Dean Smith (WA, Liberal Party) Share this | Hansard source

It's hard to know where to start. Just 12 months ago I stood in exactly the same seat to introduce a private senator's bill that led to the introduction of same-sex marriage. Over the last few years as a senator for Western Australia, I've committed myself to the resolution of a number of issues that I have considered important not just to the make-up of our country but also to the future direction of Western Australia. I'm particularly proud to be able to stand here today as a member of the coalition government led by Scott Morrison, who was the Treasurer not so long ago, and to almost bring to a close this debate about legislation that will bring reform to the goods and services distribution arrangements in Australia and, in doing so, mark perhaps one of the most significant reforms to federal-state financial relations that the country has seen.

Before I provide a brief overview of the long campaign, the long road that has been GST distribution reform in this country, I thought I might just detail exactly what it is that the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Bill 2018 seeks to do. This bill will amend the Commonwealth Grants Commission Act 1973 and the Federal Financial Relations Act 2009 to give effect to key elements of the government's interim response to the Productivity Commission's inquiry report Horizontal fiscal equalisation. The key elements of the government's interim response include: transitioning the horizontal fiscal equalisation system from full equalisation, equalised to the strongest state or territory, to reasonable equalisation, equalised to the stronger of New South Wales and Victoria; introducing a minimum goods and service tax revenue-sharing relativity—or the GST relativity floor, as it's known—that may be determined by the Treasurer for any individual state or territory; and permanently boosting the GST revenue pool with additional Commonwealth financial assistance. The following elements of the government's interim response are given effect under existing laws: providing short-term transition payments to any state or territory with a GST revenue-sharing relativity factor below 0.7; and providing short-term transition payments to the Northern Territory if its revenue-sharing relativity falls below its determined relativity factor for 2017-18. The bill introduces a guarantee that each state and territory will get the better of the current distribution system and the updated distribution system during the transition period.

In the six years that I have been a senator, I think there have probably only been two moments more significant than this in shaping the framework of Australia's federal system of government. One, I would argue—others might differ—was the reforms to the Senate voting system that were introduced and agreed by the Senate in advance of the 2016 federal election. Of course, for those of us that can remember, it was the opposition that some coalition senators led to the Rudd plan to amend the Commonwealth Constitution to provide recognition for local government. That was a debate that raged inside the coalition under the leadership of Tony Abbott first. It was a debate that we had in this Senate chamber. If I recall correctly, eight coalition senators, including me, opposed that referendum proposition on the basis that it would undermine the federal nature of our system of government, not enhance it.

The debate that has been raging in regard to the GST distribution arrangements as they affect Western Australia is not a new one. What demonstrates the shallowness of Labor's understanding of this issue thus far is that they have failed to recognise the contribution of one important person, the person who called out this issue first in 2007. That was none other than Eric Ripper, the Labor Treasurer of the Western Australian state government at the time. The Hansard in the Western Australian parliamentary record makes it very clear that he drew the attention of Western Australians to this issue first. Then, over the next 10 to 11 years, the level of understanding and the level of anxiety started to grow in our home state of Western Australia because it dawned on Western Australians, at a time of tremendous growth in our state, that the GST system wasn't allowing Western Australia to be the best and strongest it could be.

Coalition senators, aided and supported by people like Colin Barnett and—I'll be the first to admit; I'm happy to say this—the chorus of Western Australians that built over the last number of years from Kununurra to Esperance in the north and the south out across to Perth and Kalbarri and all the suburbs in between, led this and deserve to have the fullest recognition given them for standing firm, standing strong and making sure that their voices were heard very loudly both in this Senate chamber and in the government at the time. John Howard himself has made it crystal clear that, while people absolutely expected there to be fluctuations in the GST distribution arrangements and the relativities that were borne out of that over time, no-one foresaw the magnitude of the variances that the GST distribution system would deliver and no-one could foresee the magnitude of the GST relativity as it would affect Western Australia during a time of tremendous economic activity.

It's worth reminding people of those relativities, which were most recently announced by the Commonwealth Grants Commission and approved by the government, and reflecting on them. It takes tremendous courage for senators from the Northern Territory and Tasmania to come into this Senate chamber and argue GST distribution issues, because the system quite rightly provides the most generous arrangements for them. What did the GST relativities in the most recent announcements mean for our country? For New South Wales the relativity fell from 88c to 86c in the dollar, but that still meant that New South Wales would get $18 billion, or 27.4 per cent of the GST pool. For Victoria the GST relativity meant that it would rise from 93c to 99c, meaning Victoria would get $16.8 billion, or 25.6 per cent of the GST pool. The Northern Territory is taking home $4.26, Tasmania $1.77, South Australia $1.48, the ACT $1.18, Queensland $1.10 and my home state of Western Australia went from 34c cents to 47c, meaning a GST revenue of $3.3 billion, or 4.9 per cent.

That's worth reminding ourselves of, because what makes this particular initiative so profound is that, when this debate started, much of the hand-wringing revolved around that almost intractable issue: how do you correct a very obvious anomaly in the GST distribution arrangements which left Western Australia with just 30c in the dollar without unnecessarily penalising other states and territories? It's a great testament to the creative thinking of Treasury officials and of this government that they were able to craft a solution that not only benefits Western Australia to the tune of $4.7 billion but also leaves no state worse off and has left many states in a slightly better position. When this debate started, that was an impossible dream, but since then over time we've seen some hard-headedness and persistence on the part of Western Australians and a willingness on the part of Scott Morrison as Treasurer and as Prime Minister to make sure this deal could work in the national interest.

I acknowledge the contribution of the Productivity Commission. I was someone that argued very early that the Productivity Commission should be trusted as the independent umpire over this issue. The Productivity Commission process was very transparent. It had demonstrated a great capacity to handle and come to conclusions on important macroeconomic and microeconomic issues across Australia. That Productivity Commission process of taking submissions, preparing a draft report, making that draft report available to the community and again using the contributions and submissions of others in coming to a final proposition made the Productivity Commission absolutely well suited to the task of trying to find a way through what many thought was intractable and many thought was an impasse.

It's important to acknowledge that this is not a campaign or an argument that only Western Australians have made. In fact, I argue that at critical points the great bulk of the country, led by the governments of Queensland, Victoria and New South Wales, was arguing for reform. You only have to look at the history and the submission processes and the various reviews that were undertaken prior to the Productivity Commission's inquiry to see that many states, under various political leaderships, had been arguing that the GST system, as it was then constructed, was not working for them. There were words like 'opaque', 'seriously flawed', 'inequitable' and 'perverse outcomes'. This was the language that other state governments were using to describe the GST distribution arrangements. So, rather than this being an issue of concern just to Western Australia, I argue that over the last few years other states also recognised that the GST distribution arrangements that had previously worked were not suitable for the future and were not fit for purpose in making sure that the Australian economy was as robust as it possibly could be.

In the contributions from Labor senators particularly—particularly those from Western Australia—in the course of this debate, we've heard a lot of commentary, a lot of partisan commentary, about the performance of the Barnett government and the financial management of Premier Barnett and his team at the time. It's important to understand the broader context in which Colin Barnett and the Liberal government were governing in Western Australia. It's only when you understand the broader context that you can properly understand the very real challenges that were facing Western Australia. Again, I highlight this particular point: Western Australia went to 30c in the dollar. Over the first 10 years of the distribution system, no state fell below 86c. In the last five years, no state has fallen below 88c. But, in the last five years, Western Australia has dipped to as low as 30c in the dollar.

What is particularly concerning about that is not just that Western Australia went to 30c but that the Commonwealth Grants Commission itself said it was 'totally conceivable'—its words—that a relativity could fall to zero, and, in the Commonwealth Grants Commission's own words, the fairness of that would depend on where you sat. So here we have the Commonwealth Grants Commission performing its function very well, theoretically, but being blind to the real consequences that state governments would have to face as a result of serious dips or serious changes in their GST relativity—and heaven forbid that any state should ever have got to zero. The fact that the Commonwealth Grants Commission was unrelenting in that view that applied only a theoretical lens to the issue of distribution was, to me, significant cause for concern.

Claims by Labor, particularly Labor senators from my home state of Western Australia, that WA's budget was mismanaged by the former Liberal-National government fail to recognise the effect that the failed GST formula has had on Western Australian finances. During the period of the Barnett government, the population of the state of Western Australia grew by over 400,000 people. Putting that into a context that Tasmanian Senators Brown, Polley, Urquhart and Whish-Wilson will understand, that is nearly 80 per cent of the population of Tasmania. This led to a significant increase in demand on services provided by the state government and a need for major infrastructure improvements to ensure that services met community expectations.

Between 2008-09 and 2015-16 the government invested over $51 billion in its Asset Investment Program, with the 2016-17 budget set to spend another $5.9 billion. You only need to look to the outer suburbs of Perth—I note that the Deputy President, Senator Lines, from Western Australia, is here—to see the expenditure on new schools and transport infrastructure; visit a regional town like Karratha, like I do, to see the transformation of health and education facilities; or drive past the new Perth Children's Hospital, the Fiona Stanley Hospital, the Midland hospital or the Joondalup Health Campus to see where that infrastructure money was spent by the Barnett government. I challenge Labor to point out which one of these major pieces of infrastructure shouldn't have been built, or doesn't need or deserve to be the focus of Western Australia's infrastructure build.

In regard to recurrent expenditure, it's not too hard to see why the government ran a deficit of nearly $2 billion in 2016-17. In 2016-17, WA received less than $2 billion in GST, a share of just over 30c in the dollar, as I have already highlighted. In that same year, around $4.7 billion of GST revenue was being redistributed to other states. State governments, as senators would be aware, provide the majority of funding for health, education, and law and order. The government chose not to make massive cuts to these services, which would have been up to nearly 10 per cent across the board. It decided instead to run a deficit. This is not financial mismanagement but an understanding that the services could not sustain the cuts without significant reductions in the services that could be delivered. This GST solution ensures that the state will never face the same circumstances again.

In the very brief time that's available to me, I do want to acknowledge the contribution of a few people who aren't in this Senate chamber any more. The only person to bring forward a private senator's bill to reform the GST was Senator Dio Wang from Western Australia, who is no longer here. I acknowledge Senator Dio Wang's contribution. The other is Senator Joe Bullock, Labor senator for Western Australia, who, early on, went on the public record arguing for reform of the GST distribution arrangements. In all fairness, I think it is important to acknowledge his contribution as well.

As I like to say, this chapter is not the end of a debate about federal-state financial reform in our country but the beginning of that debate. What we have seen in this debate is a desire on the part of states and territories to have much greater independence and autonomy in how they raise money and spend money. As a very, very strong federalist I think that is a debate we need to have and continue to have in this country. The debate about the GST is not just about distribution, though that is the element of the debate that has occupied much of our time; it is also about the base and it is about the rate. I stand resolute that, by broadening the base of the GST, you can keep the rate low. As a senator who wants to see low taxes in our country I don't argue for an increase in the GST rate, but I do argue for a broadening of its base.

This is a demonstration again of what the Australian Senate can do on behalf of the states and territories that senators represent. This should be a very, very powerful message to every senator that standing up for the interests of your state, your constituency, will not get you punished by your electorate but actually get you rewarded by your electorate. Western Australians want to make sure that their senators are vocal, and have a strong voice, in the Senate. This legislation is a demonstration that that can be done. This legislation deserves the fullest possible support, from every senator in this place.