The planned overhaul of the GST distribution system may not be perfect, but it's a pragmatic and creative response all states and territories should be able to accept, Western Australian Treasurer Ben Wyatt said today.
The planned overhaul of the GST distribution system may not be perfect, but it's a pragmatic and creative response all states and territories should be able to accept, Western Australian Treasurer Ben Wyatt said today.
“It’s not everything the state government wanted but I think what we’ve got here is something that can be achieved,” Mr Wyatt told journalists.
He was responding to federal government plans to restructure the GST distribution, including a $5.2 billion top-up over coming years to ensure every state is better off.
The federal plan includes a new ‘floor’ of 70 cents in the dollar from 2022-23, rising to 75 cents from 2024-25.
By contrast, WA got back just 30 cents in every dollar of GST paid by Western Australians at the height of the mining boom.
Under the new system, states and territories would be brought into line with the financial performance of either NSW or Victoria (whichever is higher), rather than the strongest-performing jurisdiction (currently WA) under the existing system.
This would even out the impact of extreme events, such as mining booms.
The proposal will leave WA $3.3 billion better off by 2026-27 - and after adding $1.4 billion of top-ups already committed to WA over the next two years, the state will be $4.7 billion better off.
Unlike the current top-ups, the future top-ups won't be tied to specific projects.
Mr Wyatt said the top-ups were a fundamental part of the package.
“To get the buy-in we're looking for, you couldn't have a scenario where one state is particularly worse off," Mr Wyatt told reporters in Perth on Thursday.
"This is a creative and pragmatic proposal.
"This is a genuine GST reform."
The plan does not include the key Productivity Commission recommendation of bringing all jurisdictions in line with the average performing state, rather than the best performing.
That would have given WA an extra $7 billion but wouldn't have been tolerated nationwide, Mr Wyatt said.
Federal Treasurer Scott Morrison will ask a meeting of the nation's treasurers in September to approve the plan.
Mr Morrison doesn't need their approval, but locking the plan down in a permanent intergovernmental agreement will provide more certainty when the federal government changes.
Mr Wyatt said he hoped the plan would receive bipartisan support after being reviewed by federal Labor.
Commentary from around the country has left him cautiously hopeful, although it has been a fractious issue.
WA senator and federal finance minister, Mathias Cormann, agreed it was a good compromise.
"The initial response right across the country, on a non-partisan basis, has been positive, open-minded and people have been prepared to work through the detail," Senator Cormann said.
Federal Attorney-General Christian Porter, also from WA, joined Senator Cormann in selling the new plan.
"It's an enduring resolution - we've actually managed to solve the most difficult problem in federal-state financial relations probably in 100 years," Mr Porter said.
Mr Wyatt isn't making plans to spend the money, saying only that debt-laden WA will have to borrow less and accordingly pay lower interest.
State opposition leader Mike Nahan said the Turnbull government was to be congratulated, and insisted state and federal members of the WA Liberal Party should take the credit.
“It has been a long and at times lonely fight and many of those now claiming these reforms as their victory, including the McGowan government and the Chamber of Commerce and Industry of WA, at best were spectators along the way and at their worst worked to undermine the process," Dr Nahan said.
“It is now incumbent on the McGowan government to demand Bill Shorten and federal Labor support these changes."
Business groups were united in their support for the plan.
Chamber of Commerce and Industry of WA chief economist Rick Newnham said the reforms transcended the zero-sum game of GST reform, ensuring that every state and territory received a greater amount of GST while structurally improving the system.
“CCI’s principles for any proposed change to the GST system are that it must be fair for all states, it must be pro-growth and it must be durable over the long term. This proposal ticks all three boxes,” Mr Newnham said.
“Although the federal government has not adopted the ambitious model of equalising to the average, as recommended by the Productivity Commission and proposed by CCI, the federal government’s approach meets the national interest test for change.”
The Chamber of Minerals and Energy of WA applauded the federal government’s plan to improve ‘horizontal fiscal equalisation’.
Incoming chief executive Paul Everingham said CME had always maintained fiscal policy should reward productivity and economic growth, but this did not occur under the current policy.
“The existing HFE policy provides no incentive for people to move to areas of economic growth or for governments to enact policies to attract investment and encourage growth,” he said.
“Although the report confirmed the HFE system functions well, it has resulted in perverse outcomes when there is a significant impact to the economy.
“For example, the mining boom experienced in WA saw the state’s GST redistribution share drop to a record low 30 cents in the dollar where no other state has dropped below 80 cents in the dollar."
In a similar vein, Rio Tinto managing director, Australia, Joanne Farrell welcomed the proposed reform.
"In particular the changes to Western Australia’s GST distribution represent a positive outcome for the mining sector," Ms Farrell said.
"The fairer distribution will encourage industry growth and development, support Australia’s economic competitiveness and stimulate growth opportunities.“
