FED:Barnett's GST floor plan widely rubbished

AAP General News (Australia)
04-01-2011
FED:Barnett's GST floor plan widely rubbished

By Josh Jerga

PERTH, April 1 AAP - A review into the GST carve-up has quelled what WA Premier Colin
Barnett tipped would be a Tea Party revolt in the West over the state's diminishing revenue.

But his proposal for a 75-cent floor is not likely to get much support with all other
states and territories as well as fiscal federalism experts rubbishing the idea.

For months Mr Barnett has claimed WA was being "ripped off" by the Commonwealth Grants
Commission (CGC), the independent authority which determines the GST carve-up.

He's warned of an American-style Tea Party revolt and that the state is under siege
and suggested that, if it continues, WA might as well put a gate on the Eyre Highway and
block out the federal government.

But Mr Barnett's proposal for a 75-cent floor in GST revenue has been widely panned.

According to WA Treasury figures, by financial year 2014/15 the state would receive
about 41 cents in the dollar back in GST revenue, down from the current 68 cents in the
dollar.

WA Treasurer Christian Porter says a floor would guarantee a fair and equitable distribution
of national income to "the most productive sector of the Australian economy".

"Secondly it allows the WA government to confidently plan for the future infrastructure
needs of what is still a growing economic sector with huge potential," he told AAP.

"The financial benefits for all states and territories of WA realising this potential
are manifest."

Although Queensland Treasurer Andrew Fraser shares WA's concerns that they are being
penalised by the CGC's assessment of mining revenue, he doesn't support a floor.

"I'm not convinced that arbitrary floors or ceilings are the best solution - at best
they are a patch-up job on a system that needs an overhaul," Mr Fraser said.

"I am in favour of reform, but it shouldn't be reform for reform's sake. It should
be measured, responsible and in the best interests of the national economy."

Newly-elected NSW Premier Barry O'Farrell told the National Press Club in February
he did not support a floor while South Australian Treasurer Jack Snelling flatly rejected
it.

Tasmanian Premier Lara Giddings said: "Arbitrary constraints such as floors that suit
one state over others would distort the process for the CGC's determination of a fair
share of the GST pool."

University of NSW Professor Neil Warren agreed that a floor was arbitrary and did not
go anywhere near to solving the current problems with horizontal fiscal equalisation.

Horizontal fiscal equalisation is used by the CGC to determine the carve-up of GST.

It aims to put every state and territory on a level playing field by ensuring each
has the same fiscal capacity to provide services and infrastructure.

The system essentially cuts GST revenue to states who raise more than average revenue
from its own sources while other states whose revenue falls get more.

Instead of a floor, Professor Warren, who has written extensively on the issue, said
a principled approach should be argued by WA.

He suggested Canada's model in which resource provinces have 50 per cent of their revenue
from resource-based taxes removed from the horizontal fiscal equalisation process.

"Seventy-five per cent is arbitrary and only masks the problem with horizontal fiscal
equalisation which is justifiably troubling WA," Professor Warren told AAP.

"The advantage of 75 per cent is that it is easy to communicate to the general public
but the disadvantage is that it only addresses a `symptom and not the disease'.

"The disease in this case is the total focus on horizontal fiscal equalisation and
the symptom is the GST distribution."

Professor Warren said making only part of states resource revenue subject to equalisation
would provide WA and Queensland with an incentive to encourage development of their mining
industry.

The carve-up of the GST revenue is a zero-sum game with only so much to go around and
hence one state's gain is another one's loss.

NSW is the dominant beneficiary of the carve-up with 30.8 per cent for financial year
2010/11, followed by Victoria, 23.4 per cent and Queensland, 18.6 per cent.

The dispute over the current GST distribution has essentially three camps, with the
mining states of WA and Queensland believing they support the rest of Australia.

Queensland Treasurer Mr Fraser said this was because the mining assessment was an "antiquated,
outdated tool that is robbing the resource states of funding".

"The southern states win out because their revenue raising levers aren't penalised
to the same extent as mining is - there has to be a better way to fairly assess the different
states taxation capacities."

The next camp is NSW and Victoria, who acknowledge the need to support smaller states
but believe the current system is not fair and does not provide certainty.

Their concerns were exacerbated by the CGC's current review which cut Victoria's share,
equating to a loss of $500 million in the 2011/12 financial year.

Victorian Premier Ted Baillieu said the cut was unjustified with his Treasurer Kim
Wells now calling for the decision to be suspended until the review has been completed.

The final camp includes the smaller states of Tasmania and SA as well as the two territories
who believe the current system is working well.

The Tasmanian premier supports horizontal fiscal equalisation as she believes its fair
and equitable for all states.

"We will not accept any changes that result in less money flowing to Tasmanians," Ms
Giddings said.

ACT Treasurer Katy Gallagher said it should be noted WA was a recipient government
under the equalisation process until 2007.

"I can appreciate that resource rich states may be frustrated at seeing a loss in their
GST due to booming royalties," she told AAP.

"But in my view wealth held in mineral deposits is not that different to the wealth
held by communities or even states."

Ms Gallagher said ACT loses nearly as much GST in per capita terms because of their
socio-economic status as WA and Queensland does due to their high royalty incomes.

Former member of the CGC, Professor Kenneth Wiltshire, defended the current process
saying equalisation is the "glue that holds the federation together".

However Professor Wiltshire, from the University of Queensland Business School, said
the CGC could do better in explaining its methodology and there was scope for simplification.

The review headed by former NSW Liberal premier Nick Greiner, former Victorian Labor
premier John Brumby and SA businessman Bruce Carter is expected to release its final report
in September 2012.

Judging by the current conflicting views among states over the GST distribution, the
next 18 months may see some hostile clashes across the federation and continued attacks
directed towards the CGC.

But Professor Wiltshire said this would be far from useful.

"It is not helpful for state premiers to blame the commission when it suits them and
then take the proceeds at other times," he said.

"The system has been too vital to Australia's nationhood to be jettisoned."

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