The Albanese government is under pressure to improve the way the GST is split between states after the latest carve-up will leave NSW with $1.5 billion less than Victoria from the national pool, despite having about 1.5 million more people.
The independent Commonwealth Grants Commission, which oversees how the $103 billion GST pot is allocated, said each state and territory will receive more GST in 2026-27 than the previous year due to forecast growth in overall GST revenue.
Western Australia is a big winner from the latest distribution; its share of GST will rise from 8.3 per cent to 9.1 per cent, even though it is the strongest state financially.
Queensland will receive the largest dollar increase in GST distribution of $1.7 billion.
But NSW will see its share of the GST fall to only 25.5 per cent of the national pool, despite the state having about 31 per cent of the Australian population. The commission said one reason for the decreased share was “above-average growth in land values” in NSW, which meant it has the capacity to raise more land tax revenue relative to other states. NSW also spent less on natural disaster relief than it had previously estimated.
Victoria’s share of GST fell slightly, but it will still receive $1.5 billion more in 2026-27 than the previous year.
Victoria’s allocation for the coming year ($27.9 billion) will be about $1.7 billion more than NSW ($26.2 billion), despite its lower population.
The GST is the biggest single source of revenue for state governments, meaning the Commonwealth’s distribution of the tax has a major bearing on state budget balances.
The Commonwealth Grants Commission uses a complex method to determine how the GST pool should be divided between the states. It aims to ensure all states have an equal capacity to provide services to their populations. Small states traditionally receive more GST per head of population than larger states.
However, economists have criticised the commission’s GST distribution method for being overly complicated and lacking in transparency.
A deal struck by the Morrison government to protect Western Australia’s share of GST, which had plummeted due to soaring iron ore prices in the 2010s, has also drawn fire from budget experts.
That overhaul in 2019 significantly changed how the GST was divided and required the introduction of a “no worse off” provision for the states, which has cost federal taxpayers tens of billions.
Matt Wade is a senior economics writer at The Sydney Morning Herald.Connect via X or email.
