Victoria gets 45 per cent of its revenue from the Commonwealth, more than half of which is from the GST. In other jurisdictions, such as Queensland, South Australia, Tasmania, the Australian Capital Territory and the Northern Territory, the percentage is even higher.
An untied payment, revenue from the GST is providing Victoria with $17.2 billion this year — money to be spent, at the state’s discretion, on schools, hospitals, roads and policing.
The good news for Victoria is that since 1998, when then prime minister John Howard and treasurer Peter Costello introduced the GST, the revenue pool has more than doubled, and is expected to grow another 65 per cent over the decade.
However, the system hasn’t been working for everyone. Western Australia, in particular, has been missing out, as its share of the GST dollar fell to 30 cents, compared with Victoria and New South Wales at more than 90 cents. Payouts to the smaller states were even higher.
Western Australia’s problem was a product of its own success, as its generation of more income during the mining boom enhanced its own capacity to fund its basic services. Under the existing GST formula, this saw it receive a smaller GST share.
The situation was so ridiculous that Tasmania and the Northern Territory both received more GST revenue than Western Australia, despite having populations that were one fifth and one tenth, respectively, of the size of Western Australia’s population.
That was not only blatantly unfair, but also unsustainable, to the point that it threatened the integrity of the GST system.
The Coalition asked the Productivity Commission to reassess how the GST is distributed. The recommendations of the Productivity Commission, with some minor amendments, have formed the basis of the reforms we are now pursuing.
This includes a more stable and predictable equalisation standard, establishing a floor of 75 cents in the GST dollar below which no state can fall, and increasing the overall funding by $9 billion, which will leave every state and territory better off.
That additional $9 billion is on top of another $6.5 billion which will also flow to the states and territories as a result of the Commonwealth applying the GST to online purchases, and of other compliance measures.
Overall, as a result of the Commonwealth’s proposed reforms to the GST, Victoria will get an extra $425 million over the next eight years. That figure is based on the numbers used by the Productivity Commission.
Importantly, the additional funding from the Commonwealth will not come at the expense of existing payments to the states, and will be provided in perpetuity.
The GST pool from 2026–27 will grow by more than a billion dollars each and every year, compared with what would have occurred without these reforms.
To ensure certainty, the Commonwealth will legislate these reforms by amending the Commonwealth Grants Commission Act 1973, as wells as the Federal Financial Relations Act 2009.
Unlike changes to the rate and the base of the GST, changes to the distribution of GST revenue do not require the approval of the states and territories.
Now the question for Opposition Leader Bill Shorten is whether he will stick to the commitment he made in Western Australia just a few weeks ago, that he would follow the lead of the Liberal and National Parties and support legislating our GST reforms. By doing so, he would be helping the Coalition make every state and territory better off.
If he doesn’t support the legislation, which will be introduced in the next sitting period, he will simply be reverting to form and playing political games that obstruct real progress.
In the end, the GST provides an important source of revenue to the states and the territories.
However, the viability of the system is only as good as the formula that underpins it and the economy in which it operates.
We are fortunate that Australia is seeing strong economic growth, record jobs creation, and a federal budget that is on track for a return to surplus.
That momentum cannot be put at risk by Labor’s high-taxing and big-spending approach, which threatens the important economic reforms that we have under way.
This is why the Morrison government and our GST reforms should be supported — because they will deliver real benefits to all Victorians.
Josh Frydenberg is the Federal Treasurer and the Member for Kooyong.