source : the age
A leading economics expert says the Productivity Commission needs to look at new options to fix flaws in the nation’s GST distribution, rather than reverting to the pre-2018 system, and has suggested a contingency fund as a way to alleviate perceived bias in how funding is allocated between states.
On Friday, the commission released an interim report that labelled the 2018 deal a “mistake” that could end up costing Australian taxpayers up to $12 billion a year and is failing its key objectives.
The report opened up fresh debate on the fairest allocation of GST, with WA politicians quick to point out that the state contributed more than its fair share to the nation’s coffers.
On Monday, the Chamber of Commerce and Industry WA urged the Productivity Commission to hold public hearings in the state as part of its GST distribution reforms review.
CCIWA chief economist Dr Daniel Kiely said holding hearings in WA would help to counter concerns of an east coast bias in the commission’s interim report.
“We urge the Productivity Commission to visit WA and hold several days of hearings in this state, ideally visiting Perth and the Pilbara, to get a true picture of what is at stake for this state and hear from the people who could be impacted by their final recommendations,” he said.
Friday’s report noted several options that could return balance to the distribution deal, including returning to the pre-2018 system but with the federal treasurer able to direct the Commonwealth Grants Commission, which calculates the annual GST carve-up, to take into account situations where a single state may have a dominant financial position in a particular part of the economy.
Another option is to return to the pre-2018 system with the federal government then making direct grants to WA to offset its smaller share of the GST.
Bankwest Curtin Economics Centre director Professor Alan Duncan said there were elements in the productivity commission’s report which were legitimate concerns with the 2018 reforms.
“However, from my perspective, just because the 2018 reform is a flawed solution, that does not give you evidence that the problem the reforms were trying to solve weren’t real,” he said.
“So the idea of returning to pre-2018 is both naive and I think it’s blinkered, because the 2018 reforms were brought in because there was very much a perception that something needed to be fixed.”
Duncan compared the findings of the interim report to Hobson’s Choice – a situation where people must either accept what is given or take nothing at all.
“I take issue with some of the relatively uncreative and unambitious solutions that have been offered, which is basically go back to where we were, go back to where we were with a little bit of a tinker, or stick with where we’re at, at the moment,” he said.
“There are a range of other things that we could look at if there was a commitment to finding a solution that protects fair equalisation, that fixes the treatment of mining either through the formula or potentially through companion instruments.
“The thing that was really emerging is that WA is massively exposed to these extreme and destabilising swings in GST revenue, so let’s try and address that directly and lock on with that.”
Duncan instead suggested a companion policy to work alongside the 2018 reforms, in the form of a state wealth fund that could top up any potential GST shortfalls or assist during a downturn in the commodity cycle.
“One can charge up the contingency fund so that when we are doing extremely well, there is a way in which we can set aside a proportion of that,” he said.
“Put it to one side, in order that when we see a downturn, that can then be drawn on to try and do our own smoothing.
“This is something I think has been talked about, more to do with ensuring that the value that we extract from our resources is, to a degree, protected for future generations rather than consumed by the current generation.”
Duncan also stressed that the latest study was only an interim report, and called on the Productivity Commission to pull out all the stops when it handed down its next review.
“Maybe rise above some of the more parochial arguments and counter-arguments that we’re seeing,” he said.
“The Productivity Commission needs to rise above that and actually properly and objectively look at solutions that are fit for purpose.
“I think it’s legitimate to point out some anomalies with the 2018 reforms, but that does not invalidate that there was a problem.”
