Tasmania is on track to face a severe financial crisis over the next three years, according to an independent review by economist Saul Eslake. 

A new report says that Tasmania's net debt could reach $16 billion by 2035, the highest among all Australian states and territories, largely due to recent government policy decisions.

Eslake's analysis, commissioned in May as part of a political agreement between the Tasmanian Liberal government and the Jacqui Lambie Network, warns that the state’s financial position will continue to decline.

In his report, Eslake points to several policy choices as the primary drivers of this fiscal decline. 

These include increased spending on recurrent expenses and infrastructure projects, as well as tax reductions. 

He says that these decisions, rather than external economic factors, are the root cause of the deteriorating financial outlook. 

Eslake cautions that if corrective actions are not taken, Tasmania’s credit rating could be downgraded significantly, exacerbating the situation further.

The report also presents stark projections, including a dramatic rise in the state’s debt service costs. 

By 2035, interest payments alone could exceed $750 million annually, a figure comparable to the entire cost of constructing the Macquarie Point stadium. 

Eslake warned that achieving a sustainable fiscal position would require “substantial” and “politically challenging” measures, which would likely involve raising taxes rather than cutting the budget.

Despite these warnings, Treasurer Michael Ferguson has indicated that while he will review the findings, some of Eslake's revenue-raising suggestions, such as broadening payroll taxes or replacing stamp duty with land taxes, are unlikely to be adopted. 

Eslake’s report, which makes 26 recommendations, advocates for a focus on revenue-raising measures and better long-term fiscal planning to avert a full-blown crisis.

He also calls for stronger institutions and more robust financial management rules to prevent future fiscal instability. 

Treasurer Michael Ferguson has thanked Mr Eslake for his “comprehensive review”, and said the government “will provide a response in the budget on September 12”.

However, he immediately ruled out some of Mr Eslake's recommendations.  

“There will be no new or increased taxes under the Tasmanian Liberal government, as committed to at the 2024 election,” Mr Ferguson said.

“The Tasmanian government is committed to providing cost-of-living relief while delivering the services Tasmanians deserve as part of our 2030 Strong Plan for Tasmania's Future.”

MPs from the Jacqui Lambie Network (JLN) have said that Mr Eslake's review shows “the current budget trajectory has Tasmania heading off a cliff”, and called for the election campaign “spend-a-thon” from the major parties to stop.