WA calls for ‘hostile’ GST compo

Treasurer Ben Wyatt says the Commonwealth has a duty to make top-up payments to pave the way for reforms.

WA Treasurer Ben Wyatt appears at the Productivity Commission inquiry into the GST in Perth. Picture: Colin Murty

Western Australia has demanded that Canberra find billions of dollars to compensate “hostile” states such as Victoria and South Australia, as part of major changes to the GST carve-up system proposed by the Productivity Commission.

Appearing at the PC’s public hearings in Perth today, Treasurer Ben Wyatt said the Commonwealth had a duty to make top-up payments to pave the way for reforms that would benefit the WA Labor government’s budget by more than $3bn this year if implemented immediately.

“It was the Commonwealth government that was the huge beneficiary of the mining boom,” Mr Wyatt said. “It wasn’t Western Australia. We didn’t see any spike in revenue beyond what you’d expect.”

Productivity Commission deputy chair Karen Chester appeared to question whether the federal government would be able to stump up billions of dollars in top-up payment given its own “budget situation”.

She also noted the proposed changes to the system would produce “winners and losers”.

Scott Morrison ordered the PC inquiry and has promised to make changes that are in the national interest, but he also considers WA’s low share of the GST to be unfair.

In its draft report, the PC recommended last month that the government end the distribution of GST through “full equalisation”, which is aimed at bringing the service delivery capacity of each state to that of the fiscally strongest state.

It found this method had reduced incentives for some states to make difficult decisions that promote economic development, including the development of natural resources.

Instead, the PC recommended the formula be changed so states are benchmarked either to the level of the second strongest state or the average of the states.

Outside the hearing, Mr Wyatt said the other states and territories — apart from NSW — were all opposed to reforming the GST distribution system but he believed they had nothing to fear if the Commonwealth showed leadership.

“If you come up with a transition to equalising to the average that the Commonwealth has a big part in funding, you can actually do that in a way that others states don’t have to be fearful of,” he said.

“The other states are very hostile because they have gotten used to the current mechanism delivering them the advantages of unusual wealth periods.

“But I say to them — over time these things will have ebbs and flows, but if you can have equalised to the average, you will create a more reasonable equalisation process and more certainty for all state budgets.”

The PC’s final report will be delivered in January.