James Campbell: States could pay for Western Australia’s mess

THE Productivity Commission has grudgingly come up with what the Turnbull Government wanted — an excuse to give WA more at everyone else’s expense, writes James Campbell.

Because of WA’s “she’ll be right” attitude, Victoria and the rest of the country has to take a haircut, says James Campbell.

READING between the lines of the Productivity Commission’s report into the way the GST is divvied up, it is clear it has only grudgingly come up with what the Turnbull Government wanted — namely, an excuse to give Western Australia more at everyone else’s expense.

The PC argues that Horizontal Fiscal Equalisation — the richer states subsidising the poorer — is broadly working well. The problem is that it “struggles with extreme circumstances, and this is corroding confidence in the system”.

Translated into English, this means that WA got so much extra money from the mining boom there was no way its GST share wasn’t going to be walloped.

It’s a terrible look for them to be getting only 34c back in every dollar.

But as the report makes clear, WA’s Budget problems are entirely of its own making.

WA’s falling GST share was predictable — indeed, it was predicted by none other than the then WA treasurer, Christian Porter, in his 2011-12 Budget.

But instead of budgeting for that cut, Porter bet that the Commonwealth Grants Commission would bring in a new GST system.

“We expect it will produce a floor of around 75 per cent of our population share of the GST,” the PC quotes him as saying.

Unfortunately for him and WA, he lost his bet.

Unfortunately for the rest of us, too. Because of Porter’s “she’ll be right” attitude, Victoria and the rest of the country has to take a haircut.

Which doesn’t mean there isn’t plenty wrong with the way the CGC carves the cake.

The problems are essentially twofold.

The first — and the one you get the impression really gets the PC excited — is the way the current system creates perverse incentives against tax reform, because they can result in GST shares being cut. (For instance, Victoria is still being penalised for getting rid of taxes years ago which other states have retained.)

The second is the arbitrary things the CGC looks at when calculating advantage or disadvantage.

For example, having lots of indigenous people gets you extra money; having lots of non-English-speaking migrants does not.

But that will be dealt with later. For now, it’s all about getting WA out of a mess.

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