Updated ,first published
Premier Chris Minns has slammed the GST distribution system as being “past its use-by date” after the latest carve-up revealed NSW will receive $1.7 billion less than Victoria from the national GST pool, despite having about 1.5 million more people.
The Commonwealth Grants Commission, which oversees how the $103 billion national GST pot is allocated, said the NSW share of GST will fall to just 25.5 per cent of the national pool, even though the state has about 31 per cent of the Australian population.
A key reason for NSW’s lower share was its “above-average growth in land values” which gave the state more capacity to raise more land tax revenue relative to others, the commission said. NSW also spent less on natural disaster relief than it had previously estimated.
Western Australia is a big winner from the latest distribution; its share of GST will rise from 8.3 per cent to 9.1 per cent, even though it is the strongest state financially.
Queensland will receive the largest dollar increase in GST distribution of $1.7 billion.
Victoria’s overall GST share fell slightly, but it will still receive $1.5 billion more in 2026-27 than the previous year. NSW will receive an extra $316 million – the lowest increase of the mainland states.
Premier Chris Minns called for urgent reform to the way the GST is distributed.
“This GST system is past its use-by date,” he said. “We need to move to a fairer system based on population.”
“No one objects to the Commonwealth supporting smaller jurisdictions like the ACT, the Northern Territory and Tasmania – but it makes no sense for big, wealthy states like Victoria to get a bigger slice than NSW.”
The lower GST share for NSW comes amid persistent pressure on the state budget; NSW has now registered an unprecedented string of seven consecutive budget deficits since 2019-20. During the same period WA’s budget has been in continuous surplus.
The federal Productivity Commission is currently reviewing the GST distribution. Its interim report will be published in November.
How the GST is carved up
- When the GST was introduced in 2000, then-prime minister John Howard promised all of it would be shared among the states and territories. How it was allocated would be decided by the long-standing Commonwealth Grants Commission.
- 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.
- This is affected by a large range of factors, including population growth, mineral royalties and social factors such as Indigenous and remote populations.
- The commission recommends to the federal treasurer how the GST should be shared. No treasurer has ever overruled the commission’s findings.
- In 2019, amid fears that WA could end up with a very low portion of the GST, the Morrison government put in place a system that would guarantee its share while also injecting extra funds into the GST pool to ensure no other state or territory would be worse off.
The Commonwealth Grants Commission uses a complex method to determine how the GST pool should be divided. It aims to ensure that all states have the “capacity to provide a broadly comparable standard of government services.” Smaller states traditionally receive more GST per head of population than larger states.
However, economists have criticised the commission’s GST distribution method for being overly complicated and lacking transparency.
The system has become more controversial following a deal struck by the Morrison government to protect WA’s share of GST, which had plummeted due to soaring iron ore prices in the 2010s.
The changes introduced in 2019 required the introduction of a costly “no worse off” provision funded by federal taxpayers.
The commission said “no worse off” payments will total $5.5 billion in 2026-27 alone.
Independent economist Saul Eslake described the Morrison government’s 2019 overhaul as “the worst public policy decision of the 21st century” because of the unnecessary damage to the federal budget. The Albanese government has subsequently promised not to reverse the Morrison changes.
Eslake estimates that, since the 2019 deal, WA has pocketed about $36 billion more in GST revenue that it would have otherwise received without the changes.
“It’s been a reverse Robin Hood,” he said.
Grants Commission chair Mike Callaghan said it was normal for state GST shares to change between years, reflecting shifts in their circumstances.
“Key drivers of changes in state GST shares in 2026-27 include the value of mining production declining, large COVID-19-related health and business support expenses no longer being assessed, and the strength of property markets changing across Australia,” he said.
Callaghan said because the GST pool is a fixed total, and the commission takes account of relative state needs, “what happens in one state influences other states”.
The Victoria and Queensland governments also called for the GST distribution model to be overhauled.
Victorian Treasurer Jaclyn Symes said the Commonwealth had given WA “a sweetheart deal”, while Queensland Treasurer David Janetzki claimed the carve-up was unfair.
“Queensland should be getting its fair share of the GST pie, not playing second fiddle to a second-rate distribution model designed to dud us,” he said.
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James Hall is the News Director at the Brisbane Times. He is the former Queensland correspondent at The Australian Financial Review and has reported for a range of mastheads across the country, specialising on political and finance reporting.Connect via X or email.