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walib gst review

The Case for Real Reform of the GST Distribution

28 June 2017

There is a long and tortuous history to financial arrangements between the Commonwealth and the States. It is a history of arguments between the different levels of government and a constant bickering amongst the States.

Not surprisingly, local politics has impinged on what should be a professional and objective task of allocating financial resources. And while blame may be directed at the States, it is equally true that the Commonwealth has been content to use disagreements amongst the States as an excuse for the lack of genuine reform.

The Productivity Commission Inquiry into Horizontal Fiscal Equalisation is welcome on the presumption it will raise the level of debate on what is a serious issue both for the States and also for the national economy.

So far, most of the public debate has been on the issue of fairness between the States. The Inquiry expands the debate to matters of efficiency and economic growth. While that is welcome, it should be recognised that the equity considerations will remain at the forefront of public and political debate, just as they have been since federation.

For Western Australia the situation is acute with the share of the Goods and Service Tax (GST) revenue falling to a low point of just 30 cents in the dollar and currently being 34 cents in the dollar, while all other States receive somewhere in the range of 89 cents to 181 cents in the dollar. (The Northern Territory is an extreme case, receiving 557 cents in the dollar). The previous lowest relativity for any State was Victoria at 84 cents in the dollar in1994/95.

For Western Australia the simple reality is that with the current share of GST revenue there is no circumstance under which a budget surplus can be achieved without substantial reductions to Government services both in terms of quantity and quality. Therefore, there is no circumstance under which state debt will not continue to rise.