Victoria’s spending decision reignites spat between states over GST carve-up

Victoria’s decision to spend rather than bank the entire windfall it gained from this year’s GST carve-up has triggered another outbreak of federal tax feuding as Premier Jacinta Allan says her state has long been dudded and is only now getting its fair share.

Responding to a complaint from Queensland Treasurer David Janetzki about the latest distribution, which granted Victoria an additional $3.7 billion while leaving his state $2 billion worse off, Allan said that in every previous year since the GST’s introduction, Victoria had subsidised other states including Queensland.

Premier Jacinta Allan in the state budget lock-up on Tuesday.Credit: Joe Armao

“As we have seen since the inception of the GST, Victoria has received something like $31 billion less than its population share over that period of time,” Allan said. “So we have been receiving less GST than we send up to Canberra and goes off to other states, including Queensland.”

She said the Commonwealth Grants Commission, in its GST divvy-up announced in March, had belatedly recognised the fiscal pressures on Victoria caused by its strong population growth and absence of a large resource sector.

“Unlike those resource rich states of Queensland and Western Australia, where they literally dig it out of the ground ... we are a people state,” Allan said.

“We’re a great state, we’re a growing state, we’re a state that’s built on the skills and talent of our people, and it is more than beyond time that was recognised by us getting our fair share.”

Queensland’s GST gripe opened a new fissure in Victoria’s post-budget debate about the health of the state’s finances, with former treasurer Michael O’Brien pointing out that where Victoria received 88¢ back for every GST dollar raised during his tenure, it will now receive $1.07.

“Victoria used to have a strong set of finances, a strong economy, and we were a net contributor to other states,” he said. “Now we are a basket case, and we have got our hand out with a begging bowl and other states are now paying for us.”

Shadow treasurer James Newbury said the changed balance in federal distributions reflected the state government’s failure to manage the budget and address what he described as a looming “debt bomb”.

“Of course, we will accept every dollar through the formula that is provided, we are not going to say no,” he said.

“But we shouldn’t get to the point where other states see us as a welfare state. We should be able to manage our own books responsibly so we don’t have to put our hands out, quietly, in the dead of night, and take money from the pockets not only of Victorians, but of other state residents, too.”

Janetzki raised his concerns about the GST carve-up in a letter to federal Treasurer Jim Chalmers. The Australian Financial Review, which first reported the contents of the letter, quoted Janetzki as saying the reduction to his state’s share would “compromise Queensland’s ability to deliver critical services and infrastructure”.

Where Queensland’s $27.4 billion forecast debt for this financial year is a fraction of the $155.5 billion net debt so far accumulated by the Victorian government, it is forecast to double over the next three years as the state’s revenue adjusts to lower global coal and commodity prices.

NSW has publicly called for an overhaul of how the GST is meted out, with state Treasurer Daniel Mookhey declaring in a speech this week to the McKell Institute in Sydney that reform was needed.

Daniel Mookhey: “NSW and Queensland are now the only two states that export GST income to other states.”Credit: Dion Georgopoulos

The Morrison-era changes to the GST grants formula which introduced a 75¢ on the dollar floor to maintain WA’s take between mining booms are due to be reviewed next year by the Productivity Commission, which is critical of the current formula.

“We have a process in place to look at those questions, so we will engage with that process in good faith,” Mookhey said. “But I’m going to continue to speak out, particularly about the fact that NSW is now carrying the federation when it comes to GST distribution.

“If you look at who is getting, who is doing what, New South Wales and Queensland are now the only two states that export GST income to other states. It used to be the case that our friends in Victoria would help us shoulder the burden in maybe supporting all the other states.”

Victoria’s GST windfall, which was $1.5 billion more than its Treasury had expected, added to a late boost to the state’s coffers from a higher-than-forecast property tax take. Symes was unapologetic for spending the entire windfall rather than using the money to bolster the state’s small operating surplus forecast for next year.

Independent economist Saul Eslake has previously said the GST carve-up reflected Victoria’s newly acquired status as a relatively poor state. He described Symes’ spending spree as a “middle finger” to people concerned about Victoria’s finances.

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