Queensland Economic Advocacy Solutions

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Has Queensland dropped the ball on the Review of GST Distribution?

Many readers will no doubt be aware that the Productivity Commission is currently undertaking an inquiry into Australia's system of horizontal fiscal equalisation (HFE), which underpins the distribution of GST revenue, and an issue of hot contention among State and Territories for almost two decades.  The Inquiry is considering the influence the current system of HFE has on productivity, efficiency and economic growth and whether there may be preferable alternatives.

I have previously asked whether this Inquiry is a threat or an opportunity for Queensland given that in 2017-18 as a State we will receive close to $15 billion in GST or 24 per cent of all money available despite having only 20 per cent of Australia's population.  My view it is undoubtedly a threat. The proposal with the most profound implications for Queensland is HFE should no longer be to the highest state, but instead to the average or to the second highest State.  If actioned Queensland will continue to be a net beneficiary of GST distribution however the extent of our benefit will be reduced by $729 million each year if to the second highest state or by $1.6 billion if to the average.

My fear is that Queensland is being outgunned in the war among States in advancing their interests.  It appears we may be more reliant on political rhetoric to progress our case as opposed to the substance of good representation underpinned and advanced through evidence and statistical research. Don’t get me wrong there are some very good and well reasoned arguments advanced in the Queensland Government’s submission but I think we can do considerably better.  Our arguments are articulated in theory and words and lack research and statistics to underpin them, which is surprising given the high calibre of Queensland Treasury individuals.

Page count is crude metric by anyone’s measure, but a quick analysis of submissions to the process by each State Government reveals Queensland has the lowest page count among all the State submissions. Those States that are cross-subsidising the most (like Western Australia) spent the most amount of effort arguing for how the current system is eroding their capacity to deliver services.  Oppositely those States that receive the highest level of equalisation like Northern Territory and Tasmania also spent significant effort in putting their submissions together. 

In its follow-up 14 page submission to the inquiry Queensland has diligently highlighted the impact that changes would have on the capacity to provide services. At the same time Queensland highlighted that in its view the case for change due to erosion of national productivity and growth had not been made by the other States.  Queensland Treasury states:

“Queensland continues to remain unaware of any evidence that this is a factor for governments in the setting of expenditure and revenue policies.

Where potential HFE impacts are considered in the policy decision making process, they are at best fourth or fifth order considerations. This means that many of the incentives or disincentives that are identified in the literature, and mentioned above, exist in theory but not to any material degree in practice.

Additionally, as Queensland set out in its initial submission, the most immediate benefit brought about by the current system of HFE is arguably in the services it allows States to provide. Any change proposed to HFE on the grounds that it will reduce disincentives to pursue economic growth must be balanced against the social costs of any potential reduction in services in some parts of the country – and the important role those services play in the long-term health of the economy.”

This is unfortunately and literally the extent to which Queensland is trying to counter the call for change and it is not enough.  To be fair the post draft submission stage of the process was smack bang in the middle of our State Election with Queensland Treasury in caretaker mode. However, my point is this, if Queensland wants to maximise the likelihood that detrimental change does not occur then we need to better debunk the Commission’s proposals and highlight how they will affect our productivity and economic growth going forward.

Queensland will lose to the greater good of lifting national productivity and economic growth if we are not proactive in countering states like Western Australia when they cite they are deliberately baulking on key reforms that drive economic activity because they are penalised GST payments in doing so.  By not countering the draft proposals with evidence and by not highlighting examples on how the Inquiry’s proposals would impact on our productivity and threaten our economic growth we run the risk of losing.  Fortunately, it is not too late with a public hearing in Brisbane on the 5th of February.

The Victorian Government’s submission does an excellent job taking apart the Productivity Commission’s Report. A question they pose is should we radically change the system to benefit Western Australia, noting that if we do we're essentially forgiving them for poor budget management in the past and not saving for the future.  Queensland and Victoria could and should work together in countering the Commission’s proposals as our interests (ie lost revenue) are generally aligned.

Queensland can't rely solely on a passionate State Treasurer appearing before the media throwing barbs at a Coalition Government to advance our interests.  We need the evidence and argument to back up our opposition to change, direct to the process.  If we don’t represent our interests in this manner we really only have ourselves to blame. 


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