Western Australia’s political ransom over GST rort must end

Victoria has emerged as a big winner of the $95 billion GST carve announced on Friday. Based on the Commonwealth Grants Commission’s recommendations it will bank an extra $3.7 billion in the 2025-26 financial year.

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. It takes into account a range of factors including population growth (crucial in Victoria’s case), mineral royalties and social factors.

Treasurer Jim Chalmers has been urged by Queensland to reject the Commonwealth Grants Commission’s GST carve-up recommendations. Credit: Alex Ellinghausen

Victoria will receive more than $1 of GST for every dollar of tax raised within the state.

It was welcome news for the Allan government, which had made the case that Victoria had long subsidised every other jurisdiction, while facing pressures of delivering services for a growing population and extra spending incurred during the COVID-19 pandemic.

“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,” Victorian Treasurer Jaclyn Symes said on Friday.

However, the swift steely response among states – this year namely from Queensland, which largely due to an increase in coal royalties, will receive its lowest-ever share of GST – is a reminder of the ongoing discord about the arrangements put in place to determine how much a jurisdiction receives each year.

The Queensland government facing a $7 billion budget deficit for the coming financial year called on federal Treasurer Jim Chalmers to reject the Commonwealth Grants Commission’s recommendations.

Queensland Treasurer David Janetzki accused the commission of a “shonky shifting” of Queensland cash to NSW and Victoria.

Despite this time being a winner, Symes herself was quick to look to the future and call on further assurances. She said the “no worse off” guarantee built into the GST carve-up arrangement by the former Coalition government and since extended by the Albanese government had to be locked in permanently otherwise Victoria would lose about $1.8 billion a year. At this stage, the arrangement is due to end in 2029-30.

The commission confirmed $5 billion of federal taxpayers’ cash would be spent ensuring no state or territory would be left worse off in the coming financial year.

Of chief concern, as highlighted by senior economics correspondent Shane Wright in his exclusive report on Friday, is the runaway costs of the policy to compensate Western Australia after its share of the GST collapsed to less than 30¢ for every tax dollar due to soaring iron ore prices during the 2010s.

It is testimony to Australia’s continuing failure to implement an equitable system to divide federal funds among the states with the ballooning cost of the political fix now approaching an astounding $60 billion, 17 times more expensive than originally promised.

Despite the blow out, on the eve of the federal election, major political parties evince little interest in reforming the system for fear of antagonising West Australian voters.

Labor and the Coalition have promised to honour the deal negotiated by then treasurer Scott Morrison. Under Morrison’s policy, originally forecast to cost $2.3 billion over four years, no state’s GST share could fall below 75¢ for every dollar. The federal government would top up the GST pool to ensure WA’s share gradually lifted.

The sharp fall in WA’s share, as the state emerged from a local recession, was caused by the way the GST is allocated by the grants commission which, through a notoriously complex process, seeks to ensure all states and territories can provide services of a similar level to residents.

Under pressure from other states and members of the government’s backbench, the so-called “no worse off” payments were put in place to ensure no state or territory would have GST shares cut.

It was not supposed to be like this. When John Howard unveiled a GST as the centrepiece of his September 1998 election policy speech he promised it would balance fairness and incentive and guarantee growing levels of revenue flowed to all states.

The bipartisan deal by Labor and the Coalition does not even recognise that basing WA’s bailout on an erroneous guess about falling iron ore prices sits oddly beside rocketing iron ore prices, a reality made more ridiculous by the West running a budget surplus of $3.5 billion a year while other eastern states face deep budget deficits.

In December 2023, Chalmers confirmed a Productivity Commission review into whether GST arrangements were operating efficiently, effectively, and as intended would be completed by the end of 2026. The WA rort and continued outcry by the other states demands it be completed sooner. Federal taxpayers should no longer be bilked by a state simply because of the power it wields in an upcoming federal election.

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