November 9, 2016
Hon Christian Porter MP
Minister for Social Services
Member for Pearce
There is more than a little bit of irony in Nick Xenophon or Brendon Grylls arguing that Julie Bishop, Mathias Cormann and I have not done enough to get back more GST for WA. South Australia is a beneficiary of WA’s lost GST. The argument that WA should get more GST is one WA Federal Liberals put forcefully and frequently, including to Nick Xenophon. To think Nick would offer anything resembling support for that case is about as likely as a turkey voting for early Christmas.
Grylls’ assertion is his mining tax would achieve more additional revenue than WA Federal Liberals have been able to achieve in our efforts to get back more GST. It’s a simple populist line, but could go dangerously wrong.
Other than changing the Inter-Government Agreement which carves up GST amongst the States and requires unanimous State agreement, there are two ways to claw back GST for WA – direct compensation from the Commonwealth or a change in the method the Commonwealth Grants Commission (CGC) uses to calculate how much revenue a state is deemed able to earn before it loses GST.
In 2015 WA Federal Liberals secured $499m and in 2016 $490m in direct compensation. We want more and the fight goes on. But it’s almost $1 billion which is now funding major infrastructure in WA. The other option is even trickier. The CGC process is tedious and rarely attracts attention. But it explains why Brendon’s idea misses the mark.
When we raised more money from mining royalties in WA in 2011 we did it carefully and with agreement and support from the mining industry to ensure no damage to the State economy.
The State Cabinet of which I was a part, changed the royalty rates upwards on a type of iron ore known as fine ore and this brought in hundreds of millions of revenue to the people of WA. We took a calculated risk at the time. In fact, a double risk – one immediate and one future risk.
We knew that in 2015 there would be a comprehensive CGC review which had the potential to make matters significantly worse for WA, depending how it decided to assess minerals. Before 2015 the CGC categorised minerals as either ‘high’ or ‘low’, with a high categorisation meaning a greater loss of GST.
We needed the Federal Treasurer of the day to specifically direct the CGC to keep fine ore in the low category otherwise we would lose the lion’s share of the new revenue through lower GST revenues. We faced the immediate risk that Wayne Swan would not direct fine ore into the low category and the real future risk that the 2015 review would change the whole system in a way that would make matters even worse for WA long-term. We judged that Swan would not want to be seen to punish WA before the 2013 election and after that we could convince a new Federal treasurer to give us some support in the lead up to the 2015 methodology review.
We survived the immediate threat. Swan, and later Joe Hockey, gave the needed directions to keep fine ore in the low category.
That left the express threat from Wayne Swan that he did not intend to intervene in the 2015 review. He envisaged that without his intervention, the long term result was that more revenue from fine ore would be, in his words, an ‘own goal’ for WA through loss of GST revenue. He saw this as fitting punishment for WA messing up his own ill-fated mining tax.
WA’s greatest friend at the time of the critical methodology review was Joe Hockey. Where Swan expressly promised not to lift a finger to help WA, Hockey, with strong encouragement from his WA Federal colleagues, put WA’s case both publicly and directly to the CGC. He said publicly that it was unfair and unsustainable to have one State receiving less than one third of the GST it raised. He also wrote to the CGC on 23 December 2014, asking it to consider, in the context of the review “the treatment of GST relativities where a particular revenue source is a large and volatile proportion” of a State’s revenue.
The end result was not the “own goal” Wayne Swan foresaw would occur without intervention. Rather, a new eight category mineral classification system under which WA State Treasury calculated gains to WA of $800 million by 2019.
So the scorecard of those making a difference for WA – WA Federal Liberals $1.8 billion to 2019 and likely more each year thereafter; WA Nationals $0; Labor $0; Greens $0; and independents $0.
So back to Grylls’ mining tax idea. WA would lose a lot of the extra revenue as a result of GST reductions. Are modest net revenue gains worth the damage the tax could do to the WA economy? My answer to that question is no. Grylls’ answer is to get some special one off direction to exclude the new revenue from the more revenue/less GST cycle. But, no one is going to give a direction which effectively backs a tax that no-one supports. Not even Grylls’ own party in Federal Parliament support it. The lesson from recent history is to beware a mining tax that carries the risk of making Wayne Swan’s mining tax look good.