NSW emerges biggest loser from GST split as WA nets extra $5.5bn | VAT

Australia’s richest state will receive an extra $5.5 billion in GST revenue thanks to a favorable deal struck with Western Australia in 2018, when the New South Wales premier attacked the latest distribution calculation as unfair and “past its sell-by date”.

The Commonwealth Grants Commission on Friday published its recommendations on how a projected $102.5 billion goods and services tax in 2026-27 should be shared among states and territories.

In the next financial year, New South Wales emerged as the biggest “loser” from a complex formula that aims to “provide a broadly comparable standard of government services” across states and territories with very different fiscal capacities.

New South Wales will be allocated just over a quarter of the total GST in 2026-27, equivalent to a projected $26.1 billion, up from $25.8 billion this financial year.

But New South Wales’ share of GST revenue relative to its population will drop from 0.86 to 0.82, prompting outrage from Chris Minns, who said “this is the lowest share of GST that New South Wales has received since the tax was introduced in 2000.”

“This GST system is past its sell-by date,” Minns said.

“We need to move towards a fairer population-based system. No one is opposed to the Commonwealth supporting smaller jurisdictions like the ACT, the Northern Territory and Tasmania, but it doesn’t make sense for large, wealthy states like Victoria.”

Mike Callaghan, chairman of the CGC, said the New South Wales premier was wrong to say the state was receiving the lowest relativity ever recorded. He defended the system, stating that the relativities are based on complex but transparent calculations based on economic and budgetary data.

Callaghan said an accurate historical comparison would have to remove the impact of the 2018 legislation, which gave WA a larger slice of the GST pie.

Excluding that impact, the relativity for New South Wales would have been 0.89, he said.

Victoria’s GST relativity fell slightly from 1.07 to 1.06, but due to a larger projected total fund (which raised tax collections for all jurisdictions), the state’s revenue from the tax was forecast to rise to $27.9 billion in 2026-27, from $26.4 billion.

But the elephant in the room remained Western Australia, which thanks to a law change eight years ago has been guaranteed a minimum proportion of the GST regardless of its needs, what independent economist Saul Eslake has frequently called the “worst policy decision of the 21st century”.

WA has had a series of surpluses thanks in large part to the ongoing iron ore boom that has filled the state’s coffers, even as other states and territories are mired in budget deficits and increasingly burdensome debt levels.

In terms of capacity alone, the CGC estimated that WA would receive a share of the GST equivalent to just 0.25 of its share of the population. Instead, you will receive the same as New South Wales, 0.82.

WA “is by far the fiscally strongest state in the federation,” Callaghan said.

The fact that WA receives more than its “fair” share under the allocation methodology leaves less of the GST flat pool for the other states and territories.

To ensure that no jurisdiction is left worse off under the agreement, the commonwealth is providing “top-up” payments that totaled $5.5 billion in 2026-27, bringing the cumulative cost to 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 went up to $400 a tonne, WA would still get the same relativity as NSW, and if it crashed to $20 they would get more.

“How can Jim Chalmers and Anthony Albanese reconcile giving Australia’s richest state $36 billion over eight years so it can run even bigger surpluses when every other government is running deficits?

The Productivity Commission is conducting an inquiry into the 2018 GST reforms, with an interim report due in August and a final report by the end of the year.