A $60 billion GST Fiasco: Report Condemns Morrison Deal as Perverse

The Productivity Commission’s report on the GST allocation system highlights a fundamental problem with Australia’s federal structure: its inability to distribute tax revenue fairly among states. The current setup has created a perverse and complex system that benefits one state at the expense of others.

At the heart of this issue is the 2018 deal between Scott Morrison and Western Australia’s government, which was meant to address the collapse in WA’s share of GST during the mining boom. However, it has instead created a two-tier system where only one state – Western Australia – benefits from increased funding. The report notes that NSW and Victoria now face potential losses as their shares decline.

The system’s treatment of natural disasters is particularly striking. When a bushfire hits NSW, for example, it receives extra GST to deal with the disaster’s impact – but Western Australia gains a windfall from this event while the government of NSW receives slightly less. This illogical arrangement demonstrates that the current system has failed its core objective: delivering each state and territory enough cash so they can provide similar levels of services and infrastructure.

Deputy Chair Alex Robson stated that the 2018 changes tried to achieve too much and moved too far away from the system’s core objective, creating a “perverse” system where Western Australia benefits at the expense of the rest of the federation and federal taxpayers. Commissioner Angela Jackson added that this has made the annual GST carve-up less equitable and more complex.

The report highlights the consequences of this system, including the potential for NSW and Victoria to lose out as their shares decline. If iron ore prices climb towards $US200 a tonne, the annual cost to federal taxpayers of not leaving states and territories worse off would reach $12 billion – a staggering figure that exceeds what’s spent on the nation’s air force.

The WA government’s demand for no changes to the 2018 deal is telling, as they’re fighting to maintain a system that benefits them at the expense of others. The Albanese government and Taylor opposition have expressed support for the current system, but the Productivity Commission has offered three possible changes: returning to the pre-2018 system or implementing direct grants to WA to offset its small share of GST.

The issue here is not just about numbers; it’s about fairness and equity in a system that’s meant to distribute tax revenue among states. The report’s findings are a wake-up call for policymakers, highlighting the need for fundamental changes to Australia’s federal structure. It’s time to rethink how we distribute tax revenue and create a more equitable system – one that doesn’t benefit one state at the expense of others.

As the Productivity Commission holds hearings into its interim report, it’s essential that policymakers take these findings seriously and consider making substantial reforms to the GST allocation system. The current setup is not only unfair but also unsustainable in the long term. It’s time for Australia to move towards a more equitable distribution of tax revenue – one that benefits all states and territories equally.

The federal government’s reassurances to Western Australians about getting their “fair share” ring hollow when faced with the Productivity Commission’s report. Fairness is not just about maintaining the status quo or making piecemeal changes; it’s about creating a system that genuinely delivers equal opportunities for all states and territories. The GST fiasco is a symptom of Australia’s federal mess – one that requires bold action to address its deep-seated problems.