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19th of July 2018

Economy



GST model aiming to ease concerns of short changing, while not annoying smaller states

The Federal Government wants to adopt a new model for carving up the billions of dollars in GST revenue, but will have to chip in cash to ensure no state is worse off.

Treasurer Scott Morrison will today unveil a proposal for changing the system, after a year-long review by the government's main independent economic advisor, the Productivity Commission.

It will seek to walk the fine line between easing concerns from some states that they have been done over by the current model, and ensuring smaller states do not cry poor.

How does it work?

The proposal works in stages. In the first instance, the Federal Government will top up WA's share of GST revenue after the mining boom wore off.

The next step involves the Commonwealth adding hundreds of millions of dollars to the GST pool, to ensure smaller states do not fall behind as the new calculation model is adopted.

That will begin at $600 million annually from the 2020/21 financial year. From the 2024/25 financial year, another $250 million will be added to that annually. It will cost more than $7 billion.

Mr Morrison said making sure no-one was worse off could be done by "making the pie bigger".

"If we left the pie at the same size, then obviously if there was a slightly smaller slice then people would be worse off, but when you make the pie bigger then obviously that slice is bigger.

"That is the nature of the change," the Treasurer told AM.

Federal Labor leader Bill Shorten questioned where the extra money would come from to top up the payments.

"We'll study the detail but I want to make sure that states are left with certainty so that they don't have to go to Canberra every time they want to fund a school or a hospital," Mr Shorten said.

"The devil is always in the detail. Liberals and GST is always something you have to be very careful about, if they're not trying to change the distribution then they're trying to increase the GST," he said.

Chris Richardson from Deloitte Access Economics said it was worth spending money to "get the federation on a firmer footing".

He said it would be tougher to juggle the federal budget but he "wouldn't worry about that".

"If we have got to spend some money to get a good reform then that is worth doing," he said.

Although he noted while he regarded it as good, it was not big reform.

'Cat-herding at its hardest': Economist says GST proposal fraught with political landmines

The formula will also be tweaked to tie the fortunes of smaller states to that of the largest state, New South Wales or Victoria.

By 2026/27, the changes will be done. And the Government is promising every state will get at least 75 cents for every dollar they contribute.

The Productivity Commission's preferred model would have annoyed most of the states, changing the formula for carving up the cash to one which looks at the average wealth of the states.

Only New South Wales and WA would be better off under that model.

Chris Richardson described it as a "sensible" proposal from the Government, even if it was not adopting the commission's preferred approach.

"But mostly sensible has come with a whole bunch of political landmines in it, and the Government's response is looking to be rather more careful on this front," he told AM.

"This is far from solving the problem, but at least it would address and improve some of the problems that we have.

"This is a pretty solid change, and the first notable change in some time, and it's overdue."

No state worse off, argues Turnbull

Yesterday, the Prime Minister declared his Government had rejected the Productivity Commission's preferred option.

"You will see, as I have said, that no state will be worse off as a result of the reforms," he said.

"In fact, each state will be better off."

Opposition Leader Bill Shorten remained unconvinced, arguing there was no guarantee no state would see a reduction in their share of the revenue over the period.

"All that we expect is that at some point in the future, average Aussies will see a decrease to their hospitals and schools," he said.

He told a community forum in Tasmania, where he is campaigning ahead of the Braddon by-election, that Western Australia had been unfairly treated in the GST carve-up.

But he claimed that was not a situation Tasmania should be relied upon to fix.

The Productivity Commission was specifically tasked to assess the GST formula which is used to determine the share each jurisdiction receives.

The formula — called horizontal fiscal equalisation — is calculated on the basis of how much funding each jurisdiction should receive from the overall pool to deliver services, taking into account their own sources of revenue and spending.

Mr Morrison received the final report in mid-May, and has released it just weeks from the Super Saturday of by-elections in Western Australia, Tasmania, Queensland and South Australia.

A draft report released last October found the current formula needed updating to deal with extreme circumstances.

Pressure for change

The latest announcement on the GST carve-up in April boosted the share of revenue collected by Victoria and Western Australia.

But despite that, WA Treasurer Ben Wyatt attacked the increase as a "slap in the face".

He demanded urgent reform.

Mr Wyatt said he hoped the findings would lead to permanent and fair reform of the GST system.

"I think we're now very close to resolving a long-standing issue — a long-standing thorn — in the relationship between the Commonwealth and State Government," he said.

"We have a solid evidence base — not just WA's complaints — but a solid evidence base through the Productivity Commission that now has a way forward.

"I think the Commonwealth Government recognises that and accepts that and I fully expect now a very productive period of dialogue that will see a good outcome for WA."

Mr Shorten has suggested the Coalition is not running candidates in by-elections in Western Australian seats to avoid a backlash over GST distribution.

A number of Coalition politicians have told the ABC they think the GST debate was a factor in the Government's decision not to run in either WA seat.

One Nation has campaigned on the need for a more "fair and just" distribution, including WA senator Peter Georgiou portraying himself as a gladiator fighting for his home state.

External Link: Peter Georgiou tweet on GST: GST | I will NEVER surrender my ongoing fight for WA’s FAIR share of #GST. #THISISWA #MolonLave #spartans #GST #Auspol #PeterGeorgiou #OneNation" Read More




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