WA Bacchanal turns GST “fleecing”

From the ABC:

A furious Western Australian Treasurer Mike Nahan says the state has been fleeced by the Commonwealth Grants Commission, which has recommended an increase of just $148 million in GST revenue.

The commission has recommended WA’s share of national GST revenue increase from 3.3 per cent to 3.4 per cent in 2016-17.

But Dr Nahan said WA had been propping up the national economy for years and deserved a far greater share of the GST now that iron ore prices had halved.

“Western Australia has had an unprecedented drop in revenue both from iron ore royalties, oil and gas royalties and taxes across the board – the largest drop any state has received since the Great Depression and yet the GST share continues to decline,” he told the ABC.

“There is something fundamentally wrong with the system, the Commonwealth Grants Commission is oblivious to it and refuses to address it, and it’s just unacceptable and is bringing into question the strength of the federation.”

He said the state’s economic woes could be fixed if the GST carve-up was fair.

“I’m the Treasurer of Western Australia and I’m facing a multi-billion-dollar deficit because the state is being fleeced to the tune of $4 billion,” Dr Nahan said.

“If I had my fair share of GST, we would be in large surplus.

“As a result we’re borrowing money to send to South Australia, Victoria, New South Wales, ACT for them to spend on government services and we’re in a deficit – this is outrageous.

“You cannot continue to fleece the state like this.”

The state of WA has my utmost sympathies here. As we know, it is Australia’s only real earner and the eastern states are downright parasitic in economic terms:

ScreenHunter_180 Apr. 05 12.10

But that does not mean that the GST Grants Commission should suddenly shift its formula for horizontal fiscal equalisation to bail out a hapless government. Here is what the Commission says was changed this time around:

This report recommends a distribution of GST revenue among the States in 2016-17 designed to give each of them the same capacity to deliver services, acquire infrastructure and hold financial assets.

The GST distribution is based on the same methods applied in the 2015 Methodology Review, as required by our terms of reference. It also incorporates 2014-15 data for the first time.

In the 2015 Review we committed to a deferred but comprehensive review of the wage costs assessment, which we have now completed. We consider, based upon the evidence before us, that there continues to be a conceptual case for differences in the wages States would pay for comparable employees. We have decided to retain the 2015 Review method of estimating these differences using Survey of Education and Training (SET) data for 2012-13 and 2013-14 and more recently available data from the ABS Characteristics of Employment survey (CoES) for 2014-15.

The States’ assessed fiscal capacities continue to reflect trends in their economies and other key influences on their circumstances. The assessed fiscal capacities of New South Wales, Tasmania and the Northern Territory have improved, reducing those States’ GST shares. New South Wales’ stronger fiscal capacity was driven by an increased revenue capacity, principally because of its strong property market. The stronger fiscal capacity of Tasmania and the Northern Territory was driven by a fall in their costs of providing services. For Tasmania, this was due to a fall in its relative wage costs. For the Northern Territory, it was due to a fall in its relative population growth, which reduced its need to invest in new infrastructure.

The assessed fiscal capacities of Victoria, Queensland, South Australia and the ACT have fallen, increasing those States’ GST shares. For Queensland, historically high natural disaster expenses continue to affect the State as does its reduced capacity to raise coal royalties. Below average growth in a number of major revenue bases have reduced the ACT’s revenue raising capacity. For South Australia, a sharp decline in its share of Commonwealth payments for specific purposes (PSPs) was the main influence acting to increase its GST share. Victoria’s increased GST share was largely due to an increase in its share of national population growth, which increased its need to invest in new infrastructure.

Western Australia’s share of GST revenue has increased marginally from 3.3% to 3.4%. While falls in commodity prices, particularly for iron ore, have reduced its capacity to raise mining royalties and increased its GST share, this has been more than offset by a fall in its share of national population growth, reducing its need to invest in new infrastructure.

A whole range of factors determine the outcome:

srey

The Barnett Government knew that the Grants Commission is a slow moving beast with major reviews only every five years so it can’t complain now about GST distributions when it was its own ridiculous wider Budget forecasts that killed its fiscal capacity in the first place. Indeed, that same slow moving beast has ensured that WA received nice windfall gains from the GST versus baseline over the duration of the boom.

Naked Emperor Barnett and his catamites engaged in a fiscal Bacchanal more sordid than anything Australia has witnessed since the Victorian Labor Kerner regime of the 1990s and the people of WA should do precisely what their eastern cousins did and pour their fiscal pain straight into the ballot box.

Comments

  1. WA screwed the rest of the country for years by bestowing on us a high AUD. Suck it up.

    • Jason
      I hope you are being sarcastic because as explained by various writers here over a long time what you say is simply not true. The permanently super-high A$ is not due to WA mining. It is due to a super-flow of loose capital largely generated by the USA over a long period. We exchange their 0/1 data for real assets.
      Without WA actual exportt revenue the country would be very much poorer.

      • False.

        We had a $600 Billion annual influx of capital infrastructure expenditure – claiming the mining boom did not drive up the AUD and hence destroy the eastern states manufacturing is wholesale horse shit.

      • Adam Smith
        I note you don’t actually bother to read what is written let alone think.

    • Neville Gearless

      Interesting that what happened was a direct reverse of 1906-1914.

      When the new federal government hiked tariffs, 4 states wanted to secede immediately: QLD, NSW, Tas and WA. So, the first decade of prohibitive equipment costs wrecked the WA economy to an extent that 3 royal commissions were started. WA needed aid to deal with it. One commission recommended WA be excluded from tariffs but the federal govt said no, saying it was tantamount to WA seceding.

      Now WA’s huge capex investment hiked the AUD and wreaked havoc in the manufacturing states. Now they are receiving big chunks of aid from WA.

      Yet WA saved you lot from the GFC.

    • billygoatMEMBER

      @Paul
      I read Perth Now article and came across this little gem from the infomercial for 2016 Realestate conference:
      Clarke and Banks will be joined by Australian internet entrepreneur Daniel Petre, the star of Million Dollar Listing New York Fredrik Eklund and Earth Hour founder Nigel Marsh.

      Real estate coach and News Corp manager Tom Panos will host the event. He said part of his role would be to ensure audience members took the main points from each presentation and built personal action plans before they left the conference.
      In my opinion this is a perfect summation of all that is wrong with Australia Property. Any wonder there is so much stress & death associated with trying to put a roof over your head.

  2. St JacquesMEMBER

    With half true obfuscating and finger pointing diversionary nonsense like this, I’m really warming up to the idea of abolishing the states.

    • I’d keep the states and cut Canberra right back.
      Which ever way one looks at it, there are too many levels of Gov. in Australia.

    • The only scenario where that would happen is if we were annexed by China, and even then probably not. Give it up already.

      As for WA, surely they saved some of that boom money they got from the dumb luck of having a lot of red dirt underfoot? It’s not like they created that wealth… they just scraped it off the surface and put it into foreign built ships using foreign built trains and loaders.

      They’re all like: ‘Waaah! We got a big pile of free money and had a party and now the free money is gone and we was robbed!’

      • WA had 30% higher gross state product per capita than SA for years. What the hell did you build that footy stadium out of? Solid gold?

    • innocent bystander

      I’ve often wondered about the opposite… doubling the number of States and abolishing the councils. More big cities (double the capital cities), more competition between States.
      Hey, let’s have States levy their own income tax? and differential corporate tax rates? Then they could compete for workers and businesses.

      • You’re a genius. If we sell the tickets/tv rights for watching them sort out water rights we’ll be back in surplus in no time.

      • It’s completely stupid we have different road authorities and rules per state. Just creates a bunch of red tape, different engineering rules, different road taxes etc.. Just consolidate the damn thing into a single entity and create an efficient system.

  3. The problem for WA is how the CGC calculates each states share of GST. The CGC uses a 3-year averaging to smooth out volatility in annual figures.

    WA is whinging about its 2016-17 distrubtion (which returns about 0.30 cents of GST for every dollar), but this figure is based on the average outcomes of 2012-13, 2013-14 and 2014-15.

    Yes, the iron ore price plummeted during 2014-15, and the 2014-15 distribution figure of 0.411 is *much* higher than the 2013-14 figure of just 0.125 (when iron ore was doing well). However, that horrible 2013-14 figure will still linger in their 2017-18 distribution due to the 3-year averaging.

    From 2018-19 onwards, their share of GST should/will sky-rocket.

    • They only like the swings. Not the roundabouts.

      They listened to 3D and spent like Iron Ore would be over $120 per tonne forever. Now they get to suck it up. The GST distribution formula is no secret.

      Do they make Waaaaaaambulances that can carry sand gropers?

      • As you are now a resident of California (?), your Lordship, I hope that you are more reserved in expressing similar views of Texans (the Union’s equivalent to Western Australia) and their whinging about the price of oil. They don’t get sarcasm and they have guns.

    • adelaide_economist

      Exactly. The plunge (while historically unprecedented) in WA’s GST relativity was always going to be as shortlived as the boom itself. No complaints from WA as the lag meant they got plenty of cash earlier on but trying to game the system to avoid a couple of years of downturn.

      And let’s be clear – the reduction in the relativity is simply a reflection of the mountains of revenue flowing in from the minerals located under lines drawn on a map in their favour. The GST relativity improving (as it will) is simply a reflection of their declining economic situation but apparently in Barnett/Nahan world will be seen as a ‘success’ because then they get more from the public teat? The same one they decry others apparently being beneficiaries of…

  4. adelaide_economist

    Poor Mike Nahan. All that time at the IPA blaming evil budget busting socialists and there he is, presiding over a State that blatantly refuses to privatise key major assets (gotta keep subsidising through state assets!) and running astronomical budget deficits.

    The gap between rhetoric and reality with Barnett and Nahan is astounding.

    A few unfortunate facts for the ‘we wuz robbed’ narrative from Nahan:

    The Grants Commission was created in the first place in 1933 specifically to assist WA. It was given claimant status which it kept for three decades afterwards.
    Source: http://www.treasury.wa.gov.au/uploadedFiles/waeco2002.pdf

    Even in the years since 2000, WA’s GST relativity sat at around 1 and at times above 1 (meaning they were getting more than they paid in) up until around 2007.
    Source: https://cgc.gov.au/index.php?option=com_attachments&task=download&id=1905 (Table E1)

    No mention of things like the $500m extra chucked to WA in response to GST concerns.
    http://www.abc.net.au/news/2015-05-06/federal-government-gives-wa-499-million-to-make-up-for-gst-fall/6447650

    • St JacquesMEMBER

      Imagine if they were an independent nation-state. Their credit rating would have been cut to junk and they’d be in the middle of a currency crisis as foreign credit was withdrawn and hot foreign speculative capital did a runner along with thousands of people while Perth’s housing market collapsed. Nahan is on his knees in a hairshirt, head bent in remorse for the overspending in the good times and not putting aside anything for the inevitable bad times, while Christine Legarde administers the harsh terms and conditions of the IMF’s emergency loan.

      • Oh, how funny would it be if they had seceeded like a lot of them wanted to in 2012 when they were thinking ‘100 year China boom’.

        Not that it was ever really on the cards, of course, but it’s amusing nevertheless.

      • St JacquesMEMBER

        True flawse, I really should have said when iron ore hits the 20s and Perth’s population is even larger.

  5. “a distribution of GST revenue among the States in 2016-17 designed to give each of them the same capacity to deliver services, acquire infrastructure and hold financial assets.”

    THAT! Right there! That is exactly what is wrong. We have a broken economic model that has been and will be reinforced year after year, decade after decade, until there is nothing left. The result of this policy is to reinforce all the distortions currently present and make no attempt whatsoever to re-balance the economy.
    So the formula is to simply keep pouring more and more money, into the two great totally non-productive parasites of the Australian economy – Sydney and Melbourne.

    We are really seriously screwed!

    • What has the CGC got to do with broader economic rebalancing?

      WA isnt losing its GST money to VIC and NSW (who are perenial donor states), it’s going to NT, TAS and SA

      • Shhhh… you’ll upset their persecuted martyr complex. They’re desperately trying to avoid having a good hard look in the mirror.

    • St JacquesMEMBER

      Recency bias flawse. NSW and especially Victoria paid for the advantages of protectionism since the beginning by shelling out huge amounts of money year by year to other states, including WA, when mineral prices were low, even as protection for manufacturing was massively reduced to a fraction of what it was through through the 80s and 90s.

      • Recency bias? I’ve been at this for 50 conscious years of economic thinking. NSW and Victoria were the recipients of all teh advantages of protectionism. The Aus dollar was kept at an unrrealistic level for decades by that process beggaring exporters and thereby exporting states. I lived in those times. I saw and experienced the results of it.
        Why is everyone here ignoring simple facts just to suit their particular political narrative? Why do you (Not particularly St J but all the clowns who have shot their mouths off here without an electrical impulse in a single brain cell) ignore the graphs that UE puts up or just ignore the ones that don’t suit you? Why do you think Vic and NSW are the big growth states at the moment while parasitising the rest of the country? If we are unwilling to look at why this is so then we are condemned to keep going down this road. At the moment the whole thing is set up so that because Sydney and Melbourne need more funding to keep the great population ponzi going then we continue to use the same formulas that have resulted in this disastrous situation. Then you expect some great change towards ‘rebalancing’????????? Further you seem to think then that the ONLY rebalancing possible is to build manufacturing in Sydney and Melbourne?

  6. adelaide_economist

    One thing I also think mentioning while the topic is GST relativities and the Barnet/Nahan thesis of WA being hard done by is that GST relativities as determined by the Grants Commission and subsequent funding is only part of total Commonwealth funding to the States.

    When you include other Commonwealth government payments, WA’s ‘implied relativity’ jumped to around .79 according to 13/14 budget papers (compared to .45 on GST alone) – where 1 equals getting what you pay in. Across Australia, including other (non GST) Commonwealth government payments dramatically equalises the funding.

    So in a sense, there are really two false images being presented – one is that WA is getting an incredibly bad deal (it’s not, overall) and the other is the so-called largesse doled out to other States (which is moderated significantly when you include other non-GST Commonwealth payments).

    • I would argue that they weren’t parasitic until all their productive sectors ‘made way’ for that 100 year China mining boom. WA shat in its bed, now it can lie in it.

      WA is probably the most parasitic of the lot. Almost zero actual wealth creation; just digging up pre-existing red dirt that they had by dumb luck. And a complete lack of restraint to go with it.

      • Ha…so you have agreed that the eastern states are parasitic … Just give WA back its GST you lazy bludgers!

      • They were ALWAYS parasitic – at least for the 50 years of my conscious economic life. Now we say because they had a high level of parasitic behaviour before then if we reduce that somehow Syd and Melb are somehow subsidising the other states.

  7. Yeah fair call – unless of course you were to extend that graph back further than just prior to the mining boom, in which case, WA would only be just verging on the very beginning of returning the 100 years of leaning its done.

    Oh – and destroying the eastern states manufacturing in the process is sooo fair.

    • Maaaate, like most bumbling idiots who stumble upon a pot of gold by pure dumb luck, many sand gropers think that the fortunate state of affairs came about because they are very clever and very morally correct. Of course, like most bumbling idiots who stumble upon a pot of gold by pure dumb luck, the opposite is the case.

      Their demands and self entitlement will not cease until they have had a few years of wearing the consequences of their actions.

      • Neville Gearless

        Sometimes I’m just too busy, and missed the lil Sou’ aussie WA hater.. 😉

        Meanwhile dumb luck of SA being in the east coast with access to eastern markets and good fortune to take advantage of tariff protection prospered. Partly on the back of exporting states like WA.

        But maybe it was a good thing, it taught WA to nail foreign markets to extremely lucrative effect.

        Notice a little reduction in tariffs and the entire state of SA shits itself hollow.

        SA is stuffed, and I said elsewhere, WA is starting to recover. $20 iron ore? It was that in the 90’s and the state still had the highest GSP per capita by a wide margin. You sorry buggers don’t know how versatile the place is..

        Interesting the GST calculation omits royalties from gambling, and WA is the only state without pokies in pubs and clubs. Deck not stacked much.

  8. Being an Eastern Stater I agree they should secede but after paying back, with interest, all the net support they have had since Federation. I believe the net balance with interst included since Federation is heavily against WA.

    • Yeah right! And the over-valued dollar of the past 60 years has not been a tax on the more outward facing states subsidising Sydney and melbourne? You’re cherry picking what you want to look at and denying the disastrous consequences to everyone outside Sydney and Melbourne of a chronically over-valued dollar.
      An over-valued currency is about two things.
      1.Debt
      2. A redistribution of benefit within an economy.
      Ah but f*#k it. Let’s just ignore everything and go on doing what we’re doing. it’s so great!!!!!! Who gives a f*#k?

    • Neville Gearless

      I’m wiff yus Explorer!
      Pay it all back, the ungrateful pricks!
      Considering total funding was paid back in the space of one or two surpluses in the 80’s and since then taking into account everything (income tax, company tax, tarriffs, soc security, medicare, share of defence, grants, gst dist.) the flow as been one direction. Not the direction you think it is.
      I’d say the federation would owe WA close to $100b.