Australian Federal Treasurer, Jim Chalmers, is facing a significant fiscal proposition. His state and territory counterparts have pushed him to make the Goods and Services Tax (GST) 'no-worse-off guarantee' a permanent feature. This move could ensure financial stability and fairness among the states and territories, but it also carries significant fiscal implications.
Stakes of the Proposed Policy
The 'no-worse-off guarantee', established under the previous Coalition government in 2018, mandates the Commonwealth to offset any shortfalls in the GST revenue share of states, ensuring a minimum share of 70% for all jurisdictions. However, this provision was never legislated and is set to expire in 2027-28. The state and territory treasurers collectively anticipate a nearly $5 billion annual deficit if this guarantee isn't made a permanent fixture.
Implications for the Commonwealth
The financial burden of the GST 'no-worse-off guarantee' on the Commonwealth has substantially escalated since the deal was struck in 2018. Extending its duration could result in significant fiscal implications for the Commonwealth. The treasurers discussed this issue at a meeting in Brisbane, where it was also agreed to form a working group to comprehend the revenue implications of the High Court's ruling on Victoria's electric vehicle excise tax.
Controversy Over NDIS Payments
The states also expressed their refusal to negotiate on the sustainability of the National Disability Insurance Scheme (NDIS) unless the federal government agrees to perpetuate billions in top-up payments to the GST. The annual GST top-up payments of at least $5 billion were designed to compensate all states and territories (except Western Australia) for the GST revenue they lost as part of a deal to establish a tax allocation floor for WA. Without these GST funds, states threaten to impose new taxes and levies to finance essential services, the blame for which would be directed at the Commonwealth.
The mid-year budget update, due later this month, is expected to reveal a substantial enhancement to the bottom line, according to Dr. Chalmers. However, it is not anticipated to forecast a second surplus. As such, state and territory treasurers are pressing the federal government to commit to topping up state and territory GST payments 'in perpetuity', especially amid predictions of the Commonwealth receiving a $76 billion tax revenue windfall over the next four years.