News & Events

Inch by inch the battle for the GST is being won

Senator Dean Smith

 

American novelist Louis L’ Amour famously said, “Victory is won not in miles but in inches. Win a little now, hold your ground, and later, win a little more.”

Yesterday’s release of the 2018/2019 GST relativities for each State and Territory brings a modest improvement for WA in its battle for a fairer share of GST.

The decision by the Commonwealth Grants Commission (CGC) to raise WA’s GST relativity from 34 cents to 47 cents is welcome but still falls seriously short of a system built on fairness and one that will propel the future economic prosperity of WA families and businesses.

While some argue WA has received a “windfall” it’s worth noting that no other State or Territory has ever had their GST relativity fall below 85 cents, except for WA which bottomed at 30 cents in 2015/2016.

As a result of yesterday’s decision the Northern Territory remains the most generously compensated receiving $4.26; followed by Tasmania, South Australia, ACT and Queensland all receiving $1.77, $1.48, $1.18 and $1.10 respectively.

While New South Wales has fallen from 88 cents to 86 cents it will still receive over $18 billion or 27.4% of the total GST pool; Victoria has risen from 93 cents to 99 cents and will receive $16.8 billion or 25.6%. 

As a result of rising 13 cents to 47 cents WA will receive an additional $999 million, taking our total to $3.3 billion or just 4.9% of the total GST pool.

In defending their decision, the CGC believes WA remains the State with the “strongest” fiscal capacity but has acknowledged that it is “declining” as a result of a fall in the value of iron ore production and below average growth in property sales and taxable payrolls.

While the latest GST relativity will cause further financial pain for WA there is good reason for cautious optimism.

The first is that the draft report of the Productivity Commission’s independent inquiry into the GST formulae has clearly identified a broken and unfair GST distribution system.

It went so far as to say “the system is beyond comprehension by the public, and poorly understood by most within the government, lending itself to a myriad of myths and confused accountability”.

The draft report also confirmed what many Western Australians have long known. The loss of GST payments discourages other States from pursuing productive fiscal and economic reforms and that refinements to horizontal fiscal equalisation will deliver financial and social benefits to the broader Australian community.

The final report, which is due next month, is expected to reinforce these points and propose a clear pathway for GST reform that serves both WA’s and the national economic interests.

The second cause for optimism is Treasurer Scott Morrison’s prudent Budget stewardship.

It’s been reported the Federal Government could deliver a surprise budget surplus well ahead of the previously predicted 2021 financial year. Figures released by the Department of Finance last month showed a narrowing of the deficit by $8 billion as a result of improvements in commodity prices and corporate tax intake coupled with a sharply reduced welfare burden from record employment figures.

This improved financial position could give Malcolm Turnbull and Scott Morrison the flexibility to properly address WA’s GST short-fall by returning WA to an effective GST relativity of up to 80 cents over the short to medium term.

Following yesterday’s announcement, it would take an extra $1.94 billion to raise WA’s relativity to 75 cents and a further $346 million to get to 80 cents.

And finally is the strength of WA Liberal voices around the Cabinet table. Whilst WA’s Federal Liberal presence in Canberra has never been stronger, the reality is unless there is a credible GST solution before the next Federal election Bill Shorten will be gifted the keys to The Lodge.

The prospects of a Liberal-led correction to WA’s unfair GST distribution have never looked stronger.

 

Opinion piece by Senator Dean Smith, as seen in The West 6/4/18.