Gunns exit a challenge for the smallest state

These are good times for Tasmanian trees but less so for Tasmanians. Gunns, formerly the state's biggest company, went into voluntary administration, putting an end to its eight-year battle to build a $2.3 billion pulp mill in northern Tasmania. With it goes potentially hundreds of jobs.

The collapse is a further challenge for Australia's smallest state, in population and economy, which had been unkindly dubbed by one West Australian MP "the Greece of Australia".

While comparisons with Europe's crisis epicentre may be stretching it, the economic gulf between Tasmanians and the mainland has lately been growing deeper and wider.

August employment figures showed the island's 6.8 per cent jobless rate was the nation's highest, compared with the national average of 5.2 per cent. However, the Tasmanian figure was an improvement on the 7.4 per cent recorded in June.

In the most recent full-year national accounts, covering 2011-12, Tasmania was the only state to have total state demand go backwards. Over the year, total demand fell 2.2 per cent, compared with 1.7 per cent growth in Victoria and 3.4 per cent growth in NSW.

The median Tassie household generated weekly income of $948, according to the 2011 census, roughly three-quarters of the national average. That gap would have been greater if the Commonwealth had not been funding about 60 per cent of the Tasmanian state budget, roughly double the rate in Victoria and NSW.

The demographics are not encouraging, either. For years, younger Tasmanians have flocked interstate in search of work and education, while older Australians headed to the island for retirement, leaving Tassie with the highest average age.

Along with the ageing population, about one in four claim some form of disability, the country's highest ratio, according to the Australian Bureau of Statistics.

Despite such portents of doom, economist Saul Eslake isn't deterred from preparing to move back to the island he left in 1983.

Eslake says the exodus of youth and the arrival of older mainlanders matches a pattern found on many islands and is unlikely to resolved.

The former chief economist for ANZ and now chief Australian economist at the Bank of America Merrill Lynch is optimistic, though, that the island's fortunes can be revived.

In his view, the most urgent issue to address - and one that will seal the fate of the state - is education.

"Tasmania can't hope to be sustainable in an economic sense if all it does is produce undifferentiated products and compete on price," Eslake says. "Short of discovering huge deposits of mineral wealth, Tasmania will never have the population to compete on low-value industries that rely on scale."

Instead, the island's future lies in producing high-value exports that contain a large amount of intellectual capital and are less vulnerable to the strengthening Aussie dollar.

Few dispute Eslake's call for Tasmania to move from low to high-value products and services. Many, though, question how quickly such a transition can be made.

Speed, in other contexts, may be the problem, says Neil MacKinnon, the chief executive of the Tasmanian Chamber of Commerce and Industry. He says Tasmania's government is rushing too fast towards environmental agreements and "locking up" too much of the state's dormant wealth.

If too much forest is quarantined, "it's an asset turned into a liability", MacKinnon says. "There's very large assets there. One of the concerns ... is if those assets are not going to be able to be managed profitably, the eventual outcome will be degradation as nobody will be able to look after [the forests]."

MacKinnon questions an assumption in some political quarters that Tasmanians can replace their jobs in old "brown" industries with new "green" ones.

"One of the concerns is that people will have been employed in the forestry industry for many years and it's difficult for them, given their education levels and age, to convert out of what you might call heavy industries to high tech," he says. "There's no doubt that we are in a transition period but it needs to be a sensibly staged transition ... That might be over a generation. In the meantime, we need to take advantage of existing standing assets. There's minerals to be mined ... there's opportunities for the commodity industries."

Conservation proponents, though, argue that protecting ancient forests preserves them for future generations and retains important carbon sinks. And they remain important attractions for mainlanders and overseas visitors.

The proposed forest pact also guarantees sufficient timber supplies for industry's needs - some say, too much.

Another emerging flashpoint is the push to save most if not all of the Tarkine wilderness in the state's north-west. The region holds a range of minerals that companies are clamouring to extract.

Somewhat ironically, it was the decision by Gunns, the state's major processor of native forest sawlogs and woodchips, to exit native forestry - after years of battles with conservationists - that served as a key prompt for a state and federal push to restructure the industry.

Gunns, founded in 1875 and one of the country's oldest companies, had pinned its future on developing a pulp mill that it said would create up to 3100 jobs. Since it would use plantation timber, it no longer needed access to great swathes of forests.