Dean Smith

In Parliament

ADJOURNMENT Western Australia: Goods and Services Tax

November 26, 2015

I rise this evening to talk about the issue that, far and away, remains the biggest economic one facing my home state of Western Australia. We are hearing a great deal of talk about the GST at present in our public discourse, and debate is always a very welcome thing. However, and this is a view I have shared with our Prime Minister and the Treasurer, we cannot have a full and honest public debate about the goods and services tax without putting the distribution issue on the table.

This evening, I want to highlight two complementary approaches. To those senators and others in this building who say that they are sick of hearing from Western Australian representatives about the GST distribution reform, my message is very clear: either get used to it or fix it, because the problem is not going to disappear. In fact, the problem is going to grow. The day is fast approaching when it is not just going to be a complaint coming from Western Australia and from Western Australians. We are going to need some honest talk from all sides of Australian politics, from all states and territories and from all senators in this chamber if we are going to get proper redress on the goods and services tax distribution issue, because, as it stands, the system is broken.

To demonstrate that point clearly you need to go no further than the statement made by the then Treasurer, Mr Peter Costello, in the year 2000—the year the GST came into effect. He noted that from July 1 of that year, 'the states have a revenue base that grows in line with the economy. It will provide a secure base to fund their services.' Initially, at least, that appeared to be the case. Even Western Australia, which now suffers the most from the broken GST distribution system, experienced GST relativities ranging from 0.98 to 1.02 between the 2000-2001 and 2006-2007 financial years. Yet in the period since, that relativity has fallen, and fallen very sharply, from 0.94 to 0.37, with the Commonwealth Grants Commission now recommending to drop it even further to just 0.30. Given the drastic collapse in the international iron ore price and subsequent fall off in revenue from its extraction flowing to Western Australia, it simply defies reality to contend that a GST return of just 30c in the dollar for Western Australia, to quote Mr Costello again, 'will provide a secure base' to fund services.

In contrast to Western Australia's experience, since 2006-2007 New South Wales, Victoria, South Australia and Tasmania all enjoyed increased GST relativities of 0.87 to 0.95, 0.89 to 0.92, 1.18 to 1.28 and 1.54 to 1.58 respectively. Queensland was the only jurisdiction to slide backwards from 1.02 to 0.98. Not a dramatic slide but a slide backwards nonetheless. Plainly, this is not sustainable.

Forward-thinking state Premiers and senior federal political figures from various states can see that, without reform, what has happened to WA could soon happen to them, albeit on a slower or lesser scale. The New South Wales Premier, Mike Baird, has suggested that states should have an agreed share of income tax and possibly be able to vary the rate so that states have, in his words, 'sovereign capacity to meet their expenditure needs'. The immediate past premiers of both Queensland and Victoria were likewise very keen on reforming GST distribution. I strongly suspect that their Labor successors will come to share that enthusiasm as the realities and responsibilities of government bear down on them. I have long argued that this reform will be complicated and take time. That still remains true, but time is now well and truly running out.

It would be remiss of me at this point not to highlight that support for GST distribution reform is bipartisan. When the Labor Premier of South Australia, Mr Weatherill, earlier this year accused WA of 'moral bankruptcy' for daring to suggest the present system could, perhaps, be more fairly balanced, he was rightly ridiculed. Not only did the Liberal Premier of Western Australia, Colin Barnett, point out that the challenge called for a more mature response than that offered by Mr Weatherill, but the Premier was backed up by the Labor member for Perth in the other place, Alannah MacTiernan. She noted, quite correctly, that other states 'would go completely feral if they were in the same position as WA'. In this place, Labor senator Joe Bullock has said:

… the injustice of the current arrangements with respect to the distribution of this tax—to which Western Australians make such a significant contribution and receive so little benefit—is a disgrace …

So, for the Labor senators who like to complain every time I come into this chamber and talk about GST distribution reform, I simply say that I am gratified to have support from some in their ranks who actually understand the significance of this issue.

Turning to the subject of possible measures that could be used to address the grossly unfair situation facing WA in relation to GST revenue, I would like to draw one option to the Senate's attention. This relates to reforming the process around North West Shelf grants, an approach that has been addressed by various Western Australians and an approach that has even been advocated, in a broader sense, by former Western Australian Premier Richard Court. At present, a royalty is payable to the Australian government to the value of all petroleum production, including gas, from the North West Shelf project area. This revenue is shared with Western Australia by the Commonwealth in the form of grant payments each year. However, under the current arrangements for GST revenue distribution, with the time lag involved in the calculations, Western Australia is losing around 89 per cent of its North West Shelf grants.

Because North West Shelf grants are declining—which is only reflected in the GST distribution with a time lag—in cash terms, WA currently loses more in GST revenue each year than it receives in North West Shelf grants. To highlight that point: in 2016-17 WA expects a North West Shelf grant of approximately $720 million but an associated GST grant loss of almost $1.2 billion. This situation could be improved. In fact, Western Australia would be better off if the Commonwealth were to retain 50 per cent of WA's North West Shelf grants, meaning Western Australia would receive one-third of total royalties, and the Commonwealth would receive the remaining two-thirds. In exchange, the Commonwealth would agree to quarantine the remainder from the Commonwealth Grants Commission process which is used to calculate the state's GST revenue entitlement. For example, such an arrangement would make the state of Western Australia between $800 million and $900 million better off in 2016-17. This might be one way to help alleviate the grossly unfair situation which WA currently faces and provide the state with some much-needed revenue for critical infrastructure projects.

Of course, in order to be effective, this would also require the Commonwealth Treasurer to instruct the Commonwealth Grants Commission, as part of the 2016 Update terms of reference, to 'back-cast' this quarantining so that the GST benefit would occur immediately, rather than with a time lag. After all, the revenue is needed for WA services now, not in three years time. And there would need to be safeguards put in place to ensure that this quarantining arrangement was kept in place to provide certainty for future planning. It is not as though this arrangement would be without precedent. This is a critical point. There are currently more than 100 Commonwealth payments which are either quarantined or deemed as having no impact on the GST distribution. As I say, this is one further idea that has been suggested as a way of addressing the immediate problem, and I hope it can be given serious examination.

That said, the whole methodology surrounding GST distribution will have to be reviewed. Plainly, the current system is not working as it was intended to work. To that end, I have suggested to the Prime Minister again that the government consider requesting the Productivity Commission to undertake its own independent wholesale review of the current GST distribution model, which could then make recommendations for reform, such as establishing a set 'floor' below which no jurisdiction's GST relativity could fall. This would take the issue out of the partisan political arena and ensure that any recommendations for reform were motivated by a desire for genuine economic efficiencies, rather than parochial state political arguments. As the government's work on responsible reform of our taxation system continues, I am hopeful this is an approach that can be given careful consideration, both in the interests of Western Australia and in the interests of the long-term sustainability of our tax system for the betterment of all Australians, no matter which state or territory they live in. (Time expired)

Senate adjourned at 19:28