‘Sweetheart deal’: Victoria demands GST overhaul as WA claims $6.6b windfall

Victoria’s slice of the national GST pie will shrink as Western Australia emerges as the clear winner of the latest carve-up, renewing the east coast push to end the “sweetheart deal” delivering windfalls to the resource-rich west.

Under a decision from the independent grants commission, Victoria will receive $29.6 billion from the $103 billion GST pot this year – a $1.4 billion increase on last year, despite the state’s share being trimmed by 0.1 of a percentage point.

Western Australia has gained the most from the new distribution – despite the state performing the strongest financially – with its share of the GST to rise from 8.3 per cent to 9.1 per cent.

WA will receive an extra $6.6 billion thanks to a special deal implemented by former prime minister Scott Morrison and upheld by Anthony Albanese, taking its total to $9.3 billion.

That agreement – which is on track to cost 17 times what was originally promised – is now under the microscope of the Productivity Commission. The Victorian government will use the review to call for the deal to be scrapped.

Treasurer Jaclyn Symes argued that if the federal government was unwilling to return to the previous system, it should at least make permanent the no-worse-off guarantee that compensates other states when Western Australia receives a larger share.

“The Commonwealth gave Western Australia a sweetheart deal – and without the no-worse-off guarantee the rest of Australia will pay the price,” she said.

“I’m calling for the return to the previous system that was fair and put the needs of all Australians front and centre.”

Under this year’s distribution, unveiled on Friday, Queensland will receive the largest outright increase in GST distribution of $1.7 billion.

NSW’s share of the GST will fall to 25.5 per cent of the national pool, despite the state having about 31 per cent of the population. The commission attributed the cut to the state having “above-average growth in land values” and lower spending on natural disaster relief.

Victoria’s share of the national pie will dip slightly, from 27.3 per cent to 27.2 per cent, meaning the state will receive $1.06 back for every $1 of GST estimated to be paid in the state based on its population, down from $1.07 last year.

But it will receive $1.4 billion more than NSW from the GST pool – once “no-worse-off-payments” are applied – despite having about 1.5 million fewer people.

“Victoria’s capacity to raise revenue from its own taxes is lower than the national average,” the commission said, pointing particularly to a fall in land sales.

The independent grants commission, which oversees how the $103 billion pot is allocated, said each state and territory would receive more GST in 2026-27 than the previous year due to forecast growth in overall GST revenue.

Symes said she would keep pushing for a fairer GST system, saying that since the tax was introduced, Victoria had received nearly $31 billion less than its population share.

“We welcome the [commission’s] recommendation, which recognises Victoria’s population growth, infrastructure needs and lack of mining royalties,” she said.

Lower coal and iron ore prices in WA and Queensland – which have boosted the GST revenue for those resource-rich states and reduced it for others – as well as the phasing-out of massive pandemic costs are the primary drivers of Victoria’s reduced share of funding.

The commission uses a three-year average to decide which states need the most funding. Because the heavy spending from the 2021-22 COVID-19 lockdown year is being replaced by more stable health spending figures, the commission has slashed $853 million from Victoria’s assessed needs.

Victoria also lost about $257 million in GST funding because updated models found its urban population and lower relative numbers of detainees should make its justice system less expensive to run.

But a $558 million boost from revisions to natural disaster relief helped minimise the downturn, while lower property prices meant Victoria gained $429 million because its market cooled faster than the national average, leaving it with a lower capacity to raise its own revenue from stamp duty.

Additionally, the state’s strong population growth – following a pandemic-era slump – added $241 million to its assessed needs for urban transport infrastructure.

The commission uses a complex model to determine GST distribution, which is typically decided on a needs basis and considers the ability of each state to generate its own revenue.

That means resource-rich states that received mining royalties, such as Western Australia and Queensland, typically receive a smaller share of GST, with the distribution recalculated annually by the commission.

But under the legislation passed by the Morrison government in 2018, after WA’s share of revenue plunged to about 30¢ for every dollar of GST raised in the states, all states are now guaranteed a floor of 75¢ in the dollar.

The deal also ensured WA could not receive a lower GST relativity than the lowest of Victoria and NSW. This year, it will receive the same GST relativity as NSW of 82¢ to a dollar.

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