GST reforms a welcome move towards greater fiscal equity

The Chamber of Minerals and Energy of Western Australia (CME) has applauded the Federal Government’s interim response to the Productivity Commission’s final report on the inquiry into the Horizontal Fiscal Equalisation (HFE) system.

Under the proposal, the Federal Government will set a 70 cents in the dollar floor for WA’s annual GST allocation, delivering a $1.4 billion windfall over the next two years.

CME Incoming Chief Executive Paul Everingham said CME had always maintained fiscal policy should reward productivity and economic growth, but this did not occur under the current HFE policy.

“The existing HFE policy provides no incentive for people to move to areas of economic growth or for governments to enact policies to attract investment and encourage growth,” he said.

“Although the report confirmed the HFE system functions well, it has resulted in perverse outcomes when there is a significant impact to the economy.

“For example, the mining boom experienced in Western Australia saw the State’s GST redistribution share drop to a record low 30 cents in the dollar where no other State has dropped below 80 cents in the dollar,” he said.

“CME welcomes today’s announcement by the Government as the reforms will ensure those States who move forward to develop their own economies will not be punished with less GST as a result of their success.

“The reforms will also ensure while the relativity floor is being established no State will be financially disadvantaged.”

The changes are proposed to be brought together through a new intergovernmental agreement between the Commonwealth and State Governments, with agreement being sought at the meeting of State Treasurers in September.

Mr Everingham encouraged the WA Treasurer Ben Wyatt to engage with his state treasurer counterparts to seek unanimous agreement for the reforms.