An unexpected hit from the national GST carve-up will make a forecast NSW budget surplus a miracle as the state's treasurer rules out new taxes or service cuts to make up the shortfall.
The annual allocation of the $89 billion GST pool, released by the Commonwealth Grants Commission on Tuesday, shows NSW will suffer its largest ever single-year cut to its share since the tax was introduced.
NSW will be $1.65 billion worse off after the commission cut the state's share of GST from 92.4 per cent to 86.7 per cent.
The figure is based on the state's GST payments decreasing by $310 million in the next financial year, contradicting forecast projections NSW would receive a higher share.
NSW Treasurer Daniel Mookhey said the state was being robbed of money so other states could be bailed out.
"This decision makes it virtually impossible for NSW to return to surplus," he told reporters in Sydney on Tuesday.
"It will take a miracle."
A half-year review delivered by the treasury predicted NSW was on track to deliver a $400 million surplus in 2024-25, followed by further surpluses in 2025-26 and 2026-27.
Mr Mookhey said the cut would also pile more pressure on the state's triple-A credit rating.
Despite the $1.65 billion loss, the treasurer said there would be no immediate cuts to services or plans to increase taxes.
"There's not going to be any sudden jerk movements when it comes to service delivery in NSW," he said.
"We are going to calmly and methodically work our way through this decision."
The federal government distributes revenue from the GST tax take to help state governments provide their residents with comparable services.
The commission advises how the revenue should be shared, assuming each state makes a similar effort to raise revenue from taxes and royalties.
According to the commission's report, NSW's share will fall as the state has a greater capacity to raise taxes from property and receives a boost from coal royalties that puts it in a stronger budget position to provide services.
Mr Mookhey hit back at the justification for reducing GST per person in NSW.
He said an increase in property taxes was absurd considering NSW was "the epicentre of a national housing crisis".
"They would like us to increase coal royalties further, even though last year this government delivered the first substantial modernisation of coal royalties since the late 2000s," he said.
Mr Mookhey said the forecast was based on the same modelling used by previous governments, and the same methodology applied for the past five years.
Queensland also fared poorly in the GST distribution carve-up, losing $469 million of its total revenue.
Victoria has come out on top, with the state to receive a $3.7 billion increase in its GST distribution because of its reduced capacity to raise mining revenue relative to other states as well as data revisions as its urban population and urban density increased.
Western Australia's GST distribution will increase by $6.2 billion.
