Treasury analysis has cast doubt on Prime Minister Scott Morrison’s statements that states would be better off now and into the future under the government’s proposed changes to the GST distribution method.
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It said the federal government’s proposal modelled under one scenario suggested Tasmania could be better off than under the current arrangement.
But the department said this did not take into account the Productivity Commission’s other recommendations and was thus incomplete.
“There are a number of feasible scenarios … which would appear to indicate that the proposed changes to the GST distribution may be detrimental to Tasmania’s fiscal position,” it said in a report tabled in Parliament on Tuesday.
Treasury noted the changes gave Western Australia a permanent increased capacity to provide a higher standard of services and ability to lower taxes than any other state.
It said this would increase if mining royalties increased.
“Even if the Commonwealth’s proposal leaves Tasmania better off in the longer term relative to the status quo, it will set in place a system that will entrench a gap between the fiscally strongest state and the other states,” the department said.
It noted the Productivity Commission was instructed to review the GST method of horizontal fiscal equalisation due to its complexity and confusion on how it worked.
“In reality, the model proposed by the Commonwealth Government is more complex than the current arrangements,” the department said.
The federal government on Tuesday gave into pressure from five states to guarantee in legislation that no state would be worse off under changes to GST distribution.
This would include a review by the Productivity Commission on the equity of the new system after a full transition in 2026-27.
The government’s shift on legislating a guarantee means it will need to contribute more in top-up payments during the transition to a different model from 2020-21.
