GST carve-up leaves Qld, WA short-changed

If Australia's GST distributions were fair Queensland would get $1.87bn more this year, Western Australia $2bn more and Victoria $1.5bn less.

That should make Queensland and Western Australia natural allies against a mendicant state like Victoria in the battle against the federal government and the Productivity Commission for a fair share.

So why is Queensland Treasurer David Janetzki apparently siding with Victoria? Let's call the problem "paradigm capture". The federal government uses a definition of fair that would make Marx proud. It takes from those who have and give to those it judges to be in need.

What that means is that as states like Western Australia and Queensland make better use of their economic advantages, they lose more and more to states like Victoria that just won't try.

The state government appears to have accepted that definition of fair without thinking of better alternatives. That leads to them also accepting that WA is the problem.

But surely fair is distributing the GST exactly in proportion to either the population of each state, or in proportion to where it is generated, which are close to the same thing.

Queensland has a desperate need to raise more income. Labor bequeathed this government escalating debt and out of control spending. Premier David Crisafulli promised not to raise taxes and not to slash spending. So growth is the only way out of this mess.

On this count WA shows the way. Last financial year estimates put WA's budget surplus at +$3.5bn while Queensland's is estimated to be -$8.8bn. WA's net debt is 7.1 per cent of gross state product, while Queensland's is 15.8 per cent and forecast to increase to around 22.5 per cent in 2029-30.

That's a lot of mining, but good luck Queensland using mining to climb out of the hole. As our Treasurer points out, under present arrangements, if Queensland increases its royalty take from gas by $1bn, we will lose $800m in GST distributions. We get $200m worth of return for $1bn of effort.

Victoria, by contrast, will be $500m better off. What makes Victoria such a deserving recipient of Queensland charity? It is hard to tell.

Victoria collected about $5660 in state taxes for every resident in 2024-25, compared with about $4480 in Queensland, 26 per cent more per person. Yet the Grants Commission assesses Victoria's capacity to raise tax as below average. The state that was the wealthiest in Australia in the early 20th century on the back of gold now refuses to exploit its ample resources. It demands that Queensland divert its gas from profitable exports to keep Victorians warm while their gas remains in the ground.

The Grants Commission's justification is curious. It says that Victoria needs extra money because of an above-average fall in the average value of land transfers and strong population growth (increasing its) need for urban transport investment.

It also noted that Victoria was previously receiving higher GST distributions because of the cost to it of Covid-19. But Victoria actually takes more from land taxes than Queensland. Land tax rates are more than twice as high, and transfer duties per real estate transaction are 53 per cent higher. Looks like high taxes might have crippled Victoria's property market giving its government less income. Not our fault.

The population justification is also hard to fathom. Both states are essentially growing at the same rate, yet the commission's transport assessment adds about $522m to Victoria's GST needs while subtracting about $707m from Queensland's.

How could that be when Queensland is eight times the size of Victoria and the population significantly less concentrated? Wouldn't transport costs be higher here?

Perhaps the most telling example is Covid-19. Victoria previously received extra GST because its Covid-19 expenses were above average. Those expenses have only now dropped out of the calculation.

In other words, one state's costly policy mistakes can become everybody else's fiscal problem.

In fact, the statistics suggest that Victoria has been chronically mismanaged for decades. In 1990 Victoria produced 26.9 per cent of Australia's output with 25.6 per cent of its population, while Queensland produced just 15.2 per cent with 17.1 per cent of the population.

Today Victoria has 25.6 per cent of the population but produces only 22.7 per cent of output, while Queensland has 20.5 per cent of the population and produces 19.3 per cent.

Australia was designed as a federation, as some of the most successful economies in the world, like the USA, Canada, Switzerland and Germany, were. Competition between states drives innovation, productivity and income growth. What the GST system is doing is penalising the most successful and rewarding the failures.

A Labor minister describes competition between the states as a race to the bottom when in fact it is a race to the top. Queensland needs to break the paradigm and team up with WA. Queensland's finances are in a hole, but so are the country's. We won't fix either by repeatedly doing the same old failed things.