Reform of the tax system will be hard to achieve if the states cannot agree to a restructure of the GST.
Reform of the tax system will be hard to achieve if the states cannot agree to a restructure of the GST.
Colin Barnett wants one basic change from the pending review of the tax system – a better deal for Western Australia when the proceeds of the GST are redistributed to the states.
Any change to the GST will be furiously debated. Will the base be broadened to catch a wider basket of goods? Will the rate of the tax be increased from the present 10 per cent to as much as 15 per cent, or 12.5 per cent, which is Mr Barnett’s preferred move?
But it’s the carving up of the proceeds that will be of most interest to Mr Barnett and this state.
How the debate plays out over the next 12 months will be crucial to the election prospects of both new Prime Minister Malcolm Turnbull and his coalition government, and opposition leader Bill Shorten, whose standing has taken a hit since Tony Abbott was dumped in September.
According to former state Labor treasurer Eric Ripper, however, both Mr Barnett and state opposition leader Mark McGowan will also have to tread carefully to ensure WA emerges with the best possible deal (if changes do actually emerge). They face the voters in March 2017.
Mr Ripper delivered eight surplus budgets as treasurer between 2001 and 2008. They coincided with stellar years in revenue collection, and he presided over the first $2 billion surplus. State debt actually dropped by $900 million on his watch to $3.6 billion in 2008. (It has since ballooned to more than $20 billion.)
But it wasn’t all a bed of roses for the Labor treasurer.
“The big surpluses … became a political liability because people thought we were over-taxing,” Mr Ripper told Political Perspective.
“But we reaped and saved from a boom which was never going to last. We used the surpluses to fund big projects such as the Perth-Mandurah railway, and put money aside for the Fiona Stanley Hospital, instead of borrowing.
“WA should not agree to any GST change unless there is a change in the distribution arrangements. The ideal move would be a shift to a per capita split. But a compromise might be a floor below which WA’s share should not fall.”
It would seem Mr Barnett is singing from the same hymn sheet.
“The GST needs to be allocated according to population. Without reform to the distribution of the GST, I don’t believe there will be any changes,” the premier told ABC Radio.
In addition to lifting the rate, Mr Barnett also wants the base broadened to include fresh food. Education and health bills should continue to be exempt, but “perhaps a bit more narrowly defined rather than the wide application it’s got”.
After a false start at the tax summit in 1985, when then treasurer Paul Keating enthusiastically backed option C, which provided for a 12.5 per cent consumption tax (before Bob Hawke pulled the rug out from under him), Liberal leader John Hewson had another go as part of his comprehensive Fightback package at the 1993 federal election.
Richard Court’s WA Liberals promised to abolish payroll tax in 1994, based on a Hewson victory. But Mr Keating was now prime minister and had changed his tune. He ran one of the great scare campaigns against the tax, with his ‘if you don't understand it don’t vote for it’ message carrying the day.
Then John Howard got on board and took the proposal to the 1998 election, which he won narrowly. So with great flourish, along with a compensation package to ease the transition, a 10 per cent GST was introduced in July 2000.
“The GST will address one of the major structural problems currently facing the federation. It will provide states and territories with a growth tax, that is one that will see revenue increase,” federal Treasury boldly predicted at the time.
That was truly courageous, especially when seen through WA eyes, as the state’s share slumped, helping put this year’s budget into the red for the first time in 15 years, as well as losing the AAA credit rating.
Compounding the problem with the existing GST is changing spending patterns. In 2000, with exemptions taken into account, the GST covered 55 per cent of all consumption. Because Australians are spending more in areas such as health and education, both exempt, this is expected to drop to 42 per cent by the early 2020s.
So much for the growth.
And Mr Ripper had some parting advice.
“I would not rule out a carefully designed GST reform that is part of a broader tax package involving, for example, a review of the current level of concessions for superannuation,” he said.
“But not only should WA demand a fairer distribution formula before agreeing to change, it must also ensure the Commonwealth does not impose conditions on how the money is spent; that autonomy must be retained.”
