7 April 2017
Transcript - #2017063, 2017

Interview with Gareth Parker, 6PR Perth

SUBJECTS: GST distribution.

GARETH PARKER:

Mr Morrison, thanks for coming on, good morning to you, and thanks for your time.

TREASURER:

Not a problem, happy to be here.

PARKER:

Do you understand the depth of anger that this issue is causing in this state?

TREASURER:

I do, and as many listeners I hope would know I share a lot of that frustration. The arrangement that this has come to as a result of how these relativities are set out, is I don’t think anything that I think the people who originally put this mechanism together would have ever envisaged. That’s why for the last two years, in our last two Budgets, we’ve actually increased on top an allocation of half a billion dollars. So we’ve done that twice, to the total of a billion dollars extra that we allocated to Western Australia in recognition of what we think is an outcome that would never have been envisaged. Those same discussions are being held this year with the new Treasurer Ben Wyatt and those discussions began immediately and I think they’re entirely reasonable discussions to have, but I need to stress one thing very clearly, this is not a decision of the Commonwealth Government, this is a decision of the Commonwealth Grants Commission, in the same way it is being done every year, ever since the GST was introduced. All the money from the GST goes to the states, none of it comes to the Commonwealth. It’s distributed on a basis of a formula which is set by the Commonwealth Grants Commission.

PARKER:

Scott Morrison that’s not right with due respect. What the Commonwealth Grants Commission, Greg Smith, told the West Australian newspaper on November the 12th last year, I’m quoting directly from the Chairman of the Commonwealth Grants Commission, Greg Smith said this, “the CGC’s role is to make recommendations to the Commonwealth Treasurer,” that’s you, “on how to share out the GST revenue among the states, consistent with the terms of reference. The Treasurer is responsible for determining each state’s share.” So it’s your job to decide how GST is distributed.

TREASURER:

It’s been the policy of every Government, because you can’t engage in an arbitrary process for how this is done. The policy of every Treasurer, Labor and Liberal, if you go back to 2007/2008 the share of the GST they had back then [inaudible] Western Australia was about at parity – it was at 94. Now, that fell all the way under the Labor Government to 55.

PARKER:

And it fell under your Government too.

TREASURER:

And when it fell under Labor, that was the same policy followed by Wayne Swan, as it fell through all those figures, and…

PARKER:

Scott Morrison, you know what happened to Wayne Swan and Kevin Rudd and Julia Gillard? West Australian voters threw them out.

TREASURER:

What we did, is not what Wayne Swan did, we actually invested an additional billion dollars in Western Australia over two Budgets and we’re in those discussions now with the Western Australian Government now about how we can deal with those issues in this Budget. Now, I think the deal that Western Australia gets here could never have been foreseen, and it’s important that we provide the additional support that we have consistently in our last two Budgets and we’re working through those issues now.

PARKER:

I don’t want to sound ungrateful for those top up payments because they are appreciated. But the reality is they take our GST share from 34 cents in the dollar, to 38 cents in the dollar, while every other state gets close to parity. The next worst state is your home state of New South Wales…

TREASURER:

Which has always been less than a dollar, which has always been less over the entire time that this formula has been in existence.

PARKER:

Yes, but you would acknowledge that there is a very big difference between 88 cents in a dollar, 93 cents in the dollar, 97 cents in the dollar, and 34, 38, 40 – which is what we’re putting up with in this state.

TREASURER:

At the same time you go back, there was a time where New South Wales was getting 86, and Western Australia was getting $1.20.

PARKER:

That hasn’t happened under the GST system. Western Australia has never received $1.20 under the GST system. That’s just not right.

TREASURER:

Under the relativities that were applied by the Commonwealth Grants Scheme, and that pre-dates the GST by the way, those same relativities, there were many, many years where Western Australia was above the dollar mark and that was occurring all the way to 1996/97. In 2004/05 Western Australia was getting above a dollar. And 2006/07, then it began to fall because of the way that particularly mining revenues, and royalties, impacted heavily on the way that these things are calculated. My point is this…

PARKER:

So, let’s get to that issue Scott Morrison. Because you’re right, it is mining royalties that are the issue.

TREASURER:

And there was a surge in royalties which actually lifted substantially off Western Australia’s own resource base, their own revenues. The whole principal of how the Commonwealth Grants Commission devised this formula, and if you don’t work to that formula, then it’s completely arbitrary. Absolutely arbitrary.

PARKER:

You’re right to say that this is the reason we find ourselves in this situation, what’s happened in this state over the past 10 years, is that we’ve massively expanded our mining industry. That has generated royalties. Those royalties flow to the State Government, and then the Commonwealth Grants Commission looks at that revenue and they say, WA, you know what, you don’t need any GST money. So what they effectively do is redistribute the benefit of that mining revenue to all of the other states. The effect of that, Scott Morrison, is this, $39 billion of mining royalties raised in this state has been distributed to other states, over the past 10 years. What we want to know is what the Federal Government is planning to do to change it, because all I’ve heard so far, is you defending the system, and saying that, well this is how it’s intended to work.

TREASURER:

What I’ve been doing, with respect, is I’ve been explaining the system to your listeners…

PARKER:

We know how it works, Scott Morrison.

TREASURER:

Well, you invite me to come onto your program to talk about how this works and that’s exactly what I’m doing. What I’m saying is the Government has maintained exactly the same position of every Government since the GST was introduced and the only difference has been that this Government – both the Turnbull Government and the Abbott Government – provided top-up payments to Western Australia out of a direct appreciation of the sensitivity of this issue. Now, going forward, we have said pretty openly, the Prime Minister has made the point himself, that once you get to a point where Western Australia is in a much stronger position – and how long that will take, that’s not always clear – you’d be able to put a floor price in at that point and then ensure that we don’t get a repeat of what I think is not a good outcome on the basis of how this currently works. The other thing I’m looking at…

PARKER:

Just on that. So, the latest projections are that Western Australia’s GST share won’t recover to 70 cents in the dollar as we thought it might, the latest decision of the Commonwealth Grants Commission and the latest inputs on population figures and mining revenues suggest that our GST share in this state will rebound to just 55 cents. Now, is that the basis on which the Prime Minister intends to introduce his floor at 55 cents in the dollar?

TREASURER:

No, no, not necessarily. What I’m saying is that you’ll see Western Australia’s share rise now. It rose this year – admittedly from a very low level – it’s risen in the last two years from what are very low levels and that is an anticipated rise. At what share it’s going to be at a number of years, I mean they do not project these things out with any certainty, so I don’t think we can make any assumptions about that. The next point I was going to make was this: one of the things that concerns me about this formula is that technically it’s called ‘horizontal fiscal equalisation’ and what it means is exactly what you just explained a few minutes ago. So, when you have some states who do better, like Western Australia or New South Wales, then those states are pulled back and other states – and the winning states out of the formula more recently have been Queensland, South Australia and Tasmania, and up until very recently, the Northern Territory. Now, each of those states are the ones who’ve actually been able to get more resources out of this. I know for a fact that Queensland and South Australia – Labor states – absolutely oppose Western Australia getting a dollar more – absolutely oppose it. They were absolutely clear about that when we met with the Treasurers just a few weeks ago because their view is, they get less, Western Australia gets more. There’s a fixed amount of funds that are in that pool, but one of the problems with the formula is this and that is to the extent to which it potentially rewards states for actually not surging ahead…

PARKER:

A hundred per cent agree with you on that Scott Morrison.

TREASURER:

And that is something I’m very concerned about – about what are the productivities, the growth, impacts of this formula and how is that affecting the performance of our economy and the jobs and the wages that flows from that. So, that is an issue that has my attention. It’s an issue that my colleagues in Western Australia have raised with me very consistently and I’m looking right now at ways that we can get a better understanding of that. If this is just an issue about one state getting more than another…

PARKER:

No, it’s got to be an argument about growing the national economy which…

TREASURER:

That is exactly what I’m about and that is exactly what I’m agreeing with you on and that is exactly the issue that has the focus of my attention at the moment.

PARKER:

So, what West Australians can’t figure out is why we’re penalised in this state for fostering growing a mining industry, whereas Victoria can keep its gas in the ground and put a moratorium on gas exploration, Tasmania can keep its iron ore in the ground and not do anything to exploit its natural resources and yet the GST system that you oversee doesn’t give any recognition of that fact.

TREASURER:

And I think they are all very valid points.

PARKER:

Can I ask you about this issue? Poker machines is another one that continues to come up in this state when we discuss this issue. We don’t have poker machines in this state. Every right thinking West Australian agrees with that policy position and we believe it’s a good thing because we think that poker machines do terrible damage to communities, to families. Now, under the GST system, we are penalised by the Commonwealth Grants Commission for failing to raise revenue from poker machines. Now, that is surely ridiculous. That’s a change that you could make overnight in the national interest to just tell the Commonwealth Grants Commission: ‘ignore that issue. Don’t give states credit for raising revenue through poker machines. Don’t penalise Western Australia for that issue.’ Surely that’s within your purview to do something about quite quickly.

TREASURER:

You make an excellent point in that this has to be looked at from the perspective of the national interest. Whether that’s on the national interest of economic growth or on the impact of social policies like the one you’ve mentioned. But let me just be clear about how it actually works because there’s been a lot of confusion about this issue. The way it works is the gaming revenues that are raised by other states are not taken into account in the formula for the Commonwealth Grants Commission…

PARKER:

Well, they should be.

TREASURER:

What I’m saying is that is not an issue that they look and say, ‘they make this much revenue.’ Western Australia doesn’t have those measures – they don’t do any comparison on the actual gaming revenue policies, whether it’s poker machines or anything else…

PARKER:

Then they should, because the system then doesn’t reflect the reality of the financial resources of the states which is the whole purpose of the redistribution in the first place, surely.

TREASURER:

I hadn’t finished my explanation. What they do do though – you’re making the case that said, ‘well, Western Australia doesn’t have these poker machine taxes but New South Wales does and other states do. Therefore, we shouldn’t be penalised for not having one.’ Right? They don’t actually have a look at the policies – whether there’s a tax or not a tax – they just simply look at an average person in Australia and how much potentially on average would be raised from one person on such revenues if they were to have them. So, I just wanted to clarify that point…

PARKER:

Sure, you understand the effect of the policy, don’t you?

TREASURER:

I know exactly the point and as my colleagues know, I have quite strong views about that particular social policy issue. I used to be the Social Services Minister and I know acutely the impact that those – I mean, I’m not a wowser, I don’t mind people having a punt, each to their own – but we also know that for some people in our community who are very vulnerable, this can destroy lives, destroy families, lead to domestic violence and the outcomes are absolutely horrific. The point of saying all of that is this, I think Western Australia makes very good points in the national interest – not in a parochial interest, in the national interest – that what impact is this formula having on our national productivity? What is it actually doing about social policy implications across the country. This is an issue which I’m working through very carefully at the moment and that’s as much as I can say today. But what I’m saying is I’ve always understood that this is an outcome that I think has been seriously disadvantaging Western Australia in recent times. What our Government has done in following the CGC is no different to every other government and to move to some different arbitrary system where you just look at the numbers and just move them around to suit yourself, I don’t think that’s an answer. I think the answer is to look at the very questions you’ve raised which I have great sympathy with.

PARKER:

Alright, we’ll await the action that flows from that consideration in due course.

TREASURER:

Fair call.

PARKER:

Treasurer Morrison, I appreciate you coming on the program today and fronting up on these issues.

TREASURER:

Always happy to. Cheers.