The controversial $60 billion GST deal, a legacy of the Morrison government, is set to spark yet another round of interstate debates as the Productivity Commission prepares to release its interim report. This report, which will likely be released next week, is expected to highlight the deal's failure to meet its intended goals and its significant cost to the federal budget.
The deal, initially estimated to cost $2.3 billion, has ballooned to a staggering $60 billion, prompting all states, except Western Australia, to call for its termination or drastic revision. Western Australia, which experienced a decline in its GST share during a domestic recession, pushed for this arrangement, seeking a guaranteed minimum share of 75 cents for every dollar of GST raised.
However, the deal's impact has been far-reaching, with an independent economist, Saul Eslake, describing it as a clear failure. He emphasizes that the deal was supposed to cost $9 billion over nine years, but instead, it has cost $60 billion over 11 years, a stark deviation from expectations.
In my opinion, this deal has become a burden on the federal budget and a source of contention among the states. The Productivity Commission's report will likely shed light on the inefficiencies and unintended consequences of this arrangement, sparking further discussions on how to improve the GST allocation system.
The Impact on States
The deal's impact varies across states. While Western Australia argues that it continues to contribute more than its fair share, other states like South Australia, the ACT, Tasmania, and the Northern Territory believe they have always been subsidizing other parts of the Commonwealth.
Victoria takes a pragmatic approach, suggesting that if Western Australia requires additional support, the federal government should provide it outside the GST allocation. Meanwhile, NSW and Queensland propose significant changes to the GST calculation, with Queensland advocating for a reduced emphasis on mining royalties in determining GST shares.
NSW's proposal is the most comprehensive, suggesting an equal per-capita basis for GST sharing with top-ups for financially weaker jurisdictions. This proposal aims to address the imbalances in the current system.
A Complex Web of Interests
The GST deal and its potential revisions highlight the intricate web of interests and dependencies within the federation. Each state has its unique perspective and set of priorities, making it challenging to find a solution that satisfies everyone.
What makes this particularly fascinating is the potential for a power shift. If the deal is revised, it could significantly impact the financial dynamics between the states and the federal government. This raises a deeper question about the balance of power and resources within the federation.
The Way Forward
The nation's treasurers are set to meet on August 14, and the Productivity Commission's report will undoubtedly be a focal point of discussion. The commission has until the end of the year to complete its full review, focusing on the deal's efficiency, effectiveness, and impact on state and federal finances.
In my view, this is an opportunity to rethink and redesign the GST system to ensure it promotes fairness, encourages reforms, and boosts productivity across all states and territories. The current arrangement has proven to be a costly mistake, and it's time to explore alternative models that better serve the interests of the entire federation.
Conclusion
The $60 billion GST deal has become a contentious issue, highlighting the complexities and challenges of interstate funding arrangements. As the Productivity Commission prepares its report, it is an opportune moment to reflect on the lessons learned and consider innovative solutions to ensure a more equitable and efficient GST system for the future.
