TASMANIA is being "blackmailed" by the federal government to privatise assets such as Hydro Tasmania or see its infrastructure funding drop, Premier Lara Giddings has said.
The federal government raised the issue at a meeting of state treasurers in November, reportedly offering tax incentives to states that privatise their assets.
In a submission to the Productivity Commission, Infrastructure Australia listed Hydro Tasmania, TasWater and Transend among publicly owned assets suitable for private sale.
Ms Giddings said Prime Minister Tony Abbott was placing pressure on Tasmania to comply or miss out on funding.
"This is an outrageous case of blackmail," Ms Giddings said.
"The Commonwealth has an obligation to fund public infrastructure, regardless of what states choose to do with assets that are owned by the taxpayer.
"I have already told Tony Abbott and Joe Hockey that we will not be selling any assets, with the exception of Aurora's retail arm to facilitate future competition."
Opposition Leader Will Hodgman, who said he did not support privatising any assets with the exception of Aurora's customer base, accused Ms Giddings of running a scare campaign.
"I can rule out categorically privatisation," Mr Hodgman said.
"What the Premier says about what's happening at a federal level sounds to me very much like another baseless, unfounded scare campaign."
Mr Hodgman said he did not believe infrastructure funding would be tied to asset sales, and he would not say whether his position would change if it were.
Ms Giddings said Mr Hodgman needed to stand up for Tasmania.
"How can Tasmanians be assured that Mr Hodgman will fight against the sale of Hydro Tasmania and other assets when he is Tony Abbott's chief cheerleader?" she asked.
"The government has been advised that all state-owned businesses would qualify for Tony Abbott's privatisation incentive scheme.
"How do we know Hodgman wouldn't do a deal with Mr Abbott for the right price?"