One budget chart shows Scott Morrison's huge problem with funding for state governments

Scott Morrison in Canberra last night. Photo: Getty Images

One chart in the federal budget shows why prime minister Malcolm Turnbull and treasurer Scott Morrison were so keen to float the idea of letting the states raise more revenue from personal income taxes.

Budget Paper No. 3 looks at how much money the Commonwealth hands over to the states, and chart 1.1 shows that over the last three years, that figure has grown like a parent subsidising a live-in teenager who’s now an adult.

The budget papers say (emphasis added):

The States are estimated to receive Commonwealth payments of $116.5 billion in 2016‑17 for specific purposes and general revenue assistance. This represents an $8.4 billion increase compared to 2015‑16.

Total payments to the States from 2015‑16 to 2018‑19 have increased by $10.6 billion since the Mid‑Year Economic and Fiscal Outlook 2015‑16. Total payments to the States as a proportion of Commonwealth expenditure are estimated to be 25.9 per cent in 2016‑17.

The charge below shows the astonishing increase in state government reliance on federal funds. Yes, that includes the GST, but as the budget papers point out:

The GST entitlement to the States is projected to increase by over $3 billion in each year over the forward estimates. The Government has introduced measures impacting GST which include applying GST to low value goods imported by consumers and tobacco excise measures to improve health outcomes and combat illicit tobacco.

Measures have increased the GST entitlement by $700 million over the forward estimates period.

Nearly half the cash the states will spend next year, 47.4%, comes from the federal government, a 1.7% increase on this financial year.

Source: Budget Paper No. 3

ANZ economist Cherelle Murphy told Business Insider the figures did not bode well for future federal governments.

“It’s a reflection of vertical fiscal imbalance. As long as the states expenses (i.e. health and education) grow faster than their revenue, they will need to propped up more and more by the Commonwealth,” she said.

Murphy points to those two key pressure points, health and education, as a critical issue for the Commonwealth over the next decade as state revenues decline, especially in the biggest two, NSW and Victoria, which have been riding property booms via a massive boost in stamp duty income.

No wonder Morrison and Turnbull are pushing the states to find alternative revenue sources and “live within their means”. Increasingly, they’re eating the Commonwealth out of house and home.

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