States that stand to lose revenue to WA object to proposed tax changes and Victoria accuses government of using conditional funding to ‘influence state policy decisions’

This article is more than 2 years old

This article is more than 2 years old

The states which stand to lose the most revenue to Western Australia under radical new plans to change the GST carve-up have urged the federal government to instead fix federalism by giving them greater autonomy.

In submissions to the Productivity Commission review of GST redistribution, Queensland has called for states to receive a share of income tax and Victoria complained that conditions on federal grants need to be scaled back.

With federal income tax increasingly parcelled out to the states through tied grants, states warned the imbalance of their need to spend and revenue-raising allowed the commonwealth to influence policy decisions in their areas of responsibility.

Last week, the treasurer, Scott Morrison, announced the review would not have to report until 15 May, prompting Labor to accuse the government of hiding plans to cut revenues until after the Tasmanian and South Australian state elections.

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The Productivity Commission is considering the effect of abandoning attempts to redistribute GST to provide equal quality services around Australia and instead move to lower standards like a “reasonable” level of services.

Under the proposals, Western Australia stands to gain more than $3bn this year. New South Wales would lose either $1.2bn or $110m in GST, depending on the method, and Queensland would lose $729m or $1.6bn.

Victoria would lose $920m or $972m, followed by South Australia (-$256m or -$557m), Tasmania (-$77m or -$168m).

The Queensland government said it had “significant concerns” with the proposals which would “negatively impact” its ability to provide similar level of services.

It called for a review of the use of tied funding by the commonwealth to give “greater access to untied funding that would give the states increased autonomy in deciding how to provide services”.

That could include the commonwealth providing states a share of personal income tax revenues as untied funding to replace current tied grants, it said.

Victoria submitted that a “move away from full equalisation towards achieving partial equalisation, which in Victoria’s view is movement away from equity”.

Victoria called for states to have greater autonomy, accusing the federal government of using conditional funding to “influence state policy decisions”, citing its use of Gonski 2.0 funding to force states to accept education reforms.

Western Australia and NSW called for states to receive an equal per capita share, which would result in the least redistribution away from the states generating highest revenues.

Western Australia said that a dynamic GST floor by “equalising to the average fiscal capacity of all states would go a long way towards addressing the system’s problems”.

Equalising to a “reasonable standard” would also recognise “extreme situations” where horizontal fiscal equalisation might damage the economy.

The Productivity Commission review was prompted by what it called a “GST outlier” of Western Australia receiving just 34 cents in the dollar of its GST revenue in 2017 and even lower the previous year.

South Australia’s submission said it was “misleading and spurious” to claim those results were an outlier.

“The story is simple. Western Australia collects over five times its population share of Australia’s mining revenue so to ensure that fairness/equity is achieved, it then receives less GST,” it said.

South Australia argued that a move away from full equalisation to a “reasonable standard” was “by definition less equitable than the status quo”.

The standard implied acceptance of a degree of “acceptable inequality” that would be “determined at the discretion of the prevailing commonwealth government”, it warned.

On Tuesday Labor’s deputy leader, Tanya Plibersek, said the Turnbull government was attempting to delay the final report that would show “every state and territory, bar WA, will lose, and lose big time under the proposals in the draft report”.

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Federal Labor’s position is to deliver a $1.6bn top-up to Western Australia’s funding without changing the GST formula.

On Wednesday rightwing thinktank the Institute of Public Affairs backed Queensland’s call, suggesting that states should be able to levy and set their own income tax and GST rates.

“Australia’s system of federation is broken,” said IPA research fellow Daniel Wild.

“State governments should be responsible for raising revenue for the services they deliver.”