Productivity Commission to Release Report on GST, Government Dives for Cover
On Tuesday the Productivity Commission (PC) will release its report on the allocation of GST between the states and territories.
It may be a coincidence but over the weekend the Coalition announced that it would not be running candidates in the two Western Australian by-elections for the seats of Fremantle and Perth.
The Liberals have a plausible excuse: no government has won a seat from an opposition in a by-election since 1911 and Fremantle and Perth are traditionally Labor seats.
However it is also true that Western Australian voters feel aggrieved by the way they have been treated under the GST carve-up and there could have been a big swing against the government.
It’s doubtful whether the Productivity Commission report will soothe the disgruntled voters.
It may be that WA will get a bigger share of the $66 billion GST but that will have to come at the expense of other states.
WA has been pressing for a floor on the amount of the tax any state can receive but there’s no indication that the Commission will adopt this as a recommendation.
Problems surrounding the present system came to a head when WA’s share shrank to less than 30 cents in the GST dollar, even as the mining boom was ending.
It forced the federal government to make a $1.2 billion top-up payment, while Labor has promised a further $1.6 billion payment should it win the next federal election.
But the PC has said providing top-ups or setting a GST floor are not longer-term solutions.
In its draft report the PC recommended that the standard for funding should be adjusted from the most efficient state to the second most efficient.
This would mean that all states would lose money with the exception of Western Australia.
Interestingly recent analysis of state economies showed that South Australia, which was one of the biggest recipients of GST revenue, was now the fastest growing state economy.
Tasmania, which is also a major recipient of funds, is also growing at a rate above average.
This undermines one of the Productivity Commission’s conclusions that GST funding provides a disincentive for state governments to adopt measures that will promote economic growth for fear of losing funding.
The point is that underpayment of GST revenue can be offset by Commonwealth infrastructure funding.
At the moment NSW, Victoria, Western Australia, Tasmania, South Australia and the ACT are all undertaking major infrastructure developments.
In addition South Australia, Western Australia and Queensland are benefitting from the spend on the defence industry.
The only jurisdiction that is feeling the pain at the moment is the Northern Territory which has moved from the construction phase of gas development to the exploitation phase.
At the same time it has lost GST funding because the Southern states now have bigger Indigenous populations than the Territory.