States to get GST windfall as tax gets major shake-up

EVERY Australian state will receive a GST windfall – bankrolled by Commonwealth coffers – under a major shake-up that will not leave any state worse off.

EVERY Australian state will receive a GST windfall – bankrolled by Commonwealth coffers – under a major shake-up that will not leave any state worse off.

Queensland is expected to be handed about $90 million more under a transition scheme that aims to neutralise a “winner and loser debate” ahead of state and federal elections.

Treasurer Scott Morrison will this week unveil the biggest overhaul of the way billions of dollars raised from the GST are divided between states since the system began 17 years ago.

Treasurer Scott Morrison will unveil the biggest overhaul of the way the GST pie is divided between the states since it was introduced. Picture: AAP/Joel Carrett

The Courier-Mail understands Cabinet agreed to the plan – which dramatically changes the methodology of GST allocation – because no state would be worse off while transitioning to the new system.

It means the states will be given more money to pay for key services such as education and health care.

The current complex formula of distributing the GST tries to level the playing field by ensuring states and territories can provide the same standard of services, given that some states don’t have the ability to raise as much tax or revenue.

To “equalise”, states and territories are brought up to the fiscally strongest state, however this will now move to the average, to ensure a more “equitable” model and prevent distortions by extreme swings by one state.

While about $6.5 billion will be added to the GST pie over the next four years through changes to low-value online internet purchases, by applying GST to digital services, and cracking down on GST on property transactions, Mr Morrison will top it up with cash from government coffers.

This will ensure WA, which is angry over its dwindling GST allocation, will get a boost, but not at the expense of smaller states or key election battleground states, such as Queensland.

The states and territories share in $60 billion in GST revenue.

The independent Grants Commission determines how much states get. They consider issues such as an ability to raise money, and how decentralised a state is, because it costs more to deliver services in those areas.

The Turnbull Government, which has been reviewing a Productivity Commission review into the GST since last year, needs to hold seats in Queensland and WA to win the next general election.

WA has complained it is at a significant disadvantage because of the lag in the system. It, like Queensland, has been hit hard by the mining downturn, but Queensland’s economy is more diversified.

Mr Morrison is also expected to outline a plan that will give states incentives to grow their economies.

Currently, states can potentially lose GST payments by undertaking economy-wide reforms.

Originally published as States to get GST windfall as tax gets major shake-up