He said that while infrastructure spending by the states could increase economic capacity over time, the scale of budgeted capital spending will drive a significant increase in debt until 2023, averaging $45 billion every year.

"The tight spending disciplines, which states have achieved in recent years, particularly in Western Australia, will be difficult to maintain. Additional debt funding might be required if states do not meet their low expenditure budget targets."

"Average fiscal deficits are rising due to high capital spending, increasing

their vulnerability to further widening."

Moody's said the shrinking GST pool would affect the smaller economies of Tasmania, the Northern Territory and South Australia more because they are heavily reliant on Commonwealth transfers as a percentage of budgetary revenue.

The GST collections have been lower due to slower consumption in a weaker economy.

But S &P Global analyst Anthony Walker said the states were well-placed.

"In our view, Australian states have sound financial positions and are well-placed to withstand recent write-downs of property-related revenue and goods and services taxation (GST), and higher infrastructure spending.

"Tax reforms, strong population growth, low unemployment and interest rates, and record state infrastructure spending indicate that economic growth will continue to support Australian states' fiscal outcomes for the next few years.


"An extremely predictable and supportive institutional framework and a wealthy and robust economy support states' credit quality."

GST reform has started to build some momentum again, with former South Australian premier Jay Weatherill arguing in The Australian Financial Review that instead of increased GST payments, the states should receive a fixed share of Commonwealth personal income tax.

Property prices and turnover have been an area of concern for state revenue collection. However, S &P pointed out that property prices had started to improve again.

"The outlook for the property market is better than the past two years when Sydney and Melbourne property prices fell by more than 10 per cent from their peaks. In the third quarter of 2019, prices have stabilised and have begun slowly rising," Mr Walker said.