By Shane Wright and Kieran Rooney
The Albanese government is facing demands for another overhaul of the way the GST is shared after the Commonwealth Grants Commission delivered a $1.2 billion budget headache to Queensland and a $3.7 billion windfall to Victoria.
The independent grants commission, which oversees how the $95 billion GST pot is allocated between the states and territories, found strong population growth in Melbourne, strong coal royalties in Queensland and NSW, plus lingering health costs from the pandemic required a major overhaul of the annual financial carve-up.
Anthony Albanese, campaigning in Perth on Friday, said the government remained committed to the current GST allocation system.Credit: Trevor Collens
This masthead on Friday revealed the total cost of a deal struck by the Morrison government to protect Western Australia’s share of GST, which had plummeted due to soaring iron ore prices in the 2010s, is now on track to reach $60 billion over 11 years. It was originally forecast to cost just $2.3 billion over four years.
The grants commission confirmed that $5 billion of federal taxpayers’ cash would be spent ensuring no state or territory would be left worse off in the coming financial year.
But the commission’s allocation will leave Queensland, which had traditionally relied on taxes paid in NSW and Victoria to cover some of its expenses, with its lowest-ever share of GST.
It said this was largely due to an increase in coal royalties, introduced by the previous Labor Queensland government, which had reduced its call on the GST pool to cover the provision of services across the state.
Queensland Treasurer David Janetzki, facing a $7 billion budget deficit for the coming financial year, urged federal Treasurer Jim Chalmers to reject the commission’s recommendations. No treasurer has ever overturned a report from the grants commission.
He accused the commission of a “shonky shifting” of Queensland cash to NSW and Victoria, arguing it would compromise his state’s ability to deliver essential services and infrastructure.
“Queensland deserves better than this callous carve-up, which will leave Queensland missing out,” he said.
One of the big swing factors was the extra spending incurred by both Victoria and NSW during the COVID-19 pandemic. The two had argued to the grants commission that they had borne more of the financial brunt dealing with the health and economic fallout from COVID than other administrations.
How the GST is carved up
- When the GST was introduced in 2000, then-prime minister John Howard promised all of it would be shared among the states and territories. How it was allocated would be decided by the long-standing Commonwealth Grants Commission.
- Every year, the commission examines how much money each state and territory needs to deliver an “average” level of service to its residents, from education to policing.
- This is affected by a large range of factors including population growth, mineral royalties and social factors like Indigenous and remote populations.
- The commission recommends how the GST should be shared to the treasurer of the day. No treasurer has ever overruled the commission’s findings.
- In 2019, amid fears that WA could end up without any portion of the GST, the Morrison government put in place a system that would guarantee its share while also injecting extra funds into the GST pool to ensure no other state or territory would be worse off.
The commission agreed, delivering an extra $900 million to Victoria and $700 million to NSW, while reducing Queensland’s GST share by $800 million and WA’s by $375 million.
Queensland was the only state or territory to have their GST cut. It also lost $1.1 billion in no-worse-off payments. NSW’s share of the GST pool fell, but it will receive an extra $900 million.
The biggest winner was Victoria which had been the only state since Federation to have delivered more revenue to other parts of the country. After the commission’s report, it will now receive more than $1 of GST for every dollar of tax raised within its jurisdiction, making it a mendicant state.
Victoria received an additional $3.7 billion in last year’s GST allocation.
Apart from extra money due to the pandemic, it benefited from the rise in the coal royalties enjoyed by NSW and Queensland while it got an additional $500 million due to the growing density of Melbourne which has increased pressures on the city’s urban transport network.
More pressure on Melbourne’s transport network has contributed to a boost in GST.Credit: Eddie Jim
Victorian Treasurer Jaclyn Symes said since the introduction of the GST, the state had subsidised every other jurisdiction by a combined $31 billion.
“The commission confirms that our population and economy are growing and this has driven a need for more services and infrastructure which we are delivering,” she said.
Despite the boost, Symes said the no-worse-off guarantee – due to end in 2029-30 – had to be locked in permanently otherwise Victoria would lose around $1.8 billion a year.
WA will get an extra $400 million in GST payments next financial year, taking it to $7.8 billion. If not for the Morrison deal, WA would have received just $1.9 billion while NSW would have received an additional $2.2 billion.
Economist Saul Eslake, a critic of the GST deal, said that Victoria’s new position as a state that received more money from the GST than it raised was a sign it had become a “relatively poor state”.
Eslake said Victoria’s capacity to raise revenue would look stronger in coming years, with lower coal prices influencing GST calculations for Queensland and New South Wales from next year.
Prime Minister Anthony Albanese, campaigning in WA, said his government supported the GST deal.
“We are providing increased support for Western Australia without any of the other states being disadvantaged because of the arrangements with Western Australia,” he said.
The Coalition also supports the current GST deal.
A review of the GST system by the Productivity Commission, which will examine whether it is working “efficiently, effectively, and as intended” is due to be started and completed next year.
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