The Liberal Government is delivering on its promise to fix problems in the system used to share the revenue from the GST leaving all states and territories better off.
This will be the first time real changes have been made to fix problems in how the GST is shared since the GST was introduced almost 20 years ago.
“This problem has been kicked down the road for too long and it is now time we got on and fixed it,” Federal Member for Pearce, Christian Porter, said.
“Western Australians know that the system was not working, and that volatility was undermining the ‘fair go’ objective of sharing GST between the states and ensuring all Australians access essential services.”
“The Liberal Government has developed a plan that is a real, long-term solution, rather than a political quick fix,” Mr Porter said.
The proposal will involve transitioning to a new horizontal fiscal equalisation system over eight years from 2019-20 in a way that is fair, reasonable and sustainable, and that will ensure all state or territories are left financially better off.
To assist with the transition to the new system, the Commonwealth would provide short-term funding over the three years from 2019-20 to 2021-22 to ensure that no State receives less than 70 cents per person per dollar of GST. WA is expected to be the only State with a relativity below 70 cents during this time.
“Importantly, this funding would be untied, meaning WA would be able to spend it as they see fit to deliver services including schools, hospitals and infrastructure. This is a fair way of ensuring WA gets the services it needs,” Mr Porter said.
The Liberal Government will now consult with states and territories to ensure the transition works.
“Western Australians should be congratulated for persisting with the case for reform. I am proud to be part of a Government that has a plan to make the system fair and deliver more funding for essential services for all Australians.”
Our preferred model involves moving to a new benchmark that will ensure the fiscal capacity of all States and Territories is at least the equal of NSW or Victoria (whichever is higher).
Benchmarking all States and Territories to the economies of the two largest states will remove the effects of extreme circumstances, like the mining boom, from Australia’s GST distribution system.
In addition to moving to a new, more stable equalisation standard, the Government also proposes to commit to put in place a ‘floor’ on the relativity any State can receive. The Government will implement a floor of 70 cents per person, per dollar of GST, below which no State’s relativity can fall, from 2022-23, rising to 75 cents from 2024-25. Given the formula is now based on a more stable benchmark, it is highly unlikely relativities would move below the new floor.
No state will be financially disadvantaged as a result of moving to this new benchmark. A fair and sustainable transition to a new equalisation standard will be ensured, through an additional, direct, and permanent Commonwealth boost to the pool of funds to be distributed among the states.
The Government’s interim response is available at: https://treasury.gov.au/publication/p2018-308096/