GST reform in the national interest

20 April, 2017

GST reform could pump billions into the national economy by incentivising states to grow under-developed industries, says Western Australia’s leading business advocate.

The Chamber of Commerce and Industry of Western Australia (CCI) says that because the current GST system elevates every state and territory’s service delivery capacity to the same level as the nation’s highest performing state, State Governments have less incentive to develop their local industries – particularly natural resources.

“The current GST system makes every state the richest house on the street – states do not need to strengthen their own natural resource industries because they know they can sit back and wait for the GST to bring them up to the leading state’s capacity every year,” CCI Chief Economist Rick Newnham said.

“Currently, some states pick up more GST revenue than they would need if they grew state resource industries and created local jobs – for example, if New South Wales and Victoria developed their onshore gas sectors they could create billion dollar industries and inject millions into their own state government revenue, but because they’ve banned unconventional gas, they receive GST that would have otherwise been distributed to WA and the rest of the country. GST is effectively removing an incentive for states to develop all their resource industries and as a result, the national economy suffers.

“CCI is calling for a ‘partial equalisation’ GST model to promote economic growth – rather than bringing every state up to the level of the nation’s highest performer, each state should be brought up to the national average of service delivery capacity, with the excess GST then distributed evenly among states and territories. This will ensure each Australian citizen has access to the national average of public services, but will also drive individual states and territories to develop their own industries and grow the national economy.

“CCI is calling on the Commonwealth Government to direct the Productivity Commission to review the economic benefits of changing the GST distribution to a partial equalisation system.”

CCI’s 9000 members have identified the GST carve up as a key area of concern for Western Australian businesses.

Mr Newnham will join four senior WA business leaders in Canberra later this year to discuss GST reform.

“The debate on GST distribution needs to focus on the national interest of economic growth and not the finances of any one particular state – it has become increasingly clear that the current distribution method is too complicated, opaque and has removed incentives for states to grow their economies,” Mr Newnham said.

"We cannot blame WA’s state finances on the current GST distribution model but we can focus on economic growth at the national level.”

“CCI looks forward to working with the WA business community, the new WA Labor Government and the Commonwealth to examine how GST reform could benefit not just Western Australia, but the entire nation.”

Media contact: Kate Hodges – 0448 928 227