STATE leaders, including Premier Will Hodgman, will hold a crisis meeting to plot their next moves in a showdown with the Commonwealth over hospital and school funding.
Mr Hodgman confirmed he would attend Sunday's meeting in Sydney, after he was caught by surprise by the Commonwealth's plans to dramatically shift the cost burden of running hospitals and schools onto the state from 2017.
While Mr Hodgman yesterday said he was still coming to grips with the scale of the challenge, he has been quick to rule out raising state taxes, selling assets or supporting a rise to the GST to plug the massive hole.
He also won't be lashing out at the federal government vowing to ``work constructively'' with them.
``I'm not pleased with the budget or what it, in fact, might mean for Tasmania's health and education sectors into the long term,'' Mr Hodgman said.
``The job though is not to thump the table as (Opposition Leader) Bryan Green would have me do, because that achieves absolutely nothing.''
But what options remain open to the state government to avoid making drastic cuts to services in the long term are uncertain.
Mr Hodgman said only that the new Liberal government was determined to kick-start the state economy, which would ease budget pressure, but this will fall well short of generating the more than $1 billion needed over 10 years.
Leading Australian economist Saul Eslake has described a rise to the 10 per cent goods and services tax or applying it to more products, as Tasmania's ``least unpalatable'' option.
Significantly raising state revenue or cutting services were the only other options, he said.
Mr Eslake said a rise to 12 or 15 per cent or broadening the base of the GST could be accompanied by compensation to low income earners, as was provided when the GST was first introduced.
Given Tasmania has the highest proportion of people on benefits this would benefit the state disproportionately.
Mr Eslake warned the move is not without risk.
Powerful mainland states have been campaigning for a bigger share of the GST and may take the opportunity to demand a change in the distribution, which would come at the expense of Tasmania.
West Australian Premier Colin Barnett already flagged this week that he would only support an increase to the GST if WA was rewarded with a greater share of the proceeds
Mr Eslake said it was also possible that this government would not provide any or the same level of compensation.