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Pressure is growing on the federal government to act on the egregious Western Australian tax grab that has bilked federal taxpayers for so many years.
The Herald’s senior economics correspondent, Shane Wright, reports exclusively that the Productivity Commission is expected next week to release its much-anticipated interim report into the 2018 “no worse off” guarantee that pumped money into WA coffers at the expense of other Commonwealth members, just in time for a joint meeting of state, territory and federal treasurers.
The commission believes the deal is on track to cost the budget almost $60 billion by the end of the decade, while doing little to encourage states and territories to embrace reforms that would improve tax systems and boost productivity. Originally it was slated to cost federal taxpayers $2.3 billion.
The report is certainly going to put the cat among the pigeons: all states and territories, except Western Australia, want to dump or dramatically change the GST deal.
It was not supposed to be like this. When John Howard unveiled a GST as the centrepiece of his September 1998 election policy speech, he promised it would balance fairness and incentive, and guarantee that growing levels of revenue would flow to all states. But after a collapse in its share of GST, following a domestic recession in the mid-2010s, Western Australia pressed the Turnbull and Morrison governments for an overhaul of the GST allocation system.
The west overspent during the previous resources boom, even though it knew how the GST formula worked. Yet the resulting bipartisan deal between the Coalition and Labor did not even recognise that basing WA’s bailout on an erroneous guess about falling iron ore prices would sit uncomfortably against the return of rocketing iron ore prices, a financial reality made more ridiculous by the west blithely running budget surpluses while other eastern states faced deep budget deficits.
The introduction of the “no worse off” guarantee, to ensure no state or territory had its share reduced, turned balance and fairness into a risible memory. The deal assumed a life of its own as politicians on both sides failed to stop the rot for fearing of losing seats.
Little wonder that, in the face of such gruesome inequity, the states are pushing their own barrows: NSW wants the GST to be shared on an equal per-capita basis, with top-ups by the federal government to the financially weaker NT and South Australia. Queensland wants to corral iron ore and coal royalties from GST calculations.
The commission started its inquiry into GST distribution in 2023 and has until year’s end to complete its full review of the 2018 deal, focusing on whether it is operating “efficiently, effectively and as intended” and its impact on state and federal finances.
Long before the commission started to consider the deal it was evident it was an absolute disaster for pretty much everyone except WA. The time has come for somebody to actually do something about it. Federal taxpayers should no longer be paying top dollar to a resource-rich state where the streets are paved with gold.
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