Unleash Competitive Federalism: IPA Sparks National Conversation on GST Reform

This week the Institute of Public Affairs released a new report Time to End GST Redistribution, authored by IPA Research Fellow, Morgan Begg.

The report reveals that over the life of the GST, Western Australia has lost $16 billion (22 per cent) of the GST revenue that was raised in that state. By contrast, almost $19 billion (24 per cent) of South Australia’s GST revenue is raised in other states.

The report was featured in The West Australian in this story by Economics Editor, Shane Wright.

Morgan Begg joined 6PR in Perth to discuss the report:

The report was also featured in the Australian Financial Review, under the title ‘Institute of Public Affairs advocates state income taxes’

The article says:

Free market advocates have called on Prime Minister Malcolm Turnbull to revisit the debate about state-based income taxes, claiming GST equalisation “propped up” states like South Australia.

The Institute of Public Affairs warned the lack of political will to fix the flawed GST distribution system was holding back more sweeping reform of state-federal relations essential to the economy.

IPA Executive Director John Roskam weighed in on the issue:

IPA executive director John Roskam said the changes would unlock the benefits of competitive federalism.

“The heavy centralisation of fiscal responsibility has been a drag on Australia’s economic performance,” he said.

“When we talk about declines in productivity and flat lining wages that is something that I don’t think people in Australia have spent enough time talking about.”

Mr Roskam said premiers had “run away at a million miles an hour” last year when Mr Turnbull raised the prospect of states and territories applying their own income taxes from 2020.

“Our position is one of competitive federalism, that the states should be able to compete on rates of tax as they do in nearly every other federation, as states do in the United States and as provinces do in Canada,” he said.

“The trouble is (state) politicians have found it easier just to blame Canberra rather than take responsibility.”

It wasn’t long before poor performing states started making noise about potentially having to rely on their own economic performance instead of leaching off other states. This story was featured in the Hobart Mercury.

This story in the Adelaide Advertiser titled ‘SA Treasurer Tom Koutsantonis slams proposal for states to introduce their own GSTs’ clearly shows the Treasurer’s frustration.

A PROPOSAL for the states to introduce their own GSTs has been slammed by the South Australian Government and Business SA.

The Institute of Public Affairs has called for an end to the system where revenue from the consumption tax is divided between the states based on need and suggested that each jurisdiction instead levy a GST at a rate of its own choosing.

Another option was for each state to receive all of the revenue raised from the GST within its borders.

IPA researcher Daniel Wild said ending the current system of revenue-sharing would encourage states such as SA to be more competitive.

“There would be more direct pressure on state governments to be engaging in reform that’s going to grow their economies and grow their revenue base,’’ Mr Wild said.

SA Treasurer Tom Koutsantonis said scrapping the current system would result in American-style inequality where standards of government services depended on where people lived.

“This is an offensive report that gets all the facts wrong on GST, from a right wing lobby group for the Liberal Party,’’ Mr Koutsantonis said.

The IPA’s favourite South Australian Daniel Wild spoke to Leon Byrner on 5AA Adelaide about what the IPA’s proposal means for South Australia.