NSW Share on GST is Fair
Austrlian Financial Review
29th September 2005

One could be excused for thinking that your editorial writer's continued criticism of the Grants Commission system of distributing GST revenues between states reflects the Sydney-orientation of the Review (Grants Commission needs shake up now, 26 Sept). The latest outburst certainly suggests some sensitivity about the fact that NSW does not receive back from the Commonwealth the full amount of GST collected in the state.

On this occasion the alleged problem is that NSW may receive a smaller share of GST revenue because its relative capacity to earn mining royalties has increased. But Tasmanians, we are also told, deserve the same level of services as everyone else. And, if Tasmanians do, presumably the same applies with respect to other states too.

That is precisely the point of the existing distribution system, which is designed to allow each State to have average service levels without imposing higher tax rates than in other states. Thus, if a State's (relative) revenue raising capacity increases, it obviously needs a smaller share of GST revenue to provide average service levels. Or, should the NSW Government be allowed to avoid the need to reform its taxes by receiving an unchanged share of GST revenues as well as higher mining royalties?

It is relevant that, if all government services were provided by the Commonwealth, it would almost certainly seek to provide services at a broadly equal level across Australia and would impose taxes at the same rate (as it generally does now). Accordingly, the present system of distributing GST revenues produces a situation similar to what would occur if there were no States.