New research released by free market think tank the Institute of Public Affairs reveals how GST equalisation is creating a class of winners and losers among Australian states.
IPA Research Fellow Morgan Begg said, “While WA’s position in the Commonwealth Grants Commission rejig is an improvement it will still amount to billions of dollars in lost revenue for the state.”
Analysis based on new data indicates that by 2018/19 the extent of redistribution of GST revenue will reach $104bn, with New South Wales ($51.3bn), Western Australia ($28.6bn), Victoria ($24.1bn) bearing the cost.
Under the Commonwealth Grants Commission’s recommended GST distribution for the 2018/19 financial year, revealed in April 2018, New South Wales is set to lose over $5bn in GST revenue generated in that state. Western Australia will lose over $3bn.
Western Australia has lost the most in proportional terms: over the life of the GST, of the $97.3bn of GST revenue generated in Western Australia, $28.6bn (29.4 per cent) has been transferred to other states and territories.
“This adds to the longer term problem for the state that has already seen over $20bn taken from WA to subsidise underperforming states and to fund the Commonwealth government’s obligations in the Northern Territory.
“The calculations behind this future carve-up are based on past data which makes the whole process completely unreliable.
“If there is a further deterioration in minerals for instance then that will disproportionately affect WA relative to the rest of the country. Consequently WA’s position will be even worse off when these calculations come into effect in 2018/19.
“GST top up payments are bad policy as they would effectively create a floor. It is an admission that equalisation is a fundamentally flawed policy objective.
“Top up payments would merely add another layer of complexity to the distribution process. You cannot address the structural problems through top up payments. Only decentralisation and fiscal autonomy will address the problems of equalisation.”
“The only solution to end the redistribution altogether. We should seek to unlock the benefits of competitive federalism by letting the states set their own GST rates and keep the revenue they generate,” said Mr Begg.
Click here to download the report.