How ScoMo will inject $350m into NSW economy
EVERY state will have money thrown at it and is guaranteed a return of no less than 75c in every dollar it raises under the biggest shake-up of the GST in two decades.
NSW will win an extra $351 million under the sweeping tax reforms as an extra $7.2 billion from the federal budget is pumped into the GST pool over the next decade to stave off a damaging election-year fight between the states about who would be left worse off under the reforms.
In major changes to be announced by Treasurer Scott Morrison today, no state will get back anything less than 75c in every dollar it raises.
The Productivity Commission has been reviewing the fairness of the current GST carve-up since last April, after complaints from Western Australia, which has emerged as the biggest winner under the changes, and NSW, about how little those states received compared to how much tax their residents paid.
Under the commission's proposal, which the government has rejected, by 2026 NSW would have been better off by $12.6 billion - at the expense of Queensland and Victoria.
Instead, NSW will get a $351 million GST "top up" by that same year while Queensland and Victoria will receive GST "boosts" of $518 million and $425 million respectively.
Mr Morrison said the new system would "leave all states and territories better off".
"The government considers that implementing the PC's preferred model would move too far from the 'fair go' principle of (Horizontal Fiscal Equalisation), and risk leaving smaller states behind," he said.
"We also consider that the PC's preferred option would create a level of unnecessary disruption and transition costs that most states, and the Commonwealth, would not be able to reasonably accept or absorb."
Mr Morrison said that while the PC had recommended one method of changing how the GST money would be split, it had also "observed that this option 'was not unambiguously superior to any other'."
The Horizontal Fiscal Equalisation system helps weaker states by subsidising them from stronger states, taking into account population growth, the efficiency of their tax systems and a number of other measures.
However, it has left some states, including WA, fuming.
NSW will receive 85.6c for every dollar in GST it raises this year, with the government proposing to make that 83c by 2026-27 compared to the PC's recommendation of 90c for every dollar.
In contrast, WA will receive 47c for every dollar this year, but that will increase to 70c because of the new minimum level proposed by the government next year, before increasing to 83c by 2026 - compared to a PC recommendation of 90c.
NSW's share of the GST will increase from $18.5 billion next year to $26.8 billion by 2026.
NSW Treasurer Dominic Perrottet said the state government needed time to assess the proposed GST changes but he added that the assurances from the Federal Government that the state would be better off were "welcome".
The changes will be phased in over eight years, and NSW and Victoria will become the benchmark states the economic performance of all others are measured against.
The mining boom has left WA as the economic benchmark in recent years, despite the state struggling, with the matter shaping up as a significant election issue.
It was receiving just 34c for every $1 it's residents paid in GST last year.
"For much of HFE's history in Australia, NSW and Victoria have been the fiscally strongest states," Mr Morrison said.
"It is only recently that the benchmark has shifted to WA as a result of the mining boom, which, with its reliance on one particular sector, has led to substantial volatility in the HFE system."
The changes will have to be agreed to by the states at a special meeting in September.