MATTERS OF PUBLIC INTEREST;Goods and Services Tax – 19 Sep 2012

I rise today to speak on the matter of public interest and wish to make a contribution about the distribution of GST revenues to the states and territories. The Australian government raises the lion’s share of revenue in our federation and a great deal of what is spent by the states and territories to meet their responsibilities is allocated from Commonwealth revenue. At the moment this is the proceeds of the goods and services tax but, long before the GST was introduced, decisions about the distribution of revenues to the states and territories had been made at arms-length by a body called the Commonwealth Grants Commission. The CGC was established in 1933 and still operates to this day. The decisions about how much funding to allocate to each state and territory are based on the principle known as horizontal fiscal equalisation, or HFE.

I will quote the website of the Commonwealth Grants Commission to explain what the term ‘horizontal fiscal equalisation’ means. It says:

Fiscal equalisation involves the transfer of payments or grants across jurisdictions with the aim of offsetting differences between a jurisdiction’s revenue raising capacity and expenditure needs.

It can address both vertical fiscal imbalance and horizontal fiscal imbalance.

   …   …   …

Horizontal fiscal imbalance refers to the situation where the States have differing abilities to provide comparable levels of services through the imposition of comparable tax burdens, because of demographic and economic disparities between them.

Tasmania is at a distinct disadvantage when it comes to raising its own revenue. We have a relatively low share of mining activity in comparison with other states and, as stated in the CGC report for 2012, we have a high proportion of small businesses, lower wages and lower property values. This limits Tasmania’s ability to raise payroll tax, land tax, stamp duty, mining revenue and insurance tax.

Tasmania is also disadvantaged when it comes to delivering services. Not only are we Australia’s only island state but we have the most dispersed population as the only state or territory in Australia where most people live outside the capital city. Our population is relatively older and has greater health and welfare needs because of socioeconomic disadvantage. So the principle of HFE is of vital importance to Tasmania when it comes to delivering services to our population equivalent to those of other states and territories. However, coalition premiers in the larger states of New South Wales, Victoria, Queensland and Western Australia have been arguing strongly for a per capita distribution of GST revenue.

Colin Barnett, Premier of Western Australia, kick-started the argument. In December 2012, he said: ‘This sort of convoluted process of trying to assess needs and revenue capacities between states, I think that time has gone by. I would prefer a simple sharing of the GST on a per capita basis, with maybe some margin, maybe 10 per cent, which the Commonwealth can distribute to support lower-growth states.’ In their submission to the GST review, Victorian Premier, Ted Baillieu, and Treasurer, Kim Wells, agreed, arguing: ‘The GST should be distributed on an equal per capita basis, with particular policy challenges dealt with separately through targeted and accountable means.’ Victoria and Western Australia were supported in their arguments at the July meeting of COAG by Queensland Premier, Campbell Newman, and New South Wales Premier, Barry O’Farrell. But this is what the Premier of South Australia, Jay Weatherill, had to say in response to the coalition premiers’ attack on HFE:

… this is one nation. It was established as a commonwealth, and those words mean something … the wealth of the nation should be shared equitably, not according to some notion of the rich states taking the resources and keeping them for themselves.

Federally, the commitment to HFE has been a bipartisan position, at least until recently. It was a bipartisan position until the federal Leader of the Opposition, Mr Abbott, joined in this attack on 1 May this year. On his visit to Western Australia, Mr Abbott said to the media:

What ought to be very seriously considered by the Government right now is the proposal that all the Liberal states have put up, that the GST revenue should be distributed on what is closer to a per capita arrangement …

Of course, when Mr Abbott visited Tasmania the following day, he was justifiably asked to clarify his position. Speaking to the media in Tasmania, Mr Abbott said:

… the Coalition will always support a fair deal, a square deal for Tasmania.

However, when offered the opportunity to rule out a per capita distribution of GST, Mr Abbott said:

Let’s see what the Greiner group comes up with and then the Coalition will have more to say.

The ‘Greiner group’ that Mr Abbott referred to was the panel overseeing the review of distribution of GST to the states and territories. In Mr Abbott’s comments, there was no clarification of what a ‘fair deal’ or a ‘square deal’ for Tasmania meant. So was Mr Abbott saying one thing in Western Australia and another in Tasmania? After all, Mr Abbott makes a regular habit of saying different things to different audiences. I am not sure that matters.

What matters, what is important, is that Mr Abbott has not made the coalition’s policy on GST distribution clear and to this day he has not ruled out a per capita distribution of GST to the states and territories. He said that a per capita distribution should be seriously considered and he has not retracted that statement. The prospect that a per capita distribution of GST revenue could become coalition policy—and at the moment we do not know what coalition policy is—should send a shudder through the spines of millions of Australians who rely on HFE to ensure that they have the same opportunity to health care, the same opportunity to education and the same access to transport and emergency services.

The states and territories which would lose out under this arrangement are South Australia, Tasmania, the ACT and the Northern Territory. In fact the Northern Territory would be hit especially hard as they receive over five times as much GST revenue as they would under a per capita distribution. As I explained before, this situation exists because the needs of the Northern Territory are far greater than that of any other state or territory. The cost of delivering services is greater and their capacity to raise revenue to deliver those services themselves is much smaller.

In the 2011-12 financial year, the Northern Territory needed $5.35 in revenue from the Commonwealth Grants Commission for every dollar in GST revenue collected to deliver equivalent services to their population as Western Australia or New South Wales deliver to theirs. In Tasmania, this amount was $1.60. In fact, if Mr Abbott’s suggestion were implemented, Tasmania’s budget revenue would fall by $700 million a year. This equates to a $5,000 cut to services for every Tasmanian.

Tasmania’s Premier, Lara Giddings, put this in context across the state when she pointed out that a per capita distribution of GST would cost Tasmania 800 doctors, 3,000 nurses, 500 allied health professionals and over 100 child protection staff every year. My Tasmanian Labor colleague, the member for Franklin and minister, Julie Collins, has been very vocal on this issue. Unlike Mr Abbott and the coalition she has been genuinely standing up for the people of Tasmania and arguing for a fair deal. She has the support of the Tasmanian Labor caucus in doing so. Ms Collins has launched a petition calling on Mr Abbott to commit to a genuine fair deal and all the federal Tasmanian Labor members and senators support her. At the Tasmanian Labor state conference, the Deputy Prime Minister and Treasurer, Wayne Swan, backed up Ms Collins’ comments about the damage that Mr Abbott’s proposal would cause to services in Tasmania.

Mr Abbott says he will argue for a fair deal but he has not clarified what that means. He has not retracted or repudiated his comments about per capita GST distribution and has not unequivocally committed to HFE. So what are Mr Abbott’s Tasmanian Liberal colleagues doing about this attack on Tasmania’s GST revenue? After Mr Abbott’s comments in Tasmania back in May the Tasmanian Leader of the Opposition, Will Hodgman, said that Mr Abbott had left him in no doubt that a coalition government would not short-change Tasmania. Did Mr Abbott give Mr Hodgman a private commitment to HFE or is Mr Hodgman just not strong enough to stand up to him? Either way, he should. Like the Tasmanian Premier, Lara Giddings, he should be calling on Mr Abbott to give an unequivocal public comment on HFE, not just making vague, meaningless statements about a fair deal. It really makes you wonder where Mr Hodgman’s loyalties lie. Is he really representing the interests of Tasmanians or is he just kowtowing to his federal leader?

As for Mr Abbott’s Tasmanian Liberal colleagues in this place, why are they not calling on their leader to clarify his stance? You heard Senator Abetz say in this place on 23 August that the coalition supports HFE. But how can we believe him if his party’s leader says that a per capita distribution should be seriously considered? How can we believe him when we do not hear it from Mr Abbott’s mouth? If Senator Abetz and his colleagues—Senator Colbeck, Senator Bushby and Senator Parry—are truly committed to HFE, why do they not call on their leader to commit to it as well? Are they too afraid to stand up to him? Given the outrage I have heard from Tasmanians right across the state on this issue, I am astounded at the absolutely deafening silence coming from that side of the Senate when it comes to Mr Abbott’s stance. All Mr Abbott has to do to stop this anger and remove any doubt is to say five simple words: ‘I support horizontal fiscal equalisation.’ Until he does this, Tasmanians will be trembling in fear of the devastation a coalition government will cause to basic services in Tasmania.

Tony Abbott’s $700 million razor would slash through the jobs of thousands of Tasmanians—teachers, doctors, nurses, police, firefighters and paramedics—and Mr Abbott’s $700 million hit would only be the start of the damage he would do to Tasmania if elected. We know he would scrap the minerals resource rent tax and a price on carbon. Without the MRRT there is no mechanism to fund the Schoolkids Bonus; the increase in the superannuation guarantee to 12 per cent—something that is badly needed by Tasmanian workers in a state that has a large population of retirees—or business tax concessions. Mr Abbott is also putting 800 Tasmanian jobs and a whole range of social and economic benefits at risk through his instructions to Malcolm Turnbull to demolish the National Broadband Network. Then there are the savage cuts to the public service that Mr Abbott needs to make to plug his $70 billion black hole.

But of all the damage the coalition proposes to inflict on my home state of Tasmania—the home state also of Senator Urquhart, who I notice is now in the chamber—the distribution of GST on a per capita basis is by far the most damaging. For any Tasmanians who are listening to this broadcast, watching from the gallery or reading Hansard, let me remind you again what Mr Abbott said on 1 May:

I think what ought to be very seriously considered by the government right now is the proposal that … the GST revenue should be distributed on what is closer to a per capita arrangement.

If Mr Abbott is not seriously considering this proposal—if he is not seriously considering a $700 million a year hit to Tasmania’s budget—then why, after a whole 4½ months, has he not retracted this statement? I urge Mr Abbott’s Tasmanian colleagues to grow a backbone, stand up to your leader and call on him to guarantee a fair share of GST revenue for Tasmania.