Jane Hume (Victoria, Liberal Party) Share this | Hansard source

It's quite encouraging that we're having this conversation in the Senate in particular today, because the Senate is where states are best represented. I note that Senator Polley is in here batting for Tasmania, and that's exactly what she should be doing as I should be in here batting for Victoria, because that's what I'm here to do. It's understandable. This is the appropriate forum to be having this discussion. However, that said, I do feel that the entire discussion about the Productivity Commission's draft report is only politically motivated. I do note that it is of course Tasmania and South Australia where we're having state elections—they are the noisy states in this particular debate.

I don't think it would come as any surprise to know that fiscal equalisation, as you well know, has been a feature of Commonwealth-state government relations since the early years of Federation. This is nothing new. Under Australia's current approach, the Commonwealth Grants Commission recommends a GST distribution to the states that provides each state with the capacity to provide its citizens with a comparable level of government services—that's what it's here to do. The current system was agreed by all states prior to the introduction to the GST in the year 2000.

In recent years, clearly, views have been put to the government that the current approach to horizontal fiscal equalisation potentially creates disincentives for reform, including reforms that enhance revenue-raising capabilities or that drive efficiencies in spending, and they argue that any gains from reform are effectively redistributed to the other states. So, in commissioning this inquiry by the Productivity Commission, the government has sought an examination of the issues that underlie those particular claims.

It's absolutely vital for Australia's future prosperity that the system that underpins the Commonwealth-state financial relations supports productivity, efficiency and economic growth across the entire country, not just in one or two specific states. Ultimately, it is all Australians that will benefit when the states actively pursue reforms that seek to improve productivity, efficiency and economic growth within their own jurisdictions. It is absolutely critical that all Australians are entirely confident that our GST-sharing arrangements are working. And the recent circumstances that have resulted in one particular state having an extremely low relativity and therefore a low share of the GST revenue have undermined faith in that GST system amongst some Australians, although, interestingly, not those that we heard from today.

That is why in April last year the Turnbull government commissioned the Productivity Commission to review Australia's system of horizontal fiscal equalisation. That particular inquiry was undertaken to find the impact on the national economy of Australia's system of horizontal fiscal equalisation, which underpins the distribution of GST.

Now the report has come back. It is a draft report only; I think that's been said at least two dozen times in the chamber in the last couple of days. The final report is due to be handed down to the government early this year. The Productivity Commission is currently consulting extensively on that particular report. The government is not ruling anything in and it's not ruling anything out. It would be foolish to do so, and the opposition knows exactly that. It would be foolish to do so. This is the normal process with any Productivity Commission report: we let the commission complete its processes and then we will discuss and consult with the relevant state and territory governments, engage with the Productivity Commission and let everyone have their say on the contents of that report.

The findings and recommendations in that report have found that the current system of GST distribution has served us very well indeed during periods when state situations are relatively similar, but it has not been able to deal with the extremes of outlier circumstances in one particular state—in particular those that have occurred recently in WA. We are the only federation in the world that takes equalisation this far and stretches the rubber band to these kinds of extremes. So the Productivity Commission has recommended revising the objective of the horizontal fiscal equalisation program from the same standard to a reasonable standard.

These recommendations are going to be considered before the government makes any recommendations whatsoever. The scare campaign that is coming from the other side of the chamber is entirely due to the upcoming state elections in both Tasmania and South Australia. I thank those opposite for their the advocacy for their states, but I find it disingenuous.