Thursday, 2 October 2014
Western Australia: Taxation
I rise today to speak about what is probably the most important, yet contentious, issue affecting Western Australia: the GST distribution. While the broader perception is that this is simply a Western Australian issue, the reality is that the current system embeds inefficiency and contains some perverse incentives that, in some instances, actually penalise states for maximising revenue. Having said that, it is a significant disadvantage for a state that contributes 16 per cent of Australia's gross domestic product and 49 per cent of the nation's mercantile exports. The GST distribution is of great importance to me; I spoke about it in my maiden speech, have continued to discuss it with my WA Liberal colleagues and have openly spoken about it in the media. This week, Western Australian Treasurer Dr Mike Nahan visited Canberra to meet with his federal counterparts and discuss how we can address this issue.
But, before I comment on that, I will give a bit of background on how the GST is distributed. GST revenues are distributed amongst the states according to recommendations from the Commonwealth Grants Commission using the principle of horizontal fiscal equalisation. The aim of HFE is to enable each state to provide the same standard of services, providing it makes the same efforts to raise revenues from its own sources. HFE takes into account the different costs faced by state governments in providing services and states' differing capacities to raise their own revenue. The Grants Commission updates its calculation of state grant shares annually, using the latest available data. In addition to annual updates, the commission undertakes a major review of the methodology used to implement fiscal equalisation every five or six years.
This year, WA will receive just 37c for every dollar of GST revenue raised in the state and the state Treasury has previously warned its share could drop to as little as 11c. With iron ore prices sliding to around US$80 per tonne, Western Australia will receive around $1.7 billion less in royalties than was forecast just four months ago. This decline is compounded by the Grants Commission using a three-year rolling average to calculate revenue, meaning that it will take three years for the current revenue collapse to wash through the system.
Last night at a specially organised briefing, the WA Treasurer addressed 26 members and senators, including members from the Liberal Party, the Palmer United Party, the Liberal Democrats and Family First, representing every state except the Tasmanians, who had a long-held prior commitment. While supporting the concept of horizontal fiscal equalisation, Dr Nahan stressed that the current distribution level received by WA is unprecedented, that measures by the state government to raise additional revenue could see us lose over 100 per cent of that additional revenue and that there will be major economic benefits for the nation from reform of the current distribution formula.
As announced previously, the WA Liberal members and senators will form a bloc to advocate for reform. We will be outspoken in our support for a greater GST share for WA and we will go about it through the proper channels. We will put together a joint submission to the upcoming white paper on reform of the federation and the white paper on the reform of Australia's taxation system due in 2015. As I told the Kalgoorlie Miner on 4 September, after my colleague Christian Porter outlined our plan to make a joint submission in the party room:
We are going to stick this course, we're going to make sure the whole world knows what the situation is, how badly WA is being affected by the diminishing returns from the GST.
I am fully aware that, without the support of the Prime Minister, the Treasurer and the majority of coalition members across all states, our proposals, no matter how good they are, will go no further, but we are determined to resolve this issue for the benefit of WA. Do not get me wrong, I know that each state's members and senators are equally parochial for their states as the WA members are. But we do not need to have a divisive debate; we want to try and educate others that the current system is penalising WA in an unprecedented way. It is hampering national economic development by providing distorted incentives to the other states.
I would like to thank Dr Nahan for travelling to Canberra to provide the Western Australian perspective to our eastern states counterparts. Hopefully for the people of WA, this will be an important step forward on the long road to GST reform.