Mathias Cormann (WA, Liberal Party, Vice-President of the Executive Council) Share this | Hansard source

Firstly, I thank all those senators who've contributed to this debate on the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Bill 2018. Our government has long recognised that what has been happening with WA's share of the GST is unfair, not sustainable in a federation and has to be fixed. The proposition that, in a federation, stronger states should support other states so that all have the capacity to provide similar outcomes for their populations is a good and important principle which we must continue to protect and preserve. However, an arrangement which puts any one state into the position, as has happened to WA in the past, where it receives less than 30 per cent of its share of the GST back as a result of fiscal equalisation cannot possibly be sustained.

All of Western Australia's federal Liberal members and senators have long argued that this is an unacceptable situation for our home state and must be fixed. Firstly, we secured about $1.4 billion in federal GST top-up payments for WA to provide additional funding towards much-needed WA infrastructure. This was always intended as a short-term measure. Initially in 2015-16 it effectively stopped the drop in WA's share of the GST from 37.6 per cent to below 30 per cent. For this financial year—the 2018-19 financial year—our top-up payments have effectively lifted WA's share of the GST to 50 per cent.

To facilitate a more structured, ongoing resolution to this issue, WA Liberal members and senators advocated for and secured the Productivity Commission inquiry into the impact of GST-sharing arrangements on national productivity and growth. That was the basis on which, as a government, we focused on the national interest. We developed our plan to make GST arrangements fairer for WA and better for national economic growth and job creation, while also making sure that every state is better off.

This bill reforms GST payments to the states and territories by providing a fairer and more sustainable way of distributing the GST. It is a plan which addresses a longstanding unfairness for Western Australia in a way that leaves all states and territories better off. Since it was introduced in 2000, every dollar of GST raised has been distributed to the states and territories according to the system of horizontal fiscal equalisation. While this worked in a relatively predictable way in the early years of the horizontal fiscal equalisation system, the mining investment boom demonstrated that Australia's horizontal fiscal equalisation system struggles to function well when faced with economic shocks. In particular, the mining investment and construction boom created significant volatility in the distribution of the GST.

The government's plan will firstly create a new equalisation benchmark—the stronger of New South Wales or Victoria, whichever is higher. Secondly, it will introduce a permanent in-system relativity floor of 0.7 from 2022-23, increasing to 0.75 from 2024-25. Thirdly, it will permanently boost the GST pool of funds available for distribution to the states and territories by providing direct Commonwealth cash injections each year from 2021-22 onwards. These are in addition to GST collections. Fourthly, during the transition period from 2021-22 to 2026-27, states and territories will be guaranteed the better of the old system or the new system. Fifthly, by 2026 the Productivity Commission will conduct an inquiry to assess whether the updated system is working efficiently and effectively and operating as intended. Sixthly, it will separately provide short-term top-ups to Western Australia and the Northern Territory to keep their relativities above 0.7 and 4.66 respectively from 2019-20 to 2021-22.

As a result of this legislation, all states will be better off, with the Australian government injecting an additional $9 billion over 10 years to 2028-29. The GST pool from 2026-27 will grow by more than a billion dollars each and every year compared with what would have occurred without these reforms. We have provided a national solution to a national challenge that was in the too-hard basket for too long. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.