5 April 2018
Transcript - #2018036, 2018

Press Conference, Melbourne

SUBJECTS: Council on Federal Financial Relations meeting; Commonwealth Grants Commission 2018-19 GST Revenue Sharing Relativities; Productivity Commission inquiry into Horizontal Fiscal Equalisation; immigration

TREASURER:

Thanks, everyone. It’s great to be here with the Assistant Minister to the Treasurer, Michael Sukkar, in his home state of Victoria. It’s great to be here in Victoria today to be meeting with my State and Territory Treasurer colleagues and, in particular, to be here with Rob Lucas – the new South Australian Treasurer – and of course, Jackie Trad – taking on that role after the last election for Queensland – and a welcome back to Peter Gutwein – the Tasmanian Treasurer after the last election.

We’ll be going into our meeting shortly and we have had some informal discussions today. Obviously one of the biggest topics of today’s meeting is the release of the GST relativity payments for the next Budget year and I’m happy to release those today. But what is important about those numbers is it demonstrates that the total pool of funds will be up now to $65.8 billion in the 2018-19 year. That is up $3.4 billion on last year. So the GST pool has expanded. What’s important to note is that the increase in the GST pool, of that increase of some $3.4 billion, $1.8 billion of that increase is a direct result of the integrity measures that the Commonwealth has introduced and legislated to improve the GST take. Now that includes everything on the GST on digital services, it does include tightening up on the black economy to ensure that the GST is being paid by those who have been seeking to avoid tax. This has significantly expanded the pool of resources for the States – for hospitals, for schools, for police forces, for roads, for all of these sorts of things – and so the Commonwealth has been working hard for the States to ensure that the pool of funds that is attracted by the GST is not eroded by integrity issues within the tax space. So it was pleasing to be able to advise the Treasurers today that that has been done on the behalf of their citizens and on behalf of Australian citizens everywhere to ensure the GST continues to provide an increasing revenue base for the States.

Now, as you go through the States, it's important to note that the States in terms of their overall level of funding from 2017-18 to 2018-19, in New South Wales, their funding from the GST increases by $519 million. In Victoria, it increases by $1.8 billion. In Queensland, there's a reduction of $401 million from the current year. In Western Australia, there is an increase of $1 billion as their relativity increases to just under 0.50 at 0.47. For South Australia, there is an increase of $467 million. For Tasmania, an increase of $56 million. In the ACT, $54 million. In the Northern Territory, a reduction of $136 million and I have already had discussions with the Northern Territory Treasurer about my concerns about that outcome and we will be holding further discussions with the Northern Territory about the particular challenges. Those discussions have been underway now for some while, whether it's in trying to address the issues in remote communities in the Northern Territory, but also the revenue base of the Northern Territory, as you know, they have some significant decisions to make in relation to resources and gas in the Northern Territory as well as other revenue issues – and we'll continue to have, I think, very positive and good faith discussions with the Northern Territory in the same way that people will be very familiar with my sympathy for the situation faced by Western Australia in the past. I think this is another example of where one of the Territories has, while they are getting a higher proportion of GST per head of population, for a small territory that is a very significant impact on their Budget and obviously we will need to have further discussions about that. When you look, though, at the impact on what the States themselves have budgeted for the current year, there has only been slight changes except in the case of Queensland and Northern Territory – and Victoria, for example, they'd already been budgeting in an increase so their increase for example was $688 million over what they previously budgeted.

What these figures show is that there is more work to do when it comes to the GST. Today's figures represent what is done on the existing formula. People would be aware that we have the Productivity Commission process underway. Their next scheduled reporting date is in May and I haven't had any update to say that that needs to be extended. It's already been extended on one occasion at their request. When that report comes down in May, the Government will obviously receive it. That doesn't mean it's the Government's policy. The Government will still, I'm sure, have a lot of work to do consulting with the States about the direction that the Commonwealth may take with the States in terms of where we go to with the GST formula. We have been involved in a very patient process. I want to thank all the other States and Territories for the way they have been engaging with the Commonwealth on this. It's not an easy issue. It really isn't an issue but it does require, I think, a very patient and a very good faith discussion about how we proceed. Remembering that the GST current formula, that is what has produced the distribution that I have released today and that distribution is done on an annual basis and we obviously need a much better understanding of what potential future distributions look like under the existing formula if we are to consider any alternative distributions and importantly what transitional and compensation arrangements would need to be in place if any changes were to be considered. But the Government reserves its policy on that, remains very high on the list, but for now, like all the Treasurers around the room, we'll be very focused on delivering our own Budgets over the next few months and, of course, ours in five or six weeks’ time and the Commonwealth remains very focused on that and we'll have obviously a lot more to say on Budget night.

QUESTION:

Treasurer, why such a big jump for Victoria?              

TREASURER:

There was a range of issues but one of the key ones has been their population. Victoria has been growing very rapidly and that has played a key role in what’s been happening in Victoria. Other variations such as in Queensland are a function of the fact that they had been pitching a lot higher previously due to the Queensland floods – that has been a key factor – and there has been some other issues in terms of the year, that goes out in the year, that comes into the Victorian Budget. The year that went out had the prepayments for the East-West Link back in 2013-14 I think it was and so that actually elevated their payments back in that level so that has come out and another year has come in which means they actually get a better GST outcome in this distribution.

QUESTION:

Does today’s carve-up suggest in your mind that there is a need to change the formula on GST?

TREASURER:

Well, again, we’re seeing what’s happened in the Northern Territory and we’re still talking about Western Australia – still being at 0.47. I said yesterday in a speech, I referred to the coming off of the one in a 100 year mining investment boom and the shock that put through the Australian economy. Something far more significant than even the Global Financial Crisis – I mean, we basically had $80 billion ripped out of the Australian economy – six per cent of GDP just gone. That has a tectonic shock on an economy and the fact that in recent years the Government has been able to manage an economy that has continued to grow, I think, is one of Australia's real significant economic achievements. It’s a testimony to the resilience of the Australian people, Australian business, who refused to be denied of their prosperity and once again we stood up to a massive challenge and came through. But what the mining investment boom also did was create quite a shock for the GST distribution system and it created a whole range of unintended outcomes. Those who drafted this and put it together would never, I think, have contemplated a State falling down to about 35 cents in the dollar and I think we have to learn from that. Obviously, the Commonwealth has stopped the drop when it came to GST payments in WA and we have been providing top-ups now for some years and we’ll continue to have those discussions with Western Australia. But equally, I know that Western Australians just don’t want Band-Aids on, they ultimately want to see this issue thoroughly addressed and we’re still on that track.

QUESTION:

So if this is not a fair system, is that what will happen?

TREASURER:

What I am saying is that we have a process under way that will address the lessons of what this latest shock to the system has taught us.

QUESTION:

Treasurer, does it concern you that states are still being rewarded under this carve-up despite their refusal to allow resource development?

TREASURER:

Well, we need to look no further than where we’re standing today. We have been talking about electricity prices in recent times, one thing that will lower prices is freeing up gas. That’s straightforward, it’s very simple. I was in Texas earlier this year and they’re paying about a third of what we are and they’ve got gas aplenty. So while we talk about wind, solar and coal and any other number of things, standing here in Victoria I want to talk about gas and making sure we can get gas available to the east coast domestic market because if there’s more gas, there’s lower electricity prices.

QUESTION:

Would it be your anticipation that a revision of the formula [inaudible] means for addressing that problem that’s there in the carve-up?

TREASURER:

I think the Productivity Commission report provided a number of options which, while not addressing that specifically, actually in its final outcome took it into account. I know it’s a pretty complicated way of saying it, David, but I am sure you can come up with a more complicated way of saying it. But the challenge is to ensure that the commodity shocks and other economic shocks that can happen – these shocks, both positive and negative, can occur not just in the resources sector, they can happen in other ways as well and we need to ensure the formula does not produce so much volatility that makes it very hard for States, particularly the smaller States, to be able to have some certainty in their Budget. What I would like the system to deliver for all States and Territories, regardless of size, is a lot more certainty and for many years we had just that. If you look at the Productivity Commission report, it does highlight that when it went through that shock the lines just went in every direction and I think that can make it quite hard for States and Territories and that’s why in looking particularly to the results of the Northern Territory today, I think that’s a case in point.

QUESTION:

Then is it possible to reform the system without creating winners and losers, [inaudible]?

TREASURER:

This is why it’s a complex issue, David, and that’s why I’m not seeking to rush to failure on this issue as my good friend Jim Molan would say. We are being patient about it, we’re working through the issues, we’re doing our homework and the Productivity Commission, I think, has been doing a good job. They have been very consultative but that does not mean necessarily that what they come up with is the ultimate answer. You’ve got to weigh it up against the alternatives and the Treasurers have been having very good discussions about this. I understand and respect the fact that individual State Treasurers will have their view about how this impacts directly on their States and Territories. One thing I constantly say, though, is that any arrangement, if there were to be a change, would need to have a robust transition scheme which would mean that States could continue to plan for their future with certainty fiscally.

QUESTION:

So, in that case, this is not the last carve-up under the current formula?

TREASURER:

There’s an election next year and I’m quite certain that the Government will need to be in a position to have had addressed this question fully by then.

QUESTION:

Just on that matter of an election, Peter Dutton has warned that Australia’s on the road to a Bill Shorten prime ministership. What do you make of those comments?

TREASURER:

Well, that’s the alternative. The idea of Bill Shorten running the country with more than $200 billion worth of taxes to choke the Australian economy and put people out of their jobs, to raise the prices of their rents and goodness knows what else, people will pay more under Bill Shorten. So the idea of paying more under Bill Shorten is something that when Australians come to really focus on the choice, that is something they will consider keenly. We are a Government that has been producing the biggest jobs boom we have seen on economic record in Australia. More than 1,100 jobs a day. We are a Government that has halved the deficit in the last two years. We’re a Government that has taken us back towards a responsible balance in 2020-21 and we have done that in five straight Budget updates. We’re creating jobs, we’re boosting investment and we are seeing that flow through the economy but there’s a lot more work to be done. Normal transmission has been restored under the Coalition to our economic growth. But that transmission has not yet been picked up in all corners of the country and we’ve got to stick to the plan to ensure that it does. That is how the benefits will reach all Australians. We stick to the plan that is already working and it needs to work for all Australians. That is how we will ensure that Australians don’t get left behind. You don’t solve that problem by taxing Australians more.

QUESTION:

But does that mean that Malcolm Turnbull’s leadership is under threat?

TREASURER:

Absolutely not.

QUESTION:

As a former Immigration Minister, do you think that Australia should be giving special treatment to white South African farmers?

TREASURER:

Australia has a humanitarian program that’s designed specifically to deal with people that can find themselves in exactly the situation that South Africans are in. Having managed the program in a previous portfolio, there is the refugee side of the program, that operates under the definition of the UNHCR that determines people’s eligibility but the humanitarian program, which was actually introduced under Malcolm Fraser for this type of situation, it doesn’t matter whether people are black, white, whatever their religion is, if they find themselves in a situation where Australia is uniquely in a position to provide some support - we can’t be the world’s lifeboat, that’s not what the program is designed for, there is always more need than there is places - but where we can specifically provide support and, in many cases, you’ve got family connections as well. So through the normal processes, not any special consideration but under the normal processes, under the normal process people who find themselves in this situation can afford themselves of this opportunity.

QUESTION:

Just back on GST, has one of the reasons why Victoria’s has gone up so much, is that a reflection that it has been short-changed over the last four, five years?

TREASURER:

No, it’s not. The Victorians are one of the most keen advocates of the current system so I don't think they would be making that case. If they were making that case, I don't understand why they would be opposing any changes to the system. As I said before, what has happened is that in 2013-14, the year that came out, it included a prepayment on the East-West Link which you’ll remember was famously never built but cost $1 billion not to build – Michael knows it very well, it affects his electorate and his constituents very directly. So that obviously played with the figures for a while. But the major driving issue for Victoria having a higher share today is largely what’s happening with population growth.

QUESTION:

So it could go over a dollar then?

TREASURER:

I’d be surprised if Victoria became a recipient state. I don’t know how Victorians would feel about that, Michael. Like New South Wales, we have always been donor states for a long period of time.

QUESTION:

Does it concern you that New South Wales is really [inaudible] successful, receiving significantly less than its share?

TREASURER:

Well, under the Berejiklian Government, we’re used to being successful in New South Wales. They are a model for other States and Territories which I'm sure Steve Marshall in South Australia will be also modelling, great to see Will Hodgman also out there leading by example and without being too partisan on a day when Treasurers get together, I think New South Wales has really demonstrated what could happen in Victoria with a change of government.

Cheers.