GST Revenue For WA to Be Reviewed
A review of the state's tax system will determine whether the proposed changes are fair, as the Turnbull government recently announced changes to the distribution of the GST. The report, Horizontal Fiscal Equalisation: The new tax structure in Australia, will be released on 10 September. In the meantime, the WA Budget will continue to receive top-up payments from the federal government. The plan will eventually see the state's tax base be based on the same equalisation benchmark as Victoria and NSW.
The first step in the review will be to determine the impact of the new arrangements. This is an ongoing process, and the results will not be known until the December meeting of COAG. The federal government's proposal to rebalance the responsibilities of states and territories is a key test for Abbott. But Barnett is likely to be an ally on some issues. The WA Government has argued that it should receive a higher share of GST revenue than the other two states.
The government is boosting the amount of GST revenue WA receives. In its mid-year budget, it asked for 70 cents of every dollar. The federal government said this would be an improvement for the state, but this would require a revision to the allocation formula. As it stands, the Morrison deal has undermined this important policy and will force the federal government to borrow money. Meanwhile, WA has the highest GST revenue per capita, with a $5.8 billion surplus last year. It is worth noting that WA was the only state with a budget surplus in 2015.
A recent analysis concluded that the new formula for GST revenue distribution was unsatisfactory, and that the minimum payment to states should be increased. In fact, the Western Australian Government's government argued that the state's iron ore royalties were effectively transferred to other states through the GST distribution. This was a fundamental difference between the two governments and weakened the integrity of the system. Although this is an improvement, it is still not the best approach for Australia.
While the government's proposal to increase GST revenue for WA is a significant improvement, it is also a major issue for the federal government. The federal government has argued that the new tax should not be changed, despite the fact that many states will still face ongoing losses in GST revenue. In other words, the new tax is "unfair". But there are ways to make it fair for all the states in the country. There is a no-worse guarantee in the tax, but it doesn't cover gambling and other non-profit industries.
While the current GST arrangement in Australia is not ideal for Western Australia, it is better for the eastern states than to cut the tax rate in WA. The surplus in Western Australia has already been significantly lower than the state's share of the national GST since the introduction of the federal tax in 1997. The government has been forced to increase the GST rate in WA due to the lower revenue. But the proposed changes are not the best option for the Eastern States.
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