Image for Tasmania, the GST and Peter Pan economics

*Pic: The buck stops here ... Peter Gutwein, Treasurer, and Will Hodgman, Premier, spruik the 2016 Budget ...

In the Peter Pan pantomime the MC pleads with the audience to shout out that they believe in fairies. Otherwise the beloved fairy Tinkerbelle will fade away …

Present politics in Canberra is a bit like that. We are all asked to suspend rational thought and fervently believe in this new era of Pixie Economics where Tinkerbelle Surpluses will not fade away.

Take the new GST arrangement. For Tasmania this is a crucial revenue stream because there are those still around who remember the past fiscal stranglehold on the Tasmanian economy by the Commonwealth Grants Commission. The Productivity Commission recommendations would have seen Tasmania’s share of GST revenue shrink by nearly $30 million so it was a relief when Morrison promised a $122million boost.

And yet neither Treasurer Gutwein nor Premier Hodgman was overly enthusiastic. Surely they believe in fairies?

The problem is that Morrison’s plan to ‘grow the pie’ -  quickly dubbed the ‘Magic Pudding’ – relied on a top up from the ‘Budget bottom line’ which implies either revenue from elsewhere, an increased budget deficit or increased debt. And external debt has already expanded from $159.6bn to $344.6bn since the party that promised to repair ‘debt and deficit’ came to office. So the traditional cry of ‘Where’s the money coming from’ is not unreasonable though it has been dismissed with a plea to once more believe in fairies.

While the details are yet to emerge on the face of it the GST proposal has merit and is certainly preferable to the Productivity Commission recommendation. But it is extremely precarious. If a future revenue crash occurs then there is nothing preventing Canberra unilaterally removing the top-up from general revenue and leaving Tasmania vulnerable.

Worse than that, the top up from general revenue could be used as an excuse to reduce general and special purpose grants for schools, hospitals and roads on the basis that the States now have revenue from the GST arrangement.  One hand giveth and the other taketh away.

No wonder the State government is wary. Without legislative and other guarantees who would trust the proposal?

The problem doesn’t end there however. The recent budget along with legislated personal income tax cuts and proposed company tax cuts leaves future budgets highly vulnerable as the Commonwealth’s revenue base shrinks. A serious underlying structural deficit is emerging that compromises any future fiscal commitment to basic services.

Part of Morrison’s Pixie Economics and belief in fairies is that the reduction is revenue will be compensated by future growth and expanded revenue. Somehow. We are not quite sure how. All of the budget projections are predicated on present patterns persisting into the future, which is a courageous belief indeed.

There has been 27years without recession but to expect that to continue for next 5 or 10years is fanciful, yet the government’s assumptions are predicated on just such an optimist projection. Worse, diminishing revenue compounds the impact of any future economic contraction. The cost to the budget of the proposed abolition of the 37% marginal tax rate, for instance, will be $8.5bn a year.

Canberra may see their economics as heroic and others might see it is fanciful but it would be an error to see it as other than deliberate. The ideology of restricted government service delivery is being locked into future budgets and threatens everything from Medicare and health funding to schools and infrastructure. And GST revenue to the states. No wonder Treasurer Gutwein and Premier Hodgman are eying the new GST arrangement with sober apprehension.

*Dr Michael Powell is Conjoint Senior Lecturer, Humanities, University of Newcastle; Adjunct Researcher, Humanities, University of Tasmania