The GST carve up

[stormee]

Ok... once again a WA related rant. But seriously I hope those not in WA can see why it is frustrating to have funds stripped from a state in the manner it is being stripped from WA.

Resources and minerals are a state resource. This is a constitutional right. To therefore have the gst committee 'reallocate' money because WA is making more in mineral royalties is infuriating. According to this article http://www.perthnow.com.au/business...-by-gst-carve-up/story-e6frg2qc-1226280884770 WA recieves 55% of its revenue back. this is laughable. How in the world is the state supposed to further infrastructure projects and therefore further increase its ability to economically contribute to the nation if it is being short changed so badly?

another issue is the fact that this makes it extremely difficult for WA Treasury and their forward estimates. Treasury need to include GST revenue in their estimates so as to forward estimate budgets. When WA recieves far less than the most conservative estimates then how is Treasury to balance the budget and pay for what is promised to State Government agencies?

Whilst I understand that we live in a federation and nothing will always be fair, I think perhaps there should be a minimum cap on GST funds returned to states - perhaps 70% except in exceptional circumstances. This would still allow for flexibility and stronger states to subsidise weaker states but not lead to the current farcical situation where one state is being ridiculously short changed because of its resource wealth (which is nothing to do with the federal government in any case).

I realise inherent state bias comes into this argument and will also come into opposing arguments, but I'd like to hear what everyone thinks.

 

[Scotland]

'But we propped you up since federation...'

How is it hard for WA to do forward estimates if they know today that we're only going to get back 55c in the dollar?

It's a joke that get such little return based on the fact we have high mining royalties when don't get the same benefits as other states (high payroll taxes in service industry states, higher tourism income, preferential govt. investment etc.) but it is what it is. I say support the RSPT/MRRT and hike state royalties to high heaven.

 

[Caesar]

WA is one of only two states that refuses to honour its original commitment to phase out state taxes after the introduction of the GST.

It's a bit rich complaining that you don't receive your fair share of GST when the capacity to raise revenue that the apportionment is based on includes the benefit you derive from taxes you aren't supposed to be levying in the first place.

 

[Eastern Rangers]

From a national development perspective it's just poor form.
WA will have a better chance of paying it's fair share of GST revenue into the future if the state is allowed to develop on the back of it's own wealth. Much like Victoria and NSW where allowed to do for a long time.

 

[The_Reaper]

WA is one of only two states that refuses to honour its original commitment to phase out state taxes after the introduction of the GST.

It's a bit rich complaining that you don't receive your fair share of GST when the capacity to raise revenue that the apportionment is based on includes the benefit you derive from taxes you aren't supposed to be levying in the first place.

But since we aren't receiving a $1 for every $1 of GST then we lose money by phasing out the state taxes.

 

[Admiral Byng]

WA is one of only two states that refuses to honour its original commitment to phase out state taxes after the introduction of the GST.

It's a bit rich complaining that you don't receive your fair share of GST when the capacity to raise revenue that the apportionment is based on includes the benefit you derive from taxes you aren't supposed to be levying in the first place.

Which state taxes, and who is the other state?

 

[Caesar]

But since we aren't receiving a $1 for every $1 of GST then we lose money by phasing out the state taxes.

Not neessarily - by phasing out the taxes, your projected internal revenue raising ability is reduced (which is what your GST share is based on). So you'd get a higher percentage of GST back. Which is what you're complaining about.

Whether after that your overall revenue situation would be net positive or net negative from the current situation, I have no idea. But frankly it is a little beside the point. You agreed to phase the taxes out when you signed up in 1998.

Which state taxes, and who is the other state?

I can't remember them all, but there were 9. At last count WA had abolished 2 (I think they were accommodation tax and FID) and had no intention of getting rid of the other 7.

The other state is NSW, which ironically is the other state besides WA which whinges loudest about how little they get back.

 

[jonoman89]

If WA did receive a higher share of its' GST contributions wouldn't that create even more a two-track economy and ultimately harm both coasts? WA is already experiencing growing pains at it's current growth levels. Would a 90%+ share really benefit the state?

On a more serious note, I think we can all agree to forcibly remove Tasmania from the federation due to their GST drain.

 

[Admiral Byng]

If WA did receive a higher share of its' GST contributions wouldn't that create even more a two-track economy and ultimately harm both coasts? WA is already experiencing growing pains at it's current growth levels. Would a 90%+ share really benefit the state?

I think it would. About 75% of Western Australians live in Perth. We don't have any big regional cities. We need to develop places like Hedland and Karratha from mining towns into cities. We can't go on relying on FIFO forever. Development of the north is what's going to ease the growing pains, but it's going to take a lot of money, it wouldn't be good if we had to do it all on debt. It's not like the money would be spent on giving every West Aussie an ivory back-scratcher. There's some serious investment needed in this state, dare I say it, it will be nation-building stuff, not just state-building.

 

[jonoman89]

But how could the RBA enforce efficient monetary policy to benefit all Australians if the growth levels and money pouring into WA are completely off the richter compared to the Eastern states?

Significantly bumping up the GST return in WA could very well drive the Eastern states into a publicly-driven recession (or near-recession) could it not? That's political suicide.

 

[Eagle87]

WA is one of only two states that refuses to honour its original commitment to phase out state taxes after the introduction of the GST.

It's a bit rich complaining that you don't receive your fair share of GST when the capacity to raise revenue that the apportionment is based on includes the benefit you derive from taxes you aren't supposed to be levying in the first place.

How unlike you to wander into THIS topic. To do so based on untruths and vague assertions as to it being WA's fault somehow, I think says much.

I'll get onto the factual errors in your post shortly but the notion that starving WA of revenue that it could invest in genuinely productive and much needed infrastructure (which even you have agreed in the past is much needed there) is remotely reasonable is clearly errant nonsense. To punish WA for its high revenue from mining royalties is clearly undermining its revenue base and its to the detriment of the rest of the country to starve the productive part of the country and instead prop up Tassie (for example). Tassies issues are largely a product of its own making, it has scared off and actively discouraged industry for years, but its ok, WA will pick up the tab. It's a disgrace.

The article makes it clear exactly what is happening I.e. WA is losing out on what is a reasonable share of GST revenue because it's successful in other areas. Perhaps the vengeance Wayne Swan promised is being delivered?

On the "points" you raise, you are wrong. Again.

All states signed agreements in 1999 to remove FID, BAD and stamp duty on marketable securities by agreed dates. That was done.

In addition, State Governments agreed to review the need to retain some other taxes by 1 July 2005: debits tax and stamp duty on a number of transactions, particularly the sale of business property.

The states made no commitment to remove those taxes but rather to review them

On 20 April 2005, some of the State Treasurers proposed that they would abolish some of the reviewable taxes on a fairly slow timetable. NSW & WA did not sign up to that agreement at all for reasons that included the effective transfer of state taxation to Canberra as evidenced (even then) by the distribution of GST revenues.

The big reviewable tax was stamp duty on business property which was left out of the agreement anyway. So it was effectively an agreement by some states to review and remove some stamp duty on some transactions. By the way, WA pointed out that one of its reasons for not agreeing was it's lack of pokies and it's lack of revenue from and reliance on the taxes that arise from that. But you'd have them punished for that.

I'll await your concession as to the post I've quoted being errant nonsense and then perhaps, from that more accurate base, we can all have a sensible discussion....

 

[Eagle87]

But how could the RBA enforce efficient monetary policy to benefit all Australians if the growth levels and money pouring into WA are completely off the richter compared to the Eastern states?

Significantly bumping up the GST return in WA could very well drive the Eastern states into a publicly-driven recession (or near-recession) could it not? That's political suicide.

So whether it's better, in the long run, to invest money in productive sectors over less productive sectors is a decision that should be purely based on the politics of it?

Ive understood over the years why there has been more money, infrastructure and facilities in NSW & Victoria because they were the engine room, and often people from elsewhere within Auatralia looking for opportunities had to move to where those opportunities are .... What's wrong with pouring the money, infrastructure and facilities into the current and future engine rooms and having some sort of plan that encourages the masses (the voters) to move where those opportunities would then be?

I mean propping up the dead or dying areas of the country to the detriment of the productive parts may be smart short term politics but it's a recipe for longer term pain, perhaps?

 

[linga_is_no1]

WA is one of only two states that refuses to honour its original commitment to phase out state taxes after the introduction of the GST.

It's a bit rich complaining that you don't receive your fair share of GST when the capacity to raise revenue that the apportionment is based on includes the benefit you derive from taxes you aren't supposed to be levying in the first place.

The GST was meant to be the saviour of the states, who have always struggled to raise revenue. Quite simply it has not worked, if WA were to get rid of state taxes like stamp duty etc the state would not able to provide key services.

The key problem with state finances is the lack of funds given to the states by the Feds who are responsible for most government revenue raising. What needs to happen is reform which brings spending and taxation into line. The states spends most of the money, so they should have the ability to raise the money. I think giving income tax to the states would improve government services beyond belief. For the first time state governments would actually have money to spend on their people, instead of begging for handouts by Canberra.

It's not rich for WA to be complaining, because WA needs to provide key services to people and the Federal government has always acted as a roadblock to this cause.

Australians voted in 1901 for a 'fair federation', the will of the people needs to be respected.

 

[jonoman89]

So whether it's better, in the long run, to invest money in productive sectors over less productive sectors is a decision that should be purely based on the politics of it?

No, not at all. But that's the reality of the situation is it not? The majority of the population lives on the east coast. The majority of government funding will therefore go to the east coast.

The GST wasn't designed to be a one-for-one return. By the nature of our federal system it is inevitable that some states will pull more weight than others. Victoria, though not to the same extent, does not receive all its investments back. If WA received 92% return like VIC does the WA economy would be on steroids more than it is now. How on earth could the RBA, for instance, manage an effective, nation-wide cash rate if the economic indicators of each coast are vastly different?

The Commonwealth has huge control over state funding. If it's the Commonwealth, AKA the elected representatives of every state, who control state funding in such an enormous way it is inevitable that the profits will be allocated towards the more populous regions for political capital.

 

[Caesar]

All states signed agreements in 1999 to remove FID, BAD and stamp duty on marketable securities by agreed dates. That was done.

In addition, State Governments agreed to review the need to retain some other taxes by 1 July 2005: debits tax and stamp duty on a number of transactions, particularly the sale of business property.

The states made no commitment to remove those taxes but rather to review them

Falderal. At COAG 1998, all premiers - including Court - gave an unambiguous commitment to eliminate all the taxes according to a fixed timetable.

This pretence that they 'only ever agreed to a review' of some of the taxes was never anything more than an opportunistic interpretation of some of the (admittedly less-than-clear) wording in the agreement signed a year later.

Costello rightly slammed them for going back on their word.

 

[Eagle87]

Falderal. At COAG 1998, all premiers - including Court - gave an unambiguous commitment to eliminate all the taxes according to a fixed timetable.

This pretence that they 'only ever agreed to a review' of some of the taxes was never anything more than an opportunistic interpretation of some of the (admittedly less-than-clear) wording in the agreement signed a year later.

Costello rightly slammed them for going back on their word.

Bollocks.

The agreement signed by all states in 1999 has been followed. A commitment to review, over time, is not a commitment to remove.

Your statement that WA & NSW have failed to honour a commitment is wrong. To the extent that "all the states gave an unequivocal commitment to eliminate all the taxes" (whatever the hell all the taxes means) then frankly all the states haven't complied.

So you are either wrong or you are wrong.

 

[Caesar]

The agreement signed by all states in 1999 has been followed.

Even if that is what you believe, you cannot deny that a year earlier at COAG the premiers committed to removing all nine of the specified taxes and charges according to a specified schedule. It is simply the facts of the matter.

You may think that commitment means nothing in light of the 1999 agreement. Nonetheless, a commitment was made.

 

[Eagle87]

No, not at all. But that's the reality of the situation is it not? The majority of the population lives on the east coast. The majority of government funding will therefore go to the east coast.

Well yes, but we arent talking about the majority we are talking about equitable shares.

The majority should be raised where the majority are which is the east coast, why WA should accept 55% which is (I believe) 25% less than any other state has ever received of a tax that is supposed to replace state taxes is hard to grasp...

The GST wasn't designed to be a one-for-one return. By the nature of our federal system it is inevitable that some states will pull more weight than others. Victoria, though not to the same extent, does not receive all its investments back. If WA received 92% return like VIC does the WA economy would be on steroids more than it is now. How on earth could the RBA, for instance, manage an effective, nation-wide cash rate if the economic indicators of each coast are vastly different?

So we are deliberately sandbagging WA to make life easier for, say, Tasmanians?

We should maybe do that to China too. Slow them down to make manufacturing in England more palatable. Or alternatively we could support our new engine room the way we supported our old ones and we could get disgruntled folk and businesses to move where the action is?

Which would also solve "the voters are in the struggling states" political dilemma...

The Commonwealth has huge control over state funding. If it's the Commonwealth, AKA the elected representatives of every state, who control state funding in such an enormous way it is inevitable that the profits will be allocated towards the more populous regions for political capital.

Obviously. What I'm trying to figure out is whether that's in your view, desirable.

We all know why this happens the OP was asking if it should.

 

[Caesar]

We should maybe do that to China too. Slow them down to make manufacturing in England more palatable. Or alternatively we could support our new engine room the way we supported our old ones and we could get disgruntled folk and businesses to move where the action is?

China and England aren't part of a federated nation with almost a century of commitment to both horizontal and vertical fiscal equalisation.

 

[The_Reaper]

Even if that is what you believe, you cannot deny that a year earlier at COAG the premiers committed to removing all nine of the specified taxes and charges according to a specified schedule. It is simply the facts of the matter.

You may think that commitment means nothing in light of the 1999 agreement. Nonetheless, a commitment was made.

Seperate issue but is this similar to Federal government commitments to help pay for Native Title?

 

[Caesar]

No idea what the deal is with financing native title.

 

[jonoman89]

So we are deliberately sandbagging WA to make life easier for, say, Tasmanians?

Because we live in a federation of states. It was always going to be the case that certain states helped other states. That's just the nature of the game, and the disadvantage of our system for wealthier parts of the federation.

We should maybe do that to China too. Slow them down to make manufacturing in England more palatable. Or alternatively we could support our new engine room the way we supported our old ones and we could get disgruntled folk and businesses to move where the action is?

Straying off-topic a bit here. England and China aren't individual pieces of a united Commonwealth.

Obviously. What I'm trying to figure out is whether that's in your view, desirable.

We all know why this happens the OP was asking if it should.

I think it is desirable to a certain extent. I don't think living standards or economic conditions should be allowed to be poles apart for each State. If the GST rebates were one-for-one (I'm not suggesting that's your position) the average wage in WA and QLD would most likely be poles apart from that of TAS.

Not only is that unfair considering the sovereignty each state has surrendered to join the Commonwealth, it would cause issues for even the wealthier citizens. A two-speed economy could lead to serious problems. How could the government, for instance, stimulate economic growth in lagging states whilst not cause serious inflammatory issues for WA?

There are common interests for each state to be relatively on-par with each other. Both economic and social.

I agree that WA does cop it a bit too much, especially considering the amount of infrastructure which it is clearly lacking. But I would support increased public spending in WA to create more economic fortune for the country as a whole, not just WA.

I can't help but feel a significant slice of this GST issue is the classic parochial "west vs east" siege mentality some West Australians have.

 

[Eagle87]

China and England aren't part of a federated nation with almost a century of commitment to both horizontal and vertical fiscal equalisation.

Well, yes, thanks for (deliberately) missing the point...

You reckon Australia is putting its best long term economic foot forward by investing in inner (and outer city) infrastructure in Sydney and Melbourne rather than in the North of WA?

Of course you don't but that's the impact of allocating national resources inaproprietarily ...

 

[Eagle87]

Even if that is what you believe, you cannot deny that a year earlier at COAG the premiers committed to removing all nine of the specified taxes and charges according to a specified schedule. It is simply the facts of the matter.

You may think that commitment means nothing in light of the 1999 agreement. Nonetheless, a commitment was made.

It's not what I believe, it's a quantifiable fact.

The taxes the states agreed to remove in writing in 1999 have been removed. What people may or may not have said, no doubt subject to a range of factors, is neither here nor there. Anyone who asserts that a member of the Court family unequivocally gave that sort of commitment to Canberra without some form of quid pro quo simply doesn't understand the Court family or is misrepresenting history...

Regardless, you started this by stating categorically that 2 states reneged on a commitment. I've shown that to be untrue. In addition, how many of the other states removed all 9 of those taxes (which includes stamp duty on business property), if the answer is zero - which it is, they all have reneged on that verbal commitment - at last count, all includes more than just WA & NSW. But hey, you keep shifting around and deflecting and maybe people won't notice that you were talking out of your arse ...

 

[Clay Davis]

If the big mining corps continue with their plan for automation then maybe its a waste of time for govt to invest in the North West of WA.