Abbott’s WA bailout shafts Labor states

By Leith van Onselen

Following on from Houses and Holes’ post this morning, one point that needs to be made when discussing the federal government’s plan to freeze GST shares at their current levels is that such a move would overwhelmingly benefit states governed by the Coalition, whilst disadvantaging Labor held states.

Indeed, as noted by Tim Colebatch, freezing current GST allocations would “give Western Australia an extra $494 million in 2015–16, New South Wales an extra $517 million, the Australian Capital Territory an extra $129 million, and the Northern Territory an extra $56 million. The losers would be Queensland ($556 million), South Australia ($284 million), Tasmania ($225 million) and Victoria ($131 million)”.

A quick glance of the above states/territories shows that the winners (apart from the ACT) are Coalition-held states, whereas the losers (apart from Tassie) are Labor-held states.

While the above outcome is most likely coincidental, rather than by design, perceptions matter. And it does appear as if the Abbott Government intends to bail-out his Coalition mate – Colin Barnett – by depriving the Labor states of funding.

Readers should also remember that a federal government has not overruled the independent Grants Commission, which determines the GST allocations (amongst other funding splits) since 1981. So we are dealing with a unique situation here, and a major break from protocol.

It is also worth reminding readers that Western Australia was a massive $7 billion beneficiary of the current GST allocation system during the mining boom, so it’s a bit rich to cry poor now. Here’s what Greg Jericho wrote on Monday:

WA has benefited from fast-rising iron ore prices, which meant the amount of mining royalties the state earned was actually higher than the amount estimated by the commission when it determined the state’s GST share:

The commission calculated that because it underestimated the amount of mining royalties WA would raise, over the course of the mining boom till 2014-15, the state “received around $7bn additional GST revenue” than it would have had the commission’s estimate been equal to the actual amount of the royalty raised by WA.

The Grants Commission, in devising its recommendations on GST allocations, was very strong on this point:

“The Commission estimates that over the mining boom, prior to the reduction in its iron ore royalty revenues in 2014–15, Western Australia received around $7 billion additional GST revenue than it would have if fully contemporaneous assessments had been in place.”

Houses and Holes is right. The problems facing the Western Australian Government are its own doing:

WA elected Colin Barnett. Colin Barnett knew about the GST cliff ahead. Colin Barnett knew he was running a state budget with a history of boom and bust cycles. Thus Colin Barnett has proven to be a spectacularly inept commodity state budget manager and one implicitly reliant upon moral hazard. Why should everyone else bail him out so that WA is stuck with a dill at the tiller?

Western Australia stupidly drunk the Kool Aid on iron ore, ignored the huge supply surge coming, assumed endlessly rising Chinese demand, and forecast iron ore prices would remain stratospheric for as far as the eye can see:

The Government failed to plan for the inevitable decline, and now expects the Abbott Government to disregard the Grants Commission’s recommendations and force the (mostly) Labor governed states to bail it out.

By overruling the independent Grants Commission process, along with decades of convention, Australia is looking more like a banana republic by the day.

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