Payout a temporary but fair GST fix

6/5/2015

If media reports are correct, this week we’ll see the foreshadowed announcement of an upfront payment of $600 million from the Federal Government to WA to make up for the reduction to its GST payments.

The one-off payment will effectively compensate WA for two years of a reduced GST and maintain its share at 38 cents in the dollar.

This announcement is the result of months and months of hard work by WA members and senators – starting when this issue was raised in the party room last September and quite frankly wasn’t well received by the Federal Treasurer Joe Hockey.

Now we see that the Treasurer, and the Prime Minister, have come to accept that this is a big problem.

Mr Hockey told the ABC, "Clearly it is unfair to have one state receiving less than one third of the GST paid by its citizens. It's unfair, it's unsustainable actually.”

No state has ever received less than 80 per cent of their GST revenue. In 2007, WA received 100 per cent of every GST dollar raised in WA.

At last month’s Council of Australian Governments (COAG) meeting the issue of GST distribution was raised by Premier Colin Barnett and the Prime Minister. Their opinions were vocally dismissed by the other states’ Premiers.

They strongly rejected any reform of the formula and even jointly signed an open letter published in The Australian. 

South Australian Treasurer Tom Koutsantonis argued WA has spent wildly, assuming the mining royalties would flow forever and said, "GST distribution shouldn't be seen as a magic pudding for when a state is unwilling to deal with its own budget challenges”.

The main issue here is under the current formula there is a three year rolling average for assessing revenue. That means WA is being assessed on the revenue earned in 2012, 2013 and 2014, the years where the iron ore price was at some of the highest levels ever.

Today, the iron ore royalties have dried up and revenues are much lower. With iron ore at under $US60 a tonne it equates to a loss of $1.7 billion in revenue to the WA Government.

The $600 million payment effectively puts a floor at the current level of WA’s GST, 37.8c.

I find it astounding WA only receives 38 cents for every dollar of GST collected in the state and absolutely incomprehensible that it is sent to drop to below 30 cents to the dollar.

At least this payment gives WA a buffer for the next two years while the years of high revenue flow out of the system and then we will see WA’s share of the GST rise.

While I accept this is just a band aid solution, it’s a start. It shows that the federal government recognises the current system is unfair and it is trying to address the imbalance in the face of strident opposition from every other state.

Rick Wilson MP
Federal Member for O’Connor
 

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