country at once. It is blunt.
For a lot of modern economic history, transaction costs were high and seemed to make a strong case for currency unions – hence the euro’s launch in 1999. But the stilted and uneven recovery from the GFC has made blindingly clear the importance of monetary policy that can target each region’s needs.
In the UK, one columnist has recently called for the excision of London from the UK’s currency zone to help the North catch up.
“As an independent city state, London would have a higher exchange rate and higher borrowing costs. The rest of the country would, by contrast, get a competitive boost.”
Australia’s problem is not one economic hotspot, but the opposite. Most of the country is ticking along just fine, but our friends down in the Apple Isle are suffering. Sharing interest settings and an exchange rate between Balmoral and Beaconsfield guarantees a slow and bumpy ride in the latter.
To save Tasmania, we must first let it go.
The classic suggestion would be to let Tasmania join New Zealand’s currency, but over there, interest rates are set to rise and the exchange rate is closer to parity with the Aussie dollar than it has been for over five years.
Instead, Tasmania needs its own currency, so it can have its own exchange rate and monetary policy. There’s an obvious choice for the man to head up the new Reserve Bank of Tasmania – the best economist from Tasmania, Bank of America Merril Lynch Australia’s chief economist Saul Eslake.
There is plenty of precedent for leaving currency unions. Ireland quit the UK’s currency in 1979. Tonga abandoned the Aussie dollar in 1991. In total, 69 states and territories have moved to their own currency since the end of the second world war. A currency specific to Tasmania could be a boon for the state…