The controversial GST deal with Western Australia has sparked a heated debate, with the Productivity Commission (PC) labeling it a costly mistake. This deal, implemented during the Morrison era, has come under fire for its impact on the nation's finances and its perceived lack of fairness.
The Costly Consequence
The PC's interim report paints a stark picture. It argues that the reform, designed to address WA's declining GST share post-mining boom, has resulted in a significant financial burden for taxpayers. With an estimated cost of $5 billion by 2024-25, the actual cost has skyrocketed to nearly $23 billion, and is projected to reach a staggering $60 billion by 2029-30. This is a far cry from the deal's original objectives, which have largely been unmet.
Personally, I find it concerning that such a significant deviation from estimates has occurred. It raises questions about the due diligence and foresight exercised during the deal's negotiation.
A System in Disarray
The deal has not only failed to achieve its goals but has also created a system that is less equitable. As Angela Jackson, a PC commissioner, points out, states that improve their fiscal position, like South Australia, receive less GST, while WA, even if it improves, maintains or potentially increases its share. This creates a perverse incentive structure and undermines the core purpose of the GST system, which is to ensure equitable access to services and infrastructure across all states and territories.
What makes this particularly fascinating is the potential psychological impact on states. States that strive to improve their fiscal health may be discouraged by the knowledge that their efforts could lead to reduced GST funding.
Fierce Criticism and Political Stalemate
The PC's report adds to the chorus of criticism from leading economists, with Saul Eslake calling the 2018 reforms the 'worst public policy decision of the 21st century'. Despite this, the political landscape remains stubbornly resistant to change. Both the government and opposition are aware that their electoral success is tied to winning votes in Western Australia, making it unlikely that they will sway from maintaining the deal.
In my opinion, this highlights a concerning trend in politics: the prioritization of short-term electoral gains over long-term national interest.
A Call for Overhaul
The PC has recommended a major overhaul of the current system, with a focus on addressing the concerns of resource-rich states like Queensland. David Janetzki, the Queensland treasurer, has welcomed this recognition of the 'unfair' distribution system. The PC's third option, if the government is unwilling to change the WA deal, is to make the no-worse-off payments permanent, acknowledging the commitment made to WA.
From my perspective, this is a critical juncture for Australia's fiscal policy. The GST system, as it stands, seems to be perpetuating inequality rather than alleviating it.
Conclusion
The GST deal with Western Australia has exposed a complex web of issues, from financial mismanagement to the prioritization of political gains over equitable policy. It remains to be seen whether the PC's recommendations will lead to meaningful change or if the status quo will prevail, leaving the nation's taxpayers to foot the bill.
