NSW Treasurer Urges Permanent Protective Guarantee to Prevent Fiscal Fallout

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The looming termination of a guarantee originating in Morrison’s tenure, established to protect each state from being financially disadvantaged, may culminate in the resurgence of ill-conceived taxes and jeopardize indispensable services. This caution was quietly embedded within the inaugural budget presented by NSW Treasurer, Daniel Mookhey, wherein he urges his federal counterparts to instate the protection provided by the no-worse-off guarantee as a permanent fixture.

The fiscal blueprint highlights that the expiry of the assurance in 2027-28 could severely impact NSW’s progressive budget estimates, marking its first intervention in the subsequent budget. The discontinuation of this security measure could imperil crucial services and necessitate the reestablishment of ineffective taxation mechanisms. With such detrimental consequences looming, it appears implausible that the protective guarantee should be discontinued, especially given the Australian government’s commitment to the provision of essential services.

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In a bid to appease Western Australia in 2018, the Morrison administration adjusted the GST distribution, and, as of 2021-22, established a minimum of 70 cents per GST dollar, projected to increase to 75 cents per dollar by 2024-25. Any state that found itself receiving less funding under this new scheme compared to the pre-existing formula was compensated with a financial supplement during the transition period.

Over the forthcoming two fiscal years, NSW is slated to receive an estimated $3.8bn in no-worse-off payments. In a budget paper published on Tuesday, the impending cessation of these payments was identified as potentially calamitous. The allocated funds are deemed essential, as they are calculated to underwrite the employment costs of more than 8000 nurses or teachers. Mookhey asserted to the press that the state could ill afford the loss of the services of a single healthcare provider, much less that of 8000.

Urging candid and collaborative action, Mookhey expressed the state’s desire to work cohesively with Canberra to sustain the guarantee. NSW now joins an expanding list of Labor-led states applying pressure on the government to implement early measures and effect amendments to the GST system. Earlier this year in March, Victoria’s Treasurer Tim Pallas requested the formalizing of the funding supplement as a permanent fixture to sustain budgetary stability, followed by Queensland’s Cameron Dick in June, who expressed the sentiment of a missed opportunity by the former Prime Minister in failing to legitimize the guarantee.

In response, Anthony Albanese commented that the guarantee’s expiry is still in the distant future, while the Prime Minister, in a media address at Coffs Harbour, acknowledged the anticipated array of proposals from state governments. A treasurer spokesperson reassured that the federal government maintains solid and consistent dedication to the arrangements implemented by the previous administration and remains cognizant of the extensive structural strains on budgets at all governmental levels. These nuances would need to be factored into any potential review of ongoing GST arrangements, as noted in a recent statement.

There are plans for the Productivity Commission to conduct a comprehensive review of the GST formula upon conclusion of 2026. The spokesperson conveyed the Treasurer’s plans to maintain open and detailed discourse with the states during this interim period.