The NSW Budget is projected to have a nearly $12 billion hole in it from lost GST revenue. Meanwhile, WA is getting a payout.The New South Wales Budget will be delivered on June 18. We don’t know what’s in it yet, but the Treasurer has already warned that it will be a tough one. This is because NSW will be out nearly $12 billion over the next four years.
Changes to distribution of GST
The $12 billion hole in the NSW Budget is a result of changes to the way that the goods and services tax (GST) revenue is distributed to the states and territories. When the GST was first introduced, it was designed to replace a range of other taxes to provide revenue to the states and territories. So even though it’s the Australian Government that collects GST, it’s the states and territories that receive the money.
Here’s where it starts getting more complicated. The states and territories don’t just get the proportion of GST equal to their share of the population. That would leave bigger states like NSW far better off than Tasmania or the Northern Territory. Instead, GST revenue is allocated based on need and on a state or territory’s ability to collect revenue from other sources (like stamp duty or land tax). This decision is made each year by the Commonwealth Grants Commission (CGC).
This means that, while Victoria will be paid around 96c for every dollar of GST it would receive on a per person basis, NT will receive around $5 for every dollar of GST that would be paid per person.
In the past, this meant that Western Australia received around 40% of its per person share of GST because of the mining boom. The extra revenue that the WA Government could collect from mining reduced its need for GST money. But in 2018 the system was changed to raise the minimum share of GST that a state or territory could receive. In practice, the change only helps WA, as it was the only state that received a lower share of the GST pool.
This change is about to come into full effect. Starting from July, WA will now receive 75% of its per person share of GST. This amounts to about $4 billion extra per year.
How does this affect the NSW Budget?
All of the states and territories are paid from the same pool of GST revenue. This means that if one state or territory gets more money from the pool, others will get less. So, because WA is now receiving a bigger share than it did previously, there’s less to go around for the other states and territories.
In addition, the CGC has decided that NSW has a greater capacity to raise its own revenue from land tax and coal royalties. So, while NSW received 92% of its per person share of GST last year, this year it will receive 86%.
The NSW Treasurer has pushed back on the decision, saying that he won’t raise property taxes during a housing crisis. He has also signaled that he will avoid ‘austerity’ style budget cuts that could worsen cost-of-living pressures for many people.
However, we are unlikely to see the sorts of policies that CPSA has been pushing for, such as better funding for public dental care, relief for ratepayers and the return of the Regional Seniors Travel Card.
As for the details of the Budget, we’ll have to wait and see.
The New South Wales Budget will be delivered on June 18. We don’t know what’s in it yet, but the Treasurer has already warned that it will be a tough one. This is because NSW will be out nearly $12 billion over the next four years.
Changes to distribution of GST
The $12 billion hole in the NSW Budget is a result of changes to the way that the goods and services tax (GST) revenue is distributed to the states and territories. When the GST was first introduced, it was designed to replace a range of other taxes to provide revenue to the states and territories. So even though it’s the Australian Government that collects GST, it’s the states and territories that receive the money.
Here’s where it starts getting more complicated. The states and territories don’t just get the proportion of GST equal to their share of the population. That would leave bigger states like NSW far better off than Tasmania or the Northern Territory. Instead, GST revenue is allocated based on need and on a state or territory’s ability to collect revenue from other sources (like stamp duty or land tax). This decision is made each year by the Commonwealth Grants Commission (CGC).
This means that, while Victoria will be paid around 96c for every dollar of GST it would receive on a per person basis, NT will receive around $5 for every dollar of GST that would be paid per person.
In the past, this meant that Western Australia received around 40% of its per person share of GST because of the mining boom. The extra revenue that the WA Government could collect from mining reduced its need for GST money. But in 2018 the system was changed to raise the minimum share of GST that a state or territory could receive. In practice, the change only helps WA, as it was the only state that received a lower share of the GST pool.
This change is about to come into full effect. Starting from July, WA will now receive 75% of its per person share of GST. This amounts to about $4 billion extra per year.
How does this affect the NSW Budget?
All of the states and territories are paid from the same pool of GST revenue. This means that if one state or territory gets more money from the pool, others will get less. So, because WA is now receiving a bigger share than it did previously, there’s less to go around for the other states and territories.
In addition, the CGC has decided that NSW has a greater capacity to raise its own revenue from land tax and coal royalties. So, while NSW received 92% of its per person share of GST last year, this year it will receive 86%.
The NSW Treasurer has pushed back on the decision, saying that he won’t raise property taxes during a housing crisis. He has also signaled that he will avoid ‘austerity’ style budget cuts that could worsen cost-of-living pressures for many people.
However, we are unlikely to see the sorts of policies that CPSA has been pushing for, such as better funding for public dental care, relief for ratepayers and the return of the Regional Seniors Travel Card.
As for the details of the Budget, we’ll have to wait and see.
