14/04/2011 - 00:00

Mendicant no more, GST showdown ahead

14/04/2011 - 00:00

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Julia Gillard may have neutralised the GST as an issue during her recent visit west, but there’s still plenty of manoeuvring ahead on that front.

Mendicant no more, GST showdown ahead

MENDICANT is such a pejorative term, especially when brought into the state rights battle over the split of the GST.

Premier Colin Barnett used the term to describe Western Australia’s recent past when the state was on the positive side of the GST split, taking more than its “fair” share per capita than other jurisdictions.

It is generally said that WA was a mendicant state for much of the history of the federation, long before the GST was created a decade ago. That view holds that WA is only just starting to pay its way due to the mining boom and ought not complain about having to pay a little extra as some form of debt of gratitude to the long-suffering citizens of other states.

Such an argument has been tossed at me a few times so, with the GST argument arcing up again, I thought I’d check on a bit of that history. What becomes clear looking at the records is that WA has been a net recipient of special payments and Commonwealth grants for most of the period of federation – there is simply no doubt about that.

But what even a scant search of the available material shows is that there were very good reasons why WA was paid more than other states; because then, as now, we are a sparsely populated export-focused region and that made us different from the rest of the nation, because most of the other states were inwardly focused protectionist colonies.

The other states, with bigger populations, had larger manufacturing bases than WA and used tariffs to protect that industry.

Under federation, those tariffs affected WA, which didn’t manufacture as much and was used to importing its goods without such taxes. To compensate WA for the cost of tariffs (without the economic or political benefits) the other states agreed to pay additional sums each year. In the era of the Great Depression this protectionism became even more pronounced and cost us even more dearly as an export-orientated state; so much so that this drain on the state’s economic freedom contributed to the secession movement, which in turn provided momentum for the Commonwealth Grants Commission to be created.

The commission still exists today and administers the GST money. I have also heard that the Commonwealth’s decision to regulate the price of gold also hurt WA as a big producer of the precious metal from which it earned ad valorem-based royalties.

Again the actions of the majority of the states hurt WA, so they chose to compensate us. This is not a state needing a prop up, it is simply the rest of the country making up for what were – as history shows – silly economic decisions.

Again, in the 1980s and 1990s, WA’s receipts from Commonwealth Grants and Special Purposes Payments surged because of the royalties revenue that came from the North West Shelf. As part of the deal struck with the Commonwealth to develop the NWS, a significant proportion of the royalties were repaid back to WA. That is because the state took all the risk on the project by agreeing to a take-or-pay gas contract that made the gas profitable from the start and underwrote the development of the Dampier-to-Bunbury Natural Gas Pipeline.

WA and the nation were both rewarded, but it was the state that took the risk. Hardly the actions of a mendicant in the way the term is usually applied.

Even when the GST was introduced, WA was not receiving more grants per capita than most other states. At that time its contribution per person in terms of income tax and company tax was the second highest in the country.

I would expect those key measures would be the same today and those taxes go directly to Commonwealth coffers. It cannot be forgotten that, even when WA has been a net recipient of GST dollars, it is because some elements of the formula for grants allow for WA’s vast distances and remote communities, which are inherently more expensive to service.

This is different from the view rightly expressed by Victorian Treasurer Kim Wells in a letter to his federal counterpart Wayne Swan that the GST doesn’t promote reform but instead rewards mediocrity. I have previously pointed out that the grants system encourages states to game the system by increasing taxes.

The Victorians also point out that more expensive government is also rewarded, not the WA version due in part to long distances and remote communities, but simply inefficient bureaucracy.

What an appalling system. Those with higher taxes and costly services get more Commonwealth dollars. That was what Mr Barnett was pointing out when he took a swipe at Tasmania for being Australia’s national park.

If ever there was a mendicant state, it’s Tasmania.

There is some irony, though, in Mr Barnett choosing the apple isle for his attack. For much of the past 100 years Tasmania was, like WA, a major recipient of Commonwealth grants and funding because it too was an exporter with little in the way of manufacturing.

However, somewhere in the past 50 years the two states’ economies diverged.

Just as WA was emerging as a minerals province, Tasmania’s crown as the world’s apple export force was being removed as Britain shut its doors to such primary produce as part of its efforts to join the European Common Market, the economic pre-cursor to the European Union.

While WA moved from being an agricultural state exporting wool and wheat, to a minerals and energy province of global importance, Tassie ripped up its apple orchards and made do with forestry and tourism.

While it is not endowed with the natural resources of WA, it has also had imposed on it by the Commonwealth deliberate restrictions on the development of industry, energy and timber in favour of parks.

The Franklin River dam was stopped by the Commonwealth, the Gunns pulp mill has been held up by the Commonwealth, and logging has also been restricted, in part, by the Commonwealth.

So it is probably unfair to blame Tasmania for being a mendicant when its choices have been limited by its membership of the federation.

• markpownall@wabn.com.au

 

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