Why we’re all dudded by the GST carve up


TOO right, Victoria is being dudded by the distribution of GST revenues. It has been dudded from day one of the GST — thanks to the GST’s creator, a certain Victorian as federal treasurer, indeed. The state has then been dudded every single day since. And it would be dudded even worse by proposed GST “reforms”.


But Victoria is not on its Pat Malone. New South Wales has also always been dudded, from day one and every day since; while in more recent times — thanks to China — Western Australia has been really taken to the GST cleaners.

In a far more important sense, though, every Australian has been dudded by the way the GST has operated and will almost certainly continue to operate: real or even “fiddling” reform is just “too hard”.

So we will continue to see the GST do what it’s always done: reward bad fiscal and economic management by individual states, penalise any successful state, and thereby damage national economic performance, hurting us all.

There is only one sensible reform to the GST. The revenues raised should be distributed back to the states fully and pro-rata to their populations — so in essence each state would broadly get back 100c of every dollar of GST actually paid in, or rather by citizens in, that state.

Any additional money to help the mendicant states, South Australia, Tasmania and Queensland — Queensland, in 2017, are we serious? — and the two territories should come from Canberra in addition to and quite separately from the GST. The seriously corrupting dynamic — and straight, mostly Victorian and NSW, rip-off — has been to include this so-called “horizontal fiscal equalisation” (HFE) into the GST distribution.

So Victoria and NSW, from day one, and WA since the resources boom, got less than 100c in the dollar back, while the other three states and the two territories got much more than 100c in the dollar back.

Perversely, the better you performed, the less and less you got back; while the worse you performed — did anyone mention Tasmania? — the more you got back.

media_cameraFormer federal treasurer Peter Costello quite frankly sold the states (and every Australian) a pup. Picture: Stuart McEvoy

Plus, if you chose to have additional or higher state taxes, you would be deemed to be in better fiscal shape and so your GST money would be cut! And conversely, if a state opted not to tax, it would get more from Canberra.

Then there’s a yet further corrupting dynamic, because it’s not just the GST. The successful states are pouring more of every other tax than just their “share” into Canberra and taking proportionately less back in federal payments like welfare.

While the chronic underperformers — did anyone mention Tasmania and SA? — not only contribute less to the federal pot but take out more of their “share” in all the other federal spending.

In sum and in short, a state that is successful is not only getting whacked again and again on extra tax, with that money being diverted to the loafer states, it’s forced to have its other state taxes higher than they should really be.

That hurts businesses and workers in those states and it means that Australia overall underperforms.

So what do the reforms propose? Just to make the three-state rip-off (NSW, Victoria and WA) slightly less of a rip-off, and on the other side to again only slightly reduce the outrageous handouts to the five beggar states and territories.

Don’t blame the Productivity Commission, which did the analysis. It had to work with the system it — and all the rest of us — were given; and given by one Peter Costello, who quite frankly sold the states (and every Australian) a pup.

The GST was sold on the basis it would finally give the states a “growth tax”. In fact it was an anti-growth tax: the faster you grew, the more you would be penalised.

Yes, making it a fair dinkum state tax would cost Canberra money. It would have to pay the equalisation out of its own, other, tax revenues. Or rather — correction — via a bigger budget deficit.

But it would make both state and federal politics and both the national and individual state economies work better. The bottom line would actually be more tax revenue, both within the states, also through the GST, and in federal personal and business income tax.

Just another reason for Costello to come back, absent a certain other former colleague, to fix the future by fixing the past.

media_cameraFormer Queensland premier Sir Joh Bjelke-Petersen abolished death duties in Queensland in the 1970s.


WAY, way back in the 1970s, when then Queensland premier Joh Bjelke-Petersen abolished death duties in that state, he (very) effectively abolished them in every state.

Now in 2017 much the same is happening with “pesky” bank fees and charges, if a little more slowly. We saw that a few weeks ago when the CBA — mostly — ended its $2 “foreign” ATM charge. The other three big banks followed instantly.

Yesterday Westpac either — belatedly — followed NAB (from 2010) in eliminating fees for personal transactions, or took the dynamic a stage further. Either way, CBA and ANZ will follow.

Apart from the “Joh Bjelke factor” once again working its magic, there are two points to be made.

The money — just like the new bank tax — is not coming out of some secret stash deep in the bank vaults. It will come either from bank borrowers, bank depositors, staff or shareholders — or some combination thereof.

Secondly, we all like to “believe” we can get “competition” from the banks. But we also want them all to offer exactly the same product, at the same price or interest rate, and believe they are “ripping us off” if they don’t.

Plus the simple reality of the market means they inevitably look and operate like Tweedledum and Tweedledee, and their two siblings. Because money is what’s called “fungible”.


Originally published as Why we’re all dudded by the GST carve up

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