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Tuesday, 28 February 2012
Page: 1087

Senator RYAN (Victoria) (18:56): I rise to support the motion moved by Senator Cash with respect to the Commonwealth Grants Commission Report on GST revenue sharing relativities: 2012 update. I can say, as a former student in this area, that horizontal fiscal equalisation is without a doubt one of the most complex areas of public policy in Australia. Indeed, it has been observed that Australia's fiscal equalisation arrangements are some of the most complex of any such federation.

The history of horizontal fiscal equalisation is a similarly complex one. It is as old as the Federation itself but took on a substantial role with the formation of the CGC in 1933. As well as ensuring an equitable level of access to government services around the nation and reflecting the different costs of providing these, one of the historic justifications was to compensate those states without a large manufacturing base for the cost of the protection regime that was in place in Australia for many decades. It is this last fact that has profoundly changed over the last 30 years. Farmers, for example, no longer have to bear the cost of extensive tariffs, quotas and other modes of protection that were directed at supporting the south-eastern states.

While I understand the anxiety caused by the recent trend and the quite radical fall in GST payments to the state of Western Australia, I point out that Victorians can welcome them to the club of net funders. In fact, my home state of Victoria has consistently been the most significant contributor to the fiscal equalisation program. Over the past few years this has continued to be significant. While Victoria will see its share rise to 22.5 per cent next financial year, it is still worse off than it was before the cut of 0.9 per cent in the current year.

Victoria has historically been a donor state through the fiscal equalisation program. Its share of GST has consistently been in the low 90s, although early last decade its share fell to below 85c in the dollar. This is despite the fact that its population was growing at record rates and in absolute terms at one of the highest rates in the country. The real issue at hand with this program is the incentives provided to the states. I note that one of the reasons listed in the current report for Victoria's lower expense base, compared with the other states, is that a smaller proportion of its students attend government schools. I see it as perverse that providing choice in education to one's constituents results in financial penalty for a state government. Importantly, questions have been raised by experts such as Neil Warren about the incentive to address disadvantage for governments that are net recipients. When these funds are untied and continued extra funding is dependent on disadvantaged economic conditions, is the incentive strong enough to address these? In the end, this would reduce extra payments.

No one is arguing against some equalisation of GST revenues in order to ensure all Australians have access to a specified level of services, but the lack of predictability of these relativities and the degree to which they reward underperformance is of increasing concern. My home state last year effectively received a $2.5 billion cut in forecast revenues, owing to the recalculation of relativities. In a constitutional regime that effectively prohibits many efficient state own-source taxes, this lack of predictability is a serious problem for budget formulation. Last year the Labor Treasurer of Queensland complained, despite being a substantial net recipient in budgetary terms. He has to hold a record for squandering an inherited legacy of being debt free at the same time as undergoing a major resource boom, yet having the gall to complain.

This issue of resources is becoming increasingly critical. The introduction of the MRRT represents a real and significant threat to the remaining financial independence of the states. Apart from the outrageous threats from this government to seek to punish states that exercise their legal right and, indeed, their duty to collect royalties from mining resources, the MRRT threatens to weaken the financial position of all states. At the moment, royalty revenue of the states is considered when calculating funding relativities. Indeed, that is at the core of the Western Australian complaint. The reality is that all states eventually directly benefit from an increase in Western Australian royalties. This is done by reducing funding relativities to the resource states. In short, a royalty increase in one of the resource states is effectively redistributed to the non-mining states through these relativities.

The Commonwealth is seeking, through the MRRT, to remove this growth tax and this funding pool from all states. In typical Labor fashion it seeks to shrink the pie. All Victorians will be worse off if the resource states are no longer able to increase royalties, as these funds will no longer become available to all state budgets through the GST redistribution process—they will then become Commonwealth revenues. This is the real agenda of the MRRT: to remove the royalty revenues from the realm of the states, where their use is determined by state priorities, governments and even elections, and to increase the funds available solely for the Commonwealth to use as it sees fit.