NSW thinks it is being diddled by the GST. The ACT has a much, much bigger gripe – about $480 million worth of gripe.
The ACT is being ripped off by the GST distribution to a far greater degree than NSW or Victoria.
It started last week when the Reserve Bank Governor Ian Macfarlane made the mistake of uttering the words Commonwealth-State finances and logic in the same sentence.
Since then NSW and Victoria have kicked up a fuss asserting they should not be subsidising rich Western Australia and Queensland and the fat cats of the ACT through the distribution of the GST.
At present the Commonwealth collects the GST and pays it all to the states, not according to population, but according to a formula worked out by the Commonwealth Grants Commission as set out in the GST legislation. The formula is based on an underlying principle of federation that all Australians are entitled to reasonable equal access to government services and should not be disadvantaged because they are born in a state that suffers isolation, no economies of scale, vast distances, poor natural resources and so on.
It has meant that NSW and Victoria have subsidised all the other states and territories.
But NSW and Victoria have been basing their argument (quite wrongly) on population. The GST is collected on economic activity, not on people just being there. Sure, the ACT is only 1.5 per cent of the Australian population but it generates 3.2 per cent of the Australian economic activity. On that basis we should be getting $1180 million from the $37,000 million in GST money, not the $700 million we currently get. We are being ripped off by $480 million on the NSW and Victorian principle that rich states should not subsidise poor ones.
Before the GST a portion of income-tax revenue was split the same way as the GST, and still is. But there was less ground for complaint because it was the Commonwealth’s money and it could do what it liked with it.
The GST is different. The legislation provides that all of it must go to the states, so it is really the states’ money. And NSW and Victoria think they are entitled to their “fair share”.
“Fairness”, however, depends on whether you are looking from Sydney or Darwin.
You can view fairness, reasonableness and logicality in different ways.
Macfarlane said: “At the moment, there doesn’t seem to be a logical case for taking taxpayer’s money in NSW and Victoria and redistributing it to Western Australia and Queensland.”
In theory, Queensland and Western Australia are booming whereas NSW “has fallen behind the pack”.
But that is an economist’s view – a view dominated by growth. Sure, Western Australia and Queensland are growing faster than NSW and Victoria, but NSW and Victoria still have a higher per capita income – as does the ACT. So those with the higher income should support those with a lower income, even if those with a lower income are growing faster. Otherwise China would be sending aid to the US. Even so, NSW and Victoria’s per capita income is not that much higher than that of Queensland and Western Australia to warrant (of itself) the present difference in GST distribution.
If you divided the GST according to comparative population of the states and territories – as suggested by NSW – NSW would get about $12.3 billion of the $37 billion on offer, nearly $2 billion more than the $10.4 they will actually get. Small wonder NSW thinks that population is the best basis for GST distribution.
On population, the ACT would miss out horribly. We would lose about $140 million – from $700 million to $560 million. Victoria would pick up $1 billion. The other states and territories would lose out, especially the Northern Territory.
But let’s think logically – as the good Governor suggests. The GST is not raised in the various states and territories according to their population but according to economic activity. State domestic product is a pretty accurate measure of that.
We have a productive, intelligent population which earns and spends a lot – much more than Tasmania which has a greater population.
If you divided the total GST according to where it was actually raised and compared with what happens under the Grants Commission formula, the ACT misses out by the most of any sate or territory.
To mix your metonymys “Canberra bashes Canberra”.
So stop whinging NSW and Victoria.
As it happens, I am a federalist and an Australian, so I think we should equalise when it comes to government services – especially given that government services account for only about a third of people’s direct and indirect income. So we can equalise government services and still people in wealthy states and territories would be better off because the two thirds of income that is private would remain unequal – and rightly so; this is a federation, not a socialist republic.
So I have no gripe with the GST distribution; Tasmanians and South Australians need some help.
But while we are on the subject of the GST, how long is it going to take before government and the people realise what an effective, efficient and fair tax the GST is?
How about we raise the GST by a few percentage points in return for a reduction in the marginal income-tax rates by a few percentage points? Most high-wealth people dodge the top marginal rate anyway. At least with a higher GST they will have to pay some tax if they want to enjoy their money.