Following on from yesterday’s post

The state government of New South Wales is outraged at the federal government’s plan to reduce its share of the GST pie.

Falling iron ore prices have led to a financial meltdown in Western Australia (previously one of the nation’s fastest growing states). Treasurer Hockey called the financial forces conspiring against Western Australia as a ‘perfect storm’ of lower tax revenue from the free falling iron ore prices.

He then went on to back a recommendation from the Commonwealth Grants Commission (CGC) to cut Western Australia’s GST revenue.

The collection of GST from the states effectively allows the federal government to play Robin Hood by taking from the wealthier states to prop up other less affluent ones.

In the past Western Australia has paid more than it received because of the stunning economic growth and wealth it created from the iron ore mining boom.

But with the boom now well and truly over, Western Australia is crying poor and demanding a greater slice of the GST Pie.

The CGC recommendation was for was GST collection to fall from 37 to 30 cents in the dollar – or less, depending upon the severity of their tax loss.

“I think most Australians would consider it unreasonable that a state would have a situation where only 30 cents of every dollar spent on the GST by its citizens are sent back to that state,” said Mr Hockey.

The federal government is expected to collect $57.2 billion in GST revenue from the states in 2015/16. This will be a $3.5 billion jump from the previous year.

Under the current arrangement the Northern Territory will receive $5.57 for every $1 that is collected, while Western Australia will receive 30 cents for every dollar.

The major beneficiaries are expected to be: NSW – $17.3 billion, Victoria – $12.8 billion, and Queensland – $13 billion.

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