NSW emerges as main loser from GST carve-up as WA gets extra $5.5bn | GST
Australia’s richest state will get an extra $5.5 billion in GST revenue thanks to a good deal reached with Western Australia in 2018, with the New South Wales premier calling the final distribution calculation unfair and “out of date”.
The Commonwealth Grants Commission on Friday published its recommendations on how to share an estimated $102.5 billion in goods and services taxes between states and territories in 2026-27.
In the coming financial year, NSW has emerged as the main “loser” in the complex formula aimed at “ensuring a generally comparable standard of government services” across states and territories with very different fiscal capacities.
NSW will be allocated just over a quarter of the total GST pie in 2026-27, equating to a projected $26.1 billion and up from $25.8 billion this financial year.
But the fact that NSW’s share of GST revenue compared to its population will drop from 0.86 to 0.82 will spark the ire of Chris Minns, who said: “This is the lowest share of GST NSW has received since the tax was introduced in 2000.”
“This GST system is out of date,” Minns said.
“We need to move to a fairer system based on population. No one objects to states supporting smaller jurisdictions like the ACT, Northern Territory and Tasmania – but it doesn’t make sense for big, rich states like Victoria.”
CGC chief executive Mike Callaghan said the NSW premier was wrong to say the state had the lowest relativity in history. He defended the system, saying that the relativities were based on complex but transparent calculations based on economic and budget data.
Callaghan said for an accurate historical comparison you need to strip out the impact of the 2018 legislation that gave WA a larger share of the GST pie.
Excluding this effect, he said, NSW’s relativity would be 0.89.
Victoria’s GST relativism fell slightly from 1.07 to 1.06, but due to the larger projected total pool (removing the levy for all jurisdictions), the state’s revenue from the tax was forecast to rise from $26.4 billion to $27.9 billion in 2026-27.
But the elephant in the room remains Western Australia, which is guaranteed a minimum share of GST no matter what its needs, thanks to a law change eight years ago that independent economist Saul Eslake has often called “the worst policy decision of the 21st century”.
WA has run a series of surpluses, thanks largely to the ongoing iron ore boom that is filling the state’s coffers, while other states and territories are mired in budget deficits and increasingly severe debt levels.
In terms of capacity alone, as calculated by CGC, WA will receive a share of GST equivalent to only 0.25 of its population share. Instead it will get the same value as NSW, 0.82.
Callaghan said WA was “by far the fiscally strongest state in the federation”.
WA receiving more than its “fair” share under the allocation methodology leaves a smaller pool of fixed GST for other states and territories.
To ensure no jurisdiction is left worse off under the agreement, the state is providing “additional” payments totaling $5.5 billion in 2026-27, bringing the cumulative cost of the budget since 2018 to $36 billion, Eslake said.
He described the current situation as “heads, Western Australia wins and tails, the federal government loses”.
“If iron ore goes to $400 a tonne WA will still have the same relativity as NSW and if it drops to $20 they will get more.
“How can Jim Chalmers and Anthony Albanese reconcile giving $36 billion over eight years to Australia’s richest state so it can run bigger surpluses while every other government is running deficits?
The Productivity Commission is conducting an investigation into the 2018 GST reforms, with an interim report due by August and a final report by the end of the year.
