Dio Wang (WA, Palmer United Party) Share this | Link to this | Hansard source

I am one of many fortunate Australians who have worked in the mining industry, which has been a critical social and economic foundation of this country's prosperity throughout history. I was delighted to hear Senator Back's contribution to Senator Day's bill, talking about mateship. I think we should try to adopt the principle of mateship also on this issue. I look forward to the contributions of Senator Back and Senator Smith on my bill in the future.

I worked in the mining industry and I know it is a very tough game. There have always been peaks and troughs; therefore, in the true spirit of fairness and mateship, the highs and lows should be shared among all states and territories. Distribution of the goods and services tax , the GST, has been problematic because it has not been allowed to evolve while the world economic environment is changing quickly. Western Australia has been a victim of the distribution model's failure to adapt to the new terms of global trading, especially those around the iron ore market. Global iron ore trades shifted to quarterly prices five years ago with a lot of iron ore now traded on the spot market. The commodity market has its ups and downs but this shift has made it less predictable. As a mining state, WA has been hit brutally by the volatility of recent years. What made it even worse was that WA's share of GST kept falling during the same period—a double hit to the state budget.

The Commonwealth Grants Commission calculates each state and territory's capacity to raise mining revenue based on data at three-year intervals. Frankly, this is a 20th century way of thinking and it fails to adjust to the way the 21st century world trades. A bad year is a bad year, but the impact cannot be moderated just because the previous two years were not so bad. So the states and territories should be provided with the means to cope with revenue shortfall immediately, not three years later. Using three-year-old mining revenue data has driven a huge reduction in GST distribution to Western Australia at the same time as the actual mining royalties have reduced.

For 10 years now the issue of the volatility of mining revenue has been raised in the Commonwealth Grants Commission reviews of the GST distribution process. The issue is of particular importance to the people of Western Australia and, to a lesser extent, the people of Queensland. I would like to take this opportunity to thank my fellow parliamentarians from WA, especially Mr Tony Crook, who have all advocated for a fairer treatment of WA's GST position.

The Commonwealth Grants Commission Amendment (GST Distribution) Bill 2015 bill instructs the Commonwealth Grants Commission, when considering the capacity of a state or a territory to raise mining revenue in preparing its annual recommendation on GST distribution, to take into account only the most recent financial year for which data is available. Some may say that using annual assessments of royalty revenue will disadvantage the mining states when these royalties are increasing. The argument clearly shows a lack of understanding of the current impacts felt by Western Australia. My bill offers a real buffer for the states against volatility.

Of course, I am putting this bill forward because the GST distribution has not been fair to my home state. But, more importantly, I am doing so because we now know that the distribution model has a problem which is capable of producing undesirable results, as proven in this case by the unfairness suffered by Western Australia. This problem has to be fixed so that it will not haunt another state or territory in the future as that state or territory's economic circumstances and revenue mix change. It could be Queensland; it could be Tasmania; it could be any of my good colleagues' home state should the mining industry become a bigger part of its economy.

I welcome the $500 million of Commonwealth compensation to Western Australia this year. But the fundamental problem with the distribution remains untouched. We cannot sweep the problem under the carpet and pretend the job is done. Why is it that my home state has to cry every now and then, like a baby crying for milk, for what is rightfully ours? Honestly, I do not like the prospect of WA continually doing so in the future. And, dare I say, if it were a bigger state, population-wise, suffering from this very problem, we would have fixed it in no time.

Yes, unanimous agreement by all states and territories is required for the Commonwealth to change the rate of the GST, but no such agreement is needed to modify the distribution of the GST. Under my bill, if legislated, Western Australia would receive $3 billion additional GST revenue in the 2014-15 financial year and $3.5 billion in the 2015-16 financial year. Queensland would also benefit from this bill. But let me say again that the real benefit will be felt nationwide because, once mining revenues go up, other states' share of the GST will go up immediately in the following financial year. This is true equalisation, true mateship.

I am putting forward this bill for WA, a state I love, a state I am a representative of here in this parliament. I make no apology for doing this because WA has been ripped off for too long. But all states and territories will also be better off from this long-overdue change. I believe this bill represents the best interest of this nation.

Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

I welcome this opportunity to speak about the very important issue of horizontal fiscal equalisation in this country and the distribution of the GST. At the outset, I would like to commend Senator Wang for bringing forward the Commonwealth Grants Commission Amendment (GST Distribution) Bill 2015. This is an area that I think needs change; indeed, I think there needs to be major change to how we calculate fiscal equalisation across our nation. It is not simply an argument about fairness and who deserves more money and who deserves less. It is actually more than that because, in my view, our current system is creating perverse incentives and, particularly, not encouraging our state governments to develop their resources, their industries and their economies. Ultimately, that is what we want our state governments to do because that will create more jobs and more opportunities for all Australians.

I will expand a bit further on that in this contribution. But first I would like to say to Senator Wang that I, too, am one of the senators who have defended WA and tried to point out the inequities. I think I deserve a little bit of credit for that because actually I am, of course, not a Western Australian senator, and I have received some criticism in my home state for standing up for the interests of my western brothers and sisters. I have done so because I think, fundamentally, clearly there is something wrong when a state can receive less than a third of the GST that it raises. At one point, the projections were for WA's share to fall to around 10 per cent of the GST raised in WA. That did not eventuate, given the fall in iron ore prices, but even the fact that that could have potentially been an outcome shows there is something wrong with the system.

While I am in this chamber to represent the interests of Queensland, and regional Queensland in particular, I believe that I am a senator for the Commonwealth of Australia and that we all have a duty to make sure that we try to encourage the Commonwealth of our nation. I do not think our current system, particularly the way it is assessed and implemented, does a good job of keeping us together within that Commonwealth and creating the right environment which ensures we all try to live together as one nation.

I want to turn, though, in particular to the provisions of this bill Senator Wang has put forward. I have to say I will not support the particular provisions in this bill, notwithstanding the fact that I do commend Senator Wang for bringing them forward. I have some questions about the impact of the provisions in this bill. I do not think it particularly deals with the issues with the system that I will expand on later. My understanding of the provisions in the bill is that they will shift our current arrangements from a three-year averaging approach to a single-year approach. While there may be some merit in that recommendation, it does not deal with the fundamental issues that I have with the horizontal fiscal equalisation process. Of course, over time, it will not, by definition, make a difference to what a state receives over a 10-, 20- or 30-year period. It may, of course, correct some things in the short term, in the transition phase, as Senator Wang has pointed out in his contribution. But I actually hope and think that we need to make some changes for the long term in this area which will fix the problems we have in the future and not be just a temporary fix to deal with the anomalies that we have seen during this terms-of-trade boom.

I also have some questions marks over whether it is appropriate to switch from an averaging regime to a single-year regime as quickly as proposed in this bill. Notwithstanding that I think there should be some changes to the way we do things, I recognise that an appropriate transition process should, perhaps, be considered. There are, of course, other states and territories that receive large amounts of additional funding thanks to the horizontal fiscal equalisation process, and it would also be somewhat unfair on them if the rules of the game were changed mid-game, leaving them without the opportunity to appropriately adjust to any particular changes.

I want to talk more broadly about the horizontal fiscal equalisation system. It is often remarked that this is a sacrosanct methodology that has almost been given to us on some mountain in the Middle East in the Old Testament: 'We can't change. We can't amend anything to do with this methodology because it is something that has been handed down by our forefathers and it almost has some constitutional merit to it.' In fact, that is clearly not the case. Not only is this particular way of dividing up the different resources of different states relatively new—only a few decades old—but it is also regularly reviewed and changed. There have been reviews in the past decade—in 2004 and 2010, and a review in the last few years that was implemented in the last Commonwealth Grants Commission assessment. Sometimes there are major changes made; it is not just window dressing that occurs at particular times.

Indeed, this year's assessment established for the first time an urban transport methodology for the assessment process. Previously the costs and revenues of public transport services offered by state governments were not included in the process, but this year, for the first time, they were included. Many people probably do not realise or know that that change to include public transport services in the methodology cost Queensland $500 million, because Queensland is a state that is largely dispersed and where large amounts of the population are in regional areas where state governments generally do not provide public transport services. There are often some private services that receive subsidies, but they do not directly provide the services themselves. My understanding of the Commonwealth Grants Commission process is that they have only included the services offered directly by state governments, which are almost invariably in our major and capital cities.

We have a horizontal fiscal equalisation process which was meant to spread the wealth around our nation, yet this particular change has instead concentrated the wealth back in our major cities. I find that rather anomalous, and I asked the Commonwealth Grants Commission about it at last estimates. I have some serious problems with how this is being assessed. We need to take a step back and think about why we have this process and what we are trying to achieve with it. With horizontal fiscal equalisation we are trying to achieve an element of equity across our nation, keeping in mind that this is the Commonwealth of Australia. I have no problem with ensuring that the people of the Northern Territory, Tasmania and the other states receive an appropriate level of public services across our nation. It will often require transfers of money between states to make that happen. Almost every federation in the world has a system like this in some form, so the argument is not against the equalisation process itself; it is about how we achieve that. And in achieving that what we should aim to do is make sure it is as policy-neutral as possible. That is the criterion that the Commonwealth Grants Commission themselves say they apply, but I have serious questions about whether they are actually achieving that objective in the way they are doing it at the moment.

Take this urban transport issue itself. The Commonwealth Grants Commission is meant to say, 'However we transfer money, it should not affect the policy decisions of state governments. It is meant to be policy-neutral. So however we decide to spread money from one state to another, it should not change how state governments do business or what they do.' In fact, what is happening with their urban transport methodology is that they are looking at how much in fares state governments take in. They are looking at the costs of providing bus, train and ferry services. Invariably, in almost all of our states, there is a large gap between those revenues and costs, so there is a net cost to providing these services and, through this process now, state governments receive a subsidy for providing public transport services. The provision of public transport is of course a very important one, particularly for Australians living in major cities. But it is clearly a policy decision. It is not something that state governments have to provide or must provide; it is a policy decision. By providing particular states that have more urbanised populations with greater subsidies for those services they will be subsidising those services, thereby encouraging state governments to provide more of them and clearly breaching the Commonwealth Grants Commission's principle of policy neutrality.

Putting that particular example aside, I have much greater concern that in the area of mining royalties in particular this principle of policy neutral is being breached on an enormous scale. Once again, both the decision to develop a mining industry itself and the decision to apply a royalty to that mining industry are clearly policy decisions of any government. The resources that WA and Queensland have, yes, are God-given. They are given to us by the Lord and we are lucky to live in a country with many of these resources. Senator Wang and I are lucky to live in states where these resources are quite plentiful. But those resources alone do not give anything to the citizens of those states. Just because you walk above some coal or iron ore it does not make you any wealthier. The only way you can convert those natural resources into some form of wealth and prosperity is to exploit those resources. That exploitation requires money, it requires political will and it requires some social and other costs associated with their development. It is also then the case that the actual royalties that apply and are charged to any production of natural resources is a decision for government. Any decision to go higher or lower will be affected by how much revenue that state can retain. Under the current system, they cannot retain much.

Indeed, the Queensland government submission to the recent Commonwealth Grants Commission assessment found that if Queensland were to increase the rate of royalties on a particular thermal or on coking coal, for example, Queensland would only retain its population share of the increase in revenue. Because the assessment is blind to the revenue raised, Queensland would only receive a share based on the population it accounts for in our Commonwealth, which is about 20 per cent. So if the Queensland government increased royalty rates on coal by 50 per cent and raised a few more billion dollars, it would only retain 20 per cent of that increased revenue. Eighty per cent would go back to the other states.

In WA it is worse, of course, because they are a much smaller proportion of our country. They would only retain 90 per cent of the increased royalties raised. In the Northern Territory, sorry, Senator Scullion, because you only represent one per cent of our population, if the Northern Territory decide to increase a royalty they would retain just one per cent. They would lose 99 per cent of the revenues associated with that increase in royalties. That is all on page 34 of the Queensland government's submission to the Commonwealth Grants Commission. How can that be seen as a policy neutral approach? It clearly is not a policy neutral approach.

In the case of Western Australia, which has received lots of attention, the commission estimates that they raised around $7.2 billion in royalties last financial year—and I should say that that includes payments in lieu for some offshore resources from the Commonwealth. They had $4.6 billion of that taken away, if you like, and redistributed to other states as part of the assessment approach. They lost 63 per cent of the total royalties that were raised in Western Australia mainly, of course, from iron ore. Again, how can that be seen to be policy neutral? How can that be seen to not influence the decisions of state governments?

I said before that there are two decisions: there is the royalty rate and then there is the cost of actually developing a mining industry. Mining does require a fair amount of commitment from governments to get off the ground. It often occurs in very desolate and new areas of our country. There are currently proposals for a mine not too far from where I live, in the Galilee Basin, which is very desolate. There is almost no civilisation for hundreds of kilometres around that proposed mine. That will require a significant investment from the state government in terms of new infrastructure for new areas. Just as would be case if there were a new suburb to rise up in a city or a new area of development in an inner-city area, it will require investment. But, in my view, the Commonwealth Grants Commission at the moment seriously underestimates those costs and does not take into account the net revenues that the state would accrue but more the gross revenues that they would accrue from the mining industry—which, again, breaches its principle of policy neutrality. The Western Australian government estimates that the commission takes into account around three per cent of gross royalty revenues to be factored in as the cost of developing a new mining industry.

I think it is interesting for us to note that Canada—a Federation and a large natural resources country like ourselves—have the same issue where those resources are largely concentrated in their western provinces, and they have to account for an equalisation process for that. Canada have recently, in the last few years, decided that they will provide a 50 per cent discount on royalty revenues before they calculate the redistribution or equalisation process—a 50 per cent discount. That is their estimate—a broad estimate, obviously; and only an estimate—of how much it would cost a state government in net terms to establish a mining industry and what they deserve to have to build the infrastructure required to support an industry which still produces enormous amounts of wealth and net wealth to a state and to a country. We only discount it by around three per cent. Canada are discounting it by 50 per cent.

The Queensland government—and perhaps the Western Australian government as well—put in their submission to the Commonwealth Grants Commission that they should consider the Canadian decision and look at a more generous interpretation of mining costs before it calculates an equalisation process. I asked Mr Spasojevic—and I apologise if I have mispronounced his name—the head of the Commonwealth Grants Commission, at Senate estimates:

Are you familiar with Canada's recent changes?

Mr Spasojevic answered:

No.

I asked:

So you have not looked at that at all?

Mr Spasojevic answered:

No.

I asked:

Why not?

And he said:

Why should I have?

One reason he should have is that it was in the Queensland government's submission to his organisation for their assessment process.

The Commonwealth Grants Commission has made an assessment. They are very complex issues. I certainly appreciate that, and I can reasonably appreciate that Australians will come to different views about what the final conclusions would be. But what I cannot appreciate is that the Commonwealth Grants Commission is apparently blind to a very important part of the Queensland government's submission—probably the most important part of their submission—and I am informed that it was in the Western Australian government's submission as well. Two major states raised in their submissions this massive issue in terms of the redistribution process, and the Commonwealth Grants Commission is blind to it, has not looked at it, has not engaged with it and has not even bothered to look at what Canada is doing and what it has changed.

This was pointed out to the Commonwealth Grants Commission by their stakeholders. They only consult with state governments; they do not consult with the wider community. They only have to consult with eight states and territories. It would be pretty simple, but they do not even take the time, seemingly, to get across the detail of their submissions. That is very concerning to me. It is particularly concerning to me given that the next decision that the Commonwealth Grants Commission will be confronted with in this space is how they treats the coal seam gas industry in Queensland.

Once again, Queensland is lucky to have coal seam gas resources in its state, but other states are lucky too. New South Wales has substantial resources, as does Victoria. In both of those states there has not been substantial production; indeed, in Victoria, there is a moratorium on coal seam gas production. But Queensland has made the decision to develop its industry. It has been a difficult decision. It has created a certain amount of political angst in Queensland, and I must say as a representative of some people it certainly has not gone smoothly for many farmers and landowners. But the decision has been made. It has been made because Queensland wanted to generate the jobs, the industry and, of course, the royalty revenue from coal seam gas. Thanks to this industry, the royalty revenue is expected to generate around $800 million over the next decade or so.

The Commonwealth Grants Commission will have a look at this and, going on what they are doing to Western Australia—who will lost 63 per cent of their iron ore revenue—I am concerned. What if we were to lose 50 per cent to 60 per cent of the $800 million to other states? If that were the case, we would therefore be subsidising the states of New South Wales and Victoria, who have not made the decision to develop their industry, as is their right. They have decided to forgo the opportunity to exploit their God given resources and forgo the political pain and other costs with developing those resources, but they will be bailed out by a state that has made that decision and has created thousands of jobs in Queensland and an enormous industry across the state and our nation. I do not think that is particularly fair. But, more importantly, I certainly do not think it is efficient and I certainly do not think it is what we need to create a productive economy or to create the right environment for state governments to ensure they are making the decisions that promote economic growth in our country—decisions which promote jobs and which promote higher incomes and prosperity for us all.

The current system is failing us; it is failing us as a nation. It needs to change. I think the Commonwealth Grants Commission need a kick up the backside because clearly they are not doing their job at the moment. Something needs to change here.

Once again, I commend Senator Wang for bringing this forward. It is a conversation that we need to continue to have as a nation.

Anne Urquhart (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak on the private senator's bill, the Commonwealth Grants Commission Amendment (GST Distribution) Bill 2015. While I have great respect for Senator Wang, and I do not begrudge him trying to secure money for his state, I cannot agree with this bill. It is fundamentally unfair, counter to the national interest and realistically could not gain the support of the states that it would need to be implemented.

What this bill proposes is a significant change to the calculation of the GST breakdown between the states, which would see the majority of states in this country lose billions of dollars between them. The bill would instruct the Commonwealth Grants Commission, in preparing its annual recommendation on GST distribution and when considering mining revenue, to take into account only the most recent completed financial year data available. Unfortunately, the explanatory memorandum reveals the dire consequences that this would have on the rest of the country, just in the 2015-16 financial year alone.

If this bill were to proceed to implementation, the effect would be that New South Wales would get $1.1 billion less to provide vital services to its people, and $1.5 billion would be ripped away from the Victorian state government's budget. South Australia would have to get through some very challenging economic times with $444 million less. The Northern Territory would have its revenue reduced by $344 million, and my home state of Tasmania would be absolutely debilitated by a $229 million cut to our state income. At the same time, Western Australian would get a massive $3½ billion dollar windfall and Queensland would also secure a cool $118 million. Clearly, this is not fair.

I understand the challenges that the mining states are going through, but the problem cannot—and it must not—be solved by gutting the revenues of the other states and territories. The states' share of GST goes towards vital services that Australians need—things like health, education and transport are all heavily supported by revenue provided by the goods and services tax. If the bill before us were to pass, state budgets would be debilitated and vital public services would crumble.

In Tasmania, New South Wales, the Northern Territory, Victoria and South Australia we would see large-scale job cuts and resultant losses in services that the states simply cannot afford. Tasmania's share of the GST revenue equates to approximately 40 per cent of the state's total revenue. This bill would rip the heart out of the Tasmanian budget, and it would rip the heart out of the services that Tasmanians depend on. Clearly, this bill is not a workable solution to the problem of Western Australia's declining financial position. It is not a long-term solution to the problems facing the state and it certainly is not a proposition that is in the national interest.

But, more than that, it is absolutely unworkable. The government has said that the only way any changes will be made to the GST is through the agreement of all states and territories. Clearly, such a significant change to the formula for the calculation of the GST distribution that would see their budgets crippled as a result would never secure the consent of the states and territories. There is no way that New South Wales would line up for a $1.1 billion cut, Victoria would never agree to losing $1.5 billion, South Australia certainly could not forego $444 million and the Northern Territory, I am sure, will not voluntarily give up $344 million. And I see Senator Scullion shaking his head! And Tasmania, most definitely, cannot wear the loss of $229 million.

Our current formula of distributing the GST among the states and territories seeks to ensure that all have the financial capacity to provide their residents with services of the same standard in areas such as education, health, transport and public safety. But it does not mean that there will be equal services in each state. It is up to each state government to decide how best to spend its budget. But for each state government to even get to the starting line in providing decent services to its people, we do need a fair system. And ripping money out of the majority of states and territories to benefit two is not the answer.

Ironically, the parlous state of the Western Australian economy in the late 1920s provided the impetus for the federal discussions for interstate financial transfers. The reality is that the Commonwealth Grants Commission was created for Western Australia's benefit. We cannot forget that the current principles of horizontal fiscal equalisation have benefitted the state of Western Australia for the past 80 years.

I quote the Western Australian Department of Treasury and Finance:

… in the early days of Federation, the Western Australian economy bore little resemblance to its present prosperous form. Isolated by geography and unable to exploit the free trade between States that resulted from the newly formed Constitution, it became necessary in 1925 for the Commonwealth to establish a Royal Commission into Western Australia’s financial disabilities. As a result, in 1933 the Commonwealth Grants Commission was formed to oversee a more equitable distribution of Commonwealth finances, which resulted in Western Australia being given the status of “claimant State”, and being in receipt of special grants from the Commonwealth for the next 30 years or so.

The cuts to most of the states and territories contained in this bill would come in addition to the Abbott-Turnbull government's $80 billion cuts in health and education levied in their first vicious budget. If it proceeded to implementation, this bill would create further holes in the eastern states' budgets to the tune of billions of dollars. Essential service delivery would be put at risk and people who rely on these services would suffer. This is not the way the parliament and our government should go about such a major structural change in financing the Federation.

Thus far, the Abbott-Turnbull government have promised everything to everyone on GST distribution. Prior to the last election the Prime Minister went to Tasmania and South Australia and said, 'She'll be right,' before then going to Western Australia and promising to fix the problem. Unfortunately for the coalition, with modern communications we do not need to rely on the bush telegraph to hear them telling different stories to different audiences.

After the election, when their magic pudding economics did not eventuate, those opposite turned to more devious tactics. Rather than taking the case to the Australian people and admitting that they want to increase the GST, Mr Abbott and Mr Hockey set out to try to starve the states into submission. By massively cutting state health and education funding, to the tune of $80 billion, they hoped that the desperation that would ensue would force the states to call for an increase to the GST to make up the shortfall. This bully boy behaviour was, quite frankly, appalling and dishonest. Not willing to face the Australian people with their clear intention to increase the GST, Mr Abbott and Mr Hockey tried to force the premiers to be the fall guys.

Mr Abbott and Mr Hockey then promised the last Commonwealth Grants Commission review would fix the problems. The report was presented to the Council on Federal Financial Relations. The Abbott-Turnbull government then realised what we already knew: that this is a zero-sum game and that the eastern states were not going to cop having to carry the load in a change of GST relativities to benefit Western Australia at their own expense—no surprises there. Bill Shorten then put forward a practical idea to assist Western Australia with the financial pressure it is under by bringing forward infrastructure funding. Surprise, surprise—within a month or so Senator Mathias Cormann announced $500 million in infrastructure for Western Australia, noting the GST distribution issue.

Labor awaits the government's Reform of the Federation white paper for a more considered view on changes that could be made to the Commonwealth grants formula. But, given the government's form to date, we will not die wondering. I am also concerned that it seems our newly minted Treasurer's mind is already made up and the consultation and discussion are simply a facade for him to push what he always wanted. Mr Morrison's true intentions were confirmed yesterday by Mr Morrison's Western Australian counterpart, the Western Australian Treasurer, Mike Nahan, who said on this matter:

The new Treasurer has indicated that he has full support for changing the distribution of GST.

Labor is also very concerned about the Turnbull government's refusal to rule out an increase to the GST. Mr Turnbull may try to put a positive spin on his lack of transparency, but the reality is that he is simply refusing to be honest with the Australian people about his intentions. But clearly we know what the Liberals want to do.

History tells us that they cannot be trusted when it comes to the GST. Before the election, Mr Abbott promised Australians no fewer than 33 times that there would be no changes to the GST. Those opposite then set out to do everything in their power to force others to push the issue. But we really should not be surprised. Of course Mr Turnbull and the Liberals want to increase taxes that hurt low- and middle-income earners the most. They are completely out of touch with the increasing cost-of-living pressures being faced by millions of Australian families. You only need to look at their intention to see millions of Australian workers lose their penalty rates, or consider their plan to put higher education out of reach of ordinary Australians, or think about the tax they want to levy on visits to the doctor. Those opposite have demonstrated their complete unwillingness to develop fair policy again and again and again.

We know what the new Assistant Minister to the Prime Minister and Mr Turnbull's right-hand-man, Senator James McGrath, is going to be arguing for, because he has already told us. As recently as July, Senator McGrath called for a GST to be broadened to include every single good and service in the Australian economy—fresh food, education, health, everything. Senator McGrath also wants the GST to be hiked to 15 per cent. This is the man that has the ear of our new Prime Minister. For our Prime Minister to try to pretend that nothing has been decided, that the Liberals do not have any specific intention to hike the GST, is disingenuous and counter to what key Liberals have already told us about what they want to happen.

Labor believes that just hiking the GST is a lazy approach. It is not reform—it is a tax grab. And it is in keeping with the record of a government that is now one of the highest taxing in recent history. They talk about keeping taxes low and then they do exactly the opposite. Their own budget papers show that Australia's tax-to-GDP ratio rose to 22.3 per cent in the Liberals' second budget. This is set to rise even further, to 23.4 per cent, over the forward estimates—the highest tax intake since the Howard government.

In the past two years, those opposite have increased fuel excise for every Australian motorist. They have scrapped planned changes to the tax-free threshold that would have lowered taxes for 10 million Australians. They have increased superannuation taxes for three million low-paid workers by scrapping the low income superannuation contribution. They have placed an additional two per cent levy on high-income earners. They have introduced 17 new or increased taxes and charges on everything from fresh fruit to visas. And now they are clearly cooking up a plan to hike the GST.

The GST is a regressive tax—that is, it hits the poorest people in the country the hardest. Because people on lower incomes spend a larger proportion of the money that they receive, they inevitably incur a larger tax impost as a proportion of their income than those on higher incomes. What is worse is that, while those opposite refuse to rule out increasing a tax that would hit those who earn the least the hardest, they came to this place yesterday and asked the Senate to support a bill that would hide the taxation affairs of the companies that earn the most in this country. They asked the Senate to agree to changes that would drape a shroud of secrecy over the taxation contribution of Australian companies worth more than $100 million. This is despite the recent revelation from the Australian Taxation Office that one in five of these companies paid no tax at all last year. And, at the same time, they have admitted they are considering hiking taxes for ordinary Australians. It simply is not fair. Labor understands that fairness must be at the core of any taxation reform. And that is a fundamental test that this bill also fails.

In summary, this bill is not the way forward. It would gut the budgets of the majority of states and territories and see the huge majority of Australians worse off. Not only that, but even if it were passed by the Senate it would have little chance, if any, of success when it came to securing the approval of the states that would see their revenue gutted by the implementation. I would urge senators not to support this bill.

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

Before I begin my commentary in support of Senator Wang's Commonwealth Grants Commission Amendment (GST Distribution) Bill 2015, I think it is important to make an observation about what has happened in the Australian Senate this morning following prayers. We debated a private senator's bill, the Racial Discrimination Amendment Bill 2014, a bill that came to this Senate with little support—the support of four senators. If you look at the speakers list today, you will see that momentum for reform has been building. Indeed, I suspect that, when a vote happens in this Senate, there will be many senators who support reform of racial discrimination laws in our country.

The second issue is the one that we are debating here this morning, which of course is the sensitive but very important issue of GST distribution reform—a debate that once upon a time had very few voices. I think it is worth noting that Senator Wang, since he has come to the Australian Senate, has been a strong champion for reform of GST distribution arrangements, but it was great to hear the contributions of Queensland's Senator Canavan and of others who over time have seen the merits of this debate.

The point is that on this Thursday morning in this Australian Senate we have seen how discussion, debate and bringing informed opinions to the parliament can lead to change over time. The change will take place. I am confident that, on both the Racial Discrimination Amendment Bill, which I co-sponsored, and this bill on GST distribution reform, change will happen. Yes, sometimes change takes a little bit of time, but it will happen, because momentum is building on both of these important causes.

I would just like to reflect briefly on the contribution of Tasmania's Senator Urquhart. It stretches belief for Labor Party senators in this place to claim credit for or involvement in the very wise decision of the former Prime Minister Tony Abbott in May this year to provide $499 million in infrastructure funding to Western Australia—and I will come to that point later. It is absolutely not defensible. Labor senators in this place cannot take one ounce of credit for that very wise short-term decision—short-term in the sense that it is part of a longer term solution to the GST distribution issues.

With Senator Canavan, Senator Wang and other senators in this place, I am sure that the very important issue of GST distribution reform will be addressed. I want to make this point while we are debating the issue of GST: GST reform falls into three categories. There is the debate about the GST rate, and I am on the public record as not supporting an increase in the GST rate. The second element of the broader GST debate is one which focuses on the issue of the base and how wide the base should be. I am on the public record as arguing for an extension of the GST base, but I do not think it is necessary that food be included. It is possible that food could be included in extending the GST base, but it is not necessarily necessary. When you look at the growth in GST revenues across our country, you can see quite clearly that extending the GST to health and education meets two important criteria: one is that that is where the growth in the Australian economy is occurring, and the second is that it makes sense from a simplification perspective. Anyway, they are two views of mine that are on the public record. People will not be surprised to hear that.

Of course, on the third element of the debate, which deals with distribution—how that GST is distributed across the Commonwealth—I am well and truly on the public record as arguing for GST distribution reform. That is why I support Senator Wang's bill as a small first step in this important debate. I will come to some other points that I think could be included in reform of GST distribution.

For my part, I spoke on this issue on 18 June 2012, when I first came to the Senate, in my maiden speech. I spoke again about the issue on 19 March 2013. I am pleased that The Australian Financial Review published an opinion piece by me on this issue on 15 April this year and that TheWest Australian published some views of mine on this issue on 15 April this year also. Then, of course, on 6 May 2015 we had the very wise decision of former Prime Minister Tony Abbott in bringing forward $499 million of infrastructure funding for Western Australia in response to concerns raised by coalition members and senators in this parliament, and of course we have had the release of the 'Reform of the Federation' discussion paper. It is in that document that we can see further hope for reform on the issue of GST distribution.

Debates around the Federation are as old, and sometimes as tedious, as the Federation itself. I have my own ideas about how we can improve the Australian Federation, but that is not for this debate. The discussion paper that was released, called the 'Reform of the Federation green paper 2015', points to three options worthy of consideration in tackling the GST distribution reform issue. For the sake of the Hansard, I am just going to read each of those three out, because they demonstrate that the issue is a live one and that for the first time people are putting their minds to the challenge but also the options. I would say, being the eternal optimist, that this points very clearly to reform being undertaken, hopefully at some point in the not-too-distant future. That discussion paper identifies three options. The first option is 'Maintain the status quo, with changes to improve transparency':

Under this option, the GST would continue to be distributed according to the objective of full fiscal equalisation, as defined by the CGC—

the Commonwealth Grants Commission—

so that each State and Territory has the fiscal capacity to provide services and associated infrastructure at the same standard.

It goes on to say:

The independent role of the CGC in recommending the distribution of the GST would continue. The CGC would also continue to conduct independent reviews of the equalisation methodology as directed by the Commonwealth Treasurer, which has occurred about every five years.

It goes on to say:

The CGC would be best placed to examine the key drivers of the methodology, including the treatment of mining production revenue and costs associated with providing services to States and Territories Indigenous' populations.

Some additional measures could be considered to improve transparency and public understanding of the equalisation process. These could include activities to improve the public's understanding of the intent and the operation of the HFE system.

The second option describes itself as 'less comprehensive equalisation through changing the current methodology'.

Under this option, the current methodology would be altered to move towards less comprehensive equalisation. There are a number of ways to achieve this.

Importantly—and this is a position that is advocated by many Western Australians, including me—it says we need to establish a GST relativity floor. The paper goes on:

This option would set a minimum level of GST revenue to which any State or Territory is entitled.

This would mean donor States would not be able to fall below a set proportion—or floor—of their equal per capita (or population) share of the GST pool.

If one or more States or Territories had a high enough fiscal capacity to reach the floor, the GST redistributed to other States and Territories would be reduced. The proposed level of the floor would need to be developed in consultation with States and Territories.

Option 2(b) would apply a discount on all revenue and expense assessments used by the CGC.

It goes on:

In assessing how to distribute the GST, the CGC currently takes account of all significant revenue bases and expenditure undertaken by the States and Territories.

If a discount were to be applied, the CGC would be taking account of a lower proportion of these revenue and expenditure factors.

Finally, the third option that is put forward in the discussion paper is a:

… Less comprehensive equalisation through a transition to an equal per capita distribution of GST, with top-up grants to recipient States and Territories.

Under this option, and subject to the unanimous support of the States and Territories, the GST would be distributed using a simple equal per capita formula.

Fiscal equalisation would occur outside the GST through top-up grants from the Commonwealth. The top-up grants would ensure States and Territories that are recipients under the current system are no worse off.

To ensure recipient States and Territories are not worse off, and donor jurisdictions receive the benefit of the equal per capita distribution, the top-up grant would have to be financed from some combination of (1) higher Commonwealth taxes, (2) increased Commonwealth debt, or (3) savings against Commonwealth expenditure responsibilities.

There we have it: progress is being made on the issue of GST distribution reform. It is there for the world to see in the Reform of the Federation white paper. For those who are interested, you can go to pages 102 to 104.

While Senator Wong's bill contains merit, and that is a discussion around how suitable the existing averaging arrangements are, I would argue that it is just a piece of a bigger solution to reforming GST distribution reform in our country. There are five other elements. One of them is this bill proposed by Senator Wong. There are my four elements plus Senator Wong's element, giving us five elements which would lead to a successful rectification of the GST distribution inequalities that exist in our country.

The first, consistent with the recommendation of the government's own National Commission of Audit, would be to ensure that over time—and I think this is an important point; we do not necessarily need to rush to a GST distribution solution because it is important to build confidence amongst other states and territories—this is in the national interest and not just in the parochial interests of one state or a number of states. The first proposition in a suite of reforms would be to ensure that GST distribution moves to an allocation based on population share and, further, there should be a minimum GST entitlement of 75 per cent of each state's population share.

The second element of a broader suite of reforms would be to ensure that there is an additional mechanism developed to assist those states and territories in need of additional financial support. This mechanism should be based on incentivising and rewarding economic reform. This is an important point. GST distribution is not just about the collection and distribution of the GST revenue; it is about developing a mechanism that will drive economic reform and drive incentive in the economy so that every economy across the country, including in Tasmania, can be set on a more prosperous and incentivised footing.

The third recommendation in what could be a suite of reforms would be to ensure that the Commonwealth could actually improve the immediate situation by addressing the significant time lag in assessments made by the Commonwealth Grants Commission in relation to royalty receipts. This is the proposition that is contained in the bill that we are debating this morning.

The fourth element would be to ensure that the Commonwealth Grants Commission process includes incorporating better recognition of each state's economic development needs and reducing the impact of the Commonwealth Grants Commission's considerations of jurisdictions' efforts to raise royalties by developing their mining industries.

Importantly, this is the fifth point in what I would call a broader suite of reforms. Senator Canavan correctly identified this in his criticisms of the Commonwealth Grants Commission. I also used the Senate estimates process last year to inquire of the Commonwealth Grants Commission about a number of issues that are important to Western Australia. Their response—and I will be as polite as I possibly can—was poor. That is why I think it is timely now for an independent review of the Commonwealth Grants Commission itself and of the methodologies.

I am happy to be open to debate on this, but I think a good agency to do that would be the Productivity Commission. Senator Anne Urquhart made the point in her contribution—and it is a correct one—that the Commonwealth Grants Commission was established at a certain point in time. That is absolutely correct; she is right on that. But the times are now significantly different.

I am proud that in my home state of Western Australia we are enjoying the full fruits and benefits, of an open economy, we are participating in resource exploration and sending those resources and energy abroad. I am grateful, as I am sure Senator Canavan is, that Queensland too is embarking upon that course of action. I would hope one day that South Australia exploits to its fullest potential the resources that are available to it in its state. These are things that we should all be able to agree on. I would argue that Senator Wong's bill has merit, but I think it should be part of a broader suite of reforms that I would hope that this coalition government would eagerly put its mind to.

How did we get to this point? What was it that led a senator like myself, indeed, senators like Senator Wong and Senator Canavan and others to get to this point where we thought it was not just important enough to talk about GST distribution reform; it was important enough to start to argue for GST distribution reform. My attention to this issue was pricked when I had drawn to my attention what is called the GST distribution review: interim report. That is a report that had a very revealing statement in it. It talks about the outlook for GST distribution reform in our country and said:

As Western Australia’s fiscal position has improved, its relativity has declined—

no surprises in that—

resulting in a reduction in its GST share. It is unclear how much lower Western Australia’s relativity will go. The Western Australian Government said it expects its per capita relativity to reach 0.36 by 2014‐15. Depending on the strength of the mining boom, it is conceivable that their relativity could reach zero in the medium to long‐term.

That is not something that Senator Wong has said, not something that I have said; something that has been revealed in the GST distribution review: interim report. It is recognition that, while Western Australians have been arguing about the substantial fall in the relativity for their state, others have argued that it can go less than 0.36; it could actually get to zero—meaning that GST moneys raised in Western Australia would not find their way back to Western Australia at all. The consequence of that is real for Western Australians, as it would be for Queenslanders or for South Australians or, dare I say it, a long time into the future, for Tasmanians—meaning that the state government's capacity to deliver important infrastructure, health and education for Western Australians would be seriously diminished to the extent that Western Australians will get a significantly reduced quality of life, a significantly reduced and deteriorated living standard as a result of that GST distribution mechanism in our country.

I would like to end with a quote from a political mentor—that is, former Prime Minister John Howard, someone whom I have a tremendous amount of respect for, someone who, indeed, had the political courage and momentum to drive tax reform in this country. I want to quote from an opinion piece that I had published in The West Australian, where Mr Howard was reflecting on the current state of GST distribution in our country:

Even former Prime Minister John Howard has conceded while he always knew that there would be fluctuations in the GST relativities—

Mr Howard said—

'I do not think anyone in 1998 or 2000 had in front of them the projections as to how unequal the distribution would become.'

John Howard said that, while he and others knew there would be fluctuations in the GST relativity, nobody—not John Howard, not Peter Costello—ever thought in 1998 or 2000 just how unequal the distribution would become. When it comes to tax reform, when it comes to economic reform, I think we can put our faith in these people: Peter Costello and John Howard and their contributions in the past; Malcolm Turnbull and Scott Morrison now and into the future. I am confident that GST distribution reform will be part of a wider suite of tax reform policies that will set not just Western Australia free but the whole country free. (Time expired)

Gavin Marshall (Victoria, Deputy-President) Share this | Link to this | Hansard source

Senator Xenophon, time for this debate expires at 12 o'clock. Do you wish to commence your contribution?

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I would be happy to cede to the Attorney. I do not know if anyone else is on the speaking list—I see Senator Back. I will cede to Senator Back if he wants to speak until 12 o'clock. I would rather reserve my contribution until later.

Gavin Marshall (Victoria, Deputy-President) Share this | Link to this | Hansard source

Senator Back, do you wish to start your contribution? As far as I am concerned, it is virtually 12 o'clock and we could move to business at 12 o'clock. But if you want to start, please start.

Christopher Back (WA, Liberal Party) Share this | Link to this | Hansard source

I will also reserve, if I may. I would hardly get hot under the collar before I got started, so perhaps I will leave it until later.

Debate adjourned.