The inquiry from the Productivity Commission is in response to claims from Western Australia that it’s been unfairly penalised billions of dollars for its strong resources industry and that states that knock back mining projects are getting rewarded.
The inquiry will examine “horizontal fiscal equalisation”, the model used in Australia since federation and which serves as the basis for the distribution of GST revenue.
The Productivity Commission’s terms of reference require it to look at whether the model is “in the best interests of national productivity or whether there may be preferable alternatives.”
A determination last month by the Commonwealth Grants Commission (CGC) will see WA getting just 34 cents for every GST dollar raised next financial year. WA says the CGC figures have left a $241 million hole in its books when it is now Australia’s worst performing economy.
The problem for Western Australia is that GST payments have dropped following the collapse in the iron ore price and lucrative royalties.
The move also follows strong behind the scenes lobbying by WA’s six Federal ministers.
Mr Morrison said the inquiry would look at how the GST is distributed between the states.
“Under Australia’s current approach, the Commonwealth Grants Commission recommends a GST distribution to the States that provides each State with the capacity to provide its citizens with a comparable level of government services. The current system was agreed by all States prior to the introduction of the GST in 2000,” Mr Morrison said.
“In recent years, views have been put to the Government that the current approach to HFE creates disincentives for reform, including reforms to enhance revenue raising capacities or drive efficiencies in spending, arguing that any gains from reform are effectively redistributed to other States. In commissioning this inquiry, the Government seeks an examination of the issues underlying these claims.
“I recognise the strong advocacy from Western Australian Coalition MPs and Senators in calling for this review. They have been effective voices for their state in government.”
Public consultation will be undertaken as part of the inquiry and the Productivity Commission will report back to the Government on 31 January 2018.
The inquiry comes after WA premier Mark McGowan issued an ultimatum last week to the government over the proposed gas pipeline to WA.
Mr McGowan said the GST issue had to be fixed first.
“If the Eastern States wanted our gas and if the Federal Government wanted our gas, well, then they can seek to pay for that,” Mr McGowan told radio station 6PR.
“And secondly, in order to get our agreement to it they’d need to make some improvements to the GST.
“If they treat us with contempt and they do not fix the major issues confronting WA, and yet when they have a crisis they expect us to help them — I would link those two issues absolutely.”