Wednesday, 21 March 2018
Statements by Senators
Western Australia: Goods and Services Tax
It's not often that senators come to the Australian Senate and begin with a quote from Mao Zedong, so let me be the first. We know that when Mao Zedong remarked that a journey of a thousand miles starts with a single step he was not thinking about the task of getting a better GST distribution deal for Western Australia. But when we pause to reflect on the journey that has been Western Australia's long march towards GST reform, every Western Australian can be proud that those first lonely steps have turned into the thunderous sound of a state demanding reform. So it's important for Western Australians to appreciate how far they have come over the last few years and, more importantly, to stay resolute in their calls for fairness.
It's worth recapping the history. Western Australia's argument for a fairer GST deal has come a very, very long way. It was just over 10 years ago, in 2007, that the perils of the GST distribution system were first identified. It's worth noting that they were first identified by the former Labor state Treasurer, Eric Ripper, who foresaw the GST challenge, accurately predicting that by 2010 Western Australia would receive just 7.5 per cent of the GST and that, if by 2015 there had been, in his words, an eight-year period where WA's growth rate was far ahead of other states, WA would be down to 5.9 per cent of the GST. He also added that the GST would take more than $12 billion out of the state's finances. At the time, WA received nine per cent of the GST, or a relativity of 94c in the dollar. By 2010, WA had dropped to seven per cent, or 68c relativity. By 2015, it was at 4.1 per cent, or 29.9c in every dollar returned to Western Australia. Eric Ripper and officials at WA Treasury had a prophetic ability to see the GST future for my home state of Western Australia.
Almost six years ago, in 2012, I used my first speech in the Senate to call for GST reform, urging the Liberal Party to rise to the challenge. I said that the decline in GST payments to Western Australia was the most damaging national issue for our state and that every Western Australian would feel the pain if the matter were not swiftly addressed. I argued that it was critical that states were rewarded for economic success and that no state or territory was given a free lunch. In hindsight, those days, in 2012, were the glory days, when Western Australia was getting 55c in every GST dollar. Just over three years ago, nine federal WA Liberal backbenchers argued the case for GST distribution reform in a letter to then Treasurer Joe Hockey. The letter said that the issue of GST distribution was the most salient and talked about federal political issue for Western Australians. The letter went on to say that Australia's economic national best interest is well served by an economic reform initiative such as GST distribution reform. At the time, Western Australia received just 37c in every dollar.
As the case was argued in Canberra—often uncomfortably for WA Liberals, I think it's worth adding—Liberal leaders have been graciously recognising WA's pleas for GST reform. Then Prime Minister Tony Abbott said it should be possible to make these arrangements more equitable. The then federal Treasurer Joe Hockey said most Australians would consider it unreasonable that a state would have only 30c of every dollar spent on the GST returned to that state. What followed was a specific acknowledgement of the unique circumstances facing Western Australia as a result of the GST revenue shortfall. First, there was a $499 million road infrastructure package that supported new funds for projects including the Mitchell Freeway extension, widening of parts of the Kwinana Freeway, the NorthLink WA project, and grade separations on the Reid and Roe highways.
When he became the new Treasurer, Scott Morrison conceded that Western Australia did have a case. He has acknowledged that:
What we need is to properly deal with the causes of the problem, not the symptoms.
He more recently has stated that, 'It's in the national interest to fix … the GST' and make sure that it's shared fairly and appropriately between the states and territories. Now the Treasurer can be heard saying that he has 'a lot of sympathy for the absurdity of the outcomes'—and the outcomes he's referring to are the GST distribution system outcomes. In 2016, Prime Minister Malcolm Turnbull used an address to the Liberal Party in Western Australia to publicly acknowledge the unfairness of WA's GST return, saying:
… the huge gap between what Western Australians pay in GST and what they receive back is unprecedented and Western Australians have every right to feel aggrieved.
In 2016, WA received a second infrastructure package to ensure that Western Australia's share of the GST effectively remained at its previous 2014-15 levels. The federal GST top-up payment for Western Australia centred on the $490 million investment in the Forrestfield-Airport Link project and meant more than $1.2 million in federal GST top-up payments had been paid to Western Australia since April 2015. In May last year, Western Australia was the beneficiary of $2.3 billion worth of new infrastructure spending that married road and rail priorities of the new state Labor government with coalition government priorities. This is funding that will bring to life Labor's METRONET and 17 metropolitan and regional road projects. The funding also included a $226 million top-up payment.
There can be no denying that the GST squeaky wheel has got some oil for Western Australia. But extra funding for infrastructure spending and top-up payments—as worthy and important as they are, as a recognition of the genuine plight of Western Australia from a broken GST system—is not GST distribution reform.
The mother of all GST victories thus far has been securing an independent review of horizontal fiscal equalisation by the Productivity Commission. The process has proven to be a critically important one, and, I would argue, a successful one. It's successful because it has demonstrated that the system is broken. Among the almost 60 detailed submissions, the Australian business community, the resources industry and others have called for reform. The Business Council of Australia, supporting the principal of HFE, expressed concern that its implementation had become a barrier to national reform, a barrier to interstate cooperation and a barrier to broad based tax reform. Prominent Australian business identities Michael Chaney and Andrew Forrest have lent their names and their ideas to the cause of reform.
So what do we know from the draft report thus far? We know it has been confirmed that WA's GST has fallen to an unprecedented low and that this new low had been anticipated since 2011, but that, at the time the GST deal was struck in 1999, it was unknown and unforeseen. It has been confirmed that the three-year assessment period and the two-year lag in the system resulting in declining GST relativities coincided with falls in royalty revenues in Western Australia, thereby exacerbating the effects of the economic cycle in WA's state budget. We've also had it confirmed that the potential to lose GST payments could in fact discourage states from pursuing efficiency-enhancing reforms that are in the national interest.
The draft report, with its 17 findings and six draft recommendations, paints a pathway for reform that maintains the principal of horizontal fiscal equalisation for our Commonwealth but adopts improvements to create greater incentives for states to contribute to national economic reform. It's a pathway that is in the national interest, and it meets WA's interests.
It speaks to the single-mindedness and determination of Western Australian Liberals that the idea was subsequently embraced and the inquiry publicly announced on 30 April 2017. The decision to extend the reporting date for the final report to May should in fact be welcomed for a variety of reasons. The most significant reason is that it will allow the Productivity Commission to put its mind more carefully to the issue of how best to transition to a better GST regime—a transition that accommodates the concerns of states like Tasmania, South Australia and others. And in highlighting the importance of the transitional arrangement, the chamber of commerce in Western Australia has been correct to highlight three key principles: the first principle being that of fairness, the second principle being that of pro-growth and the third principle being one of stability.
I will just make this final point, and it's revealed in the response from the Business Council of Australia to the draft report. GST distribution reform is an element—one element—of many elements in the broader case and the broader argument for federal financial reform in Australia. I argue that every state in this country should be given greater financial independence; GST distribution is just one way to achieve that.