An independent report by PwC into the distribution of GST funding has shown that the current ‘no worse off’ guarantee by the Federal Government must be continued beyond 2026-27 otherwise all jurisdictions except for Western Australia would lose billions of GST dollars.
The independent report by PwC was commissioned last year by the SA Government with the public support of the Tasmanian Liberal Government and the Victorian Labor Government.
The ‘base case’ scenario modelled by PwC shows that in 2026-27 without the ‘no worse off’ guarantee, SA would face losing $200 million and NSW losing $1.1 billion whilst WA would gain $4.2 billion.
The PwC ‘base case estimates for 2026-27 if the ‘no worse off’ guarantee didn’t exist are shown below:
Given there will be two Federal elections before 2027 and legislative amendments will be required, it is now imperative for the Federal Government and the Federal Opposition to commit to the permanent extension of the ‘no worse off’ guarantee.
The State Liberal Government’s preferred position has always been that the original GST distribution arrangement should never have been changed as it provided a fair outcome for all jurisdictions.
However, in 2018 the Federal Parliament with the united support of both the Federal Liberal Government and Federal Labor Opposition voted to change the legislation and introduce a new GST distribution deal.
All jurisdictions, including SA, welcomed the inclusion in the legislation of the ‘no worse off’ guarantee albeit it was for the period up to 2026-27.
At the time the reforms were introduced in 2018, the Commonwealth Government forecast that all jurisdictions would be better off as a result of the legislated changes to GST distribution, even without the no-worse off guarantee.
However, PwC (whilst acknowledging the difficulty of predicting economic conditions) reports that there has been a significant difference between the Federal Treasury forecasts in 2018 and what has actually occurred.
PwC reports that without the ‘no worse off’ guarantee, all jurisdictions other than WA would be significantly worse off over this 6-year transition period to 2026-27 under the base case scenario, ranging from $7.6 billion for NSW to $100 million for NT – with SA being worse off by $1.5 billion.
On the other hand, WA would be better off by $26 billion.
The major factor for the increased impacts has been iron ore prices being much higher than Federal Treasury modelling predicted in 2018.
PwC has in its ‘base case’ modelling used a forecast iron ore price of US$91 per tonne from 2022-23. The average price over the last 2 years has been US$130 per tonne.
Federal Treasury has used an estimate of US$55 per tonne in the most recent budget.
In addition to the ‘base case’ scenario, PwC have modelled a high iron ore price scenario of US$130 per tonne and a low iron ore price scenario of US$50 per tonne.
Under the high iron ore price scenario, all jurisdictions other than WA are significantly worse off compared to the base case. It is only under the low iron ore price scenario that SA would be no worse off under the new GST distribution arrangements.
Importantly, PwC estimates under its base assumptions that the potential cost to the Federal Government of the ‘no worse off’ guarantee in 2026-27 is about $3.1 billion which is not significantly different to what the Federal Government has already budgeted for in the last year of the forward estimates of $2.8 billion in 2024-25.
It is obvious that state and territory governments cannot afford to see the potential massive budget hits from 2027-28 onwards if the ‘no worse off’ guarantee is not continued.
The SA Government calls on both the Federal Government and the Federal Opposition to commit to a continuation of the ‘no worse off’ guarantee beyond 2026-27. Irrespective of which Party is the Federal Government, the SA Liberal Government will continue to fight strongly to protect SA’s interests and ensure a fair GST deal continues.
This commitment cannot wait until the results of a Productivity Commission inquiry in 2026.
I have forwarded a copy of the PwC report to my colleagues on the Board of Treasurers urging support for a united position for a continuation of the ‘no worse off’ guarantee.
With the possible exception of WA, I will be surprised if all other jurisdictions didn’t agree to mounting a united campaign on this critical issue.