The truth about Palmer's phony GST war

It was with considerable relish that Treasurer Hockey stepped up to the dispatch box in parliament last week to answer a question from the member for Fairfax, Clive Palmer.

The question was: “Why do the Australian and Western Australian governments allow GST raised in Western Australia to be spent in eastern states? Regardless, why doesn't Western Australia receive all the GST raised in Western Australia? Has the loss of GST caused Western Australia to lose its AAA rating? Do the Liberal Party and the Labor Party care more about the seats in eastern states?”

It was not clear whether Mr Palmer was being ‘mendacious’ – the speaker-approved term for downright deceitful – or really didn’t know how the Commonwealth Grants Commission re-distributes GST revenue.

Indeed, the aggressive campaigning from Mr Palmer in the WA senate election re-run suggests raises the same question. Palmer’s ad ‘blitz’ in WA has included the tag line: “They send our GST to Melbourne and Sydney -- get it back!”

Hockey’s answer in parliament, delivered with a smirk or two, was that “there has been a formula in place for more than half a century in relation to the distribution of funds. It primarily came out of events around the early part of the 20th century when the Commonwealth increased its taxation powers and then distributed money back to the states. For most of the period since the original grants commission formula started, Western Australia was a recipient state. In fact, it was a recipient state at various times in the last two decades”.

That’s mostly correct. In fact, the Commonwealth Grants Commission was set up in 1933, and is recognised by both major parties as being rigorously independent of the political process.

Its mandate is to make sure the states can deliver similar levels of service in health, infrastructure spending and a few other areas.

As Sharman Stone, who signed off the GST dollops in 2005 as the Howard government’s parliamentary secretary for finance, points out, in 1933 the CGC was concerned with money to convert gravel tracks into bitumen roads. Large states such as WA had more to do in that respect, so they got more money as Australia’s passion for the motor car developed apace.

Yet during the Gillard government, WA premier Colin Barnett earned a few brownie points with his state’s voters by complaining loudly about how much GST revenue sandgropers lost to other states.

While in 2004 and 2005, WA got $1.01 and $1.00 returned to it for every dollar of GST it raised, with the explosion of royalties received by the WA government during the mining boom those figures were rapidly whittled away by the CGC’s formulas. With all that mining dosh, it could afford services that struggling states such as Tasmania could only dream of.

In 2013-14, WA got just 44 cent back for every dollar raised, and in the 2014-15 year it will get just 38 cents back – hence Palmer’s question, and the election ads.

However, any voter who thinks Palmer is in a position to cause any overhaul of the GST distribution to a per-capita system has been duped. Any change would have to be agreed to by all the states – and most would tell WA to get stuffed.

Even so, the Barnett protests forced the Gillard government to review the distribution formula in 2012, with the resulting report’s authors being "handpicked by Barnett", according to Labor sources. They were former premiers Nick Greiner and John Brumby, and Bruce Carter, a managing partner of Ferrier Hodgson in Adelaide.

Whether or not they were 'hand-picked', the panel still found that GST distributions were, essentially, fair. They concluded that “...it is not possible to closely replicate the outcomes of the current system in a dramatically simpler way” and recommended only minor tweaks to the system.

Nonetheless, it is still good politics for state treasurers to beat the GST drum, if their state is (even temporarily) paying a lot to prop up other ‘mendicant states’.

Victorian treasurer Michael O'Brien emerged from last week's meeting with Hockey -- in which the federal treasurer offered states a 15 per cent bonus for every state asset they could sell off -- and issued a statement saying: "I sought and received an assurance from Federal Treasurer Joe Hockey that Victoria's concerns with the unfair GST distribution system will be examined via the upcoming White Paper on Taxation. This will provide a clear path to fixing a broken system."

And if that White Paper recommends big changes, Hockey will take them to the 2016 election to gain a mandate on such a major change ... and then only with a majority of states agreeing.

None of this seems to bother Clive Palmer. 

Nor does it seem to have occurred to him that his home state of Queensland would have to give back 8 cents for every dollar of GST it raises, and Tasmania, home to Palmer United Party senator Jacqui Lambie, would have to pay back 63 cents for each dollar it raised.

In the fog of electoral war, confusion reigns. Palmer’s phony GST pitch to WA voters may win a few votes after all.