WA takes another GST hit

Treasurer Mike Nahan has called on the federal government to test a variation of its state income tax plan in Western Australia, after saying WA was again ripped off in the latest Commonwealth Grants Commission distribution.

He said all the Commonwealth would need to do is vacate 2 percentage points of income tax and give the money directly to the state in place of tied grants.

“Let us do it … test it out here,” Dr Nahan said.

“The benefit to us is we have, on average, 30 per cent higher income tax than the other states, and if it was quarantined from the GST equalisation that would provide us a net benefit of about $800 million.”

Prime Minister Malcolm Turnbull had previously suggested passing a portion of income taxing powers to state governments in return for the aboliton of tied grants.

Such a change would give states more flexibility without lifting the overall tax burden, yet the idea was quickly binned thanks to a lack of support among premiers and chief ministers.

WA was the only state to be pushing in favour of the scheme.

Dr Nahan also called for the abolition of the Grants Commission system, saying he had given up on directly lobbying the bureaucracy to change the GST distribution formula.

A better system would be a per capita allocation, with a pool taken out to assist territories and smaller states, he said.

That sort of distribution would mean WA was in a healthy surplus, rather than the large budget deficit it is currently facing.

The impact of the latest GST should be ameliorated somewhat if federal treasurer Scott Morrison keeps an earlier promise to put an effective floor under WA's GST take, using a direct grant.

The state government will receive about $2 billion from the Commonwealth Grants Commission, meaning its slice of the pie, known as a relativity, is about 30.3 per cent of what it might receive if the GST was allocated on a per capita basis.

Mr Morrison’s floor, as with Joe Hockey before him, will be 37.6 per cent, worth roughly $500 million.

Despite the share being up marginally from 29.9 per cent this financial year, it is below the 34.9 per cent predicted for 2016-17 in the most recent state budget.

By comparison, Queensland will get $1.17 for every dollar of GST it collects and South Australia will get $1.41.

Victoria will get 90.9 cents and NSW 90.4 cents.

Dr Nahan warned that WA's relativity number may take much longer to recover than the state government had originally projected.

One surprising reason was that the Grants Commission was using past numbers to underpin estimates for royalties revenue while using forward predictions for population growth.

“That’s ripping us off in both pockets … it’s a double whammy,” Dr Nahan said.

“It’s been rigged for a long time.”

Vacuuming cash

Under the Grants Commission's latest allocation, the state’s share of national GST collections comes in at just above 3 per cent.

A per capita allocation for WA’s 11 per cent of the national population would be close to $6 billion, so in net terms the state subsidises others by around $4 billion annually through GST alone.

Only the Australian Capital Territory earns a smaller revenue stream from GST grants. Even Tasmania, which has a quarter of WA’s population, fares better.

The Grants Commission defended its GST allocation on the basis that population growth had fallen in WA.

“Western Australia’s assessed fiscal capacity has stabilised with its share of GST revenue in 2016-17 increasing slightly from 3.3 per cent to 3.4 per cent,” the commission said.

“This was the result of two significant but offsetting changes.

"There was a decline in its revenue raising capacity due to a fall in the value of iron ore production and below average growth in property sales, but this was offset by a decline in its share of national population growth that reduced its assessed investment.”