Victorian ministers in Turnbull Government face difficult decision over GST reforms that could dud state

VICTORIAN ministers in the Turnbull Government will come under intense pressure to resist landmark reforms to the GST that would have seen the state’s share cut by almost $1 billion this year.

A group of Victoria’s MPs in the Turnbull Government. Picture: Gary Ramage

VICTORIAN ministers in the Turnbull Government will come under intense pressure to resist GST changes that would have cut the state’s share of revenue by almost $1 billion this year.

Greg Hunt, Josh Frydenberg, Kelly O’Dwyer, Darren Chester, and Mitch Fifield will face a difficult decision when they get the Prod­uctivity Commission’s final report on overhauling the GST next year.

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The commission released a draft plan, prompted by West Australian complaints about its share of the Goods and Services Tax.

That draft recommends changes to GST distribution which, based on this year’s figures, would have stripped Victoria of $920 million to $972 million — money that pays for the state’s hospitals, schools and roads.

A group of Victoria’s MPs in the Turnbull Government. Picture: Gary Ramage

Ms O’Dwyer, the Revenue and Financial Services Minister, told the Herald Sun: “I am a proud Victorian and will always stand up for Victoria’s interest. The Productivity Commission report is only recommendations to government, not government recommendations.”

Mr Hunt said: “We will always stand up for the interests of Victoria. We will also work to ensure the national interest is advanced.”

Victoria pays more than its fair share to help other states and territories, and now gets back 93c in every dollar of GST it pays to the Commonwealth. Under the two proposed models, that would be cut to 87c or 88c, based on this year’s numbers.

The overhaul would hurt every state except WA — which, as a result of the mining boom, currently recovers just 34c in its GST dollar. The impact would be reduced if the change were applied after WA’s share recovered under the current system.

Senior figures in the Turnbull Government maintain any GST overhaul would include transition arrangements to provide compensation, and that the states would be incentivised to make their own tax reforms which would lessen the blow of any GST cut.

The commission said the distribution of $60 billion of GST revenue was broadly fair but that “the pure may be the enemy of the good”.

It found the current system discouraged state energy development and tax reform and was ”beyond comprehension” for the public, and was even “poorly understood by most within government”.

Treasurer Scott Morrison said the GST needed “a proper fix” rather than “more Band-Aids”.

“What we need is to properly deal with the causes of the problem, not the symptoms,” he said.

He said the government wanted a fairer and more efficient system but that the states would be given time to adjust.

“Care should be taken in making assumptions about the specific point in time impacts on any one jurisdiction from alternative models,” Mr Morrison said.

“The government will work to assess impacts over time to avoid any policy cliffs and to smooth out impacts, wherever possible.”

The Herald Sun revealed last month that Victoria had been short-changed $86 billion since Federation in dud tax deals with the Commonwealth.

In its submission to the Productivity Commission, the State Government said it was open-minded about GST reform but backed the current distribution system based on “the principles of equity and policy neutrality”.

The State Government said it would carefully consider the draft report “to ensure that Victorians are not further short changed by the Turnbull Government”.

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