The premiers of Tasmania and Western Australia are at odds over potential changes to the horizontal fiscal equalisation policy applied through the GST distribution scheme.
WA officials, along with the major iron ore miners who call the state home, have for some time argued that the GST system is set up to effectively punish states who develop their resources industry, while rewarding those who limit development with money from other states.
“The current system is flawed – it fails to achieve its fairness objective and WA has been ripped off for too long,” WA Premier Mark McGowan said this week, as his state put forward its submission for the Productivity Commission’s review into horizontal fiscal equalisation.
“As premier, I want to work constructively with everyone involved to achieve an outcome that will not only deliver WA the GST we deserve, but establish a fair system across the country.”
But fairness was also the major concern for Tasmanian premier Will Hodgman, who said changes to GST distribution “would lead to serious inequity in the states”.
“Our submission points out that during the mining boom period up to 2013/14 when Western Australia received high levels of mineral royalties, it also received an additional $7 billion of GST due to the lag effect,” Hodgman said on Monday.
“However, these funds were spent on increased expenditure, rather than saved for the predicted GST decline. Amazingly, Western Australia just kept on spending because they took the view that the GST system would change.”
Minerals Council of Australia chief executive Brendan Pearson disagrees whole-heartedly, saying the Productivity Commission needs to amend a “perverse” system “holding back economic growth in Australia”.
“Current approaches penalise state governments which seek to maximise their revenue base and grow their economies through the attraction of minerals development,” Pearson said.
“Conversely, state governments which actively reject minerals development are effectively rewarded at the expense of the states which develop their mining sectors.”