What is this GST ‘pie’ and is it fair for all states?

Ross Greenwood speaks to Federal Treasurer Scott Morrison about how the federal government’s $7-billion plan, which changes the way GST payments are calculated and distributed, will see all states receive a fairer piece of the GST “pie”.

Introduction: What is this GST ‘pie’ and is it fair for all states?

Ross Greenwood:  Let’s go to this whole new deal that’s being proposed by the federal government, what’s said to be a fairer shake of the GST pie. What it will see is the government putting in an extra $7 billion and making certain that states such as Western Australia don’t get significantly disadvantaged at the end of a mining boom as it did when the mining boom ended in basically around 2009. As a result of that, Western Australia went from being pretty much the richest state in the country to the poorest, overnight, and it was not helped when property prices fell and therefore stamped duty revenues collapsed.

In the meantime, New South Wales and Victoria have been incredibly strong off the back of record housing prices in both of those states, so big amounts of stamp duty coming through. Yet now you’re hearing that some of those premiers are a little concerned, shall I say, that this new deal disadvantages those big states with their big revenues coming from stamp duty to the benefit of other states such as, say, Queensland, which has not done the type of reform that’s happened in certainly New South Wales and to a lesser extent, Victoria as well.

Let’s go to the man who’s right in the middle of this, the treasurer, Scott Morrison. Many thanks for your time, treasurer.

Interview with: Scott Morrison, Treasurer

Scott Morrison: I’m very happy to be here, Ross.

Ross Greenwood:  The first question a lot of people are asking, is where does the $7 billion come from? Have you suddenly broken open a treasure chest somewhere that’s been otherwise undiscovered?

Scott Morrison: No, I wouldn’t put it that way. Remember, it’s not $7 billion in one year, this happens over eight years and it builds up over time. It gets to about a billion dollars extra we put into the total pool of money that’s distributed amongst the states and that’s when the GST collections at about $100 billion. I know these are obviously big numbers but when you’re dealing with it in federal government, they’re the sort of numbers you deal in. What that does is it means that when we change to this new formula over that period of time, that, if there’s any state or territory that might get a slightly smaller size of the slice of the pie, the pie is going to be bigger which means that ultimately they’ll be better off. What that enables us to do is to deal with a real problem with the way the GST is distributed, this formula. Your introduction, I think, summarized it rightly.

What happened to WA if they fell down to a share of less than 30 cents per person in Western Australia of their GST? Even worse than that, is that the actual amount of money that they got out of the GST was less than what the northern territory had got and they’ve got a population 10 times the size. When you’re getting absurd results like that, clearly there’s a problem. What we’ve done is fixed that problem by using New South Wales or Victoria, the higher of which, as the standard by which you’re evening everything out by and certainly putting in a flaw. No state, including New South Wales and Victoria or any state for that matter, can have a share less than 75 cents per capita in the dollar of GST.

Ross Greenwood:  Let’s go now to the New South Wales treasurer, Dominic Perrottet, who spoke about this today, he’s just a little of the way in which he interpreted these changes.

Dominic Perrottet: Are their public services growing at a much greater rate than their population grow. Yet, what we’ve seen today, as a result of this decision is that the taxpayers of New South Wales will continue to subsidize Queensland, provide their surpluses and build their schools and hospitals.

Ross Greenwood:  Now I know that you are a proud New South Welshman and you are also the federal treasurer, but are you happy with New South Wales continuing to subsidize Queensland and especially giving the fact that Queensland has not done the same sort of work in, shall I say reforming its own economy, as New South Wales has?

Scott Morrison: That’s certainly true particularly recently under the Berejiklian government, but it is also true that New South Wales and Victoria have been subsidizing Queensland and frankly Western Australia, Tasmania, South Australia, the Northern Territory and the Australian Capital Territory and there’s all the core states, since 1900. This is not a new phenomenon, the larger states have always subsidized the smaller states. I think some in Queensland would be surprised to know that Queensland actually does get subsidized under this arrangement and there are a couple of reasons for that.

I think Dom makes some interesting points there and I’m trying not to get into this sort of argument between the states over this but I think the points that he makes are fairly made. Also, Queensland is a far more diverse state in terms of its geography and its remoteness and it also has a much higher, proportionally speaking, of indigenous Australians and that also has an impact on the formula. I think he made some good points but New South Wales has always been carrying water as has Victoria, for all the other states since Barton Deakin got together over a hundred years ago.

Ross Greenwood:  The problem I could see is that if you start to reward states and actually, this is another thing that Dominic Perrottet said today, which makes a bit of sense but then you start to think of the politics and you start to wonder.

Dominic Perrottet: We believe that states who embark on reform should be rewarded and not penalized.

Ross Greenwood:  I would imagine that’s pretty hard because who judges the reform, who works out whether there’s an election and political parties change inside a state government, that’s what makes that sort of an idea pretty difficult I would have thought.

Scott Morrison: I think they’re fair points too. I think Dom’s making a more general point that at least shouldn’t be penalized when you do it under the GST formula and I think he’s dead right about that, but equally, the case applies to the mineral sector. Why should Western Australia who’ve had their share of the GST fall to less than 30 cents on a dollar simply because they went out and they dug stuff out of the ground? The problem with the GST formula that we have had in place which we are changing is, it doesn’t take any into account of the value of what’s underneath our feet in each our states.

New South Wales has a lot of gas which is locked up, so does Victoria. The resources are all around the country. Western Australia, as soon as they put the shovel into the dirt, then what we’re seeing is that all of their mining royalties and these sorts of things, they get factored into the formula. If you leave it in the ground, well it doesn’t. Now I don’t think that’s right either. The change to the formula is actually going to allow Western Australia, to now get on with that using the resources they have and not be penalized for doing it. Hopefully, that will also encourage other states and territories to realize their resources whether they’re gas, coal or anything else.

Ross Greenwood:  Then we go to the point of where is the money coming from? The government, in the budget, did say that the budget is expected to be back into surplus or a profit if you like, in the black, one year earlier than anticipated. Just looking at the latest numbers out of the Department of Finance last Friday, which showed that up until May this year, in May in fact, there was an underlying cash balance of $4.9 billion and even say for example, over the course of this year, there has been a net operating balance or a fiscal balance if you like, $1.1 billion. The underlying cash balance over the year is still -$10 billion but that’s about $8.2 billion better than what was expected during the budget period.

Scott Morrison: Yes, we’ve got to wait till the final figures come into the end of the year as any company would too, so we’re not getting ahead of ourselves. You’re right, things have been improving, we’ve been seeing that now for some time, I don’t think there’s any accident to that, we’ve been creating an environment for businesses to do better. The more competitive business tax rates we’ve had for businesses of less than 50 million, the work we’ve been doing and most recently passed when it comes to personal tax cuts, so I think this is providing people with a lot of confidence. The international write off, I won’t trouble your listeners by running through a long list but the point is, the economy has been going more strongly and my argument has always been, “If you grow a strong economy that’s good for guaranteeing central services like hospitals and schools because it’s the stronger economy that delivers the revenues not by putting taxes up”.

Our view is you get taxes down, you get them lower, the economy goes more strongly and then ultimately, your budget finances are also benefitting from that. Where we’ll end up at the end of this year, we’ll see but we were able to bring that balance forward by one year. In 2019/20 all of these costs will be hitting the budget in latter years but particularly the larger component of that, when we’ve got a projected surplus of more than 1% of the size of the economy. That’s where it comes from, it comes from good budget management, it comes from making sure you keep control of spending, that you don’t let taxes run away and that you keep doing things that make the economy stronger. The biggest risk to GST revenue is actually a weaker economy; if the economy was growing at 1/2% or 1% less and consumption was growing less, well, there’d be less GST revenue and all states and territories would be worse off.

Ross Greenwood:  One final one before I let you go, the national energy guarantee, your government has to negotiate with the states and territories. There’s a forthcoming COED meeting for that, then you’ve got to go back to the coalition party room. You can hear the debate happening even inside your own party right now in regards to this. In regards to the states and territories, do you believe that you can get some form of agreement on a national energy guarantee within?

Scott Morrison: We’re very hopeful of that because I think states and territories understand that one of the reasons why electricity prices has gone up is because of the policy gridlock and the ideology wars that have been going on for too long. Politics has been pushing peoples’ prices up. People having fights about these issues has been pushing the prices up and so we need to get the certainty in place of what the rules are. The National Energy Guarantee from the work done by the Energy Security Board, which works for all states and territories, as well as the commonwealth, that is forecasting that the National Energy Guarantee would see household power bills fall by about $400 a year. Now, that’s a good thing. We’ve got the plan to deliver on that. We’re also got the plan that will be ensuring that we get a continuous baseload capacity expansion. The way that happens is, if you get the rules right, then people will invest money. If they think politicians are going to argue about these things forever, they won’t invest money.

Ross Greenwood:  Invest money into coal, as well as solar or thermal or whatever it might be. [crosstalk]

Scott Morrison: They can knock themselves out. They can do it in coal, solar, wind, they could do it in gas, but I mean, if we can get more gas out from under people’s feet on the East Coast, then that will really reduce electricity prices. I think we talked about it earlier in an interview this year, Ross. I was over in Texas at the start of the year. Prices there are a third of what they are here in Australia or to at least half as much and that’s because they’ve been able to unlock their gas resources. We’ve got a lot of gas here. I don’t care whether it’s coal, gas, solar or– it has to be, you have to have power, you got to have baseload power and there are many ways to achieve it. We just think the subsidy era has to end, whether it’s for renewables or for coal or anything else.

Ross Greenwood:  Always great to have you in the program, Treasurer, Scott Morrison. Many thanks for your time.

Scott Morrison: Thanks a lot Ross, all the best.

[00:11:30] [END OF AUDIO]


Interviewed  Peter Hendy, Former, Liberal MP titled ” Do we need to overhaul our income tax system?

Interviewed  Wilson Tuckey, former member,Liberal Party titled ” Who will benefit from the GST shake up?

9News: Government to start charging eBay GST for small imported goods

Interviewed  Dominic Perrottet,Treasurer, NSW titled ” Is this another Election budget?

Is One Nation falling apart?

Interviewed  Gerry Harvey, Executive Chairman, Harvey Norman (ASX:HVN) titled ” Is Amazon the greatest fraud in the world?

Interviewed  Martin North, Principal,Digital Financial Analytics titled ” Why has ASIC launched a rate rigging suit against the CBA?

Interviewed  Tim Reed, CEO, MYOB titled ” Will the company tax cuts pass now?

Interviewed  Anna Bligh, CEO, Australian Bankers Association titled ” Banks threaten court action

Resignation of Commonwealth CEO Ian Narev was inevitable: Ross Greenwood

Interviewed  Anton Tagliaferro, Investment Director and Founder of Investors, Mutual titled ” Will CBA scandal have a long term impact?

Interviewed  Professor Roger Wilkins, Author, Melbourne Institute titled ” Budget pressure to be passed to the next generation

9News: Amazon Australia Launch Just Days Away

Interviewed  Michael Waters, Executive Director, Liquor Stores Association NSW ; ACT titled ” Why you’ll pay more for your beer

Interviewed  Scott Morrison, Treasurer, Federal Government titled ” Can this Government function if it’s in a minority position?

Interviewed  Gladys Berejiklian, Premier, NSW titled ” Why does the Government blame businesses for their screw up?

Image source: 2GB

Previous: What does the future of Woolworths petrol look like?
Next: A step closer for the bionic eye

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

325 More posts in Frequently Asked Question (FAQ) category
Recommended for you
Where are your tax dollars going?

Ross Greenwood speaks to Senior research fellow at the Centre for Independent Studies Robert Carling after...