By Shane Wright
The latest GST carve-up confirms three things – Queensland is finally sitting at the grown-ups table, Scott Morrison’s deal to buy off West Australian voters is costing everyone else a bomb, and the current allocation system is falling apart.
Ordinarily, the reports of the Commonwealth Grants Commission (CGC) – created in the mid-1930s by then-prime minister Joe Lyons to placate secessionist-minded West Australians – are as exciting as the ingredient list on a box of Rice Bubbles.
The GST allocation system is now little more than a soggy bowl of cereal.Credit: iStock
But the latest commission report has more snap, crackle and pop than any cereal.
The commission uses a complex system of metrics that would confuse Einstein to determine how best to share the $90 billion of GST among the states and territories. It aims to ensure each gets enough cash to offer their voters a similar quality of goods and services.
The underlying principle is that if you’re a child born in the Tasmanian town of Bicheno, you should have access to roughly the same quality schooling, health services and policing as a child born in the Perth suburb of Gosnells.
In 2000, John Howard updated the system by promising every dollar raised by the new GST would go to the states and territories, allocated through the CGC. Sold as a “growth tax” it was also a zero-sum game, because if one state needed more cash it would have to come from another.
China’s insatiable demand for WA’s iron ore deposits, which pushed the price for a tonne of Pilbara red dirt from less than $20 a tonne to almost $200 a tonne, was the first nail in the CGC process.
Even if the WA government increased royalties on iron ore, most of the extra revenue was sent to the rest of the country.
This redistribution, which is at the heart of the grants commission process, recognises that a government didn’t store billions of tonnes of iron ore within WA’s boundaries, nor was it responsible for China’s rapid industrialisation and suburbanisation.
But it meant WA’s share of GST collapsed so much – while the state was run by the profligate Barnett government – that it was left with plenty of iron ore and not much else.
Scott Morrison, as treasurer, saw the political dilemma this caused and cobbled together a new system under which WA would get a guaranteed share of GST, no matter what happened to iron ore prices.
To keep the rest of the country – and his Liberal Party senators – on side, Morrison came up with a “no worse off” provision under which every other state and territory would get enough federal taxpayers’ cash to maintain their GST share.
Originally expected to cost $8 billion over eight years, it’s now on its way to costing taxpayers $50 billion by the end of the decade. Tuesday’s CGC report shows the no-worse-off clause will cost $5.2 billion in 2024-25 alone.
The grants process is also a problem. Queensland, which since the 1930s has always received extra cash to support the state, will in 2024-25 become a donor state – getting less than its per capita share – for the first time.
Victoria, a donor state since the system’s inception, has had its GST share pumped up by an astonishing $3.7 billion. But state Treasurer Tim Pallas knows that while he’s been kissed on the bum by the GST rainbow this year, he could be hit with a fiscal snowstorm next year.
NSW Treasurer Daniel Mookhey faces the biggest fiscal headaches because of the most recent GST allocation.Credit: Louise Kennrley
NSW Treasurer Daniel Mookhey has been worst hit by the grants commission process.
The way money is allocated is so oblique and so difficult to understand that it is broken.
WA was the canary in the fiscal coal mine. Its fall in revenue exposed a problem, but the canary was kept alive by the Morrison deal.
It was containable when just one state was badly affected. Now, no state or territory can properly budget for coming years.
There are alternatives. Handing out the GST on a per capita basis, with separate grants to jurisdictions with particular financial issues (such as the Northern Territory) or extra allocations based on meeting certain standards would be much more transparent and understandable than the current system.
Federal-state relations are as exciting as a bowl of wheatgerm, but they touch the lives of every Australian.
This current soggy mess has to change, and soon.
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