18/12/2012 - 09:08

Analysis: Buswell's admirable tax stand

18/12/2012 - 09:08


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Troy Buswell might have made a few bad personal decisions in recent years but he is absolutely correct in refusing to surrender control of Western Australia’s ability to apply mining royalties to Canberra.

The stand taken by the state’s treasurer, in defiance of demands from his national counterpart, Wayne Swan, is being portrayed as a point of political difference but it is actually far more important than that.

At the core of the dispute is a fresh attempt to reduce WA to the status of a “cash cow” with wealth created here being re-directed to low-growth parts of the country.

In theory, and in terms of achieving balanced growth across the country, that sounds fair to some people, but in reality it’s not because some of the low-growth parts of Australia have deliberately chosen to be low growth.

Tasmania is the classic example of self-inflicted low growth. South Australia and Victoria are not far behind.

What those south-east states have done is adopt policies which make it difficult to develop mining resources, preferring to leave the dirty work to WA, Queensland and Northern Territory, and then say that those are the “resource rich” parts of the country and should share that wealth.

The claim, that parts of the country are resource rich and other parts are not, is false. The reality is that some states have chosen to encourage resource development, others have chosen to prevent it.

The end result is an appalling example of hypocrisy with the states that are sitting on their resources demanding a share of the spoils that they simply do not deserve because they have refused to encourage their own mining industries.

If there was a level playing field of uniform resource development laws the argument for a uniform tax and royalty system might be valid.

Such a situation does not exist so the solution hatched in Canberra is to apply higher taxes in states actively encouraging their mining and oil industries where a better solution would be to actively encourage the low growth states to open their economies to more growth.

In a way what’s happening with Australian tax policy, including this latest spat over royalties, is a variation of the Golden Goose fable.

WA and Queensland are playing the role of the goose, laying golden eggs which will ultimately create wealth that flows throughout the country, while Canberra hatches a plan to kill the goose in the name of sharing a single meal with envious states.

The same approach can be seen in the division of revenue raised by the Goods and Services Tax. While the original plan was for the states to keep the GST raised in their borders the reality is that fast-growing states such as WA receive a shrinking portion in the name of helping slow-growing states.

If Australia was a business run in the same way that successful multi-division companies such as Wesfarmers are run the decisions being made in Canberra today would be the reverse of what’s actually happening.

At Wesfarmers, divisions that perform strongly are encouraged to do more, receiving a greater allocation of capital to deliver more growth. Sluggish divisions are whipped into shape, management changed, and new policies enforced.

The Canberra approach is a recipe for slower growth because it taxes success and hands a reward to states which do not do enough to help themselves.

That’s why Buswell’s stand on maintaining WA’s ability to apply mining royalties as it sees fit is so important.

Having been taken for a ride on GST distribution it is critical for WA’s finances that it retain control of royalties, raising them internally and reinvesting them internally to achieve more growth and greater job creation which will create lasting benefits for the country.


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