A mooted $271 million windfall for Tasmania from a recent Commonwealth Grants Commission review of the GST carve up is unlikely to eventuate, prominent economist Saul Eslake says.
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The CGC's five-year review of the relative GST shares between Australian states lifted Tasmania's percentage from 3.7 per cent to 4 per cent of the national pool.
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The CGC's review released in March 2020 suggested Tasmania's allocation would rise from $2.417 billion in 2019-20 to $2.688 billion in 2020-21 given an expected rise of 3.5 per cent in total pool.
However, Mr Eslake said the national GST pool would be smashed by the coronavirus pandemic which has resulted in huge falls in consumer spending.
"If the national pool shrinks by 10 per cent to $60.8 billion it would mean a reduction of about $270 million in Tasmania's share even at the new rate," he said.
"If there was a 20 per cent drop in the national pool it would mean a $540 million reduction from the CGC's proposed figure."
Mr Eslake said governments would have to borrow to cover expenditure in coronavirus economic mitigation measures for small business, households and employees.
"Luckily there is a pretty healthy appetite for government debt despite there being modest bond yields," he said.
"And the Reserve Bank is also supporting state governments borrowing programs."
The GST distribution makes up about 40 per cent of Tasmania's revenue used to run hospitals, schools and services.
The 2019-20 Tasmanian state budget estimated that GST payments would be $2.559 billion-$130 million less than the figure suggested by the CGC before the virus.
Premier and Treasurer Peter Gutwein said that National Cabinet was working through the GST issue.
"The final distribution of the GST in terms of the 2020 methodology review is a matter for the federal Treasurer and he understands very clearly my view that Tasmania should receive every cent that's due," he said.
"However, Tasmania's final GST outcome, regardless of our relativity for 2020-21 will be determined by the size of the GST pool which will be significantly impacted by the impact on our economy of COVID-19.
"The GST will flow to the State monthly regardless of the later state budget."
Federal Treasurer Josh Frydenberg said that he had accepted the recommendations of the CGC following consultation with the states and territories at the Council on Federal Financial Relations meeting on April 1, 2020,
"The CGC's recommendations reflect its extensive review in consultation with states and territories, over approximately three and half years, of the methods used to calculate states' fiscal capacities," he said.
"The recommended GST relativities are based on the CGC's assessment of each states' fiscal capacity over the three years from 2016-17 to 2018-19.
"The CGC's recommendations are a fundamental aspect of the GST distribution system to ensure that GST revenue is distributed in a fair and sustainable way.
"We are operating in challenging times but every arm of government and industry is working to keep Australians in jobs and businesses in business, and to build a bridge to recovery on the other side.
"To date the government's total economic support in response to the economic impacts of the coronavirus is $320 billion or 16.4 per cent of GDP.
"We will continue to work constructively with the states and territories to do what it takes to cushion the blow and to ensure that the Australian economy bounces back stronger on the other side.
The 2019-20 CGC update in February 2019 suggested Tasmania would receive 3.6 per cent ($2.513 billion) from the national pool. Federal and state budgets are delayed until October because of the coronavirus.
The CGC found Tasmania was the state with the second weakest fiscal capacity.
"It has well below average revenue raising capacity, with well below average mining production, value of property sales, taxable payrolls and taxable land values," it said.
"In addition, Tasmania faces above average service delivery costs due to above average shares of people in regional areas and above average level of non-Indigenous disadvantage.
"These changes were partly offset by above average growth in the value of property sales."
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