Gunns workers get a union briefing at the timber yard in Launceston.

Gunns workers get a union briefing at the timber yard in Launceston.

THESE are good times for Tasmanian trees but less so for Tasmania.

As Gunns, formerly the state's biggest company, went into voluntary administration, ending its eight-year battle to build a $2.3 billion pulp mill in the north, With it went potentially hundreds of jobs.

The collapse is a further challenge to Australia's smallest state - both in population and economy, which one West Australian MP unkindly dubbed ''the Greece of Australia''.

While that comparisons may be stretching things, the economic gulf between island and mainland has been growing deeper and wider.

August employment figures showed the island's 6.8 per cent jobless rate was the nation's highest, compared to a national average of 5.1 per cent. But the Tasmanian figure was a sizeable 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 see total state demand go backwards. Over the year, total demand fell 2.2 per cent, compared to 1.7 per cent growth in Victoria and 3.4 per cent growth in NSW.

The median Tasmanian 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 hadn't been funding about 60 per cent of its state budget, roughly double the rate in Victoria and NSW.

The demographics aren't encouraging either.

For years, younger Tasmanians have flocked interstate for work and education, while older Australians headed south for retirement, leaving the island 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. He says the exodus of youth and the arrival of older mainlanders matches a pattern found on many islands and, therefore, is unlikely to resolved.

The long-time chief economist for ANZ and now chief economist for 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 ultimately 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,'' Mr Eslake said.

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

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

Speed may be a problem, says Neil MacKinnon, chief executive officer of the Tasmanian Chamber of Commerce and Industry.

He says the state 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'', Mr 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].''

He questions an assumption that jobs in old ''brown'' industries can be replaced 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 said.

''I think 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.''

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

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

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

Ironically, it was the decision by Gunns, the state's major processor of native forest sawlogs and woodchips, to exit native forests that served as a prompt 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. Since it would use plantation timber, it no longer needed access to great swaths of forests.