This article is more than 2 years old

This article is more than 2 years old

Malcolm Turnbull has rejected a key recommendation of the Productivity Commission’s review into the carve-up of GST revenue.

In a long-anticipated review, the Productivity Commission proposed a radical overhaul of the goods and services tax that would send billions of extra dollars flowing to New South Wales and Western Australia while leaving every other state worse off.

The Turnbull government was planning to release the report on Thursday, along with a response to its recommendations. But the report’s key recommendation was leaked on Wednesday, prompting Turnbull to publicly reject it.

Malcolm Turnbull makes GST pledge: no state will be worse off Read more

“We will set out a model tomorrow where no state will be worse off and indeed every state will be better off,” Turnbull told reporters in South Australia.

The Productivity Commission has proposed overhauling the GST by transitioning to a model that uses an average figure as the basis of the GST carve-up, rather than using the fiscally strongest state as the benchmark.

The treasurer, Scott Morrison, initiated the review of the GST in April last year following repeated complaints from Western Australia’s government that the system was treating WA unfairly.

The former Liberal government in WA campaigned heavily on the fall in the state’s GST share. It blamed the poor state of its budget on the “unfair” federal GST carve-up in the lead-up to last year’s WA election (which it lost).

Last year the Productivity Commission acknowledged that the GST’s redistributive model was based on an “undeliverable ideal”. It said the system should stop trying to lift the fiscal capacity of all states to the same level as the strongest state.

It said the system should only be used to lift the fiscal capacity of all states to the average of all states, “with the remaining GST distributed on a per capita basis”.

Under its new proposal – according to leaked information – a four-year transition to its new model would leave NSW $12.6bn better off by 2026-27, and WA $10.6bn better off.

Queensland would be $11.7bn worse off. Victoria (-$5bn), South Australia (-$3.9bn), Tasmania (-$1.2bn), the Australian Capital Territory (-$978m), and the Northern Territory (-$539m) would all lose out.

If it took eight years to transition to the new model NSW would $8.9bn better off by 2026-27, and WA would be $7bn better off.

Queensland (-$8.2bn), Victoria (-$3.1bn), South Australia (-$2.7bn), Tasmania (-$814m), the Australian Capital Territory (-$689m), and the Northern Territory (-$376m), would all be worse off.

But Turnbull said the government would not implement a model that left any state worse off.

“To be quite clear, the recommendation that the Productivity Commission made, that in the formula states’ share of the GST should be equalised to the average, we have rejected,” he said on Wednesday. “You will see that no state will be worse off as result of [our] reforms, in fact each state will be better off.”

The government will release its formal response to the recommendations on Thursday.

NSW calls GST carve-up 'perverse and unfair' following treasurers' meeting Read more

The shadow treasurer, Chris Bowen, said Labor, which has announced a funding package for Western Australia after it complained of a shortfall in GST revenue, would also ensure no state or territory was worse off.



“We have recognised the legitimate grievances of Western Australia and the virtue of our policy is we can say the same thing in Perth as we say in Brisbane or Bundaberg,” Bowen said. “We have said we will top up WA’s GST payments with payments from the commonwealth.”

Australian Associated Press contributed to this report