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Changes to GST formula biggest threat to NSW budget

15 December, 2009

The 2009-10 half-yearly Budget review released recently by NSW Treasurer Eric Roozendaal provided further confirmation that the NSW economy was strengthening, said NSW Business Chamber.

However, the Treasury has flagged its concerns about the potential $2 billion black hole that could occur through a re-calculation of the GST formula by the Commonwealth Grants Commission.

"The half yearly review confirms that NSW is weathering the aftershocks of the GFC," said Stephen Cartwright, CEO of NSW Business Chamber.

"The deficit for 2009-10 of $1,020 million is in line with projections. The improvement of the Budget position by $1,312 million over the Budget cycle is good news.

"We welcome the fact that NSW will be back in the black in 2010-11. However, it should also be noted that the GFC significantly impacted NSW’s net financial liabilities and therefore debt levels have significantly worsened over the past 18 months

"It should be recognised that the responsible position for State Government is to have balanced budgets over the economic cycle, which implicitly means that deficits are run during times when growth is flatlining.

"Whilst the improvement in the Budget position is welcomed, we have to recognise that Treasury has made some brave assumptions for coming years, which include a return of employment growth and stronger property market conditions (stamp duty revenue projected to increase by 45% over the next three years).

"The projected increase in payroll tax revenue reflects the fact that employers have held on to staff, albeit in some cases with reduced hours, rather than lay people off.

The Half Yearly Budget Review highlights the dangers associated with the planned Commonwealth Grants Commission re-calculation of the GST by stating:

"The biggest risk to the budget outlook relates to the outcome of the Commonwealth Grants Commission’s 2010 Review of State Revenue Sharing Relativities.

"The Half Yearly Review clearly states that the biggest risk to the Budget is Wayne Swan. Swan has to stop the Commonwealth Grants Commission plan to strip NSW of $2 billion in GST funding.
Source: NSW Business Chamber

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