Stuck in traffic? At least it means Victoria gets more GST revenue

Melbourne is more congested than the federal government previously thought – but the good news is Victoria will get an extra $700 million next financial year from the GST carve-up just to specifically help with transport projects.

Under the latest Commonwealth Grants Commission ruling, Victoria is expected to get back about 97¢ of GST revenue for every $1 it pays in 2024-25, up from just 85¢ this year.

Congestion: Traffic in Hoddle Street, East Melbourne during peak hour.Credit: Eddie Jim

That means Victoria will claim $22.23 billion, up from $18.54 billion this financial year.

The $3.7 billion financial boost for the Allan government just weeks out from the May 7 state budget mainly reflects a recognition by the grants commission that, unlike other resource-rich jurisdictions, Victoria has not been reaping the benefits of soaring coal and iron ore prices.

Victoria collects a meagre $48 per person in mining royalties compared to a national average of $1379.

But the commission also revealed on Tuesday it had been forced to lift its estimates of Melbourne’s urban density after getting results from the 2021 census. The higher urban density, it said, had boosted the state’s GST share by $702 million in 2024-25 because of the extra transport spending needed to help tackle it.

Victoria has long complained it is being dudded under the complicated formula used by the commission to divvy up Australia’s GST pool, which is expected to hit $89.5 billion next financial year.

Western Australia, in particular, is billions of dollars better off because of a convoluted deal brokered by Scott Morrison as treasurer in 2018 (and continued by the Albanese government), under which the resource-rich state gets handed a guaranteed minimum.

Victoria’s financial position has been stretched in recent years, with the state government increasing its borrowing to finance its busy infrastructure agenda and insulate the economy during the pandemic.

According to state Treasury’s latest financial update, the budget is expected to be in deficit by about $1 billion next year before returning to surplus in 2025-26. Net debt is expected to hit $177.8 billion by mid-2027, leaving an annual interest bill of about $8.8 billion.

Premier Jacinta Allan has welcomed the GST windfall but says Victoria should still be getting more.Credit: Justin McManus

But RMIT Emeritus Professor David Hayward said the $3.7 billion GST windfall meant Victoria’s budget would likely be back in surplus in 2024-25, a year earlier than expected.

“With interest rates on a downward path, there may be other bits of good news coming in the form of lower interest on debt and also higher stamp duties from increased housing market activity,” Hayward said.

The grants commission also added $227 million because of “below average” growth in taxable property sales. This, it said, resulted in a fall in Victoria’s revenue-raising capacity compared to other states.

Premier Jacinta Allan said she was pleased the commission had recognised the “previous inequity” in the GST allocation. But she said Victoria would continue to fight for a fairer funding arrangement.

Victoria has been particularly agitated about the special GST arrangements lavished on Western Australia, which has the strongest state finances in the nation but is considered a key political battleground.

Under that arrangement, Western Australia will next year get a minimum 75¢ back for every $1 of GST. To offset the loss of revenue, other states will be provided with $5.2 billion worth of top-up payments as part of a “no worse-off” guarantee. For Victoria, the problem is the “no worse-off” guarantee is set to expire in mid-2027, leaving the state potentially facing a large funding shortfall.

“We’ve gone it alone for far too long,” Allan said.

“So this is a really serious matter, which is why we will continue to push for the no worse-off guarantee to be made permanent because that’s only fair for Victorians, because this is money that goes towards services, goes towards teachers in our schools and nurses in our hospitals and investments in the sort of infrastructure that our growing communities need.”

Shadow treasurer Brad Rowswell said the state government had no excuses and called on it to rule out higher taxes in the May 7 budget.

“Labor should not be making a bad situation worse by continuing to raise taxes on Victorians in the midst of a cost-of-living crisis,” Rowswell said.

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