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Turnbull Seeking Australian GST Overhaul

by Mary Swire, Tax-News.com, Hong Kong

18 August 2016


Australian Prime Minister Malcolm Turnbull has said that his Government supports the introduction of a percentage floor below which no state's share of goods and services tax (GST) revenue can fall.

Under the current horizontal fiscal equalization (HFE) regime, all GST revenue (less the cost of administration) is passed to the states and territories. Last year, the federal Government consulted on a range of options for GST reform, including a GST relativity "floor," which would set a minimum level of GST to which any state or territory would be entitled. However, plans for a White Paper on federation reform were scrapped when Turnbull's assumed the prime ministership from his predecessor Tony Abbott.

Western Australia's share of GST revenues has fallen substantially in recent years, and it now receives back only 30 percent of the GST it contributes. The federal Government made additional payments to the state of approximately AUD499m (USD382.8m) and AUD490m in 2015 and 2016, respectively. The expectation is that, as a result of falling iron ore prices, the Western Australian share of the GST will increase in the coming years.

Speaking at the Western Australia Liberal Party state conference, Turnbull said that the federal Government recognizes that the current GST-sharing formula "has resulted in Western Australia receiving an unprecedentedly low share of the GST it contributes." He added that "the huge gap between what Western Australians pay in GST and what they receive back is unprecedented and Western Australians have every right to feel aggrieved."

Turnbull explained that his Government believes that the arrangements should be reformed, "so that we set a percentage floor below which no state's receipts of GST can fall."

"Setting a floor below which a state's share of the GST cannot fall, immediately after it has been exceeded in this cycle, means that no other state will be disadvantaged based on their projected GST shares," he said.

Turnbull's comments were later elaborated on by the Treasurer, Scott Morrison. In an interview with 2GB radio, he said that, "once the system gets to the point where Western Australia's share gets back to a more normal level then we will have a good yarn about how we can rebalance the system so that no state is ever put in that situation again where they are penalized so heavily."

The proposals have however been criticized by the leaders of other state governments. Queensland's Premier, Annastacia Palaszczuk, described the scheme as offering an "absolutely discriminatory" handout to Western Australia, and her Tasmanian counterpart, Will Hodgman, said he was confident his Government could "fight and defeat" the reform.

TAGS: tax | goods and services tax (GST) | Australia | revenue statistics | tax reform | services

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