How to solve a problem like the GST

relativities-and-gst-per-capita-data.jpg

Posted

June 04, 2017 06:33:19

An interesting exchange during an otherwise ordinary afternoon of Senate estimates this week highlighted just what a challenge the Federal Government faces, if it attempts to reshape the GST.

Tasmanian Labor senator, Helen Polley, was quizzing the bureaucrats responsible for carving up the billions of dollars in GST revenue collected each year.

She directed this question at the Special Minister of State, Scott Ryan:

“Is there any way that the Federal Government can guarantee that Tasmanians and South Australians won’t be any worse off through any changes that this review [into the GST carve-up] may bring down?” she asked.

The question was taken on notice. But the answer is, obviously, no.

After years of noisy complaints from Western Australia that it is being dudded in the Federal Government’s allocation of GST revenue, Treasurer Scott Morrison has tasked the Productivity Commission to review how it is decided.

But as one senior bureaucrat observed during the estimates hearing, it is a “zero-sum” game — meaning if one state is to win, another has to lose.

What is WA so riled up about anyway?

The gripe of Western Australia can best be summed up in one number: 34.

Thirty-four cents in every dollar of GST paid by Western Australia in 2017-18 will be returned to them.

NSW and Victoria will receive 88 cents and 93 cents respectively, while all other states and territories will receive more GST than what they pay.

To further illustrate the divide — WA receives $878 in GST per capita.

In the neighbouring Northern Territory, that figure is $11,881.

And in the relatively wealthy ACT, it is $3,046.

The challenge of ‘equalisation’

If it is any consolation to WA, the money is being carved up with the best of intentions.

The Commonwealth Grants Commission (CGC) is tasked with deciding who gets what, guided by a principle called “horizontal fiscal equalisation” (HFE).

That basically means levelling the playing field — using GST funds to allow state governments to provide an equal level of service, considering their capacity to generate their own income.

Resource-rich WA is seen as having plenty of capacity to create revenue through mining royalties, while Tasmania and the NT are considered in need of something of a leg-up.

Even considering the challenges WA faces in delivering services to a small population scattered over vast distances, the CGC considers WA the strongest state financially.

A system ‘stressed’, but ‘fair’

It is undoubtedly a complex system, with all sorts of quirks and unusual considerations.

During Senate estimates this week, WA senators lined up to hear the CGC explain how it comes to its conclusions, particularly why WA is doing so much of the heavy lifting.

They were grilled on why Tasmania is considered somewhat remote — the answer being that its “remoteness” is measured by its proximity to Melbourne, as it has no cities of more the 250,000 people.

Also why gambling revenue is not factored into its considerations — replying that it is, but the wide variety of gambling policies nationwide make measuring what “normal” revenue should look like quite difficult.

Asked if they considered the system “fair”, they replied that they were public servants and could not really comment — but they thought their work met the principles of horizontal fiscal equalisation.

Secretary Michael Willcock did however concede they were conscious of WA’s feelings on the matter.

“I think it is generally recognised that WA does not like the CGC’s recommendations,” he said.

What to change — if anything

As mentioned above, change is in the air when it comes to the GST.

The Government has commissioned a review into the HFE mechanisms, responding to years of campaigning from WA politicians.

And standing beside WA Premier Mark McGowan on Friday, Opposition leader Bill Shorten said “there’s no doubt that West Australia is not getting its fair share from the Commonwealth”.

But change is never easy.

The HFE principle has been around much longer than the GST, used as the guiding model in doling out federal funding for decades.

It has been agreed to by all states and territories on a number of different occasions since the GST was introduced in 2000, and a 2012 review recommended no radical changes.

Some argue that WA should simply have done more with the spoils of the mining boom while it was at its peak, and should not look to a bigger slice of the GST pie to lift its bottom line.

Tasmanian Premier Will Hodgman has already indicated he has zero appetite for reform — a view he will reiterate when Hobart hosts COAG this week.

The Productivity Commission will deliver its draft report in October, and final report next January.

It is eagerly anticipated by those who think they are getting a raw deal, but it could present some tricky political challenges.

Any suggestion of a dramatic shake-up will produce winners and losers, and howls of protest are already being heard.

When it comes to handing out the GST billions, former prime minister Paul Keating’s warnings about state premiers and buckets of money seems sound.

Topics:

government-and-politics,

federal-government,

business-economics-and-finance,

australia



Source by [author_name]

Related posts