17/04/2015 - 05:38

GST saga part of federation's history

17/04/2015 - 05:38


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Western Australia subsidised federal spending in other states by around $120 billion dollars during the decade to 2012-13, continuing a trend started after Australia abandoned protectionism in the 1980s.

CONTRIBUTION: WA’s net fiscal subsidy has grown to more than $8,000 per capita annually.

Western Australia subsidised federal spending in other states by around $120 billion dollars during the decade to 2012-13, continuing a trend started after Australia abandoned protectionism in the 1980s.

The net fiscal subsidy, which is the difference between the amount raised through federal taxation in WA and federal spending, has grown to be more than $8,000 per capita annually, according to figures calculated by the state’s Department of Treasury.

In 2012-13, the most recent year for which data was available, WA’s net fiscal subsidy to other states was $20.5 billion.

That means an amount equivalent to almost one tenth of the state’s economy was redistributed interstate by the federal government in that financial year.

The figures show that current debate about the Commonwealth Grants Commission’s distribution of GST revenue only tells part of the story, with WA also contributing through company, income, and other taxes.

It also adds weight to the state government’s argument that the state is paying more than its fair share to support states with ailing economies.

Despite some positive years of Grants Commission fiscal equalisation distributions, such grants only form part of the picture, according to the Treasury.

Overall, WA has been a net contributor every year since 1986-87.

At that time, WA’s net subsidy was $228 million annually, unadjusted for inflation.

It has grown since, breaking through the $1 billion mark in 1991-92.

To put that figure in context, federal government receipts were 22.7 per cent of GDP in 1991-92, just less than $96 billion.

A Treasury discussion paper written in 1996-97 noted that the state’s contribution in that year would be the highest of any state, at $2.9 billion.

Fortuitously, that paper warned that WA would continue to be a donor state, but noted that the introduction of the GST, reduction of income taxes and abolition of wholesale sales tax would likely be of some benefit.

In the immediate period following the introduction of the GST, WA received roughly around its population share of distributed grants, known as fiscal equalisation, while continuing to provide an overall subsidy. 

More recently, WA has received a double hit, with the hidden non-GST revenue contribution increasing substantially while the state has also been an increasing donor through the better-known GST mechanism.

From 2007-08, WA’s GST contribution has risen rapidly, from $275 million to $2.2 billion in 2012-13.

The overall subsidy has also risen rapidly in this time, and has been above $10 billion every year since.

According to Treasury, however, that is not the limit of WA’s contribution, with a paper in 2011 filling in the pre-1985 background.

“The historical net Commonwealth support for Western Australia was effectively compensation for Commonwealth policies (particularly tariffs) that penalised primary industry-based (and) export-focused states in the earlier years of federation to the benefit of protected manufacturing sectors of the east,” the report said.

The impact of east-coast-centric protectionism on WA led to the secession referendum of 1933, and the establishment of the Commonwealth Grants Commission, which is at the centre of the renewed GST distribution debate.

The commission’s recently released review of the distribution shows the equalisation figure is set to become more extreme in the coming financial year.

It forecast a transfer of $4.5 billion of GST revenue from the west to other states as WA’s ‘relativity’ falls below 30 per cent.

The relativity figure represents the portion of GST a state earns compared with what it would receive if the distribution were made on a per-capita basis.

South Australia and Tasmania continued to be the big winners in the review’s recommendations, with SA to earn 28.8 per cent more from the grants system than it puts in, while Tasmania would earn 63.5 per cent more.

Queensland is also a beneficiary, to the tune of 7.9 per cent.

Changes were also made to the very complex grants calculation methodology in the report, including to the treatment of iron ore royalties, which would cost the state upwards of $600 million.

WA’s share of the record GST pie was recommended to be $1.9 billion, down from $2.2 billion in the current financial year.


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