Western Australia has the most to lose from
non-cooperation over GST share
Every year or so,
rumblings emerge from Western Australia that it might
leave the Federation. These have returned due to the
state receiving less than 30¢ back for every dollar
spent on the GST. The result is that $3.7 billion in GST
payments this year will be redistributed from WA to the
other states and territories.
WA's problem is
compounded by the fact that another key revenue source
has collapsed. The state enjoyed boom times after an
exponential growth in iron ore royalties. This grew from
$465 million in 2004-05 to a high of $5.3 billion in
2013-14. It funded enormous growth in public services
and infrastructure, and made the state the envy of the
nation. The end of the mining boom has seen a rapid
decline in these revenues.
The decline in the
state's GST share to under 30 per cent does not account
for its lost iron ore royalties. This is because the
shares of each state and territory are calculated using
average data from the prior three years. GST revenue is
then allocated to ensure that each jurisdiction can
deliver infrastructure and public services to an equal
standard. The idea, for example, is that children should
have the same quality of education whether they live in
Perth or Hobart.
In future calculations, WA's
current economic plight will be taken into account, and
so its share of GST revenue will eventually improve.
This does nothing now, though, to help a state that has
become used to enormous wealth from mining revenues. The
talk in the west is not of golden opportunities, but of
ballooning deficits. Treasurer Mike Nahan has even
imposed a public sector hiring freeze and cancelled
government advertising.
All of this was predictable. At some point, the WA boom
would be followed by a bust, likely made worse by its
GST revenue being calculated according to prior years.
Rather than planning for this, such as by saving for
difficult times, the state has spent its revenue. The
result is a fiscal crisis.