Victorian government slams Productivity Commission plan to overhaul GST

A RADICAL overhaul of the GST that would slash Victoria’s revenue by almost $1 billion has been slammed by the state government as unfair and incoherent.

A RADICAL overhaul of the GST that would slash Victoria’s revenue by almost $1 billion has been slammed by the State Government as unfair and incoherent.

The major changes to the GST formula, proposed by the Productivity Commission, have been prompted by complaints from Western Australia about their share of the cash carve-up.

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But Victoria argues WA only has itself to blame because it predicted the steep drop-off of GST revenue after the mining boom and did nothing about it, instead spending up big in the hope that the rules would change in their favour.

The Victorian government rejected the commission’s draft plan to alter the funding formula, arguing its proposals may actually make the system more secretive, complex and inefficient.

Victorian MPs in the Turnbull Government have been under pressure to ensure their state receives a fair deal in any changes to the GST. Picture: Gary Ramage

Victoria already pays more than its fair share to help other the states and territories, getting back 93 cents in every dollar of GST it pays to the Commonwealth, which funds schools, hospitals and infrastructure.

Victorian MPs in the Turnbull government have been under pressure to ensure their state receives a fair deal under any changes, with the commission to release its final recommendations next year.

In its submission to the commission, the Victorian government said its draft plan to change the carve-up was surprising and arbitrary.

“The financial impact of such a move was modelled by the commission to be up to $1 billion per year for some states and territories,” the government’s submission said.

“Such a major change should be supported by robust empirical evidence, which has not been presented.”

The mining boom in Western Australia is over. Picture: Tony McDonough

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WA’s GST share slumped to 34 cents from every GST dollar it contributed after the mining boom, which the Victorian Government said WA had successfully forecast.

It said WA’s real problem was “a lack of forward looking budget management” and an ignorance of the “fiscal realities” of the GST system.

“(The commission’s) approach appears arbitrary, designed to address the point-in-time, fiscal concerns of one particular state and undermines the equity objective,” the Victorian government said.

“It does little to improve the transparency, simplicity, economic efficiency, or equity of the current system, and may represent a worse alternative on all these counts.”

Prime Minister Malcolm Turnbull believes WA is getting an unfair deal on the GST, but sources within his government maintain any overhaul would include transition arrangements to compensate states which lose out.

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