The GST system can be reformed immediately to equalise to the average without any state being worse off over the forward estimates if the Federal Government commits $5 billion over three years in top-up payments.
This is the recommendation outlined in the Chamber of Commerce and Industry WA’s (CCI) submission to the Productivity Commission at Monday’s public hearing in Perth.
CCI Chief Economist Rick Newnham says CCI’s proposal for GST reform was built on three key principles – to be fair for all states, pro-growth and durable.
“CCI has put forward a proposal to fix the broken GST system and has now outlined a three-year roadmap to implement it,” he says.
“Importantly, it is a proposal that gives confidence to every state that their GST revenue won’t change from current expectations over the forward estimates.
“Under CCI’s plan to fix the GST, state treasurers can expect a business as usual approach for state budgets with a more prosperous national economy as the result.
“CCI’s proposal to equalise to the average, which was backed by the Productivity Commission’s draft report, will ensure every Australian continues to have access to a high standard of public services.”
The states and territories that benefit most from the current GST system have argued they are comfortable with the current forecasting error range for GST revenue.
CCI has therefore proposed that the Federal Government should top states up to that level during the transition period.
“Under this proposal, $5 billion over three years would be injected by the Federal Government into other state and territory economies to ensure no state is worse off, keeping every state within the usual GST forecasting error range,” Newnham says.
“This will ensure every state can rely on their expected GST revenue forecast while immediately transitioning to a GST model that rewards economic growth as soon as the Productivity Commission’s report is released early next year.
“CCI encourages the Productivity Commission to adopt CCI’s implementation proposal to reform the broken GST distribution and for the Federal Government to ensure revenue security for all states over the forward estimates through transition top-up payments.
“Every state should be rewarded for developing their own economy.”
At the hearings, the State Government also gave its support to CCI’s proposed partial equalisation GST distribution model, which was adopted by the Productivity Commission.
Treasurer Ben Wyatt detailed his support of the proposal from the Commission’s draft report to aim for ‘reasonable’, rather than ‘full’ equalisation, in particular, by equalising to the average fiscal capacity of all states and territories rather than the strongest state.
The Commission will provide the Commonwealth Treasurer with its final report on January 31, next year.
►To view CCI’s submission click here.