The state with the slowest economy since the turn of the century

The NSW economy is struggling behind the rest of the country while Victoria’s is eclipsed by the sunshine states and a public-service-heavy ACT, according to new figures that reveal the nation’s heavy reliance on health spending and population growth.

As the International Monetary Fund raised concerns about the financial strength of the states and territories, urging more federal government oversight of their debt levels, the Australian Bureau of Statistics confirmed the growing economic importance of Queensland and Western Australia.

In 2024-25, the Queensland economy expanded by 2.2 per cent to be 125 per cent larger than it was at the turn of the century. The Western Australian economy grew by 1.3 per cent to be 150 per cent bigger than in 2000.

Only the ACT outperformed the two, growing 3.5 per cent last financial year, in part due to spending caused by the federal election. In 2000, the Canberran economy was smaller than Tasmania’s, but it is now a third larger, having grown by 156 per cent.

But NSW, the nation’s largest economy, grew by just 0.9 per cent through the year. Victoria grew by 1.1 per cent while every other state and territory expanded by 1 per cent.

Since 2000, the NSW economy has expanded by 65 per cent – the worst performance of the federation. Over the same period, the Victorian economy grew by 90 per cent.

In per capita terms, the West Australian economy contracted by 1.1 per cent, Victoria’s by 0.8 per cent, and NSW went backwards by 0.3 per cent.

Independent economist Saul Eslake said a range of factors were behind NSW’s relative poor performance since the turn of the century.

“Its population growth is slower, it’s got slightly slower productivity growth and there’s been a bigger fall in hours worked compared to other parts of the country,” he said.

Eslake did note that in the past 10 years, NSW had performed better, in part due to the sharp lift in prices for key exports such as coal. By contrast, over the same period, real gross state product per capita in Western Australia had been flat.

“WA’s been wallowing in high commodity prices. It’s really gone nowhere for a decade,” he said.

A drop in mining activity hit both the Queensland and Western Australia economies in 2024-25, while drought hurt South Australia. Strong spending on healthcare underpinned every part of the country, while the financial services sector underpinned NSW and Victoria.

The right-leaning Institute of Public Affairs said the strong performance of the ACT compared to the rest of the country highlighted the nation’s economic woes.

“It goes to show you everything wrong with our key economic settings that the home of the federal public service has grown for the same reason the rest of the country has not: as Canberra grows, the mountain of red tape it creates is smothering the private sector,” said institute research director Morgan Begg.

The states and territories, on track to hold more debt than the federal government by the end of the decade, were highlighted by the IMF in its annual health check of the Australian economy.

It urged the Albanese government to develop a bold tax reform package, including a higher GST and an end to various tax breaks to help pay the cost of much lower company taxes and imposts on working Australians.

The IMF found the Australian economy was gaining momentum, with inflation having “declined significantly”, the jobs market had remained strong, and the private sector was recovering. It predicted GDP growth to lift from 1.8 per cent this year to 2.1 per cent in 2026.

But it said to boost growth, the federal government had to “tackle fiscal and structural challenges”. That should include major tax reform that would improve the budget, enhance the economy’s resilience to global disruption and lift productivity.

It backed an increase in the GST, axing various tax exemptions and reinstating a mining tax, with the revenue used to pay for lower company and income taxes. It also urged the states and territories to replace stamp duties with land taxes and for the federal government to overhaul property investor tax breaks.

“A comprehensive tax reform package could usefully complement these efforts by helping boost economic efficiency, productivity and intergenerational equity,” it said.

“Expenditure reforms should continue to target efficiency in growing cost areas (such as NDIS and aged care) and protect productive infrastructure investment.”

In a sign of the IMF’s concerns about the large debt levels being taken on by most states and territories, the fund said “fiscal co-ordination across the federation” was crucial, particularly in areas such as climate change and tax reform.

It suggested the independent Parliamentary Budget Office be given oversight of state budgets.

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