Business makes headway on GST reform

03 May, 2017

WA’s peak business body the Chamber of Commerce and Industry WA has notched another win under its belt in the fight to improve WA's GST share and the distribution of the tax as a whole.

CCI welcomed Federal Treasurer Scott Morrison’s announcement on the weekend that he will direct a Productivity Commission inquiry into the tax's distribution model – also known as 'horizontal fiscal equalisation' (HFE).

WA businesses identified the GST carve up as one of their biggest concerns in a CCI member survey carried out in the days after the March state election, which prompted the Chamber's advocacy on the issue.

WA has seen a continual decline in revenue from the tax and currently only receives 0.34 of its population share of GST.

CCI Chief Economist Rick Newnham has led CCI's charge into the debate and has been invited to join a delegation to Canberra to spruik a fairer model with some of WA's most influential businessmen including John Poynton, Michael Chaney, Andrew Forrest and Nigel Satterley.

The model proposed by CCI would see each state brought up to a national average of service delivery capacity rather than bringing every state up to the level of the nation’s highest performer, as we do now.

In CCI’s proposal, the excess GST would then be evenly distributed on a per capita basis among states and territories.

“This will ensure every Australian citizen has access to the national average of public services, but will also drive states like NSW and VIC to develop their own resource industries and grow the national economy,” Newnham says.

“CCI members have identified the GST carve-up as a key issue impacting business in this state – CCI and the Australian Chamber of Commerce and Industry will continue to work together to call for GST reform in the national interest.”

Newnham also published an op-ed in the West Australian in April highlighting the benefits of a Productivity Commission review with a focus on national economic growth, which is reflected in the Terms of Reference of the review.

Newnham says Morrison’s announcement is a positive step forward for both WA and the nation.

“The current GST system removes incentives for states to grow their underdeveloped industries, which means WA loses out in the GST carve-up and the national economy loses opportunities to grow,” he says.

The Commission will examine the impact of the HFE on the nation’s economy.

HFE – the complex formula that underpins the GST — dictates how much revenue goes into each individual state.

 “The GST’s HFE model means some states pick up more GST revenue than they would need if they grew their own state resource industries and created local jobs – WA business is extremely pleased Treasurer Scott Morrison will instruct the Productivity Commission to examine the merits of the current GST system, to ensure states are appropriately incentivised to optimise national economic growth,” Newnham says.

Morrison says views have been put to the Government that the current approach to HFE creates disincentives for reform, including reforms to enhance revenue raising capacities or drive efficiencies in spending, arguing that any gains from reform are effectively redistributed to other states.

“In commissioning this inquiry, the Government seeks an examination of the issues underlying these claims,” he says.

The Commission is due to report to Government by 31 January 2018.