Progress may be slow at first, but federal tax reform will be high on the Abbott government’s agenda.
Progress may be slow at first, but federal tax reform will be high on the Abbott government's agenda.
The election of a Tony Abbott-led coalition government could just pave the way for the reform in Commonwealth-state financial relations Colin Barnett has been seeking, and eventually ease the pressure on finances in Western Australia.
The key is the promised review of the taxation system, which was part of the Liberals’ election platform. And that review, unlike the previous exercise under the first Rudd government, will include consideration of the goods and services tax.
Incoming treasurer Joe Hockey had to put the GST in the mix because of his criticism of its omission from the Labor review.
‘How can you reassess the taxation system when you exclude one of its key components?’ was the thrust of his attacks.
Labor treasurer Wayne Swan put the GST to one side in the review chaired by then Treasury head, Ken Henry, to avoid scaring the horses. He didn’t want to give the Liberals any more ammunition than necessary to run a scare campaign along the lines that the review was just a cover to pave the way for an increase in the GST.
So when Mr Hockey foreshadowed the Liberals’ new examination of the tax system, he included the GST with the assurance that it would not be increased, certainly not in a coalition government’s first term. That was to keep critics from Labor and the Greens at bay.
So how does this help Mr Barnett and WA?
It’s certainly no secret that the proportion of the GST revenue being returned to WA will continue to decline. That’s a result of the Commonwealth Grants Commission formula, which provides for the money being distributed to help ensure that all Australians get roughly equal access to services, regardless of where they live.
Mr Barnett acknowledges that WA, with its strong economy thanks to the resources sector, has an obligation to assist those states with lagging growth rates.
But this position gets minimal acknowledgment from those with an east coast mindset – including some here in the west – as well as when the premier floats the case for a new approach to the distribution of the money.
The critics say that, up until recently, WA was a beneficiary of the formula, and was subsidised by stronger states. Now that the boot’s on the other foot – thanks to the China boom – Sandgropers should be prepared to pitch in to help the weaker states.
There’s no mention of the Barnett proposal – supported by Labor’s Mark McGowan – for a ‘floor’ in the level to which the reimbursement might drop. Eighty per cent, for example, has been suggested.
So how might WA benefit from the pending taxation review?
What is apparent is that several taxes aren’t doing the job. The two controversial taxes from the Labor years –the MRRT and the carbon tax – are earmarked to go, contradicting the old political maxim of never dumping a tax your opponents have introduced.
So there will be a shortfall in Commonwealth revenue, and there have been suggestions the GST has not turned out to be the growth tax envisaged when introduced in 2000. Then when Australians started keeping their hands in their pockets after the GFC, growth in spending tailed off, with a consequent impact on the total collected from the GST. This won’t go unnoticed.
Remember also that the GST was originally set to be 15 per cent. But then treasurer Peter Costello had to cut it to 10 per cent – and remove fresh food and other items from the taxable basket – to get the key votes of the Democrats senators to pass the legislation.
Now with all states keen for extra revenue, and the realisation that the GST is not the evil tax it was painted out to be, some tinkering starts to look attractive.
More attractive to Western Australians than the introduction of tollways, perhaps, as was suggested by Mr Hockey in a flash of political ‘brilliance’ during a visit to Perth last year.
An increase in the GST collection, and distribution, could also ease the pressure on Commonwealth payments to the states. That’s always an attractive proposition to a federal treasurer, let alone Mr Hockey, who will be feeling his way until delivering his first crucial budget next May.
A former Labor premier suggested Australians could wear a GST increase of 2.5 per cent, taking the new rate to 12.5 per cent, with safeguards to help genuine hardship cases. Then, with the agreement of the states, a base reimbursement rate could be introduced such that no state actually loses money from the deal. And a new floor for reimbursements –perhaps 80 per cent – could be included for states like WA.
It’s not that hard.
