NSW to lose budget surplus as treasurer slams GST carve-up

Treasurer Daniel Mookhey says it will now be “virtually impossible” for the state’s budget to return to surplus next year after NSW’s share of the GST left it $1.65 billion worse off than expected.

In a searing attack on the Commonwealth and its GST distribution model, Mookhey said that NSW had been “punished” for its “fiscal firepower” and warned that the state would be significantly impacted.

Mookhey said NSW’s relative share of the GST had been hit with the largest single-year reduction to the state’s entitlement since the tax system was introduced in 2000.

NSW Treasurer Daniel Mookhey said the Commonwealth’s GST distribution method was absurd.Credit: James Brickwood

It also takes the state’s relative share to the lowest level since 2018-19, when then-treasurer Dominic Perrottet described the GST carve-up as “black magic”.

NSW will get $310 million less in GST in 2024-25 than it received this year following the latest review by the Commonwealth Grants Commission, released on Tuesday. The downgrade will leave the NSW Labor government with $1.65 billion less than was factored in to its budget forecasts.

In Mookhey’s first budget, delivered in September, he confirmed a surprise small surplus next financial year but a deficit of $7.8 billion this year.

Mookhey said he would not be making any knee-jerk reactions about how to deal with the unexpected shortfall in GST and the state government’s goal remained to stabilise the debt level.

“NSW is being robbed of money, so other states can be bailed out, and it is not fair, it is absurd, and it comes at the expense of NSW citizens’ rights to access first-class services,” the fired-up treasurer said.

Mookhey said he had always warned that it would take “a lot of external factors” to go NSW’s way for the state to return to surplus, but it would now be a “miracle” if that happened.

He said recent Commonwealth decisions, including the withdrawal of $3.2 billion of infrastructure funding, as well as ongoing uncertainty over schools and health funding arrangements, did not help.

“The Commonwealth Grants Commission would like us to increase property taxes at a time when NSW is at the epicentre of a national housing crisis. Equally, the Commonwealth Grants Commission would like us to increase coal royalties,” Mookhey said.

Each year the commission advises the federal government on how the GST revenue pool should be carved up between the states. The amount going to each state is adjusted using a complex formula to give each the capacity to deliver a comparable level of public services such as hospitals and schools.

Next financial year NSW will receive $24.2 billion in GST, or 27.1 per cent of the national pool, down from a 29 per cent share a year earlier. NSW accounts for about 31 per cent of the national population.

The commission said the lower GST distribution to NSW was due to an increased capacity to raise coal mining royalties and an increased capacity, relative to other states, to raise revenue from land taxes.

Queensland will see its GST distribution fall by $469 million in 204-25, a bigger decline than NSW, due to its increased capacity to collect coal mining royalties.

Victoria will receive an extra $3.7 billion GST in 2024-25, making it the big winner from the commission’s assessment. This was due to Victoria’s lower capacity to raise mining revenue relative to other states and its increasing urban population.

Despite already having a very strong budget position, Western Australia’s GST distribution will rise by $838 million next financial year.

Mookhey said the NSW Labor government would now be “doubling down” on all negotiations around key funding agreements with the Commonwealth.

“When it comes to negotiating the national schools agreement, we are going hard, the national health agreement, we are going hard, the homelessness and housing agreement, we will go hard,” Mookhey said.

“We are prepared to be the last state standing when it comes to all of these agreements so we can claw back some of this money which has been stripped from us by the Commonwealth Grants Commission.”

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