Should we all move to Tassie?

Here’s what $750 a week in rent will fetch in Hobart:

An ornate, beautifully furnished three-bedroom home in central Hobart.

And here’s what the same sum fetches in Melbourne’s CBD:

A one-bedroom, one-bathroom apartment, also furnished but perhaps not quite beautifully.

The Tasmanian capital was founded in 1803, three decades before Melbourne, but its head start did not last — by 1854 Melbourne had more population than Hobart has today. This gaping difference in the popularity of the two capitals is only growing more remarkable.

The RBA’s latest house price graph shows the story. Even regional Australia commands a higher price than the Tassie capital now.

Tasmania’s net interstate migration has been negative for the last five years, meaning more Tasmanians leave than other Australians arrive. Overseas migration tops that up, but it can’t fix the problem — Tasmania grows more slowly than any other state or territory. At this rate it will eventually be Australia’s smallest jurisdiction.

Tasmania’s problem is partly its two cities, Launceston and Hobart. Hobart is bigger, but Launceston’s proximity to Melbourne and superior access for shipping mean they compete for power and influence. Cities are where growth industries — mostly services — like to locate. But Tasmania doesn’t have a clear choice that would help it at least concentrate its resources.

Tasmania is home to star milk powder exporter Bellamy’s, but a state cannot live on lactose alone. The lesson of the logging industry is diversification matters.

Tasmania’s economic output is, on a per capita basis, 8% smaller than its nearest rival, South Australia (and 12% smaller than Victoria’s). Tasmania and South Australia regularly vie for Australia’s highest unemployment rate — currently South Australia is winning.

The Apple Isle’s economic malaise contributes to a vicious cycle. Tasmania’s year 12 retention is just 70%, well below the Australian average of 79% and miles behind the national leader, Western Australia, on 87%.

The state of affairs south of Bass Strait is a very real source of Australian inequality.

Tasmania is supported extensively by the Commonwealth — the marginal federal seats of Lyons, Bass and Braddon don’t hurt at all in that respect. Malcolm Turnbull was down there last week spruiking “the best food and wine in the world”. Bill “Beaconsfield” Shorten started his campaign in the state. Both leaders are likely to be back soon.

But Tasmania is at risk from mainland whims. It could lose big, for example, from any change to how GST is carved up. The state’s GST relativity is 1.77, which means it gets 177% of the average GST available on a per capita basis. The downside risk is huge.

It is also buffeted by macro-economic trends that might be utterly irrelevant to its economy. It gets scant attention, for example, from the RBA and global markets when they set Australian interest and exchange rates.

Tasmania’s state budget will be handed down today. This time last year, the government was expecting a surplus in 2016-17.  Achieving that would give them something to crow about, but it will take more than just tight fiscal management to turn the Tasmanian economy around.