This is a good article. Click here for more information.

GST distribution dispute

From Wikipedia, the free encyclopedia

The GST distribution dispute is an ongoing political controversy concerning the distribution of goods and services tax (GST) revenue amongst the Australian states and territories. The dispute was originally based upon Western Australia's (WA) dissatisfaction with its low returns, which led to reform in 2018. As a result of the state's improved financial position during the COVID-19 pandemic, debate has since centred around the suitability of the minimum payments floor introduced as the original solution, and several states have begun inquiries.

Background[]

See also: Goods and services tax (Australia)

The GST system was originally legislated by the Howard Government in 1999 and introduced in 2000. It is a value-added tax set at 10% of the price of most goods and services sold in the country. Upon its introduction, it replaced several state taxes as part of a broader taxation reform.[1]

In Australia, GST revenue is distributed between the states and territories according to a principle of horizontal fiscal equalisation (HFE). The HFE system is designed to equalise revenue between the states and remedy fiscal imbalance. Recommendations for the rate of return for each state and territory are made by the Commonwealth Grants Commission (CGC), originally with the goal of provision of equal quality government services between all states. Thus, revenue raised through GST is paid to a central pool before being distributed between the states and territories in order to equalise spending capabilities.[2]

Origins[]

Western Australia earns much of its revenue from resource royalties, which affected its GST share

Western Australia's budget is supported in large part by resource royalties. The GST return received by WA was relatively steady from 2000 to the mid-2000s, taking its first plunge as the iron ore and gas boom began and resource taxes rose dramatically. To account for the rise in resource royalties revenue, the CGC began to reduce WA's GST share and increase the share of other states and territories. It was during this time that the state's criticism of HFE first began.[3] By 2010, the share was around 70 cents per dollar, and this continued to decline over the next decade.[4]

WA ran in deficit for much of the 2010s, and Liberal Premier Colin Barnett consistently blamed these deficits on a lack of GST revenue,[3] particularly given the state's GST share fell at the same time as iron ore royalties. This was due to the "lag" in the HFE system, since the CGC considered royalties on a three-year basis.[5] The state had accumulated debt of around A$30 billion by the financial year 2016–17.[6] That year, the state ran a budget deficit of $3.9 billion.[6] In 2016–17, $4 billion of WA's GST revenue had been distributed to other states. Liberal Prime Minister Malcolm Turnbull subsequently committed to implementing a GST floor to ensure a minimum rate of return for all states, but said it would not be implemented until WA's share had risen to around 75 cents in the dollar under the HFE system, which was not projected to occur for at least another four years.[7] The commitment was heavily criticised by the state Labor opposition, who argued no time frame had been provided.[6]

Change in state government[]

GST return by state (FY2017–18)[8]
State/territory GST return
Western Australia Western Australia 0.34434
Australian Capital Territory Australian Capital Territory 1.19496
New South Wales New South Wales 0.87672
Northern Territory Northern Territory 4.66024
Queensland Queensland 1.18769
South Australia South Australia 1.43997
Tasmania Tasmania 1.80477
Victoria (Australia) Victoria 0.93239
Scott Morrison served as treasurer during the design of the new model and directed both Productivity Commission reports.

By 2017 the existing system had resulted in a situation in which WA was paid approximately 34 cents for every dollar of GST raised. The next lowest share was received by New South Wales (NSW), who received approximately 88 cents in the dollar, with the highest sharing being the 466 cents to the dollar paid to the Northern Territory.[7]

The newly-elected McGowan Government in WA had been relying upon a GST payment of 38 cents to the dollar to help return the state budget to surplus by 2019–20 financial year. Although 34 cents in the dollar was an improvement on the 2016–17 rate of approximately 30 cents in the dollar, the reduction left the state with $241 million less than expected for the 2017–18 state budget. State treasurer Ben Wyatt called the situation a "joke" and requested a top-up payment of $226 million, claiming the state was "in the fourth year of what is effectively a domestic recession". Then-federal treasurer Scott Morrison said he would consider the request for additional payments. Government senator for WA Dean Smith also weighed in, calling HFE "terminally diseased".[7]

However, Turnbull again stated that no floor would be introduced until WA's share had been raised to between 70 and 75 cents to the dollar under the HFE system,[7][9] which was not projected to occur for at least four years.[7] He added that no change could occur without the agreement of other states and territories,[9][10] which Premier Mark McGowan claimed was false given the CGC was a federal body.[9] Crossbench senator for Queensland Pauline Hanson said she would be happy to support a reduction in Queensland's payments to improve WA's share, but backtracked when asked to clarify her comments by the Queensland state government.[11]

The GST distribution was expected to become a political issue for the upcoming federal election, which was due to be held in 2019.[12]

A review of the HFE system by the Productivity Commission was requested by Morrison in April 2017.[13] A draft copy of the report was released in October, recommending that WA's share rise by $3.2–3.6 billion at the expense of all other state and territory shares.[14] This provoked a vigorous reaction from South Australian Premier Steven Marshall, who said the state would not support any change that would reduce South Australia's share.[15]

Morrison directed the Productivity Commission to undertake a second review of the HFE system in May 2017.[16] Victoria made a submission to the Commission opposing any changes to the distribution system.[17] The report was handed down in May 2018, and recommended that the returns should be determined so as to allow for states to provide "a reasonable (rather than the same) standard" of infrastructure and services.[18] However, the federal government decided to use the payments made to Victoria and NSW as the benchmark for future payments, offering a series of top-up payments to WA that would not come from the existing GST pool but from federal revenue.[19]

Introduction of GST floor[]

The federal government announced its final model in July 2018. The plan, which began in 2019–20, consisted of a floor of 70 cents per dollar in the financial year 2022–23, rising to 75 cents in the dollar from 2024–25. The federal government would add additional federal funds to the GST pool to smooth the transition through to 2026–27, to make a "no worse-off guarantee" that no state or territory would have its share fall during this time.[12] The WA government called the plan "compensation" for the state's previous low shares, and stated the new formula would ensure its return to a budget surplus.[20]

At the 2019 federal election, the government campaigned on its GST solution in WA, as many of the state's sixteen seats were under threat from the opposition.[21]

Dissatisfaction with payments floor[]

WA recorded very low levels of infections by both national and international standards during the COVID-19 pandemic, allowing the state to live under only limited restrictions compared to the lockdowns seen in the eastern states. This resulted in little disruption to the state's economy relative to other states and territories, and combined with substantially increased iron ore royalties (one of the state's main exports that saw a substantial price rise in 2020 and 2021) led to the state recording the only surplus in the nation: $5.6 billion.[22]

On 4 August 2021, the Victorian Legislative Assembly established a public inquiry into the state's "share of federal GST funding".[23] The governments of Tasmania, the Australian Capital Territory, and South Australia all made submissions opposing the new model of distribution, while WA made a submission supporting the reform.[24] The inquiry is due to report on 30 March 2022.[25]

NSW Liberal Treasurer Dominic Perrottet called McGowan the "Gollum of Australian politics" and demanded a review of the GST floor;[26] Victorian Treasurer Tim Pallas claimed the GST formula was being "manipulated" in WA's favour at the expense of the other states,[22] and suggested the federal parties' support for the reform was intended to win support in Western Australia for the 2022 federal election.[27]

Perrottet became NSW Premier in October and said his government would pursue a new GST distribution scheme.[28] However, Morrison (who became leader of the federal Liberals and Prime Minister in August 2018) and Labor opposition leader Anthony Albanese both said they would not consider changing the formula implemented in 2018.[29] McGowan drew some media attention after joking he would take a spear to meetings with Perrottet during a press conference in which he dismissed the NSW complaint.[30][31]

South Australia also announced an inquiry into the distribution formula, which gained the support of the Victorian and Tasmanian state governments.[32] Treasurer Rob Lucas said the state government wanted the "no worse-off" guarantee to be permanent and the Productivity Commission inquiry scheduled for 2027 to be brought forward.[33]

References[]

  1. ^ Reinhardt, Sam; Steel, Lee (4 September 2006). "A brief history of Australia's tax system". Treasury.gov.au. Department of the Treasury. Archived from the original on 19 May 2021. Retrieved 13 October 2021.
  2. ^ Freeman, Greg (14 June 2018). "Fiscal Equalisation". CGC.gov.au. Commonwealth Grants Commission. Archived from the original on 11 April 2021. Retrieved 13 October 2021.
  3. ^ a b Jericho, Greg (13 April 2015). "Colin Barnett's GST rhetoric is finding blame for WA's shambolic budget". The Guardian. Guardian Media Group. Archived from the original on 8 November 2020. Retrieved 9 October 2021.
  4. ^ Prior, Neale (9 October 2021). De Ceglie, Anthony (ed.). "GST for Dommies". The West Australian. Perth: Seven West Media. p. 38. ISSN 0312-6323.
  5. ^ Grattan, Michelle (10 April 2015). "The wild west presents yet another taxing issue for Hockey and Abbott". The Conversation. ISSN 2201-5639. Archived from the original on 4 November 2021. Retrieved 1 November 2021.
  6. ^ a b c O'Connor, Andrew (13 August 2016). "'Every right to feel aggrieved': PM commits to GST review". ABC News. Australian Broadcasting Corporation. Archived from the original on 4 May 2021. Retrieved 9 October 2021.
  7. ^ a b c d e Gustafson, Iain (24 March 2017). "WA facing budget black hole as GST share revised down". ABC News. Australian Broadcasting Corporation. Archived from the original on 24 November 2020. Retrieved 9 October 2021.
  8. ^ Report on GST Revenue Sharing Relativities, 2017 Update (PDF) (Report). Canberra: Commonwealth Grants Commission. 10 March 2017. p. 2. ISBN 9780992395452. Archived (PDF) from the original on 6 March 2021. Retrieved 9 October 2021.
  9. ^ a b c Kagi, Jacob (22 March 2017). "New WA Premier urges PM to 'show backbone' on GST reform". ABC News. Australian Broadcasting Corporation. Archived from the original on 6 June 2017. Retrieved 9 October 2021.
  10. ^ O'Connor, Andrew (20 March 2017). "GST row flares as Turnbull challenges new WA Government". ABC News. Australian Broadcasting Corporation. Archived from the original on 19 June 2017. Retrieved 9 October 2021.
  11. ^ O'Brien, Chris (9 March 2017). "Pauline Hanson contradicts herself on GST share for WA, Queensland". ABC News. Australian Broadcasting Corporation. Archived from the original on 1 February 2021. Retrieved 9 October 2021.
  12. ^ a b Grattan, Michelle (5 July 2018). "Turnbull government says no losers in its new GST carve-up plan". The Conversation. ISSN 2201-5639. Archived from the original on 2 March 2021. Retrieved 24 January 2022.
  13. ^ Hutchens, Gareth (30 April 2017). "Scott Morrison orders review of GST distribution". The Guardian. Guardian Media Group. Archived from the original on 11 November 2020. Retrieved 9 October 2021.
  14. ^ Hutchens, Gareth (9 October 2017). "GST distribution: WA could gain billions in revenue at expense of eastern states". The Guardian. Guardian Media Group. Archived from the original on 12 November 2020. Retrieved 9 October 2021.
  15. ^ Langenberg, Adam (29 March 2018). "State Government to reject any change to GST share for South Australia". news.com.au. News Corp Australia. Archived from the original on 3 April 2018. Retrieved 9 October 2021.
  16. ^ Horizontal Fiscal Equalisation (PDF) (Report). Canberra: Productivity Commission. 15 May 2018. pp. iv–v. ISBN 9781740376587. ISSN 1447-1337. Archived (PDF) from the original on 10 September 2021. Retrieved 9 October 2021.
  17. ^ Wright, Shane (27 December 2017). "Victoria to fight WA on GST claim". PerthNow. Seven West Media. Archived from the original on 9 September 2018. Retrieved 10 October 2021.
  18. ^ Horizontal Fiscal Equalisation (PDF) (Report). Canberra: Productivity Commission. 15 May 2018. p. 236. ISBN 9781740376587. ISSN 1447-1337. Archived (PDF) from the original on 10 September 2021. Retrieved 9 October 2021.
  19. ^ Freebairn, John (6 July 2018). "Why the government will be sending more GST funding to Western Australia". The Conversation. ISSN 2201-5639. Archived from the original on 19 March 2021. Retrieved 9 October 2021.
  20. ^ Perpitch, Nicolas; Laschon, Eliza (5 July 2018). "WA will finally get a GST boost and here's how it's going to work". ABC News. Australian Broadcasting Corporation. Archived from the original on 10 November 2019. Retrieved 9 October 2021.
  21. ^ Tingle, Laura (2 May 2019). "In this election, WA is in play on a scale not seen for some years". ABC News. Australian Broadcasting Corporation. Archived from the original on 14 September 2019. Retrieved 24 January 2022.
  22. ^ a b Kehoe, John (10 September 2021). "WA's GST windfall: 'McGowan is the Gollum of Australian politics'". Australian Financial Review. Nine Entertainment Co. ISSN 1444-9900. OCLC 1131035760. Archived from the original on 23 September 2021. Retrieved 9 October 2021.
  23. ^ "Terms of reference – Inquiry into Commonwealth support for Victoria" (PDF). Parliament of Victoria. Victorian Legislative Assembly. 4 September 2021. Archived (PDF) from the original on 10 October 2021. Retrieved 10 October 2021.
  24. ^ "Submissions - Inquiry into Commonwealth support for Victoria". Parliament of Victoria. Victorian Legislative Council. Retrieved 24 January 2022.
  25. ^ "Report - Inquiry into Commonwealth support for Victoria". Parliament of Victoria. Victorian Legislative Assembly. Retrieved 24 January 2022.
  26. ^ Wright, Shane (5 October 2021). "No deal: Perrottet plea for GST change rebuffed". The Sydney Morning Herald. Nine Entertainment Co. ISSN 0312-6315. OCLC 226369741. Archived from the original on 16 October 2021. Retrieved 20 October 2021.
  27. ^ Gordon, Josh (18 December 2021). Alcorn, Gay (ed.). "Victoria furious over GST transfer to WA". The Age. Nine Entertainment Co. ISSN 0312-6307. Retrieved 24 January 2022.
  28. ^ Nilsson, Anton (6 October 2021). "'Danger': Premier calls for backup". news.com.au. News Corp Australia. Archived from the original on 7 October 2021. Retrieved 9 October 2021.
  29. ^ Lewins, Dean (5 October 2021). "'Stop whingeing': Mark McGowan scolds Dominic Perrottet over GST stoush". ABC News. Australian Broadcasting Corporation. Archived from the original on 8 October 2021. Retrieved 9 October 2021.
  30. ^ Zaczek, Zoe (8 October 2021). "WA Premier poses with spear, asks Perrottet to 'take me on' amid GST row". Sky News Australia. News Corp Australia. Archived from the original on 8 October 2021. Retrieved 11 October 2021.
  31. ^ Elton, Charlotte (7 October 2021). "McGowan's spear-wielding challenge to new NSW Premier". The West Australian. Seven West Media. ISSN 0312-6323. Archived from the original on 10 October 2021. Retrieved 11 October 2021.
  32. ^ Law, Peter (29 October 2021). De Ceglie, Anthony (ed.). "New fight on the GST". The West Australian. Seven West Media. p. 9. ISSN 0312-6323. Archived from the original on 29 October 2021. Retrieved 1 November 2021.
  33. ^ Polychronis, Gabriel (28 July 2021). "Treasurer Rob Lucas tells Budget Estimates Committee he will launch independent review into Australia's GST system". The Advertiser. News Corp Australia. Archived from the original on 24 January 2022. Retrieved 24 January 2022.
Retrieved from ""