GST fight surges on

05 July, 2017

CCIWA is leading ‘Team WA’s’ fight to reform the GST carve up backed by industry organisations and big businesses.

The GST issue is coming to a head following the close of submissions to a Productivity Commission review of it last week.

CCI’s submission to the review offered up three proposals to fix the broken ‘Horizontal Fiscal Equalisation’ GST distribution method that sees 66 cents of every dollar raised leave WA.

CCI’s proposals would encourage the development of state economies through things like resources projects and they are backed by industry associations representing more than 18,000 businesses.

Associations backing CCI’s fight include the Association of Mining and Exploration Companies, the Civil Contractors Federation, Master Builders Western Australia, National Disability Services WA, the Regional Chambers of Commerce and Industry WA, the Real Estate Institute of Western Australia, the Tourism Council and the Western Australian Road Transport Association.

Other industry associations and businesses supporting GST reform in general include the Australian Petroleum Production and Exploration Association, Chamber of Minerals and Energy, Minerals Council of Australia, Rio Tinto, BHP and Woodside.

CCI’s submission calls for the restoration of growth incentives by partially equalising to a pre-determined, acceptable level of state service delivery rather bringing every state up to the same level as the best performing state.

Alternatively it suggests withholding 20 per cent of each state’s revenue from the GST calculation – meaning less of WA’s GST props up other states – or, by adopting the Alberta Model, where 25 per cent of all mining royalties are excluded from the calculation, again meaning WA keeps more of its own resources spoils.

CCI has also called for the immediate introduction of a ratcheting 70c floor for all states, to create stability in GST revenue.

Similarly, the WA State Government’s Productivity Commission submission also highlighted how the current GST distribution system has created perverse incentives for state governments across the country to block industry development.

CCI Chief Economist Rick Newnham welcomed the State Government’s acknowledgement of the issue.

“CCI welcomes the State Government’s submission to the Productivity Commission and its focus on GST reform in the interest of national economic growth," he says.

"We are pleased that Team WA is all on the same page with this shared objective and WA business looks forward to continuing to work with the State Government and all our state’s political leaders to stress the importance of GST reform for the future of the country."

The argument is being well received in Canberra after Treasurer Scott Morrison echoed CCI’s concerns and offered sympathies over the GST carve up but said a solution would need to benefit the entire Australian economy, not just one state.

Speaking at a CCI breakfast on June 30 Morrison said no one could’ve imagined a situation where one state’s relativity would remain so low for such a prolonged period, which he recognised had significant impacts on the State Government’s fiscal position.

Morrison also agreed with CCI’s view that the GST could discourage state investment in resources and lauded the recognition that gambling revenue shouldn’t be included in the GST equation.

“Look at what’s happening in our energy markets at the moment and the constraints that are being put on access to gas, which is one of the key issues for why electricity prices are rising, especially in the eastern states,” he said.

Several eastern states industry organisations have rejected claims the current method hinders development of state economies.

In its submission the Australian Chamber of Commerce and Industry said while they supported broader taxation reform, the Australian Chamber believed there was no evidence the current system was not in the best interests of national productivity.

“It stands to reason however, that if the current system of HFE does discourage a state from developing its economy or particular industries, then this would be clearly visible. This is especially in regards to Western Australia,” it said.

“If the current system of HFE discouraged a state to develop its economy or resources, the government of the day would have discouraged the development of the iron ore and gas industry.”

When asked about their submission ACCI Chief Executive James Pearson softened their tone, saying as a Western Australian he understood, “the deeply felt concerns in WA about the share of GST revenue that the State has received in recent years”. 

“The Australian Chamber’s submission to the Productivity Commission recognises WA's concerns, and that it is important to ensure the GST is distributed in a way that is sensible and durable in the national interest,” Pearson said.

“Past inquiries didn't find any examples of the GST distribution creating a disincentive to reform, but we have encouraged the Productivity Commission to look into it carefully. 

“As a national body, what we want to see is proper tax reform to encourage business investment and wealth and job creation and do away with inefficient taxes - which is what the GST was meant to do.

“We will be working closely with CCIWA and our other state and territory chambers of commerce and industry association members to that end.”

►Want to learn more about CCI’s plan for a fairer GST? View our complete submission to the Productivity Commission here.