Image for ‘State loses $188 million GST ...

*Pic: Treasurer Peter Gutwein and Premier Will Hodgman spruik the 2016 Budget ...

... because Public Sector wages are too low

The state budget will be docked by $188 million in GST funding in 2018-19 because government employees in Tasmania are paid less than in any other state or territory.

The Commonwealth Grants Commission, which administers the GST, will redistribute this money to states which pay more, particularly to Western Australia. The Commission does this to even out the cost between the states of providing services.

Over six years, the total cost to Tasmania in lost GST because of low public sector wages is $816 million.

A copy of the full analysis of this issue, and of my media release, are attached to this message.

The Tasmanian government’s 2% wages cap therefore delivers no benefit to the budget but involves a substantial hit not only to workers’ incomes but also to the economy as a whole.

If the government paid its employees at the national average level calculated by the Commission, each full-time equivalent employee would receive an extra $8,200 a year. As this money recirculated through the private economy, about $400 million would be gained in overall economic benefit with no net loss to the state budget.

This would be of particular benefit to consumer-oriented businesses, such as retailers.

The Grants Commission began equalising GST because of wage costs in 2012-13, when Tasmania lost $100 million. That amount has sharply increased as a result of the government’s salary cap and in the current financial year is $170 million. The Commission’s recently released GST Update shows this will rise by $18 million in the coming financial year to $188 million.

The sharp decline in Tasmanian public sector wages as a result of the salary cap has not yet been fully factored in to the Commission’s calculations, which involve a three-year moving average and therefore a lag. In 2019-20, the state’s GST share is likely to lose in excess of $200 million.

In 2018-19, Western Australia will gain $712 million and New South Wales will gain $147 million.

For the record: this report was not instigated by any person or organisation. Nobody paid me for it.

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*Martyn Goddard is an independent policy analyst