Tasmanian budget 2025 shows lower forecast state debt, few new savings measures

Tasmanian Treasurer Eric Abetz has vowed to take "decisive action" to rein in the state's ballooning debt — but his first "interim" state budget contains few major initiatives.

The post-election budget projects a slightly improved financial position, including a net operating surplus in 2028-29, plus a slightly lower level of debt — peaking at $10.4 billion in 2028-29 — than what former treasurer Guy Barnett unveiled in May's budget that failed to pass state parliament.

It includes just three new small savings measures, on top of the already announced Efficiency and Productivity Unit. Those measures are:

• Cuts to department marketing and communications spending
• Office and leasing "improvements"
• Procurement "enhancements"

Those savings are set to total $12 million a year at their peak.

In his speech to state parliament, Mr Abetz blamed a number of factors for the state's financial position, including COVID-19, "two recent regrettable early state elections", and a scheduled federal poll.

What are the key figures?

Just like May's budget, this one contains lots of red ink.

The state is on track to record an operating deficit of just over $1 billion this financial year.

It will then be slowly reined in across the next four years (known as the 'forward estimates'), with Mr Abetz projecting a small operating surplus of $5.6 million in 2028-29.

But once infrastructure spending and contributions from the federal government are factored in, four straight deficits are projected.

The biggest one is $1.35 billion in the 2025-26 financial year, reducing to $152 million in four years' time.

Debt is projected to reach $10.4 billion in 2028-29 — well below the almost $13 billion Treasury predicted it would reach by 2028.

The cost of paying that debt down continues to be significant.

In 2028-29, borrowing costs will be $632 million, and if you throw in the unfunded superannuation liability, those borrowing costs quickly exceed $1 billion.

Mr Abetz, who has repeatedly admitted that the financial position needs addressing, told parliament his goal was "simple and measurable".

"To reach peak debt — the point at which annual borrowings stop increasing — by the end of the forward estimates, and to begin paying debt down thereafter," he said.

Where is the money coming from and where is it going?

For this financial year, the government is spending $10.5 billion — $1 billion more than it brings in in revenue.

The budget projects slight increases to revenue over the next four years — growing to $10.28 billion in 2028-29 — and eventually outstrips what the state spends.

There are few new spending initiatives in the budget beyond what was already unveiled in May or announced during the lead-up to the July state election.

Health spending will make up 34 per cent of Tasmania's expenditure this financial year, with education the next biggest at 23 per cent.

On the revenue side, Commonwealth grants again make up two-thirds of what the state is set to bring in in the 2025-26 financial year. 

GST is the biggest sole contributor, making up 40 per cent of revenue.

The budget papers predict that all in all, GST revenues will rise slightly over the forward estimates, but Tasmania's overall share of the nation pie will dip from 3.82 per cent this financial year to 3.62 per cent in 2028-29, largely due to the state's population rising less than in other states and territories.

Economist Saul Eslake always points to another figure as the best measure of the state's financial position — net financial liabilities. 

That takes into account the unfunded superannuation liability, plus debt carried by the state's government-business enterprises.

Liabilities are projected to total $22.8 billion this financial year, and then rise to a peak of $28.5 billion in 2028-29.

What corrective measures are in the budget?

There aren't many, and the three that are there, aren't predicted to save much money.

The three new measures will save $5.9 million this financial year and reach a peak of $11.9 million the year after.

The budget papers themselves admit the measures are "modest in dollar terms", but say they represent a "symbolic and strategic component of the broader budget sustainability agenda".

Mr Abetz says the tight time-frame since he was sworn in as treasurer had prevented him from taking more decisive action.

The government still wants to cut the public service, planning to reduce it by about 2,800 jobs, with the Efficiency and Productivity Unit set to be central to achieving that.

This budget contains little detail about how it will achieve that.

Mr Abetz says the heavy lifting will be done in future years, announcing the government will unveil "significant action" when it hands down its next budget in May 2026.

"And that's why you've got to do the right-sizing in a considered manner, and not in a brash and rushed manner.

"And we're going to do that in a very considered way."

He says the government will take "a glide path" to right the state's finances, insisting a "slash and burn" approach could be harmful to the economy.

Mr Abetz did not rule out new or increased taxes being part of May's budget, but has previously said cutting spending is his favoured way to balance the books.

What are the risks?

The budget underlines plenty, including the end of the no-worse-off GST guarantee, and ongoing health funding discussions with the federal government.

It also identifies the potential cost blowouts of major infrastructure projects, including a new Macquarie Point stadium, and neighbouring wharf infrastructure home to Australia's Antarctic icebreaker.

But maybe the biggest risk factor is ongoing pay negotiations with public service workers.

The budget factors in a pay increase of 2.5 per cent, but unions have already rejected the government's pay offer of 3 per cent — estimated to cost the state an extra $125 million.

Mr Abetz warned that "excessive wage requests" would have "real consequences" for fellow workers and Tasmanian taxpayers, saying departments would have to find the funds to cover any increase over 2.5 per cent.

It sets the scene for a big battle with Tasmanian public sector unions, who say frontline workers will abandon Tasmania for jobs interstate unless the government offers nationally competitive wages.