The Minns government has set itself on a collision course with Western Australia, complaining that NSW taxpayers are subsidising the rest of the country while demanding massive changes to the annual carve-up of the GST.
A day after this masthead revealed the 2018 deal has split members of the former Turnbull and Morrison governments over its impact on the national economy and the federal budget, NSW Treasurer Daniel Mookhey said the system was irreparably broken.
In its submission to a Productivity Commission inquiry, the NSW government is calling for a new system which would result in the $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 would deliver the NSW government an extra $3.2 billion to spend on state services.
To protect small jurisdictions that would suffer catastrophic falls in GST under the NSW proposal, it wants the federal government to allocate specific grants to places such as the Northern Territory, Tasmania, South Australia and the ACT.
In an exclusive interview with this masthead, Mookhey said the current system was untenable, especially for NSW taxpayers.
“The system is broken. Every state and territory, except WA, knows the system can’t continue,” he said.
The Productivity Commission is carrying out an inquiry into the deal that was put in place by then-treasurer Scott Morrison, after WA’s share of GST collapsed to less than 30¢ for every dollar of the goods and services tax raised within the state.
WA was guaranteed a much higher portion of GST. But to ensure this did not come at the expense of GST to the rest of the country, the federal government gives extra cash to all states and territories bar WA to make sure they are not left worse off.
Originally forecast by then treasurer Josh Frydenberg to cost $2.3 billion, the deal is now on track to cost up to $60 billion by the end of the decade. The blowout in cost dwarfs that in other parts of the federal budget such as the NDIS.
Mookhey said while governments had to make their own spending decisions, as a taxpayer it made more sense to have a GST allocation system that did not weigh so heavily on the federal government.
As part of its submission, NSW recommended a floor of 50 cents of every dollar of GST be put in place. This would be lower than the current floor but still prop up WA’s allocation as, without the current system, its share would fall to 24 cents in the dollar.
Mookhey said this would leave WA well ahead but provide some relief to NSW and its taxpayers.
All states and territories bar WA have called for change in their submissions to the inquiry. The NSW proposal is the only one which says the Commonwealth Grants Commission – which determines the allocation – should give four-year forecasts rather than a single year estimate.
Describing the current allocation system, as “weird” and “difficult to decipher”, Mookhey said four-year projections would help every state and territory budget.
“If the grants commission isn’t prepared to give the states and territories a four-year projection, that’s just a vote of no confidence in their system,” he said.
“Every government has to do four-year forecasts. But we only get one-year forecasts for the single largest revenue source, the GST.”
In its submission, the West Australian government of Labor Premier Roger Cook said his state still provided a GST subsidy worth $2.5 billon a year to other states and territories.
According to WA, it provides a net $39 billion to the operation of the federation, largely through the tax collections of mining companies and individuals, while having the lowest reliance on federal government support of any jurisdiction.
“Western Australia produces almost half of the nation’s goods exports and around 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,” it said.
Until 2005, WA relied on the rest of the federation to subsidise its budget. Both NSW and Victoria have subsidised the country since federation in 1901.
Mookhey said he had no qualms with supporting the federation, but the amount of money being funnelled into other parts of the country such as Victoria and WA was hurting NSW taxpayers.
“From day one we’ve been a donor state, we will continue to be a donor state but the current system can’t continue,” he said.
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.