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Why is NSW still subsidising QLD's economy so much?

07 March, 2007

NSW’S largest business group NSW Business Chamber said the release of the latest data from the Commonwealth Grants Commission provided little joy for NSW.

The GST relativities, released by the Commonwealth Grants Commission, improve funding to NSW by $277 million, however NSW is still providing a $2.4 billion subsidy to other Australian States and Territories. In 2007/08, Australia’s fastest growing state Queensland will receive a $240 million subsidy from NSW.

“NSW is still being ripped off – and handing back small change to NSW does not alter that. It is incomprehensible that NSW which is experiencing negative economic growth is subsidising States and Territories that are growing faster than NSW”, said Kevin MacDonald, CEO of NSW Business Chamber.

 “I do not accept the view that the Federal Government has no power in this area – the Federal Government has shown in the areas of workplace relations and water management that they can and do act on matters when they have the will to do so.

“The Federal Opposition is also complicit by its silence on reforming the GST Agreement. 

MacDonald said reform of the GST agreement was needed and that the Productivity Commission needed to review the current formula for GST distributions.

“The GST formula is based on 400 separate variables – the formula is flawed and creates real disincentives for States to address areas of inequality or to provide taxation relief.

“The Productivity Commission has the expertise to undertake a review and to ensure that the distribution of this $39 billion tax is done so in a way that is equitable, efficient and fair.

The NSW Business Chamber in NSW Business Priorities 2007 detailed a plan to overhaul GST collections. The plan recommended:

- The Federal Government request the Productivity Commission to review the current GST formula with a view to simplifying the way distributions are calculated and identifying distortions and areas of inefficiency or ineffectiveness.

- The Productivity Commission considers NSW, Victoria, Queensland, Western Australia and the ACT as fully developed economies only needing per capita distributions of GST revenue, with the remaining States and Territory receiving payments based on horizontal fiscal equalisation.

- The States and Territory receiving the benefits of horizontal fiscal equalisation demonstrate how the proceeds are being applied to reduce issues of inequality.

- Financial assistance should be provided over a five year transition period to those States disadvantaged by these changes to horizonal fiscal equalisation. MacDonald said the first stage of any approach to reforming Federal State relations in Australia was to ensure that the largest revenue stream to the States was apportioned in a way that was fair and efficient.

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