“We know the Victorian situation is very different but I’m still not understanding why states aren’t allowing NSW residents to interact with them, given the number of cases.”
Later, Ms Berjiklian said she had raised this issue in “very formal settings with my colleagues across the nation” and warned that while borders are closed economic activity suffers.
GST expectations had already been cut by $10.4 billion out to 2022-23 in the federal government’s mid-year update released in December.
But the July fiscal and economic update from Treasurer Josh Frydenberg revealed even sharper falls in the GST pool. In the just-completed 2019-20 financial year, $5.2 billion was wiped from the forecasts, while for 2020-21 they were sliced by $7.6 billion.
The drop this year will cost the NSW budget about $2.2 billion while Victoria’s budget will be $2 billion worse off.
The independent Parliamentary Budget Office, in its own report into the impact of the coronavirus on the federal budget, estimates a GST shortfall of $5 billion in 2021-22 and 2022-23 and smaller falls all the way to 2029-30.
If the federal Treasury and budget office forecasts are correct, the cumulative shortfall in GST to be shared among states and territories between last year’s federal budget and 2022-23 is at least $33.2 billion.
GST is heavily reliant on household consumption, which suffered a 12.1 per cent drop in the June quarter. It is also influenced by population growth, which the federal government is expecting to fall to its lowest level since 1916-17 in the wake of the coronavirus.
NSW Treasurer Dominic Perrottet said the GST model must be changed. “I’ve always argued that the GST model should be altered because NSW is penalised and provides support for the states, which I always believe is right because we are the strongest state.
“In the middle of the mining boom the state of WA had receipts coming in, then at the end of the mining boom went cap in hand to the federal government who then topped up,” Mr Perrottet said.
Analysts expect consumer spending to remain subdued through the current financial year, especially if state and international borders remain closed.
S&P Global primary credit analyst Martin Foo said that while the states and territories were all expected to announce stimulus measures in their budgets, they would have fewer funds to cover expenditure.
“Upcoming budgets will disclose large non-discretionary declines in state revenue from taxes, fees and GST grants,” he said.
“Together, the extra spending and plummeting revenues will drive deficits much higher.”
Modelling by the NSW Treasury released this week suggested Victoria’s coronavirus lockdown would reduce the national GST pool by $300 million and cost NSW $91 million in reduced revenue this year. But the broader impact of the coronavirus recession, including the lockdowns imposed by all states and territories in March, is substantially larger.
The shortfall in GST caused by the coronavirus is on top of other long-term trends that will hit the states and territories.
In new research, the Parliamentary Budget Office found the GST has failed to keep up with the economy, despite being touted as a growth tax when it was introduced in 2000.
As a share of GDP, the GST take has fallen from 4 per cent in 2003-04 to 3.3 per cent due to demographic trends, the shape of the economy and unequal price growth between GST-free goods and those that attract the tax.
It found if the current downward trend continues, by 2030-31 there will be a shortfall of up to $24 billion to be shared among states and territories compared to the early 2000s.
“While any falls in revenue flow directly through to state budgets, there may be an associated pressure on the Commonwealth to provide greater transfer payments to the states,” it found.
With Matt Wade
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.