States, territories demand share of Commonwealth riches 'in perpetuity'

Treasurer Jim Chalmer has been told by his state and territory counterparts to use his forthcoming mid-year budget update to permanently guarantee that none will be left worse-off under the GST sharing deal struck by the Morrison government with Western Australia in 2018.

In a joint statement, the treasurers said "without permanently honouring the No-Worse-Off Guarantee, the commonwealth will leave most states and territories with a significant decrease in ongoing revenue".

The treasurers said without such a guarantee, the states and territories would collectively be short $4.9 billion a year - equivalent to the salaries of 30,000 nurses or teachers.

In a scarcely-veiled threat, they warned unless there was a permanent top-up arrangement, "the Commonwealth will be fully responsible if state and territories are forced to consider a new tax or levy".

After the meeting, Dr Chalmers backed the 2018 GST sharing deal and said he would "work constructively" with the states and territories on future arrangements.

But, in a sign the states and territories might have a fight on their hands to get more out of the Commonwealth, the treasurer said the cost of the no-worse-off guarantee had increased substantially and any extension of existing arrangements would have "significant fiscal implications" for the federal budget.

"The states and territories have done really well out of the Albanese government and that's a good thing because we want to do the best we can for the people we represent," the Treasurer said.

"[But] , any developments on GST need to recognise the pressure on all our budgets, not just on state budgets."

The demand from the states and territories came as economic forecaster Deloitte Access Economics predicted high commodity prices, strong population growth and low unemployment would deliver a multibillion-dollar boost to the Commonwealth's coffers in coming years, including an extra $21 billion this financial year.

In an analysis likely to fuel demands for more cost-of-living support, Deloitte said the government was on track to report a second consecutive budget surplus.

While Dr Chalmers has talked down the prospects he will unveil a surplus when he releases his mid-year budget update in the second week of December, he has admitted it will show "a really substantial improvement in the bottom line".

Deloitte partner Stephen Smith predicts the budget delivered in May will show a small surplus of $2.4 billion, which would be a $16.3 billion turnaround from the result forecast by Treasury at the last budget.

Mr Smith said the improvement was being driven by the big influx of workers from overseas and the boost they have delivered to income tax revenue, together with commodity prices being much higher than the government had assumed.

He said the "very conservative" commodity price assumptions by Treasury meant even if Chinese demand for Australian exports weakens significantly, export revenue will still comfortably exceed official forecasts.

Even with the stage three tax cuts due to come into effect from mid-2024, personal income tax receipts will be $38.3 billion more over the next four years than Treasury predicts, he said.

The flood of extra revenue will make it harder for Dr Chalmers to resist calls for more cost of living assistance for embattled households, or to fend off state and territory demands for greater support.

The treasurer has tried to lower expectations for more handouts in the mid-year budget, warning "there won't be heaps of new initiatives".

But he has hinted there could be another round of support in May next year, similar to the rent assistance, energy bill rebates and child care support measures detailed in the last budget.

Mr Smith said such support would be important, particularly for low income families, but would need to be offset by savings if the government was to avoid adding to inflation.

The states and territories, meanwhile, are eyeing off the revenue pouring into the Commonwealth's coffers and demanding a share.

"The Commonwealth has plenty of capacity to pay the [no-worse-off] guarantee from company tax receipts," the state and territory treasurers said.

"For every $4 in company tax from iron ore companies in recent years, states would receive $1 in guarantee payments. It seems only fair to share our nation's prosperity."