Former WA Liberal premier Colin Barnett calls for GST overhaul based on population

Former WA premier Colin Barnett has called for the bulk of GST funds to be divided among states and territories on a population basis, a move that would benefit his own state but see the NT, Tasmania, South Australia and the ACT get much less than they do today.

The GST distribution is a hot-button political issue in the western state since the mining boom, when its enormous resource royalties have seen it get less under the federal system, which sees the GST carved up on the basis of population need rather than population size.

Mr Barnett, a longtime fierce critic of that approach, told the National Press Club it was “no longer fit for purpose”. Instead, he proposed that each state get 90 per cent of its population share, with the remaining 10 per cent to be given to in-need jurisdictions at the federal government’s discretion.

“Hold 10 per cent back and let the Commonwealth Grants Commission decide where it would go. WA will probably get nothing out of [that 10 per cent] and that is appropriate,” he said.

Mr Barnett appeared at the Press Club alongside Saul Eslake, a Tasmanian economist who is a vocal defender of needs-based funding.

Simpler than the Morrison deal

The arrangement is a simpler alternative to a GST deal struck by then-treasurer Scott Morrison in the Turnbull government and honoured by the Albanese government.

That deal, designed to appease WA complaints that it was being denied its “fair share”, amended the needs-based system by adding a floor.

Under the needs-based system, WA would have got 12 per cent of its population share in the coming financial year. NSW, Queensland and Victoria would get roughly 90-100 per cent. ACT would get 120 per cent, SA 140 per cent, Tasmania 183 per cent and the Northern Territory 507 per cent.

Those figures are calculated by the independent Commonwealth Grants Commission, which factors in both the population’s need for the social services provided by state and territory governments, and those governments’ capacities to pay with their own taxes.

Under the Morrison deal, by 2029-30, no state will get less than the need-based share of NSW and Victoria, effectively a cap of around 90 per cent.

Funding is currently in a transition period. This financial year, there is a floor of 70 per cent. Next year, it will rise to 75 per cent.

WA is the only state to benefit from the arrangement. But to compensate the other states, Mr Morrison proposed top-up payments from federal tax revenue until 2029-30 to ensure they are no worse off, which costs the budget billions of dollars a year.

Mr Barnett’s system would instead give 90 per cent to each state. Whether each state would be better off or worse off would depend on how the remaining 10 per cent was to be divided up, but it is a certainty that some states other than WA would do worse under this model than they do currently.

For example, the 10 per cent chunk would equate to $9 billion a year. That would be roughly enough to give the NT, Tasmania, SA and the ACT what they get today, but would then leave Victoria, NSW and Queensland more than $1 billion worse off each.

But Mr Barnett said this could do away with the need for a floor and current arguments over the carve-up, and would allow the government to phase out the top-up payments.

“The debate would evaporate,” he said.

That debate has been particularly fierce in WA since Mr Barnett’s time in office, and remains so. WA has even set up a “hub” in Canberra to promote the state’s interests, which Premier Roger Cook has said is not about stepping up the GST carve-up fight.

‘The worst public policy decision of the 21st century’

Mr Eslake was scathing of the WA GST deal, which he has called the “worst public policy decision of the 21st century”.

He said Australia’s needs-based approach to GST distribution “makes Australia a better country” because it ensured a more equal provision of health care and other social services across the federation than would otherwise be the case.

“Which state you live in matters far less for the quality of the schooling that your children get, or the quality of the health care that you, your parents and your children get, in Australia than it does in the United States, or Canada, or even Germany.”

He pointed out WA was a longtime beneficiary of these arrangements prior to the mining boom.

“To put it in the terms that Western Australia now uses, it got more than 100 cents in the dollar … in recognition of the facts that it cost relatively more per capita to provide services to Western Australia’s small and widely dispersed population.

“But then, beginning in the early 2000s, Western Australia got, to adapt a [Paul] Keatingism, kissed on the nether regions by a Chinese rainbow [thanks to] China’s appetite for the mineral and energy resources with which nature had so richly endowed [it].

“But rather than accepting that this new-found wealth meant that WA should be putting into the pit from which it had so happily drawn for 70 years, it instead threw a giant tantrum.

“Successive federal governments of both political persuasions ignored this bleating from Western Australia until [the Morrison deal] … I think that is, to use a phrase that I think has been much-abused in other contexts, un-Australian.”