Federal Treasurer Joe Hockey seeks advice on fairer GST distribution for mining states

Updated

Federal Treasurer Joe Hockey is seeking advice on how to make the GST distribution for mining states like Western Australia fairer.

Mr Hockey has written to the Commonwealth Grants Commission asking it how to change the system to take better account of volatile mining royalties.

In the letter, Mr Hockey said he wanted advice on how to ensure a state's share of GST in a given year was appropriate for their fiscal circumstances that year.

The Treasurer wants the commission to consider the treatment of GST where revenue from a particular source is a large and volatile proportion of a state or territory's revenue.

It will form part of the Commission's review of the GST system next year.

WA Premier Colin Barnett has welcomed the review as he said the state had been missing out.

He said under the existing system, GST relativities were calculated on commodity prices measured at three-year intervals, which meant WA's GST return was based on sharply higher iron ore royalties than the state was actually receiving.

In a statement, Mr Barnett said the collapse of the iron ore price has wiped $7.1 billion in revenue from the state's budget over the forward estimates.

The Premier said the WA Government had been raising the issue of the GST distribution with the Federal Government for many years.

"This is the most promising sign we have had out of Canberra on the GST issue to date," he said.

"The GST has become a source of instability rather than the stable form of revenue that it was designed to be.

"While the long-term solution is a distribution model based on population, this is an important first step."

Timing lag issue critical, says WA Treasurer Mike Nahan

WA Treasurer Mike Nahan said he was confident the outcome would be positive for the state.

"If put in effect, and I'm confident it will, it will lead to a substantial increase in our share of GST and will also lead to our share increasing more quickly," he said.

Our distribution is determined by what our revenue, particularly royalties, was three years ago. They have collapsed since then. Mike Nahan

But Dr Nahan said there were "still some jumps to jump through".

"There has been a debate about whether or not we could change the share of GST," he said.

"This letter shows it is possible. Our share remains 38 per cent despite our iron ore royalties collapsing so it addresses the timing issue which has been crucial."

Dr Nahan said one of the biggest problems was the time lag.

"Our distribution is determined by what our revenue, particularly royalties, was three years ago," he said.

"They have collapsed since then, our share was not going to increase for the next three years as a result.

"So what Joe Hockey has instructed the Grants Commission to do is explicitly take into consideration [that] lag.

"I assume what he's going to do is just take the actuals for this year to determine the distribution for next year."

Dr Nahan described GST distribution as a zero sum game.

"One state's loss is another's gain and vice versa so this is difficult politics," he said.

"You cannot have a state that has been driving, and is driving, the nation's economy withdrawing money and going into deficit."

"WA has, compared to other states, a huge capital program to promote iron ore, oil and gas development - Onslow, Karratha, Port Hedland, Broome. Those expenditures are not adequately considered in the grants process."

Dr Nahan said WA is also unique in that it has rural and remote areas over a vast area, and the costs of those are not taken into account.

Removing lag would boost WA, says Cormann

Federal Finance Minister Mathias Cormann said flagged changes to the GST distribution system would benefit WA.

He said removing a lag in the way GST is assessed would significantly benefit the state.

"The WA share of GST continues to be assessed as if the iron ore price remained high," he said.

"It's an issue that we've recognised. It's an issue that we've asked the Commonwealth Grants Commission to provide us with advice on for us to be able to consider that advice before the next budget.

"While Western Australia's missing out on revenue on the back of significant and unexpected falls in the price of iron ore, they're still having their GST relativity assessed as through iron ore prices remain high.

"In recent years Western Australia has shared its royalty revenue nationally through the GST sharing arrangements, as is appropriate.

"But moving forward there has to be some consideration of the question before us which is whether falling iron ore prices need to be considered more swiftly given the implications it has in terms of revenue volatility for the state."

Topics: federal---state-issues, canberra-2600, perth-6000

First posted