In the face of what is expected to be a tough mid- year financial report, Mr Eslake said the state government had to make some politically difficult choices.

He said refusing to cut budgets in the big service delivery areas of education, health and police was a mistake.

"(They) absorb such a high proportion of recurrent or `operating' expenses that if you exempt them from cutting spending, the cuts required elsewhere in the budget - for example, economic development, arts and heritage etc - are so large that you risk undermining the entire viability of government programs in these areas," he said.

Mr Eslake said Tasmania spent relatively more per head of population on key service delivery, without it being clear that Tasmanians got better quality services.

"Higher spending for lower quality services is partly due to Tasmania's small and dispersed population (and the historical insistence that each of the state's three major regions must have what the others have got) but there's more to it than that," he said.

"There's also a widely held belief ... that there is a linear correlation between the quality of a service and the number of people employed in delivering it.

"That may be true of, say, nursing, but there's no evidence that it's true in schooling or policing, and some evidence that it isn't in those areas."

Mr Eslake said the government should avoid drawing down the Superannuation Provision Account as "this is really deficit financing by another name".

Mr Eslake also said Tasmania was hit harder by falling GST revenues as they made up a larger proportion of state income.

He said the stimulus dry-up had also hit Tasmania hard due to the state's higher proportion of welfare recipients.