Paul Murray: Anthony Albanese finds an unlikely ally in former WA premier Colin Barnett on GST mess

If only Anthony Albanese was as proactive on some of Australia’s real problems as he has been this week in trying to nobble Andrew Mountbatten-Windsor’s chances of becoming our King someday. The Prime Minister phoned four radio stations to brag about the letter he had written to his British counterpart pledging Australia’s support in ditching the disgraced former prince from the line of royal succession. In any other context, Albanese would be claiming that private communications need to remain just that. Think ISIS brides. Just for the record, here’s a list of the people who would need to pop off or become otherwise unable to be our sovereign before the dodgy 65-year-old pretender got a look-in: Prince William (43), Prince George (12), Princess Charlotte (10), Prince Louis (7), Prince Harry (41), Prince Archie (6), Princess Lilibet (4). It would parallel the Bolshevik slaughter of the Romanovs at Yekaterinburg in 1918 to achieve what Albanese seems to be intent on countering. If that were really his aim. Of course, none of this would be a problem if Albanese hadn’t parked Labor’s republican ambitions after the failure of his Voice referendum. His call. “We initiated it,” the PM boasted to the ABC about his populist bid to necklace Randy Andy as a neat distraction from other pressing problems. “Australia likes being first and we have made sure that everyone knows what our position is.” It’s a shame we’re never as certain about his government’s position on things that really matter, like inflation-boosting over-spending, cellar-dwelling productivity and whether WA will keep its share of the Goods and Services Tax in the face of a new Canberra-based review. On the latter issue, Albanese is about to get some help from a very unlikely source, which would save him from breaking promises made to WA that are likely to be under pressure when the review reports at the end of the year. If he has any brains, he will grasp the lifeline with both hands. More on that later. Instead of actually addressing our dismal levels of productivity, Treasurer Jim Chalmers has directed the Productivity Commission to review the 2018 GST distribution reforms of the former Morrison coalition government, from which WA was the standout beneficiary, getting a 75 cent in the dollar return of the tax collections. Any cogent reading of the review’s terms of reference suggests that WA is being set up for a considerable haircut. Public submissions closed yesterday. The very first directive is to consider whether the current arrangements are delivering “a reasonable level of horizontal fiscal equalisation”, which is a concept that evolved in Canberra many years ago to ensure all States could afford the same level of public services from their federal payments. It is disappointing that the review will not consider whether the GST should have been included in this blatantly socialist mechanism contrived by the Commonwealth Grants Commission in the 1930s. That was a logical starting point. The GST was designed in 1999 as a revenue source solely for the States funded by the economic activity in each State. That is incontestable. It replaced some State taxes and can’t be changed without unanimous agreement of the States. For it to achieve its original intention, each State should have its GST collections returned on a per-capita basis and not perversely be used as an equalisation fund for other Federal payments, which is what happened in 2009. The HFE, in all its dead-hand awfulness, was originally only designed to provide a “minimum” level, not full, equalisation. It should only ever be applied to grants to the States taken from Federal revenues. Previous studies have found that Australia’s HFE model, as it evolved to “full” equalisation, was extreme when compared with other comparable federations such as Canada, Germany, and Switzerland, making it more intrusive and distortion-prone than international norms. Apart from that, nothing in the Constitution requires Australia to pursue equalisation between the States. It was purely a policy choice pursued by a leftist bureaucracy. HFE reduces incentives for States to grow their own revenue and encourages them to structure taxes or spending to maximise grants. It also blunts competition between the States for economic growth. In other words, it creates economic bludgers. Tasmania and the Northern Territory leech off WA’s resources wealth. If they wish, they can lock up their resources to avoid doing any of the heavy economic lifting of the States which pursue progress. The review’s other terms of reference are equally disappointing, particularly the one questioning if the GST system is “fiscally sustainable for the Commonwealth and States and territories.” Chalmers has run the economy into a ditch with deficits stretching out for decades. The 2018 GST deal’s “no worse off” guarantee – to smooth the impacts of justice for WA on the other States – is now costing his Budget about $5b a year. Victoria is a Labor-ruined basket case and the territories have little economic base. The others are either mendicant or just green-eyed and want what they can milk from WA. So the GST system is probably not “fiscally sustainable” from the majority point of view, setting up the review to give WA a belting. HFE, certainly as applied to the State-based GST, is the real villain from WA’s perspective. But our Labor Government will never call it out because it agrees with its ideology. Into this mess wades former WA Premier Colin Barnett, who, unlike Chalmers and Albanese, is a trained economist, plying his trade before entering politics in the private sector and as a university lecturer. In his dotage he serves as an adjunct professor of economics at UWA’s business school. He realises there is no appetite among the Labor administrations across the nation to change the HFE mechanism. Canberra’s handouts are addictive. So Barnett has arrived at an elegant solution to the over-complicated GST mess based on a per capita return of GST collections while minimising the effects of HFE. He has calculated that if 90 per cent of the existing $95 billion in GST revenue was returned to each State and territory, the remainder could be used as an equalisation fund. “For the larger States, they will no longer have their Budget outcomes partly determined by the deliberations of the Grants Commission,” Barnett writes. “That was never intended. “For the smaller States, they will receive their per capita share plus the additional funds from the 10 per cent of the total GST revenue that is distributed according to HFE. “Most of the 10 per cent will go to the smaller States. That amounts to around $10 billion, which is the same as the current level of cross subsidy. “For the Commonwealth, this will allow the now $5 billion of additional compensation funding to be progressively reduced as the total GST revenue raises. “For WA, the floor price of 75 cents in the dollar should continue for the foreseeable future. That is dependent on continuing prosperity in mining. “It is accepted as a fair level of support from a prosperous mining State. It is also consistent with the original proposals for a floor price in 2009. “For the Grants Commission, the task of distributing the GST revenue will apply to only 10 per cent (or around $10b) of the expected $95b of GST revenue. “That is a spectacular reform and a large cost saving for all governments.” Barnett’s idea is the best solution I have seen to the intractable GST debate in many years covering the bitter battle. Even Tasmanians should be relieved that it protects their economic position without making any demands to enter the real world. As of yesterday, about half the submissions available on the Productivity Commission website were unsurprisingly from protectionist Tasmanians, ranging from erratic Jacqui Lambie to that State’s whinger-in-chief, economist Saul Eslake, who fallaciously argues the GST is not a “State tax” on the basis it is collected by the ATO under a Federal law. Who else would collect it nationally? That argument meets the definition of specious. As does Eslake’s claim that no one is able to say how much GST is collected in each State and territory just because the ATO doesn’t make those figures available. It could. Eslake mentions WA 74 times, Tasmania just three. A little obsessive? He effectively argues for the system to return to the bad old days in which we were about to get only 18 cents in the dollar of the GST distributions, but appears happy with Tasmania getting $1.99. Albanese will get bureaucratic recommendations from the PC review. He doesn’t have to accept them. He should pay close attention to the voices from the West, like Barnett’s political solution, before he makes a right royal mess of his previous princely undertakings.