A struggle to be heard on GST allocation

18/03/2009 - 22:00

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Colin Barnett has a fight on his hands if he wants tax distribution restructured.

IT does seem unfair that Western Australia's share of the GST loot distributed via the Commonwealth Grants Commission is set to fall to just 5.7 per cent by 2011-12.

Given we have a little over 10 per cent of the population, this appears to be inequitable, hence the state government is making a big fuss about it.

Premier Colin Barnett launched a scathing attack on this system two weeks ago, using a Committee for Economic Development of Australia function to raise the issue, claiming it was not sustainable.

In fact, Mr Barnett said the WA public "would not wear it".

Given WA is a signatory to the way the commission distributes funds, Mr Barnett seemed to be suggesting the state would somehow withdraw from that.

Was this a veiled hint at secessionist politics, something that is a perennial favourite among conservative politicians?

Perhaps such pandering to parochialism would work in a downturn, but at the press conference I attended Mr Barnett quickly backed away from such a hint, suggesting it was simply a case that the deal should be renegotiated.

He'd like to see a floor of around 80 cent of the per-capita split put in place.

Good luck.

The system the GST money is distributed under was designed around relatively small grants before the GST came into being earlier this decade.

Suddenly, a system that made only a small amount of difference to states' coffers turned into a major influence.

At that time, WA was struggling with a long-running commodities downturn, which meant its income earning capacity was constrained.

In the formula the Commonwealth Grants Commission uses, that meant WA was a net beneficiary of the distribution on a per-capita basis, as the other states experienced better performance due to stronger economic drivers at the time.

The commission's formula is derived over a five-year period, which meant WA still received more than its per-capita share for most of this decade even though our economic performance picked up strongly.

Due to the rolling nature of this formula, we are now paying the price for that performance.

This may seem very unfair to a new Liberal government trying to make ends meet after inheriting a staggeringly expensive bureaucracy, but that is viewing it in isolation. On a historical basis the change is only compensating the other states for what they lost in preceding years.

It's hard to see the other states agreeing to change this after years of giving WA extra, especially when this sudden drop was forecast years ago and no-one in state government did anything about.

Mr Barnett, of course, does have other options.

He could raise other state taxes, though this is unlikely for a number of reasons.

Alternatively, he could go cap in hand to the federal government and ask for additional funding to supplement his losses.

This is not unprecedented; other states have received such largesse in previous years.

The premier could argue that it's not just a GST issue. Western Australians also pay more in income tax than those in other states. In the 2005-06 tax year we paid $12,244 per taxpayer, roughly 6 per cent more than the average Australian.

That was $11 billion that went straight into federal coffers, with no grants commission formula to redistribute it.

Given we have more taxable income per capita, its highly likely our spending is higher too, so our contribution to the GST is probably above our 10 per cent population base. That makes the drop in grants even more galling.

This is a good argument to put to the federal government. It's politically unpalatable to be seen to be ripping off one population so badly.

Another strong argument in favour of additional funding is that WA is the nation's cash cow. If the federation wants to keep earning money from our GST spend, income tax and, especially, royalties, it ought to do everything in its power to keep the state working smoothly.

Many believe this message is not lost at federal level and that WA is likely to do quite well in infrastructure spending as a result.

But the downside is that, at this stage, Mr Barnett is the lone Liberal premier appealing to a newly anointed Labor prime minister.

His chances of winning over Kevin Rudd are reduced as a result.

The premier has tried to get around that.

"We are working on a range of reform options which we will be discussing with other jurisdictions over coming months and I hope those discussions can be concluded in a spirit of cooperation and bipartisanship," Mr Barnett said hopefully in a recent statement. (Note that last word!)

State Labor treasury spokesman Ben Wyatt has suggested that a bipartisan approach should come from state level, with Mr Barnett taking opposition leader Eric Ripper along to Canberra to help put his case.

This, I imagine, is very unlikely.

Politically, giving your key rival such a strong position would be dangerous, even though Mr Barnett is an odd mix of maverick and traditionalist, a combination that means he might just do something as unusual as take Mr Ripper along for the ride.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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