Senator the Hon Mathias Cormann

GARETH PARKER: The Sunday Times informed us yesterday that there is going to be a review of the GST. Now, we have had reviews in the past, three of them in fact, since the turn of the century. What we have not had is a result. Is it going to be different this time? Let’s find out, my guest on the morning program to start today is the Finance Minister, Mathias Cormann. Senator Cormann, good morning to you.

MATHIAS CORMANN: Good morning Gareth. Good morning to your listeners.

GARETH PARKER: So why is it going to be different this time? Why are we going to get a result from this review?

MATHIAS CORMANN: Well, the very specific focus of the Productivity Commission inquiry is on how GST sharing arrangements are impacting on national productivity and economic growth. In recent times the view that has been put to us credibly, is that the current GST sharing arrangements may be having a negative impact, may be providing a disincentive for individual States to pursue reforms to grow and develop their economy to their full potential and to pursue budget reforms on the spending and revenue side of the budget. We believe that it is important, because it is in the interest of every Australian, it is in the national interest, for every State to be incentivised to put their best foot forward when it comes to pursuing growth and economic development opportunities.

GARETH PARKER: So you are essentially asking the Productivity Commission to view this GST issue in a national productivity sense. That is, is the GST system currently shrinking the economy, holding it back, stopping all States from maximising their wealth? As opposed to the narrower argument, albeit from our point of view, very important that is, is WA getting its fair share or not? But, this Productivity Commission review is there to ask that bigger, national question. Is that essentially why it is different?

MATHIAS CORMANN: That is right. If there is a case and the Productivity Commission will of course assess this, if it was the case that there was a disincentive for individual States to pursue their full growth opportunities, then that would be against the national interest. It is in the national interest for our system which underpins Commonwealth-State financial relations to support productivity improvements, to support growth, to support States putting their best foot forward. Because in the end, stronger growth in every jurisdiction means stronger national growth, it means that we have a bigger pie to share around, including through GST sharing arrangements. The Federal Government has acknowledged for some time that WA’s share of the GST is unacceptably low. That is why, when we came into government and when we inherited this deteriorating trajectory, we made some adjustments to the treatment of certain resource royalties and we also made the decision to provide additional federal payments to Western Australia to support infrastructure funding in Western Australia in particular. That is something that we will be doing again this year, consistent with the request from the new State Government in Western Australia. Beyond that, we have always said that there was a need for a more medium to long term reform effort. Part of that has been the Prime Minister’s outline of a way forward when it comes to setting a floor in the future, below which no State’s share of the GST can fall. But beyond that and in this context, we have now commissioned this Productivity Commission review to ensure that the system which underpins Commonwealth-State financial relations supports national productivity improvements, supports growth and is efficient.

GARETH PARKER: Why isn’t the Productivity Commission being asked through its terms of reference in this inquiry, why isn’t it being asked to consider that specific policy of a floor of say, 65 cents or 70 cents in the dollar?

MATHIAS CORMANN: The Productivity Commission has a particular expertise and has got a particular focus and that focus, appropriately, is on to what extent policy settings can be improved to improve national productivity and economic growth. Now, the issue of the floor has already been addressed, in the first instance…interrupted.

GARETH PARKER: I do not know if it has been addressed, Senator Cormann, it has been floated as an idea…interrupted.

MATHIAS CORMANN: If I may, in the first instance and in the short term, the Federal Government has effectively put in a floor at the 2014/15 level. The 2014/15 level of 37.6 cents in the dollar was already very low, but the Commonwealth Grants Commission you might recall in 2015-16 decided to go even lower, to below 30 cents in the dollar. At that time the Federal Government said no, we are not going to allow that to happen. We are going to effectively stop the drop in WA’s share of the GST. We are going to ensure that the WA level of the share of the GST is at least maintained at that 2014/15 level of 37.6 per cent. That is why we have made federal top up payments to Western Australia in 2015/16, and 2016/17 and we will do that again in 2017/18. So, effectively there is a floor now at 37.6 cents in the dollar. But moving forward, their ought to be a higher floor and what the Prime Minister has set out is that as Western Australia’s share of the GST starts to increase again, I mean it is increasing this year by four cents in the dollar compared to last year. It is expected to increase further in the years ahead. As WA’s share of the GST increases, the opportunity is there for a floor to be established below the threshold which has been exceeded, so that you do not actually physically have to take away any money from other States that has already been formally allocated to them if you like. That is the process that is still in train and that of course is a process that will be pursued through the Council of Australian Governments.

GARETH PARKER: The question though Senator Cormann, that everyone listening to this interview today will want to know the answer to is this; let’s say that this Productivity Commission comes out with results that looks at this issue that you have identified of is the GST system holding back the national economy. It looks at other States and their natural resources and whether they are exploiting them enough. It looks at whether this policy of horizontal fiscal equalisation unfairly or unreasonably prevents States from developing their economies. It looks at all of these issues, and it makes some recommendations. And you know what, these recommendations actually work in WA’s favour, and if it means that if these recommendations are followed then we might get a better deal. The big question though that people want to know is, do you guarantee that you will actually implement the results of these recommendations once the Productivity Commission makes them? Because it is one thing to commission a review, but as everyone knows, we need the result.

MATHIAS CORMANN: I cannot pre-empt what the findings and the recommendations of the Productivity Commission will be. But what I can guarantee is that those findings and those recommendations will be a very significant additional and important input into the decision making processes nationally. Whatever findings are made and if the findings are that the current arrangements are holding back national economic growth, then certain responses will be required and that will be part of the consideration at that time.

GARETH PARKER: My guest on the program is Senator Mathias Cormann, the Finance Minister and you have heard what his approach his approach is going to be and the Government’s approach is going to be in terms of this Productivity Commission inquiry. The Productivity Commission is going to take a look at the GST. It is going to look at these arrangements, it is going to ask whether in fact the GST system is holding back the national economy. But surely listeners want is a result, rather than just a review.

Senator Cormann, already we have seen that it is likely there is going to be opposition from the other States. As we would expect because it is what happens every time we talk about this issue. Not only are they pre-empting the result of the Productivity Commission inquiry, there seem to be objections from Anastasia Palaszczuk in Queensland and from the Treasurer in South Australia that they are against the idea of even having this review and they are already bleating about being ripped off on the GST.

MATHIAS CORMANN: Our job at a national level is to consider all of the perspectives from different States, from different areas of Australia and then make a judgement in the national interest. That is what we have done. Self-evidently it is in the national interest for us to ensure that all States are incentivised to put their best foot forward when it comes to growing and developing their economies. Self-evidently it is in the interest of every Australian and the national interest for us to maximise the opportunities for growth in every jurisdiction, so that we can have the strongest possible national economic growth, the biggest possible pie to be shared around, whether it is through GST or whether it is through general increased opportunity for people to get ahead.

GARETH PARKER: And so the Productivity Commission is due to report in January next year, the end of January. How long before we then see a response and perhaps some action?

MATHIAS CORMANN: The review as you say does come down at the end of January, and that will then lead into a process early next year. As you would appreciate and just in response anticipating some further questions, that is well before the next Federal Election, which is not due until 2019.

GARETH PARKER: That is true. But what about the next Federal Budget? Is it something that can be implemented in time for the next Budget cycle?

MATHIAS CORMANN: Well Gareth, we are about to deliver our next Budget next Tuesday, the 2017/18 Budget. I am not going to start delivering the 2018/19 Budget just yet.

GARETH PARKER: Fair enough. Senator Cormann thanks for your time this morning.

MATHIAS CORMANN: Always good to talk to you.