Identifier
Created
Classification
Origin
08MELBOURNE144
2008-12-12 01:11:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Melbourne
Cable title:  

Tasmania Weathers Global Financial Crisis - So Far

Tags:  EIND ECON ETRD AS 
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SUBJECT: Tasmania Weathers Global Financial Crisis - So Far

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Summary
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Summary
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1. (SBU) Tasmanians told Consul General during his first official
visit on December 1-3 that Tasmania has weathered the global
financial crisis so far, but there are already signs that the state
may not escape unscathed. Declining real estate sales have cut into
state revenue and tighter credit has delayed the development of the
controversial Gunns Ltd. pulp mill. Tasmanian Premier David
Bartlett has an ambitious plan to transform his state's economy, but
some wonder whether he can meet these goals as the slowdown in the
rest of the Australian economy trickles down to Tasmania. End
Summary.

Tasmania Weathering the Storm - So Far
--------------


2. (SBU) During a series of meetings in Hobart on December 1-3,
political and business leaders told Consul General that the global
financial crisis has not yet landed in Tasmania, but there are signs
that the economy may soon slow. According to Tasmania's Premier,
David Bartlett (Labor),transactions in the state's real estate
market have dropped off. While average home prices have not yet
declined, fewer real estate transactions mean fewer taxes, and the
Premier noted that this has already begun to hurt state revenue.
Bartlett believes that this may be a leading indicator of future
economic challenges in the state.


3. (SBU) Tight credit and sagging share prices have delayed the
construction of Tasmania's environmentally controversial new pulp
mill. The market value of Gunns Ltd, which is seeking A$1 billion
(US $634 million) of capital to fund the pulp mill, has declined in
recent weeks to approximately A$580 million (US $368 million).
According to Gary Bailey, the editor at Tasmania's daily Mercury,
financial trouble at Macquarie bank, one of the mill's main
financiers, has also frustrated attempts to fund the new mill.
(Note: Tasmania is a particularly environment-conscious state.
Tasmania's Green party, which holds four of the state's 25 lower
house seats, has opposed the mill in its current form. Both the
Labor (14 seats) and Liberal (7 seats) parties have expressed
support for the mill on the grounds that it will provide a
significant economic boon for the state. End note.)



4. (SBU) Alan Campbell, General Manager for Tasmania's Department of
Economic Development, indicated that the state has come a long way
in the past decade. Unemployment has declined to 3.7 percent from
12 percent in the early 1990s. Increased tax revenues over this
decade also permitted the state to pay off its general debt.
Campbell admitted, however, that there is often a delay between the
impact of economic troubles on the "mainland" and the subsequent
effects in Tasmania. John Harris, Managing Director of Incat - a
large scale catamaran and ferry builder, noted that business is
still good, but he worries that tighter credit may prevent his
customers from obtaining necessary financing. Because Incat does
business with a small pool of customers, one cancelled order may
mean dozens of highly-skilled jobs lost, he said.

Transforming the Tasmanian Economy
--------------


5. (SBU) Premier David Bartlett stated that his top priority for the
state is to improve educational standards. Better academic and
vocational education, he said, would allow Tasmania to move from
exporting raw resources such as timber and minerals, to producing
more high value-added products such as walnuts, wine and other niche
items. He also believes that the state can leverage its natural
beauty to attract more adventure-seeking tourists as New Zealand has
recently done. Tasmania, Bartlett said, can lead the way in
Australia's attempt to develop a sustainable economy by continuing
to carefully manage its extensive natural resources and by placing
increasing emphasis on renewable energy. Noting several times that
14 percent of Australia's rain falls on 2 percent of its landmass in
Tasmania, Bartlett described his long-term dream to develop the
state into Australia's "food bowl." Improving water and power
delivery throughout Tasmania, he said, remain key obstacles to
realizing this vision.

Snapshot of Tasmania's Economy
--------------


6. (U) Tasmania's economy is dominated by tourism, forestry, mining
and agri-business. Together these sectors employ over 28,500 of the
state's 500,000 residents. The state's mining sector, tiny compared
to Western Australia's, exports unprocessed ore directly in charter
vessels to buyers in China. Manufacturing (sea vessels and
surrounding industries) alone employs 23,000 people. U.S. companies
such as Caterpillar, Simplot (frozen vegetables),and Johnson and

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Johnson operate in the state. Poppies are grown by local farmers
and sold to Johnson and Johnson, GlaxoSmithKline, as well as a small
Tasmanian company who process the poppies into morphine-based
medicines.


7. (U) The state faces significant challenges in retaining young
workers. "Island fever" leads many young workers to leave for
Melbourne and Sydney. While some return, the state is still
struggling to keep its youth on the island or to entice them to
return. Many Tasmanians expressed excitement at crossing the
500,000 threshold because it marked a reversal of decades of
population decline. The state still has, however, the oldest
population in Australia. The words "sustainability" and "green" run
through every business discussion on the island. 40 percent of the
state's landmass is classified as either a national park or a world
heritage site. Companies are regularly challenged and held
accountable for being "part of solution, rather than being part of
the problem."

Comment
--------------


8. (SBU) Tasmania's young Premier - Bartlett is only 40 years old -
appeared energetic and only somewhat frustrated by his recent
sacking of two state ministers suffering from depression and stress.
He has an ambitious vision for the state's economy, but some
Tasmanians noted that he may be trying to accomplish too much
without enough prioritization.


9. (SBU) Comment continued: Talk of recession and fears of the
global financial crisis are noticeably scarcer in Tasmania than in
its northern neighbor, Victoria. This is probably largely because
the Victorian capital Melbourne is one of the centers of Australia's
globally-linked financial services industry and automobile sector.
However, Tasmania cannot expect to remain immune from the effects of
a global economic downturn, which despite the recent sharp drop of
the Australian dollar, will reduce demand for Tasmanian products
sold both domestically and in overseas markets. Although it is
still too soon to tell just how profound an effect the global
financial crisis will have in Tasmania, tight credit and sagging
share prices are already beginning to make their impact felt. End
Comment.

THURSTON