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Queensland still wins from GST carve-up but by not as much

The annual process conducted by the Commonwealth Grants Commission came to head today with the carve-up of the $65.8 billion in GST revenue to be collected across Australia in 2018-19.  Referred to as ‘Horizontal Fiscal Equalisation’ the process recognises the concept under Federation that no State should be worse off than the others or expressed alternatively the standard of services across the States should be consistent with one another.

Courtesy of the ‘independent umpire’ Queensland will receive $401 million less (-2.7%) in GST revenue in 2018-19 compared to the previous financial year (2017-18).  However, before we get too alarmed, this is broadly consistent with what the State Government budgeted for and Queensland will still receive $14.4 billion compared to $14.8 billion in 2017-18 and $14 billion in 2016-17.

Furthermore, whilst Queensland's share falls from 23.8% to 22%, our population share is 20% and we will continue to get $1.10 back for every $1 dollar raised here.  That is, our State continues to be a net recipient of the carve-up.

Why Queensland’s share has declined is complicated but in simplest terms our 'need' relative to others has declined both in the areas of revenue and expenditure.  Key reasons cited were:

  • Queensland’s net natural disaster expenses were almost $1.5 billion lower in 2016-17 compared to 2013-14;
  • An increase in the total value of coal production increased Queensland's relative revenue raising capacity.  More specifically, for every 1% change in the coaking coal price we receive $37 million extra in royalties and for every 1% increase in volume we receive an an extra $23 million in royalties.  Based on current coal prices and volumes the State should receive an extra $1 to $2 billion in royalties;
  • Commonwealth payments in road and rail infrastructure payments increased; and
  • Queensland's population grew by less than other States.

In a way we can look at our reduction in GST funding as a good thing as Queensland in effect is less disadvantaged because we are now stronger financially.  Both our expenditure and revenue 'needs' have reduced relative to other States.  

Finally, there was also some confusion with the separate Productivity Commission Review currently underway whose recommendations will only have application in future years and at the earliest 2019-20. Please refer to my earlier blog for what is going on here.

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