The Morrison government has promised to legislate a safeguard so no state is left worse off by changes to the GST distribution formula for a period of six years.
The backdown – announced by the treasurer, Josh Frydenberg – responds to state and territory concerns that changes in economic conditions could leave Victoria and New South Wales up to $1bn worse off. There has also been internal dissent federally, including from Tasmanian Liberals.
Under the new policy, the government will introduce a goods and services tax floor with the added safeguard that if any state or territory is left worse off in the transition period from 2020-21 to 2026-27, their payments will be restored to the level of the old distribution system.
At the end of the transition period the Productivity Commission will review GST distribution again.
Frydenberg had previously resisted the push for a safeguard – despite federal Labor and the states’ demands – claiming that it was unacceptable to set up a “parallel” GST scheme for the states to extract even more money from the commonwealth.
The shadow treasurer, Chris Bowen, said the treasurer had “buckled to Labor’s pressure”, labelling it a “humiliation” for the Frydenberg and the prime minister, Scott Morrison.
However, Bowen had previously signalled that Labor would support legislation for a GST floor even without the safeguard.
On Tuesday Bowen said Labor would be “constructive”, and accepted that it was appropriate to frame the safeguard to “cover a period of time”.
Frydenberg said the safeguard would require the commonwealth to “run two sets of books” but described it as a “sensible compromise” to ensure no state or territory would be worse off in the transition period.
“I pay credit to my colleagues in the party room who have strongly supported this solution,” he told reporters in Canberra.
“The Morrison government is providing a national solution to a national problem – and I’ve have spoken to state treasurers – Liberal and Labor – and they support this way forward as a reasonable, sensible approach.”
The Tasmanian Liberal senator Eric Abetz thanked Morrison and Frydenberg for the policy change to “ensure the sustainability of Tasmania’s finances for virtually a decade”.
In June the federal government announced its plan to introduce a “floor” so no state receives less than 70% of its own GST revenue from 2022-23, rising to 75% from 2024-25.
Over 10 years the policy will cost $9bn, of which Western Australia will get $4.7bn, and current estimates suggest that all states and territories will be better off.
But Victorian treasury modelling suggested that in a worst-case scenario – depending on certain assumptions about mining production and property taxes – Victoria could lose up to $940m, New South Wales up to $1.1bn and Queensland up to $651m.
