Loser Victoria Shouldn’t Be A GST Winner

Written by:
15 March 2024
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In this article, John Roskam contextualises and disseminates the IPA’s research into Australia’s economic prosperity.


Any federal government, Labor or Liberal, that’s serious about reforming Commonwealth-state relations would stop rewarding the Victorian government’s disastrous financial mismanagement.


The office sweepstakes for the Melbourne Cup is a tradition in Victoria. There are prizes for those holding the ticket for the horses that come in the top three and a consolation prize for the person whose horse is last over the finishing line. If you’re watching the race and know your horse can’t win, you’ll barrack for it to come last.

The way the Commonwealth Grants Commission allocates GST revenue to the states is not unlike a Melbourne Cup sweep. Except there’s no prize for being the best-run state. The money goes to the losers, not the winners. So it’s no surprise that when the GST distributions were announced this week, Victoria was the big winner.

Described in the local media as a “massive win for the state” and “welcomed” by Premier Jacinta Allan, Victoria received a bigger increase in funding than all the other states combined. Its GST revenue will increase from $18 billion to $22 billion next year.

The commission explained Victoria’s GST distribution increase is “largely driven by its lower capacity to raise mining revenue relative to other states” and an increase in “urban population and urban density”.

That implies Victoria needs more money because of things outside its control – which is untrue. The state’s economic circumstances are the product of deliberate policy decisions by its current Labor government in thrall to the public sector, public sector unions, and the Greens. Victoria actively discourages resource development. With the (shameful) support of the Coalition opposition, Labor changed the state’s constitution to permanently ban fracking for gas.

If Victorian Greens MPs were sincere, they’d tell the Allan government to give back to New South Wales and Queensland residents $1.3 billion of that extra funding. It’s “dirty money”. The commission has calculated that this amount is paid to Victoria because of coal mining royalties collected by New South Wales and Queensland.

Government ministers and bureaucrats in Victoria have no incentive to control the costs of infrastructure projects.

The massive GST handout to Victoria reinforces the 2024 State Economic Scorecard released by the Institute of Public Affairs earlier this week. The scorecard ranks the performance of Australian states on 10 key performance indicators.

The IPA’s research found Victoria is the worst-performing state in the nation. It has the country’s highest tax burden, highest debt burden, and greatest energy price increases. Victoria is also ranked second last in per capita state economic growth, wages growth, retail trade growth, and productivity growth.

Western Australia is ranked as the best-performing state. It might be true that Western Australia’s marginal federal seats have earned the state a preferential share of GST revenue. But it’s also true that its Labor government isn’t engaged in the same sort of financial self-destruction as Victoria. Last year, after an outcry from farmers and miners, Western Australia scrapped the first version of its Aboriginal heritage laws.

The Victorian government claims its record debt levels are necessary to pay for the infrastructure required to accommodate unprecedented rates of immigration into the state. It’s politics as much as demography that’s determining Victoria’s infrastructure agenda.

The Suburban Rail Loop is a 90-kilometre railway line through Melbourne’s (once Liberal-voting) eastern suburbs with their brick veneer homes on quarter-acre blocks. The Victorian government has abolished existing planning laws to allow high-rise apartment buildings, some literally 50 storeys tall, to be built along the route of the line. Melbourne, which once rejoiced in the title, “the world’s most liveable city”, is becoming a town of concrete canyons.

Government ministers and bureaucrats in Victoria have no incentive to control the costs of infrastructure projects. A new 10-kilometre motorway was initially projected to cost $10 billion. The estimate is now $26 billion, potentially making it the world’s most expensive road. (Australia has a history of this sort of record-making. When the Royal Adelaide Hospital opened in 2017, it was reportedly the third most expensive building in the world.)

New South Wales Premier Chris Minns is right. He’s said the current system for distributing GST revenue should be abolished and replaced with a basic per capita allocation and, if necessary, additional payments to smaller states.

Any federal government, Labor or Liberal, that’s serious about reforming Commonwealth-state relations would abolish the Commonwealth Grants Commission and stop rewarding the Victorian government’s disastrous financial mismanagement.

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