The economics teacher in me would like to remind you of the importance of “horizontal fiscal equalisation”.
Now, before you get too excited, this does not mean robbing someone’s pockets when they are lying in the gutter – but the analogy is on the right track.
Horizontal fiscal equalisation, let’s call it HFE, has been the guiding principle of the Commonwealth Grants Commission when it distributes federal Goods and Services Tax revenue to the states. It means that the money is distributed in such a way that all states are placed on a level playing field.
The longer, official definition is:
“State governments should receive funding from the pool of goods and services tax revenue such that, after allowing for material factors affecting revenues and expenditures, each would have the fiscal capacity to provide services and the associated infrastructure at the same standard, if each made the same effort to raise revenue from its own sources and operated at the same level of efficiency.”
A panel reviewing the distribution of GST revenue has recommended that HFE continue unchanged, despite the loud protestations of the rich (or powerhouse) states, led by WA.
Under HFE, WA taxpayers get back only 55 per cent of the GST they pay while Tasmanians taxpayers get back 160 per cent of the GST they pay. That’s why WA Premier Colin Barnett has been making disparaging remarks about “mendicant” states – states with their hands out, or as my nanna would say, “with champagne tastes on a beer budget”.
That some states are able to ride the crest of the mining boom while others languish through no fault of their own seems lost on the WA Government – as does the fact that, until the mining boom, WA was one of the states getting more from GST than they paid – just like Tasmania!
Economic commentators such as The Australian’s Judith Sloan don’t get it either. She wrote this week:
“It is simply not possible to have an arrangement that allocates only one-third of the tax revenue raised in a state to that state – this is the direction in which Western Australia is heading.
“To have some states that year after year receive much more GST revenue than they raise and, at the same time, have vastly bloated public sectors, is neither fair nor efficient.
“At the margin, the arrangement encourages people to stay put in Tasmania and South Australia – both recipient states – when the more rational action would be to move.”
Her solution is to scrap the Grants Commission and redistribute the GST revenues on an equal per capita basis. Premier Lara Giddings says that would cost the state about $700 million a year, the combined budgets of our two major public hospitals.
Why do I raise this?
Two major reports released this week drew attention to the parlous state of the Tasmanian economy. Both the CommSec and Access Economics reports had us bringing up the rear in terms of state economic performance. They stressed that, unless there is growth in the economy, we face a disastrous future.
The focus is now on the Tasmanian Government to demonstrate that it backs economic winners, that it does not penalise or unduly inhibit those industries and businesses that create the state’s wealth and that it cannot be seen as deterring private capital investment here. They are the ones that will generate economic activity, create state tax revenue and will demonstrate to the Grants Commission and the people of the mainland states (especially WA) that we are pulling our weight.
There is a view abroad that Tasmania has been anti-development, that it finds reasons why not to have investment rather than to promote it. I wonder why people would think that?
The CommSec report identified agriculture as one of the few opportunities for future growth here in Tasmania – and you know I’ve been like a broken record on the same point.
Agriculture is the lynchpin of the Tasmanian economy. It is what we have always done best. It is the industry that any government with any nous would sponsor and foster. It is one of the few bright spots for the future. We’re looking to the state government to remove unnecessary obstacles to growth, to work with us to ensure that our farmers can deliver the benefits that will improve quality of life for all Tasmanians.