Opinion
This is the first comment to the Productivity Commission’s inquiry into how GST revenue – about $100 billion a year – is shared among the states and territories.
“WA already pay more GST contributions than all of Australia. We desperately need more GST to fix our critically ill hospital and health system, our schools are crumbling, lacking the funding to fix them and infrastructure including house [sic] is desperately lacking,” the West Australian resident notes.
To quote Luke Skywalker: Impressive. Every word in that sentence was wrong.
By any measure, the largest share of GST comes from NSW consumers. They’ll pay around $32 billion this year (Victorians will pay about $25 billion) compared with the $10 billion or so handed over by West Australians.
The WA state government is expecting a budget surplus of $2.4 billion this year. If the state’s hospital system or schools or infrastructure are crumbling, a government that has been running surpluses for seven years clearly has the cash on hand to deal with these issues.
That it hasn’t is not for want of GST.
When the GST was introduced by John Howard in 2000, all of the revenue raised by the new tax was to be shared by the states and territories. It would be their guaranteed source of funding.
That someone actually believes WA pays more GST than the rest of the country combined, or thinks a state government with huge surpluses is so hard-up for cash it needs even more money, is evidence of some sort of Jedi mind trick.
But it goes to the problems that will flow when the Productivity Commission later this year produces its report into the GST deal put in place by the Morrison government.
The deal followed a collapse in WA’s share of the GST through the 2010s. Even as WA went through a local recession (between 2015 and 2016), its share of the GST fell further and further to less than 30¢ for every dollar of the tax raised within the state.
To assuage angry West Australians (and angry West Australian members of the federal Liberal Party), then treasurer Scott Morrison tasked the Productivity Commission to look at how the GST was allocated.
That report effectively argued the federation was a mess and the nation’s treasurers should sort out the mishmash of payments between states and the Commonwealth (a finding it could make today).
On the day that report was made public, Morrison released his own plan, in which WA would be topped up with cash over several years until it got at least 75 cents for every dollar of GST it raised. It would then change to the system we have this year, where no jurisdiction can get a smaller share of each dollar raised than either NSW or Victoria.
When then treasurer Josh Frydenberg first included the GST deal in the 2019-20 budget, it was expected to cost federal taxpayers $2.3 billion.
The deal assumed iron ore prices – pivotal to WA’s share of GST – would fall.
Instead, iron ore prices stayed high. Under the complex rules of the deal, in which no state or territory can be left worse off, federal taxpayers must now cough up extra cash for the GST pool to be shared across the federation.
Based on current projections, by 2029-30 the total cost of Morrison’s arrangement will have reached almost $60 billion.
Submissions to the Productivity Commission’s inquiry have been made public, and reveal some strange bedfellows.
Eric Abetz, who was part of the Morrison government, is now the treasurer of Tasmania, which has the weakest budget position of any state and territory. He wants the deal revoked, saying it’s terrible for the federal budget and everyone east of the Nullarbor Plain.
Josh Frydenberg’s finance minister (and West Australian), Mathias Cormann, put his head up from his job running the OECD to argue the deal is great. He went so far as to argue that while there may be “legitimate” complaints about the deal’s hit to the federal budget, it was affordable for taxpayers.
This came from a co-author of the 2014 budget that contained funding cuts on everything from dental services to veterans’ disability pensions.
Talk about turning to the fiscal dark side.
Unsurprisingly, Victoria and NSW – both facing extreme budget problems caused by their own spending proclivities (Victoria) or the way the GST is working against them (NSW) – are arguing for change.
Given both Anthony Albanese and Angus Taylor know they need to win seats in WA to form government, the chances of either backing an end to the current deal are remote.
But NSW Treasurer Daniel Mookhey is right in his complaint that the way GST is allocated by the Commonwealth Grants Commission is somewhere between a mystery and conspiracy.
It’s only two years ago that NSW lost $200 million in GST because the geographic definition of the mid-North Coast coastal city of Coffs Harbour changed (even though the home of the Big Banana did not move).
At present, the grants commission’s allocations are year-by-year. Mookhey says that as states and territories have to work on four-year estimates on revenue and spending, it shouldn’t be beyond the wit of the grants commission to also deliver four-year estimates.
But that’s the least of his problems, and the problems created by the current GST deal.
When it was put in place, there were real fears that without change the federation could fracture as West Australians turned their backs on the rest of the nation. Now, the nation’s state and territory governments – Labor and Coalition – are turning their back on the deal and the grants commission process.
Broken, the GST deal is.
Shane Wright is a senior economics correspondent.
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