Louise Pratt (WA, Australian Labor Party, Shadow Minister for Environment and Water (Senate)) Share this | Hansard source

I welcome this long overdue change to the GST distribution scheme, which Western Australian Labor has been fighting for for a long time. I pay tribute to Premier Mark McGowan and his government on their advocacy and fighting for this change and working with federal Labor to get workable change on the national agenda—advocacy that I must say was sorely lacking from the Barnett government, but perhaps he knew at the time that it would fall on deaf ears. It has been unfathomable to me, with the number of WA cabinet ministers in the current government, why this issue remained unaddressed for so long. I commend Bill Shorten and Chris Bowen for putting forward solutions and for committing to a legislated floor. These strong commitments have helped induce action from the current government.

As we know, the GST was introduced in 2000 as a way to raise revenue to support the states and territories. The money raised has been distributed through the Commonwealth Grants Commission policy of horizontal fiscal equalisation. This is a method that attempts to ensure that all Australians benefit from the wealth of the country and that no state or territory is disadvantaged by circumstance. It is seen, in principle, as a fair and equitable way of ensuring that all Australians benefit from the wealth we generate as a nation. But the sad fact is that, 18 years on, the model of horizontal fiscal equalisation is not working as it should and some states, particularly my home state of WA, have been severely disadvantaged.

The Liberal government have been slow to recognise WA's needs and, in my view, have taken for granted the seats that they hold there. Our GST relativity fell from 0.98 on the commencement of the GST to less than 0.30 in 2015-16. It rose slightly in 2017-18. WA received the lowest amount of GST revenue per capita, at just $872 per person in 2017-18. That does not match the expenditure of Western Australians, who buy goods that are subject to the GST. The main reason WA's fair share has fallen has been the mining boom. WA was assessed as being able to raise significantly more revenue than other states. This is via mining royalties. Additionally, specific approaches from the Commonwealth Grants Commission in working out GST relativity work against WA.

At last the government listened to these concerns and last year commissioned a report to look at the distribution. In May the Productivity Commission released its findings on the current state of the GST and horizontal fiscal equalisation. It found that our system was failing to keep pace with the changing situation and economic circumstances that our states and territories find themselves in. It found in particular that resource heavy states, such as WA, were negatively affected by the current system. As resource prices are determined by the international market, they are very much prone to fluctuation, making it difficult to pre-empt how much revenue a state will get.

The current system fails to incentivise states to be creative with their taxation system to try to improve it. With the risk and uncertainty that surround today's economic climate, states and territories don't want to risk their GST revenue pool by looking at other innovative ways of raising revenue. When states try to improve their financial position, their share of GST decreases, and this has had a significant impact on Western Australia.

With this in mind, I very much support the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Bill 2018 as proposed, because it sticks to the principles of horizontal fiscal equalisation but does not distort that decision-making within government by punishing good innovation. I commend the state government of WA, and indeed the state's Chamber of Commerce and Industry, for putting forward solutions that have been adopted. The reason Western Australia's share in the mining boom has fallen is that the Commonwealth Grants Commission assessed WA improperly. It assessed WA as being able to raise significantly more revenue than other states via mining royalties. It did this because it has forward-projected those revenues without taking into account the actual drop in revenue prices from mining royalties to Western Australia. In addition—and this is a very perverse thing within the GST assessment—the exclusion of gambling revenues from GST assessment for all states penalises WA, because, unlike other states, we don't have a gambling industry.

As a result of all these factors, our GST share has fallen at times to a record low of 30c in the dollar, the lowest in the country. And while the share is projected to increase to 47c in the dollar for this financial year, it is still significantly lower than that of any state in the country. We previously raised concerns about the use of the three-year rolling average for the price of key commodities, including iron ore, particularly in the period following the end of the mining boom, when the price of iron ore and therefore the royalty dropped but the assessment of how much revenue Western Australia would raise did not. The revenue that was assumed simply did not exist. Frankly, it was obvious at that point that it wouldn't exist. But the formulas, according to the ask, couldn't be changed, because it might be a bit unpredictable. This is no way to assess state finances. Frankly, but for the floor, these problems still very much exist inside the assessment process.

This legislation and the major change in this bill is the introduction of a floor to prevent the share of the GST from falling to the kinds of record lows that Western Australia has seen. A floor of 75c is essential to ensure that this situation that has affected WA does not happen again. We did experience an enormous strengthening of our financial situation in WA during the mining boom. This might seem like a fair trade while the state is doing well, but the old GST formula was not designed to accommodate the rapidly changing economic environment in which the state currently finds itself. Just as people were saying that the Western Australian economy could reach no limit, that is was going to keep growing, the mining boom ended. Our share of GST has not recovered to pre-mining-boom levels, because of the lag in that assessment.

These assessments, while not changing in this legislation, will be mitigated by this new floor within the benchmark system. The benchmark for redistribution will be changed from the strongest-performing state—which is currently WA, but that is moving to change—to the strongest of either New South Wales or Victoria. There's good reason to do this. By changing it, we can ensure that these spikes are minimised, because these states have more-diversified and larger economies, so they're not as subject to a particular runaway phenomenon in a particular economic stream.

In short, Western Australia has not reaped the benefits of the mining boom. We've also had to contend with rapid population growth and remote service delivery. This redistributive effect through horizontal fiscal equalisation has been a very poor motivator for growing the wealth of the state and the nation. So, I don't object to the redistributive elements that ensure that we support the whole of our nation, but I don't want to see perverse outcomes in our GST situation.

I asked the Parliamentary Library to do some modelling on this, with the following example: if the mining states of WA and Queensland seek to raise royalty rates in order to increase revenues, the Commonwealth grant process causes them to lose almost as much GST revenue as they would gain in royalty revenue. I asked the Parliamentary Library to model this for me. Their example was to suppose that there were eight states, all of equal size, and that the states collectively raise $8 billion in mining revenue. When working out an average that each state should be able to raise from mining royalties, the Commonwealth Grants Commission would arrive at an average of $1 billion for each state. It would then provide the Commonwealth Grants Commission with the GST revenue to adjust up or to withhold revenue to adjust down to ensure that each state received exactly $1 billion of that value.

Now, suppose that, of the $8 billion raised, $7 billion was raised in just one state, with the remainder being raised equally across the remaining seven states. What incentive does it provide to those other states to raise revenue? Frankly, none. There is no incentive at all, because they have to take on the challenges of how to raise revenue. The impact of that is that it will just be redistributed to the other states.

And, as I highlighted before, there are problems with the way that the Commonwealth Grants Commission deals with gambling revenue. It considers that there are no material factors outside of the control of an individual state that change the amount each state could raise from gambling revenue. In the view of the Commonwealth Grants Commission, each state has the same capacity to raise gambling revenue, irrespective of whether they choose to do so or not.

There is great irony in this. Arguably, some states have made decisions to forgo revenue, with policies opposed to mining. But, in effect, they have not forgone revenue because of this; they have benefited from Western Australia's revenue. But Western Australia has chosen not to have a gambling industry, particularly poker machines, on policy grounds. We don't like the social implications of embedding pokies in social venues around the state and then mopping up the gap in social consequences later. But the Commonwealth Grants Commission's approach still assumes that WA could raise this revenue and the average amount of gambling revenue as for other states. This is, if you like, included in our assumed funding base for the state. This is completely perverse.

As a result of this, Western Australian people are missing out. For every one dollar they have spent at the shop on GST-taxed goods, they have sent up to 7c out of the state. Western Australians have, rightly, had enough. Linking the index of the redistribution to volatile and heavily-fluctuating resource markets, rather than to broader and diversified economies, has not lent itself to stability and fairness in the system. New South Wales and Victoria have well-performing and, more importantly, more stable and diverse economies. Linking this index to their performance ensures that our GST system remains consistent and predictable.

So I commend federal capital Labor for taking the lead on this and for recognising the needs of Western Australia. They started with the Fair Share for WA Fund, then a floor and committed to a legislative floor. I am keenly aware that states and territories need to be treated fairly under the new system, that sudden changes could put pressure on the states and territories and they could end up worse off as a result of this change. Western Australia has lived through this. We need plans that promote stability and ensure states and territory governments can plan for the future. The current system is highly susceptible to changes in economic circumstances, and, indeed, property taxes changes can also adversely affect the share of the GST received. These are areas that are also highly volatile in today's economic environment. So we do understand the concerns of other states in looking at this legislation. It has been extremely hard for WA to deal with this fiscal uncertainty, and I wouldn't wish that uncertainty upon any other state. To this end, we support the guarantee that no state or territory will be worse off during the six-year transition period while the new system is rolled out. I'm not going to go into detail, but I recognise the role that top-up funds will have during this critical time.

I note that the bill also requires the referral of our GST system to the Treasurer to refer it to the Productivity Commission to see whether the new system is working and that it will need to report by the end of the year, in 2026. Stability should be the purpose of this bill. Uncertainty about what happens next does not help our cause. This legislation is a good step in addressing the inequalities that exist in our GST system. The floor so desperately needed by WA will perhaps, in the future, benefit other states. It will ensure that states and territories receive a reliable and predictable share of the GST that is fair and equitable.

Western Australia has had a significantly difficult time, and we have been justifiably outraged by the lack of our fair share in GST revenue. All of this has happened at a time when Western Australia's net debt has grown per capita to the highest of any other state. Our own revenues dropped at the same time as our GST revenue dropped. At the same time, with the end of the mining boom, the labour force participation rate dramatically decreased, with a fall from 69 per cent in February 2016 to 57 per cent in 2016. We had an increasing population, increased unemployment and decreasing participation rates, and none of these things were good news for Western Australia. At the same time as all of this was happening, for every dollar spent in the consumption of GST goods, up to 70c went to other states. That's 70c for every dollar paid of GST. We only kept 30c in the dollar. That has improved. WA will foreseeably receive 47c in the dollar in 2017-18, so that has improved somewhat. But it still means that, for every litre of petrol a Western Australian buys—and we know that petrol prices are at record highs—we are sending 6.6c out of the state. This has gone on too long. This legislation is welcome and overdue.

I want to highlight that Western Australia's fight for a fair share will not end there. Given the size of our state and the many remote regional communities within it that are difficult to service, we are still getting a raw deal in many other areas. Western Australians are also concerned to know that, with 10.8 per cent of Australia's population, in other areas not including the GST we receive just seven per cent of the Commonwealth spend. This is less than every other state or territory by a significant factor. Today I'm pleased we can work together inside our Federation to improve cooperation between the states and the Commonwealth so that we can continue to be a competitive nation but also a compassionate nation that fairly distributes our resources to maximise the wellbeing of our nation. Thank you.