NSW warns GST system is ‘broken’, wants WA’s sweetheart deal watered down
The Minns government has been on a collision course with Western Australia, complaining that NSW taxpayers are demanding major changes to the annual share of the GST while subsidizing the rest of the country.
A day after this byline revealed the 2018 deal divided members of the former Turnbull and Morrison governments over its impact on the national economy and federal budget, NSW Finance Minister Daniel Mookhey said the system was broken beyond repair.
In its submission to the Productivity Commission inquiry, the NSW government is calling for a new system that would result in a $100 billion GST pool being allocated to states and territories on a per capita basis, rather than the complex calculations that determine each share under the current system.
This change will give the NSW government an extra $3.2 billion to spend on government services.
He wants the federal government to allocate specific grants to places such as the Northern Territory, Tasmania, South Australia and the ACT to protect smaller jurisdictions that would face big reductions in GST under the NSW proposal.
In an exclusive interview with this imprint, Mookhey said the current system was untenable, especially for NSW taxpayers.
“The system is broken. Every state and territory except WA knows the system cannot continue,” he said.
The Productivity Commission is conducting an investigation into the deal, which was introduced by then-treasurer Scott Morrison after WA’s share of the GST fell below 30 cents for every dollar of goods and services tax collected in the state.
WA was guaranteed a much higher portion of the GST. But to ensure this doesn’t come at the expense of GST to the rest of the country, the federal government is giving extra cash to all states and territories except WA to ensure they aren’t left worse off.
The cost of the deal, which treasurer Josh Frydenberg initially predicted would cost $2.3 billion, is now set to rise to $60 billion by the end of the decade. The explosion in costs is dwarfing the cost of other parts of the federal budget, such as the NDIS.
Mookhey said governments should make their own spending decisions, but as a taxpayer, it makes more sense to have a GST allocation system that isn’t so burdensome on the federal government.
As part of its submission, NSW recommended implementing a floor of 50 cents for every dollar of GST. This would be lower than the current base but would still support WA’s allocation as without the current system WA’s share would fall to 24 cents on the dollar.
Mookhey said this would leave WA well ahead but provide some relief to NSW and taxpayers.
All states and territories except WA have called for changes to their submissions to the inquiry. The NSW proposal is the only one that says the Commonwealth Grants Commission, which sets allocations, should provide four-year estimates rather than a single-year estimate.
Describing the current allocation system as “bizarre” and “hard to figure out”, Mookhey said four-year projections would help every state and territory budget.
“If the grants commission is not prepared to give states and territories a four-year forecast, that is a vote of no confidence in their system,” he said.
“Every government is required to make four-year estimates. But for GST, which is the largest source of revenue, we get only one-year estimates.”
Western Australian Labor Premier Roger Cook said in his presentation that his state was still providing $2.5 billion a year in GST subsidies to other states and territories.
According to WA, it contributes a net $39 billion to the operation of the federation, largely through tax collections from mining companies and individuals, and is the least dependent on federal government support of any jurisdiction.
“Western Australia produces almost half of the country’s goods exports and approximately 17 per cent of Australia’s total economic output, despite having only 11 per cent of the national population. This makes Western Australia the most productive state in the country,” he said.
Until 2005 WA relied on the rest of the federation to subsidize its budget. Both NSW and Victoria have subsidized the country since federation in 1901.
Mookhey said he had no qualms supporting the federation but said the amount of money being transferred to other parts of the country, such as Victoria and WA, was hurting NSW taxpayers.
“We have been a donor state since day one, we will continue to be a donor state, but the current system cannot continue,” he said.
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up for our weekly Inside Politics newsletter.
Shane Wright is senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: X or email.
