Celebrating too early: More work needed to fix state budget after GST deal

But as a leading economist has said, it might be too early to start popping the champagne when all they have done is kick the can down the road a couple of years.

The GST deal was put in place by the Morrison government to compensate the eastern states, after the method of carving up the GST pie among the states was reformed in 2018.

Western Australia had long complained it received back a lower share of GST revenue than it contributed, but the 2018 reform would have stripped billions from other states' budgets.

The answer was the 'No Worse Off' deal - a temporary arrangement, where the Commonwealth topped up payments to those states worse off under the reform, including Tasmania.

It was a temporary fix, and was originally due to expire in 2026-2027.

That would have been a budgetary calamity for us.

Treasury has projected that the deal's expiration would have stripped over $80 million a year from state revenues.

That's $80 million less for nurses, teachers, doctors, police and ambos, at a time when Tasmania is already struggling to compete for talent because of its comparatively lower wages.

Mr Rockliff and Mr Ferguson on Thursday said Tasmania now has greater "budgetary certainty", and that the Commonwealth decision was made because of their "relentless" lobbying and "dogged" pursuit of the matter.

Good work - the looming threat has been pushed to 2029-2030.

But the work isn't over.

Economist Saul Eslake says that averting the immediate threat of budget cuts is only a temporary solution, and that Tasmania's fiscal problems are much more intractible.

He says the leaders need to find a way to shore up the state's budget for good.

Tasmania by far is the state most reliant on the GST - it accounts for about 40 per cent of state budget revenue.

It is also in serious debt, and has not run a budget surplus since 2019.

Its economy did well during and immediately after COVID, but there are strong signals that that is now changing.

Mr Eslake says the decision to extend 'No Worse Off' doesn't resolve these issues - it only "kicks the can down the road".

"In the absence of some 'hard decisions' not only will Tasmania's budget remain in 'operating deficit', but it will also breach at least two of the fiscal strategy targets laid out by the Treasurer in this year's Budget," he says.

These targets are that interest and superannuation payments not exceed 6 per cent of revenues, and that 'own-source revenues' not fall below 37 per cent of total.

"I don't see any politically feasible way of meeting those targets," he says, referring to both spending and revenue.

Mr Rockliff would find it difficult to cut spending, other than delaying some infrastructure projects.

On the tax side, the recent furore over Fire and Emergencies Minister Felix Ellis' 'fire tax' gives an indication of how that would go.

There are options the government could consider, Mr Eslake says.

These include lowering the threshold for payroll tax so more businesses are captured by it, and abolishing stamp duty and replacing it with a broad-based land tax that includes residential properties.

"But I'm more likely to see a thylacine on my front lawn than for either of those options to be taken up any time soon - especially this side of an election that is now less than two years away at most," Mr Eslake says.

Reforming the state's woeful education system might lift labour force participation and boost productivity and enable the Tasmanian economy to grow its way out of trouble.

The Liberal government has squandered its chances to enact some of these reforms - it is now in minority and its ability to do anything rests at the whim of two independents.

Would Labor do better if it gained power after the next election?

Probably not, says Mr Eslake.

"They won't have a mandate for major reforms either, because they won't have sought one

"History tells us that oppositions can't win government on reform platforms."