28/02/2012 - 09:10

Analysis: GST winners should have to work smarter

28/02/2012 - 09:10


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A quick way to ruin a business is to penalise successful employees and reward failures, which is what seems to be happening in Australia with the unbalanced re-distribution of the goods and services tax.

Cutting Western Australia’s share of GST to 55 per cent of its entitlement, and planning to slice it even further to a forecast 27 per cent by 2016, is more than unfair treatment by Commonwealth authorities for WA’s economic success; it is a major failure of government policy.

The arguments used to cut WA’s share of GST redistribution include a need to ensure an equal spread of tax revenue across the States, a need to help regions hit by natural disasters, and a need to penalise WA because it has developed a very successful economy thanks to mining and oil projects, and can therefore raise more revenue than other States.

There is a valid point in ensuring that no part of Australia falls into the sort of poverty seen in some U.S. states, and should not be forgotten that it is not that long ago that WA was a classified as a mendicant (beggar) state reliant on Commonwealth hand outs.

Necessity was WA’s mother of invention, with successive governments from the left and right of politics creating a policy environment that encouraged exploration and mineral development.

If it worked in WA why can’t it work in other States?

The simple answer is that it can because there is absolutely no truth in the claim from Victoria, New South Wales and Tasmania that they are not resource rich like WA and Queensland.

States without a big and growing resource sector have simply chosen to not encourage mining, and are now content to live off the hand-outs from States which have.

That point is not simply idle rambling from a sideline critic because on the same day that WA Treasurer, Christian Porter, was lamenting the lost GST revenue a survey was published in Canada on the best and worst jurisdictions for mining.

The Fraser Institute, one of Canada’s top think tanks, has been conducting its world-wide survey since 1997, testing a range of issues which make a country (or its States) attractive to miners, or not.

The end result of assessing government policies, geology, environment laws, land access laws, corruption, tax, infrastructure, political stability, and other factors is a master table called the “policy potential index”.

What that index shows is that WA, Queensland the Northern Territory are the most attractive for miners, but that the other States are also attractive, except for State Government policies.

It was the same last year with the Fraser Institute highlighting comments from mining company executives on a number of Australian States, such as these observations about Victoria:

“Victoria is anti-development, regulation and red tape”, and “Victoria has an entrenched urban political domination with purist environmental attitudes pervading the society and politics”.

There is, of course, nothing wrong with the people of a State rejecting mining as a way of generating wealth and creating jobs.

But, there is an awful lot wrong with those same people then creaming off the tax revenue generated in other States from precisely the industries rejected at home. That’s called hypocrisy.

And, it’s no good claiming that the self-proclaimed “resource poor” states lack the mineral assemblage that exists in resource rich states because at different stages of their development all of the states have led the world in mineral production, Victoria in gold at Bendigo, NSW in silver, lead and zinc at Broken Hill, and Tasmania in copper at Mt Lyell.

There’s is equally no doubt that a many more orebodies remain to be discovered, if explorers were allowed by governments to look.

What Commonwealth authorities ought to be doing is saying to States which are getting an unfair share of WA’s GST revenues is that they have to change policies and encourage the same sort of industries which are making money elsewhere in Australia.

In other words, stop rewarding failure and start praising success – which could come a text-book titled “business management for dummies”, if anyone could be bothered writing a book of that name.

To see how it works, take a look at what’s happening in Europe where “tough love” rules are being forced on Greece, Portugal and other failing countries which have not created a business and job creating environment, preferring instead to exist on hand-outs from rich members of the European Union such as Germany and the Netherlands.

The reason the EU cracked the whip over Greece is that it was in a death spiral, and risked taking the rest of the region with it.

Victoria is not yet in a death spiral, but the seeds of a disaster are being sewn by the continued encouragement with government hand-outs of failing industries which cannot survive in what has become a free-trading, globally competitive world.


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