The recent GST battle between New South Wales (NSW) and other states has once again brought to light the ongoing political saga surrounding the distribution of funds collected by the Australian government. This fight, which occurs regularly over the years, highlights the premiers and chief ministers’ constant struggle to secure what they believe to be a fair outcome for their respective jurisdictions.
At the heart of this dispute is the distribution of GST revenue. NSW Treasurer Daniel Mookhey has expressed his dissatisfaction with the payment of $39 billion to Western Australia, arguing that the payments should be made on a per capita basis, which would benefit the most populous states like NSW and Victoria. However, the current system follows the principle of horizontal fiscal equalisation (HFE), designed to equalize revenue between states and ensure equal quality government services for all. The Commonwealth Grants Commission makes recommendations for the rate of return to each state and territory, considering factors such as population demographics and tax-raising ability.
While the current system may seem unfair to states with larger populations, it aims to address fiscal imbalance and provide necessary services to both urban and rural areas. Smaller states and territories tend to receive a larger proportion of funds under this system than they would on a per capita basis. Changes were made to the formula in 2018 due to consistent complaints by Western Australia, whose resource tax revenue had declined. The new system enjoys support from both the federal government and the opposition for political reasons, as opposition to it would likely result in a loss of seats in Western Australia.
One underlying reason behind the establishment of the GST redistribution system is the reluctance of states to raise their own taxes. While they have constitutional powers to do so, they prefer to rely on the Commonwealth to tax the populace. It is politically easier for state leaders to argue about the fairness of distribution rather than justify additional taxes to their residents. This tactic allows them to avoid discussing the real challenges facing Australia, such as Victoria’s significant debt or the pressures on housing and infrastructure in all states. The high levels of immigration, contributing to these challenges, are also not adequately addressed.
Despite the ongoing financial challenges faced by the states, meaningful discussion about the underlying issues remains elusive. Instead, political leaders resort to name-calling and finger-pointing. The reluctance to tackle these underlying issues is disheartening and suggests that the situation is unlikely to change in the near future. A review of the distribution is scheduled for 2025, and the national government has expressed its intention to review the formula. However, with the Chinese economy slowing down, Western Australia’s resource taxes are likely to diminish further, intensifying the state’s financial squeeze.
In the meantime, the current argument between states continues, distracting from the more pressing matters at hand. It is crucial for state leaders to address the underlying challenges facing Australia and engage in meaningful discussions rather than engaging in political squabbles. The future of the GST battle remains uncertain, but it is clear that a focus on important matters is urgently needed to ensure the well-being of the nation.
