Media Release

Better GST Sharing Arrangements In The National Interest

MC 15/15

Senator the Hon. Mathias Cormann
Minister for Finance

12 April 2015

What is happening to WA’s share of the GST now is unfair, not sustainable in a Federation and must be fixed.

The proposition that in a Federation stronger States should support the others so that all have the capacity to provide similar outcomes for their populations is a good and important principle which we must protect and preserve.

It is also important for the national government to make judgements that are in the national interest, having taken all the relevant facts and perspectives into account. A national government cannot and should not just take sides with one or several stronger States against the others.

However, the most recent determination of the Commonwealth Grants Commission about GST sharing arrangements for the next financial year has raised a serious question about balance and fairness.

A fiscal equalisation arrangement which puts any one State into the position where it receives less than 30 per cent of its share of the GST back as a result of fiscal equalisation, with the remainder distributed to other jurisdictions, is unfair and cannot possibly be sustained. 

This is not something which can be addressed through a technical debate about methodology and the mystery of what happens inside the black box that is the Commonwealth Grants Commission. 

This is something that requires a political judgement about what is right and what is wrong.

In the case of Western Australia, not only does its share of the GST continue to fall (below an unprecedented 30 per cent so far and further the following year), its other major revenue stream – iron ore royalties – has started to fall dramatically at the same time. 

Every State and Territory and indeed our country as a whole has benefited from the incredibly strong iron ore production and export driven growth in WA in recent years on the back of unprecedented demand out of China. Indeed the national economic growth effects and the massive increases in revenue from iron ore royalties distributed around the nation, have helped to increase the size of the pie available to be shared around for everyone.

The protestations from some that WA used to be a beneficiary of fiscal equalisation for many years and should stop complaining do not stand up to honest scrutiny either. 

Yes under fiscal equalisation arrangements since 1981, WA has been a beneficiary for 19 years while contributing to others for just 15 years. However, during that whole period, no other State or Territory across Australia has ever experienced its share fall below 81 per cent. That is obviously nowhere near the 'below 30' WA is now confronted with. Nor has any other State had to deal with the double whammy of a massive drop in its major own source revenue, while still dealing with and compounding this unprecedented drop in its share of the GST. 

As a country we can no longer ignore this. This issue needs to be resolved in our national interest. It is squarely an issue for our Federation now. 

All States and Territories and indeed the country as a whole must come together to find a way forward which is nationally fair. In the meantime, and while that work is being done, GST shares should be frozen at this year’s level for everyone. This would mean a GST share of 37.6 per cent for WA instead of just 30 with all other GST relativities for every other jurisdiction remaining exactly the same again next year as this year. 

Importantly, this would still deliver sizeable increases in GST revenue for every other State and Territory this upcoming financial year. Every other State and Territory would be better off next year than this year. Indeed those increases in GST next year would range from about 5 per cent to just above 6 per cent compared to 2014/15, when inflation is currently running at just 1.7 per cent.

In the meantime, it is also true that the WA State government must seriously ramp up its own economic reform effort to help lay the foundations for future growth, including in the non-mining parts of the economy.

By not pursuing important micro-economic reforms, namely the sale of current government assets that are more appropriately run by the private sector, the WA State government is voluntarily leaving billions of dollars in federal incentive payments which it could access on the table for the other States.

The fact the WA State government is not more ambitious and pro-active on this front seemingly comfortable to leave a lot of money on the table for the other States weakens its GST argument. 

For example, it is indefensible that in WA our State Government still owns a TAB business. Every other State and Territory has long disposed of those businesses. There just is no credible public policy argument in favour of State ownership of a TAB. The $1 billion in capital currently tied up in WA’s TAB could and should be so much better deployed by investing it in productive infrastructure to boost future growth and jobs.

The same applies to quite a number of other sizeable State owned assets which would continue to be available and perform (better in private hands) with the capital released from any such sale available for investment in our future infrastructure needs without having to expose the State to more debt. 

In this scenario Western Australia would have immediate access to billions of dollars in federal incentive payments to support such investments through our federal asset recycling initiative.

Right now Western Australia is missing out on that federal money, not because of a system or a methodology which disadvantages WA, but because other States are just faster in taking advantage of that opportunity available to every State on the same terms. There does not seem to be any sense of urgency here in WA to deal with this.

The federal government is committed to keep working with the Barnett government to help ensure WA is the most successful it can be. We have a proud record in pursuing pro-growth, pro-WA policies such as the abolition of the mining tax and the carbon tax, record investments in WA infrastructure like the nearly $1bn into the Perth Freight Link and additional investments into important regional road infrastructure, Free Trade Agreements with China, South Korea and Japan and many other initiatives which will help drive stronger growth here in WA and nationally.

Yes we must work together to sort out the GST sharing arrangements. Not just for WA but for Australia. But the WA State government must also show that it is serious about reform in our own backyard.

This is an opinion piece published in Sunday Times on 12 April 2015.

[ENDS]

Senator the Hon Mathias Cormann, Minister for Finance, Perth