16 July 2018
Article - #2018001, 2018

Op Ed: A ‘fair go’ for the ‘have a go’ state

The Turnbull Government’s plan to fix the GST is the only real solution being offered to ensure the GST distribution formula works for all Australians in a way that is fair, reasonable and sustainable.

It’s not a band-aid or a political quick fix. It’s a permanent system change – the first real update to the GST distribution system since the GST was introduced almost 20 years ago.

It’s also important recognition that the ‘fair go’ principle used to share the GST, where strong states support less strong states, must also reward the ‘have a go’ principle as well. States that seize and develop their opportunities, like WA, should not be penalised for doing so. The changes I have announced respect both these principles.

West Australians have long known there is a problem with the way the GST is distributed. The advocacy of West Australian Liberal Members, Senators and Cabinet members has ensured the Turnbull Government has remained focused on delivering a real solution.

Western Australians have also been patient as we have set about this task.

Our first action, when first elected, was to ‘stop the drop’ in WA’s GST share.

Under Labor, WA’s share had been on track to fall from around a dollar to less than 40c per capita. We made sure it fell no further, providing top up payments of $1.4 billion over the last four years in additional essential infrastructure and hospitals funding for WA to top-up your GST share, most recently to a 50c per capita share.

Labor ultimately decided to copy this approach promising more top ups for WA in the future, but we have always known that top-up funding for individual states was never going to be a sustainable or enduring solution. We knew the formula needed to change and set about the job of doing just that.

The GST can had been kicked down the road for too long, and we needed a thorough review to clearly explain the problem and what could be done to fix it. As Treasurer I tasked the independent Productivity Commission a year ago to review the GST distribution system.

As expected the Commission confirmed in its interim report that the system for distributing the GST was broken and needed to be fixed. We pledged to work to find a new way upon receipt of the final report. By contrast Labor ruled out making any change to the formula.

On receiving the final report we used the PC’s excellent analysis and information to craft a plan for a fairer, reasonable and sustainable way to distribute the GST.

Our plan has three steps.

  • In step one, we will provide WA with additional funding over three years to get its GST share up to 70 per cent. The WA Government can use this funding as they see fit.
  • In step two, we will reform the GST distribution formula over six years from 2021-22 to 2026-27, by transitioning to a new equalisation standard – the higher of NSW or Victoria - insulating the system from extreme shocks as occurred during the mining boom.
     
    Also, in 2021-22, we will begin making permanent additional Commonwealth contributions to the GST distribution pool so all States and Territories will be better off.
     
    The other part of step two involves implementing a real GST floor, setting a GST share that no state can fall below. This will be set at 70 per cent from 2022-23, rising to 75 per cent from 2024-25. This floor will be part of the GST system itself and funded from within the GST pool, so States will no longer be reliant on Commonwealth top-up funding in the unlikely event they fall below these floors.
  • Step three is simple – from 2026-27 we will have a new GST distribution system, with a permanent 75 per cent GST floor. Ongoing additional Commonwealth contributions to the GST pool will ensure all States and Territories are better off.

This is a real plan that delivers on our promise to fix the GST, not just for WA, but for the entire country.

By contrast Labor have just never got it at a Federal level.

The Rudd-Gillard-Rudd Labor government did nothing about it. They failed to act on their own review in 2012 as WA’s share kept falling. In opposition Bill Shorten and Chris Bowen have maintained their disinterest.

They could offer only a temporary top up of tied grants for three years and a refusal to change the formula. That’s not a solution.

Labor’s policy is all politics. Only the Turnbull Government has a real plan to reform the GST in a way that is fairer, reasonable and sustainable for all Australians.

We have delivered in our promise to the West, because we believe WA deserves their fair share.