Imagine if unemployment benefits were paid without the recipient having to even try to find a job. There would likely be a lot more ‘comfortable inertia’.
It may be a surprise to some to learn that the way the goods and services tax (GST) operates is not dramatically different.
Anyone thinking this is a blunt analogy ought to read recent statements by West Australian politicians and business leaders such as Woodside Energy CEO Peter Coleman.
It is a situation which has drawn criticism from policy analysts over the years – and outright hostility from many in politics in WA. Federal Treasurer Scott Morrison has acknowledged as much and asked the Productivity Commission to examine the issue.
WA is the clear loser in Commonwealth distribution of GST revenue. The Northern Territory is the big winner, and Tasmania the next biggest beneficiary.
This occurs because the Commonwealth redistributes GST on a per capita basis as part of a “horizontal equalisation” formula which also takes into account resource royalty income.
As pointed out by former Victorian Premier Jeff Kennett a fortnight ago, what that means is that resource States such as WA end up doing all the heavy, and costly, toiling and get a little return on investment when the GST funds are distributed.
Meanwhile, other States can choose to do none of the work, without fear of losing entitlement to the GST revenue flow.
In dollar terms, this equates to is WA receiving 46 cents of every GST dollar, while the NT receives $4.66 and Tasmania $1.80.
Natural gas, now in short supply on Australia’s east Coast, is an example where per capita GST and horizontal equalisation bight twice for WA, but do not penalise the NT, Tasmania or Victoria. Each of these jurisdictions continue to receive disproportionate income, despite the fact that they choose to ‘sit on’ their own natural gas resources, rather than develop them.
“We have plenty of gas but state governments, including ours, refuse to allow exploration,” Mr Kennett wrote in Melbourne’s Herald Sun newspaper. “I think that is criminal,” he said.
This ‘do nothing without income penalty’ scenario is a situation which has been the point of many complaints by Liberal and Labor Governments in WA as well as by the WA Nationals, who point out that resource development happens in partnership with rural and indigenous communities, who are therefore losing out.
New WA (Labor) Treasurer Ben Wyatt recently added his voice to criticism of the existing arrangement, adding some numbers to illustrate his point.
According to Mr Wyatt, the North West Shelf (NWS) natural gas project cost the State about $8 billion in pipeline and other infrastructure costs incurred to get the offshore gas to business, industry and consumer markets in the south. Because of the equalisation formula, the net effect is that WA has collected only $1.6 billion in royalties over the decades of highly successful production, while the other States and Territories have pocketed $14b.
So WA loses out in the development cost and the royalties-linked GST distribution as well.
Australian company Woodside developed the NWS in partnership with the overseas partners necessary to bankroll the big, ambitious project in the 1980s.
“It was a high-risk investment at the time, (but) history has shown it was a wise investment,” Woodside CEO Peter Coleman wrote last week in The Australian newspaper.
Thousands of jobs have been created, tens of billions have been paid in taxes and royalties and WA has enjoyed energy security which is now the envy of businesses and Governments on the East Coast.
However, the GST formula is now working against investment in resource development and therefore undermining national energy security.
“Other states benefit disproportionately compared to the state which actively supported and indeed enabled the project development,” Mr Coleman wrote.
“In the interests of energy security and economic development, it is high time for changes to the GST formula to reward states that encourage responsible development of Australia’s resources.
“At a time when politics is too often divisive and short-term, it is to be hoped that the States and the Commonwealth can work together on a more reasonable approach.”
The Productivity Commission report may well help in this process.