Delay to GST review gives Turnbull breathing space

A review into the controversial GST carve-up formula has been delayed by almost four months.

Federal Treasurer Scott Morrison has extended the deadline for a report into the GST carve-up. Picture: AAP

A review into the GST carve-up formula has been delayed by almost four months, relieving the Turnbull government of having to respond to any politically contentious recommendations before May’s budget.

Scott Morrison yesterday said he had extended the deadline for the Productivity Commission’s final report into “horizontal fiscal equalisation”, the principle that underpins distribution of more than $60 billion a year to the states and territories, from the end of this month until mid-May, following a request from the ­commission.

“It is important to get this right. The PC inquiry has already demonstrated in its interim ­report that the system is broken and needs a real fix,” the Treasurer said.

“Extending the timeframe for this inquiry will give the PC more time to work through these ­important issues.’’

The commission’s interim ­report in October appeared to lay the groundwork for major recommendations, concluding the current system was “under signif­icant strain” and “struggled with extreme circumstances”.

“The system is beyond comprehension by the public, and poorly understood by most within government — lending itself to a myriad myths and confused accountability,” the report said.

“Equalisation should no longer be to the highest state, but instead the average or the second highest state — still providing states a high level of fiscal ­capacity, but not distorted by the extreme swings of one state.’’

Western Australia, whose per-capita share of the national GST pool tumbled to lower than 30c in the dollar in the wake of the ­resource boom, has championed changing the formula. West Australian Treasurer Ben Wyatt said yesterday he was disappointed with the delay.

“Once the review is finally handed down, I fully expect Malcolm Turnbull and Scott Morrison to act immediately to ensure that Western Australia receives its fair share of GST. The federal government cannot continue to ignore or obfuscate on this issue,” he said.

The state will ­receive 34c for every dollar this year, while South Australia, Tasmania and the Northern Territory, for example, will receive $1.44, $1.80, and $4.66 respectively.

“The Coalition remains committed to the ‘fair go’ principle ... and putting in place a real solution that does the right thing by our national economy,” Mr Morrison said.

Critics of the formula, which tries to compensate economically weaker states with higher GST payments, argue that the current formula discourages states developing their mineral resources and reforms that would boost economic growth.

Prominent economist Saul ­Eslake has said Western Australia’s low share was justified by its unusual windfall. “The relativity which the Commonwealth Grants Commission has determined for WA in recent years should be seen as evidence that the system is working as it should rather than as evidence there is something wrong,” he said.