NSW half-yearly budget review reveals $11b plunge in NSW's GST

NSW will suffer the biggest cut in GST funding ever next financial year as other states with weaker economies get a larger slice of the consumption tax.

GST revenue flowing into the NSW coffers will plunge by almost $1 billion in 2016-17, the biggest annual fall in GST funding for any state since the controversial tax was introduced 16 years ago.

Treasurer Gladys Berejiklian announces half yearly budget forecast at the Four Seasons Hotel in Sydney.  Photo: Ben Rushton

That comes on top of a GST write-down of $220 million this financial year compared with the budget forecasts in June.

State Treasurer Gladys Berejiklian said NSW taxpayers are "victims of our own success" when it comes to the distribution of the GST and predicted the shortfall to grow over the next four years.

"We are going to receive $11 billion less over the forward estimates than what we would have under the formula," she said.

The state's half yearly budget review, released on Tuesday, predicted a dramatic fall in NSW's share of the GST by 2019-20. In that year NSW consumers are forecast to be taxed $23.7 billion in GST but the state government will receive just $17.8 billion in return.

"This is by far the most any state has given to the other states in the history of the GST," the review said.

The GST is carved up between the states using a complicated formula administered by a Federal government agency called the Commonwealth Grants Commission. The aim of the formula is to ensure all states have an equivalent capacity to deliver services. 

The strength of the NSW economy means tax collections here are relatively strong and, as a result, the state's share of the GST will be reduced.

The GST distribution system has been attacked recently, especially by the Western Australian government, which suffered a massive drop in GST during the mining boom. The method for carving up the GST has long been criticised for rewarding poor economic management at the state level.

The budget report says that by 2019-20 NSW will get back $5.9 billion less in GST than is raised within the state. If GST revenues were returned to the state it was raised in, NSW would receive an extra $17.8 billion over four years. If GST revenues were split on a per capita basis - as the NSW government argues for - the State would have an extra $13.5 billion revenue over the next four years.

The budget review blames declining GST revenue for reducing the value of future budget surpluses in NSW. This financial year a surplus of $4 billion is forecast but by 2019-20 the figure will be $893 million.

"Smaller surpluses are expected in 2018-19 and 2019-20, primarily as a result of revenue growth softening as New South Wales' share of GST declines," the budget review said.