With Gunns on its knees what hope for Tasmania’s economy?

Pulped ... Tasmania is in recession and desperately needs a cohesive economic development policy. The state has the nation’s highest jobless rate, according to the Australian Bureau of Statistics and it’s no wonder jobs are scarce. Photo: Luis Enrique Ascui

These are not the best of times for Tasmania. A fragile economy, a population of just 512,000 and the only state separated from the mainland by sea: life is not a bowl of fruit for the Apple Isle.

As if to illustrate the precariousness of Tasmania’s thinly buttressed economy, the drawn-out unravelling of the once mighty timber company Gunns and its ill-fated $2.3 billion Bell Bay pulp mill has left the state’s equally precarious Labor-Greens government without an obvious Plan B for economic growth.

Debt-laden but still clinging to solvency, Gunns has faced the reality of entrenched community opposition to the pulp mill and conceded a $793 million write-down against the mill and its forestry assets. It reported a massive loss of $904 million for 2011-12 – on top of last year’s $355.5 million loss. Gunns’ shares have been suspended since March when a recapitalisation deal fell through – they were last trading at 16¢ – and its future is now in the hands of a syndicate of lenders, led by ANZ Bank.

Since it was first mooted in 2004, the pulp mill has been dogged by controversy, yet successive Labor premiers have remained unwavering in their support. The government’s insistence that the mill remains vital to the state’s economic prosperity underlines Tasmania’s unshakeable faith in “mega projects”, economist Saul Eslake says. Tiny and isolated, Tasmania has long been drawn to showpiece projects such as the doomed Gordon-below-Franklin dam and the Wesley Vale pulp mill in the 1980s.

“A cargo cult mentality is not an economic development policy,” Tasmanian-born Eslake, chief economist at Bank of America Merrill Lynch Australia, wrote recently.

Tasmania is in recession and desperately needs a cohesive economic development policy. The state has the nation’s highest jobless rate, according to the Australian Bureau of Statistics (ABS). Tasmania’s seasonally adjusted unemployment rate for August was 6.8 per cent (up from 6.5 per cent in July), eclipsing the national average of 5.1 per cent. It’s no wonder jobs are scarce. ABS state final demand data, which measures consumption and investment spending, reveals that Tasmania’s economic growth declined 2.2 percentage points in the year to June. Taken over the whole of fiscal 2012, Tasmania was the only state economy to go backwards.

Such dire statistics have a way of inflaming emotions in Tasmania. The chairman of the Tasmanian Chamber of Commerce and Industry (TCCI), Andrew Heap , lashed out at the “vigilante minorities” and their “undue influence” over the future of the Gunns pulp mill.

Meanwhile, the forestry industry is resisting government plans to restructure Forestry Tasmania, the state-owned company with statutory responsibility for managing state forests. The industry fears that under the restructure, which it suspects has been forced on the government by its minority Greens coalition partner, responsibility for releasing land for logging will fall to government, and in effect the Greens.

But there’s more to Tasmania’s woes than the travails of the forestry industry. As Canberra think tank, the Australia Institute points out, forestry accounts for just 1 per cent of Tasmanian jobs. Weakening global demand for forestry products has further eroded the industry’s role as economic saviour.

TCCI chief economist Phil Bayley urges Premier Lara Giddings’ government not to lose its nerve on economic reform. It has promised to restore “a modest surplus” of $50 million to the budget by 2013-14, following a forecast deficit of $283 million for 2012-13.

But reform does not come easily to Tasmanian governments, the state executive director of the Property Council of Australia, Mary Massina , notes. “This is an intensely conservative society and to get change in the state is a hard thing to do,” she says. “Every new development is questioned and viewed through a prism that change is going to be bad for Tasmania.”

This would seem at odds with Tasmania becoming the first state to pass same-sex marriage legislation. (It has passed through the lower house and must now face the independent-controlled Legislative Council.) But for Massina the paradox is not so hard to understand. “In a funny sort of way, this government might see social reform as being easier to achieve than economic reform,” she says.

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