Backup is using gzip compression. Made some test on my live TC with different compressions:
7.4M - standard mydata.tgz using gzip
7.0M - mydata.bz2 using bzip2
5.4M - mydata.xz using XZ
As you can see XZ gives significantly smaller backup than others. XZ in general offers the best compression in most cases. Now it is spreading. There are sites offering download in .xz format, latest GNU tar now supports it, etc.
I would appreciate if compression method would be configurable and XZ would be an option.
For more info on XZ see
http://tukaani.org/xz/