Fresh push for changes to 'distorted' GST system

Victoria is heaping renewed pressure on the federal government to change the GST system as the state faces a $1.4 billion budget shortfall.

The Albanese government must make the "no worse off" GST guarantee permanent so states can have financial certainty moving forward, Victorian Treasurer Tim Pallas says.

"The way that the GST is currently being applied is an affront to decency," Mr Pallas told reporters on Tuesday.

"It, quite frankly, is a ridiculous distortion put in place by the previous Morrison government. But put that to one side, the problem exists now and it's a problem for the Albanese government to address."

Mr Pallas and NSW Treasurer Matt Kean last year pushed for a scheduled review of the GST formula by the Commonwealth Grants Commission to be brought forward.

It was knocked back by then federal treasurer Josh Frydenberg, who cited a lack of consensus on out-of-cycle changes among state treasuries.

Under the transition from the old to the new formula, the GST share for states cannot fall below a minimum per person.

The GST floor was set at 70 cents per dollar for 2022/23 and 2023/24, rising to 75 cents per dollar from 2024/25. 

If the floor is activated, payments are made by the federal government outside of a GST pool but are due to end when the 'no worse off' guarantee expires in 2026/27.

Mr Pallas said the grants commission has indicated Victoria will receive a $1.4b top up in 2023/24, based on its recommended GST share of $18.8b.

That, he said, would mean the state could not pay tens of thousands of nurses, teachers and police if the safety net was not in place.

When the change was legislated in 2018, Mr Pallas said Victoria warned the Morrison government the floor price effectively meant other states were subsidising mining-rich Western Australia.

Prime Minister Anthony Albanese assured WA Premier Mark McGowan he would not change distribution of the tax in a letter last year.

Premier Daniel Andrews said he had not spoken to Mr Albanese recently about changes to the GST system but Victoria would keep up the fight for its fair share. 

"You want to do a sweetheart deal for WA, that's fine if that's your choice," he said.

"But you have been compensating us for that and you need to keep compensating us for that. It's just fairness. It's just the right thing to do.

"We will not be worse off so that WA can be better off. We will not stand for that."