By RICHARD DOWLING *

TASMANIA is facing an economic time bomb and urgent decisions are required if the State is to avoid burdening future generations with unsustainable costs, unmanageable debt and lower standards of living.

The impact of Tasmania’s rapidly ageing population combined with the rising cost of government services is simply unsustainable.  On current conservative projections the cost of government will exceed the size of the Tasmanian economy by 2050.

Undoubtedly, this is a demographic and economic time bomb.

Imagine Tasmania as a car driving down a road that is constantly getting narrower.  To make matters worse the car is full up and we need a bigger vehicle to carry more passengers.  Suddenly, we are trying to wedge a bus through a bike track.  This is problem we confront with an ageing population and smaller workforce.

Without concerted action from government, business and the community, this bomb will blow up in faces of our children and grandchildren.

Before we hit any panic buttons, let us first examine the elements of this time bomb.  The more we understand the nature of this problem, the better chance we have to defuse it.

The red line in the graph represents the cost of government divided by Tasmania’s future workforce.  Historically, the cost of government in Tasmania rises at an annual average rate of seven per cent.  The exponential increase is exacerbated by the fact that there will be fewer workers to contribute to this cost while there will be more older people demanding government services.

There are already more people leaving the Tasmanian workforce than entering it.  Today, there are slightly more than four people of working age for every person over 65 years.  Yet within 30 years there will be only two people of working age to support those aged over 65 years.  It is not hard to envision why government health and aged care services will be pushed to the limit.

The blue line on the graph represents the projected growth of the Tasmanian economy, which has historically grown at 2.75 per cent annually.  As the graph shows, Tasmania cannot afford to stay in the economic slow lane on a global superhighway of high-speed performers.

Think of the difference between the blue line and red line as ‘our way of life’ - the government services dividend we get from our economic growth.  The problem is that our way of life is under threat.  The difference between the projected size of our economy and the cost of our public services is shrinking.  The present quality of life in Tasmania cannot be maintained without a dramatic improvement in economic growth and productivity.

To simply maintain our current way of life we would have to grow at the rate of the green line - an economic growth rate more than double what we have managed to record historically.

However, this does not have to be our destiny.  It is within our power to avoid this ticking time bomb.

The strategy must be twofold. Firstly, we need to focus on budget sustainability to prevent the green line growing so rapidly.  Secondly, we need to increase the economic output from our workforce by improving productivity, participation and population.

There is cause for optimism that with the right policy settings from government and community willpower we can shrug off this time bomb.  However, we are getting older every day and there is not a minute to lose.

* Richard Dowling is the Tasmanian Chamber of Commerce and Industry’s chief economist.