23/05/2014 - 15:03

Backed into a corner on GST

23/05/2014 - 15:03

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Whether state and territory leaders like it or not, federal cuts to education and health put GST reform front and centre.

Backed into a corner on GST
CONDITIONAL: Colin Barnett says his support for GST change hinges on the introduction of a new formula for the tax’s distribution.

Whether state and territory leaders like it or not, federal cuts to education and health put GST reform front and centre.

Slowly but surely, the pressure is growing for changes to the GST; and the consequences for Western Australia will be crucial.

Treasurer Joe Hockey has yet to spell it out the policy details, but his decision to cut more than $80 billion of funding to the states for health and education has the capacity to cut through the huffing and puffing of many on the issue.

The move checks the seemingly inexorable intrusion by both coalition and Labor federal governments into traditional state responsibilities. It also could result in governments that spend the money being responsible for raising it, leading to new levels of accountability.

Not surprisingly three states – Victoria, NSW and Queensland, all of which have elections over the next 12 months – don’t support increasing the GST. That can change.

The GST has applied since 2000 after a compromise between John Howard’s coalition government and the Australian Democrats. It was set as a 10 per cent charge on spending, to replace a host of inefficient taxes, initially including payroll tax, with all revenue earmarked for the states and territories.

By the time the Democrats – who controlled the Senate – had finished with it, the tax applied to a narrower range of goods; and payroll tax remained.

The GST is also distributed to the states on the formula determined by the Commonwealth Grants Commission, which has been to WA’s cost. While royalties revenue has surged, accounting for 22 per cent of the state’s revenue this year, the proportion of the locally collected GST coming back to the state has slumped.

“In fact, if Western Australia received its population share of GST we would receive an additional $3.6 billion in 2014-15 alone,” WA Treasurer Mike Nahan said in his budget speech.

It seems the pendulum is gradually swinging towards agreement for the GST to be distributed on a per-head basis; but that’s not the only change.

Premier Colin Barnett told the Legislative Assembly there could also be a proposal to lift the rate, adding “it will be a small increase, I would think probably from 10 to 12.5 per cent”.

So the ground rules for change are being set – a bigger basket of goods and an increase in the rate.

But one item is non-negotiable.

“Western Australia would be party to any modification of the GST only on the proviso that the distribution be corrected,” the premier said.

The wheels are turning.

TAB sale odds cut

If you like to back a winner it may pay to put your money on the state government deciding to sell the TAB within the next 12 months. The stars are aligning, the odds are beginning to shorten – and the stakes could be as high as $300 million.

The signals coming from the government are a far cry from Mr Barnett’s stance last year when he ruled out privatising the agency.

“ … we won't be selling utilities as has been speculated, so there won’t be a sale of the Water Corporation or Western Power or Verve or the TAB .... “ he told Radio 6PR listeners in September.

The premier noted that the agency was essentially the “means of supporting the racing industry, and it’s a big employer of people”. He added that if the TAB didn’t exist the government would probably be facing “request after request from the racing industry to support track upgrades, all sorts of things”.

But Treasurer Mike Nahan confirmed a new approach in his budget speech. 

“The government’s continuing ownership of the Perth Market Authority, the TAB and the Water Corporation’s assets …will also be reviewed,” he said.

So what has changed? First, Mr Barnett and some ministers have started to question why the government is involved in gambling at all.

That certainly wasn’t a key issue when David Brand’s coalition government opened Perth’s first TAB agency early in 1961. The idea was to regulate gambling in racing and trotting, and siphon off a proportion of the revenue to support the industry.

The agency has grown under successive coalition and Labor governments.

Meanwhile, the proliferation of competing betting outlets has hit the value of one of the government’s prime assets.

The message is clear. The fierce competition for the gambling dollar means the value of the TAB will continue to decline. The longer a decision to sell is delayed, the less the government will get for a prime asset. And safeguards can be built in for the industry.

So the good oil points to it going on the market sooner rather than later. You can bet on that.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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