by Ben Potter

Little Tasmania gets a bum rap from mainlanders. The breathtakingly pretty island, best known for its orchards, truffles, rich farmland, rugged wilderness and wild coastline, was home to just 510,000 people at the time of the 2016 census, or 2 per cent of the Australian population.

Average incomes lag those in the rest of the nation by about $100 a week, and gross state product per capita lags the mainland by $15,500 or 22 per cent. Tasmanians also lag in educational and health outcomes, as well as productivity. As a result they depend on GST distributions from other states to a greater extent than any other, something they're sensitive about.

"We are no longer a mendicant state as some mainlanders have previously described us. We are a state that stands on its own two feet," Premier Will Hodgman – whose Liberal government is favoured to be returned in Saturday's election – told The Australian Financial Review on Tuesday.

In fact, Tasmania gets nearly $1 billion more from the GST than it would under an equal per capita split. But the 2018 Tasmanian election is commanding the attention of the patronising mainlanders for reasons other than that.

The Liberal brand

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The first issue of national significance is the state of the Liberal brand. State elections are also being held in South Australia this month and in Victoria in November, and Malcolm Turnbull's national government may also go to the polls this year.

Tasmania's poll will test whether a first-term Liberal government that boasts an improved economy and no major blunders, scandals or broken promises can get re-elected in an atmosphere of public distrust of major parties and of the Liberals' business allies.

Queensland's Newman government and Victoria's Napthine government both lost office after one term in 2015 and 2014, and the Turnbull government had a near death experience at its re-election bid in 2016

The exception is Mike Baird's coalition government in NSW, which won with a reduced majority in 2015 after its plan to sell off the state's power poles and wires was savaged by a huge union campaign.

Will Hodgman's government looks like being another exception, even though its plans remind top economist and proud Tasmanian Saul Eslake less of Baird's bold route to re-election, than of Denis Napthine's timid path to oblivion in Victoria.

A poll by local consultancy Enterprise Marketing and Research Services released Wednesday put the liberals at 46 per cent of intended votes after distributing undecideds, Labor at 34 per cent and the Greens at 12 per cent.

Under Tasmania's unique Hare-Clark system of five lower house electorates which each elect five members, 46 per cent is enough to ensure that the Liberals win the most seats but not necessarily a majority. In 2014 Hodgman's Liberals won 51 per cent of the vote and 15 of the 25 seats, leaving Labor languishing on seven and the Greens with three.

Both Hodgman and Labor leader Rebecca White have insisted they won't lead a minority government, but Tasmanian governors are known to insist they try.

Pokie money

The second reason for national attention being focussed on Tasmania is Labor's decision – the first major policy initiative under White's leadership – to abandon 30 years of support for Tasmania's liberal gambling laws and join the Greens in promising to phase poker machines out of pubs and clubs if it wins the election.

The about-turn – White cites detrimental health, welfare and employment effects of pokies – hasn't swayed enough votes to alter the likely result of the election. But under the Hare-Clark system, it could be enough to flip a seat in urban Hobart – where the issue resonates loudest – to Labor, depriving the government of its majority.

The ramifications haven't been lost on the gambling industry. If one of the major parties can turn against them in Tasmania – and possibly swing a seat – they could do it on the mainland, where the stakes are bigger.

Federal Group, controlled by the family of Sydney rich-lister Greg Farrell, has enjoyed a monopoly on pokie licences in Tasmania for decades, and has helped bankroll a huge "Save our jobs" campaign against the Labor and Greens policy with PubsTasmania.

White claimed on Wednesday that the influx of pokie money had swamped Labor's spending with as much as $5 million of campaign firepower locking in behind the Liberals and various third party anti-Labor and Greens campaigns.

Hodgman claimed a disinterest in campaign funding details. He didn't deny White's figures, saying only that groups should be free to support a political party that's supporting them, and that the Liberals will disclose their donations when Tasmania's electoral law requires – which isn't until next January.

On the ground it's clear the combined Liberal and anti-Labor and Green campaigns enjoy a massive advantage in all forms of advertising – from print and television to the blue Liberal "corflutes" lining Tasmania's scenic highways to social media.

The unequal contest is emboldening advocates for reform of political donation laws nationally. Australia's disclosure laws are archaic. Political parties have months to file returns, by which time the information is of mostly historical interest. Yet who pays the piper is some of the most valuable information a voter can have, and technology exists for real time disclosure. The noise is growing, even if the obstacles are huge. This week a group of prominent lawyers led by Anthony Whealy, chairman of Transparency International and a former NSW Court of Appeal judge, called for pre-election disclosure.

State of the state

Hodgman's re-election bid rests heavily on the improvement in the economy since the Liberals ousted Labor in 2014. He is on solid ground, but luck has been in the Liberals' corner.

The former Labor-Green government was tired and stale by 2014, but the global financial crisis and the soaring Aussie dollar also hit the trade-exposed Tasmanian economy hard. When Hodgman took the reins, the state had just emerged from recession, unemployment was coming down from more than 8 per cent and business confidence was the lowest of any state.

Four years later the economy has been growing at a fair clip, unemployment is down to 5.7 per cent – among the lowest in the nation – and its business confidence leads the nation. Tasmania has also enjoyed a larger share of GST receipts from Canberra than under the former government, but this could change after a Productivity Commission review on GST distributions reports this year.

The government's scorecard looks good. But Tasmania still lags the rest of the nation badly in incomes, educational and health outcomes, and infrastructure spending. It also has the oldest, and most rapidly ageing, population.

Demographics dictate that Tasmania has to do well just to stand still. If Tasmania were to tread water and only increase its productivity and working hours at the same rate as the rest of the nation, says Eslake, that $15,500 GSP per capital gap would double to $36,000 – or 45 per cent – in 25 years.

"Our demographics are almost eating themselves," says Eslake.

As well, Tasmania has the largest unfunded liability for public servants' pensions of any state – nearly 30 per cent of GSP; the average is a bit more than 8 per cent. The annual burden will increase from just under $300 million this year – 5 per cent of expenses – to nearly $450 million by 2030.

At the same time, infrastructure spending has been below the national average as a share of GSP since 2012. Yet Tasmania's infrastructure sorely needs some sustained investment. The Tasman Highway up the east coast, and the Midland Highway inland are single-lane highways for much of the journey, with few overtaking lanes and dual carriageway sections.

Be bolder

Eslake draws a link. He concludes that Tasmania's gaping deficits in incomes and outcomes demand a bolder response than the Hodgman government – or Labor – has been game to propose. Improving educational outcomes is the biggest lever a state government can pull, because it boosts workers' labour force participation, productivity and incomes.

Here the government is doing the obvious – reforming Tasmania's outdated system of year 10 high schools augmented by a small number of year 11 and 12 "colleges" so that year 12 high schools become the norm. But it is opposed by Labor, which argues that this will leave the colleges stranded, and that it can better improve year 12 completion rates by making high schools and colleges work more closely.

Neither side is proposing two other policies Eslake says could really move the dial in Tasmania – asset sales to free up capital for infrastructure and authentic base-broadening, rate-cutting tax reform to boost growth.

NSW and Victoria are reinvesting tens of billions of dollars from asset sales in city-shaping rail and road projects, but privatisation is a dirty word in Tasmania. The state also has the highest payroll tax rate of any state – 6.1 per cent – and a threshold that excludes more firms. Abolishing the threshold would enable the government to cut the rate to 4.1-4.2 per cent – a big potential boost to employment and consumption.

Hodgman insists the government is doing well enough without such policies, although it is offering some payroll tax relief. The government has balanced the budget but its health and education promises will reduce the $337 million of surpluses forecast last year over the four-year budget window to about $100 million.

Labor says it will concentrate on rebuilding health, education, housing services and skills to improve the productivity of workers and set them up for the future rather than cut taxes or sell assets.

"We offer certainty," White says.

That is something Tasmanians crave. But they appear to think they will find it in Hodgman's Liberals, although that remains to be seen.