James O’Doherty: GST leaves no chance of a budget surplus now

News this week that NSW will cop a 6 per cent drop in its share of GST revenue means that 14 cents in every dollar of GST we pay will go to other states, writes James O’Doherty.

Treasurer Daniel Mookhey was cautiously optimistic a few weeks ago about the state of the books in NSW after the latest in a series of strategy meetings planning this year’s Budget.

That was before he got an advance warning, late in the afternoon, that NSW’s GST allocation for 2024-25 would be a disaster: a 6 per cent drop in our share of the pool.

The news came as a total shock to the Treasurer and his officials.

The “dark magic” formula for carving up the GST had delivered a body blow to the NSW Budget.

In real terms we will get about $300 million less than last year, but state officials say it will leave us $1.65 billion worse off compared to what we should have received.

The question of how much money states get from GST payments every year is the economic version of the State of Origin on steroids.

This year, NSW got annihilated.

NSW Treasurer Daniel Mookhey was blindsided by the cut in GST revenue. Picture: Nikki Short

Tuesday’s cut to our share of the GST pie was the single biggest reduction in the tax’s 24-year history and will see 14 cents in every dollar of GST we pay go elsewhere.

It means the tax dollars of hardworking NSW residents will instead be funnelled to states like Western Australia and Victoria, where only this week the cost of building a massive Suburban Rail Loop blew out by $16 billion.

The annual carve up from the little-known Commonwealth Grants Commission sparked an almighty row between NSW and Canberra, with Premier Chris Minns accusing Prime Minister Anthony Albanese of “deliberately” dudding his home state.

He even declared Victoria a “welfare state,” getting “a whole bunch of money from the pockets of NSW families”.

Why should tax dollars spent here go to a state like Victoria, which has the country’s highest debt burden and highest tax rates?

Prime Minister Anthony Albanese stands accused of dudding his home state. Picture: Damian Shaw

State Treasury officials told me this week that, over four years, we could be anywhere between $6 and $10 billion worse off.

That funding gap amounts to a “sea of depression” for NSW bean-counters, one said.

It’s not just NSW government officials who think we are getting a raw deal.

“NSW is being ripped off,” says respected independent economist Chris Richardson, a Canberran.

The real problem, respected economists say, is the sweetheart deal inked by then-Treasurer Scott Morrison in 2018.

The “no worse off guarantee” put a floor in place for GST payments to ensure that no state would (at the time) get less than 70 cents in the dollar.

The Prime Minister reconfirmed his commitment to the deal by signing “No Change to WA GST” on a journalist’s arm last month.

The deal has led to an “industrial strength fire hose” of cash being pumped into the West, Richardson says.

“The first $400 of personal tax we pay every year is for a deal that is essentially in place to prop up marginal electorates in Western Australia.”

Like it or not, the WA deal and Tuesday’s arcane reallocation of funds will help the WA government pay for policies like a $19 million fund to poach major film productions or $1.3 million for regional art organisation grants.

Neither project will do anything to employ extra nurses in struggling NSW hospitals or help fix our crippling housing crisis.

In Victoria, the extra cash could help the state government spend $13 million to upgrade dog parks or $60 million for “Next Generation Trams” in Melbourne’s west.

That won’t build new Metro lines to help Sydney commuters get to and from work any faster.

We won’t know the full impact of the cuts until Mookhey delivers his Budget later this year but one thing’s for sure: any hopes of returning to surplus are dead.

It also leaves the Minns government in an almost impossible situation.

Despite all the blustering from NSW this week, officials concede that there is no way the Commonwealth Grants Commission’s decision will be overturned.

Minns needs to seriously rattle the can elsewhere or face deep spending cuts or tax hikes, neither of which he wants to do. That means playing hard ball with the Commonwealth on things like infrastructure spending and health funding.

One option that is on the table will be holding out on increasing funding for the NDIS, something Albanese wants all states to do.

The Albanese government has already soured relations with its NSW counterparts after pulling funding from crucial road projects like the M7-M12 link.

Mookhey will face off with federal Treasurer Jim Chalmers on Friday at a web hook-up of the nation’s finance ministers.

He’ll be sent to deliver a simple message: on federal funding, NSW is sick of missing out.