Michaelia Cash (WA, Liberal Party) Share this | Hansard source

I rise to address an issue that is relevant to Western Australia. It follows the announcement by the Commonwealth Grants Commission that Western Australia is to receive a $311 million cut in its share of GST revenue for 2009-10. This is set out in the Commonwealth Grants Commission’s Report on state revenue sharing relativities 2009 update, which was tabled in the Senate last Thursday. This cut in Western Australia’s share of GST revenue for 2009-10 represents an 8.9 per cent reduction in the amount estimated in the 2008 relativities update and comes on top of a reduction of $326.7 million last year as a result of the 2008 relativities update. This is well below our state’s population share of more than 10 per cent.

The GST revenue grants made by the Commonwealth to the states and territories are provided under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations agreed in June 1999 between the Commonwealth and the states. These GST revenue grants represent the most important and indeed the greatest single source of revenue for the states and territories. The 2008-09 Western Australian budget papers indicate that in 2008-09 Western Australia’s GST revenue would represent approximately 19 per cent of total revenue. It is, therefore, obvious that any reduction in this state’s share of the GST has a significant impact on the state’s capacity to provide the infrastructure and services required by our resource based economy.

I recognise that the Commonwealth Grants Commission recommendations for the distribution of GST revenue to the states and territories are based on the principle of horizontal fiscal equalisation and that in implementing the equalisation the Commonwealth Grants Commission states that ‘assessments are based on the average expenses incurred by states to provide services and the average revenues collected from their taxes and charges’. However, the situation is becoming unsustainable for Western Australia. So much so that, within three years, for every GST dollar that Western Australia contributes we will get a return back to us of only 57c. The Commonwealth Grants Commission justifies their analysis and reasons for their recommendations in relation to Western Australia on the basis that:

In the last update—

being the 2008 update—

Western Australia became the State with the strongest fiscal capacity, replacing New South Wales. In this update, its relative capacity increased further.

                  …              …              …

The continued strengthening of the relative capacity of Western Australia …to raise revenue from their own sources, has led to a compensating redistribution of the pool away from them to other States, notably New South Wales.

Based on the 2009 relativities, last year in the 2008 update Western Australia had the highest average fiscal capacity and this fiscal capacity has further strengthened in this latest 2009 update. The relativities update report notes that this change occurred because of a further rise in Western Australia’s relative revenue-raising capacity. WA’s relative costs of providing services and its share of Commonwealth payments were almost unchanged. The resulting overall change in its relative fiscal capacity reduces, amazingly, its share of the GST by $311 million.

It is already the case that Western Australia’s net fiscal contribution to the Commonwealth is rising dramatically. In the 2007-08 Economic and Fiscal Overview, which is one of WA’s annual budget papers, it was noted that in the fiscal year 2005-06 the Commonwealth took $5 billion more out of Western Australia, through its own taxes, than it put back into the state through grants and other spending. This was up $1 billion in fiscal year 2006-07 due to the increased company taxes from Western Australia. Given that this trend is continuing, it is no surprise that the Premier of Western Australia, Colin Barnett, is calling for changes to the current formula that is used by the CGC to determine state and territory relativities.

I note that the current Commonwealth Grants Commission five-year review is due to report to the government in February 2010. It is critical that the Commonwealth Grants Commission recognise the flaws that exist in the present system. WA’s 2007-08 Economic and Fiscal Overview budget paper lists some of the obvious flaws in the Commonwealth Grants Commission process, including the following:

• the Grants Commission does not recognise costs of State initiatives specifically aimed at promoting economic development …
• … any of the interest costs of financing the infrastructure investment needed to cater for the State’s rapid … economic growth …

and:

• the Grants Commission has not fully recognised costs in remote areas, due to distance from the capital city, higher demands on public health services from a lack of general practitioners, and the cost of subsidies to ensure affordable electricity services.

But the need for changes to the distribution formula is not restricted to Western Australia; other states have actually come out in support of a review. We say that Western Australia continues to be penalised for the work it has done in the past in encouraging mineral and petroleum exploration which has now matured into economic benefits for the whole of Australia. We say that the current Commonwealth Grants Commission formula fails to take into account the real costs of economic success and, in its present form, has the effect of rewarding failure or nonachievement, rather than rewarding success and recognising the costs associated with achieving economic success.

The fact that the relativities are based on a five-year rolling average means that, notwithstanding the fact that the mineral boom has come to an abrupt end in Western Australia, our past economic success will actually count against us for at least the next three years. This lag created by the five-year rolling average means that Western Australia be penalised for its economic success for years after the mineral boom in the state has ended.

We need a Commonwealth Grants Commission formula that rewards best performance and embraces the principles and concepts of competition and productivity. This formula must avoid ambiguity and be able to respond promptly to changes in economic issues and changing economic circumstances. Success must be encouraged and rewarded; failure must be discouraged. There is no doubt that the current Commonwealth-state financial relations need urgent review if we are to be satisfied that the Commonwealth Grants Commission’s methodologies and processes meet the tests of equity, ease, effectiveness, efficiency and transparency.

In 2001 Western Australia joined New South Wales and Victoria in commissioning Professor Ross Garnaut and Dr Vince FitzGerald, both respected economists, to conduct a comprehensive review of Commonwealth-state financial arrangements. The report, titled Review of Commonwealth-state funding, was published in 2002 and contains significant research and recommendations on the improvements needed to make Commonwealth-state financial arrangements more effective and efficient and beneficial to the people of Australia. There is clearly much to be done to address many of the issues and recommendations in the report. But I reiterate: we need a Commonwealth Grants Commission formula that rewards best performance and embraces the principles and concepts of competition and productivity.