GST Problem? We Don't Think So

Colin Barnett Should STFU

Pleiades set me a heads up about something in the AFR about Colin Barnett and theLNPmanagement of Western Australia. but before i get to that I need to set the stage a little.

At the recent COAG meeting, the premiers of states not called 'Western' were hostile to Colin Barnett's suggestion the GST distribution rules should be rewritten. It turns out the abrupt end to the mining boom has put a huge dent in the WA government's revenues. Worse still, the GST take for WA is going towrope from 38cents for every GST dollar collected, to less than 30cents. Which sounds rough, but here's the thing - WA was the chief beneficiary of an once-in-a-century commodity boom as it sat on top of one the great mining booms. And the other premiers lined up to let him know whether thought:

Premiers arriving in Canberra on Friday morning called for WA to accept the decision of the Commonwealth Grants Commission, which allocates GST revenue. 

"The Grants Commission made their ruling, not everybody's happy with that, but the notion that you would change the rules, that you'd get rid of of the umpire because you didn't like the decision and politicians are going to sit around a table and carve up the GST state by state, territory by territory, that's not going to happen," Mr Andrews said. 

NSW Premier Mike Baird said there should not be any "knee jerk" changes to the GST and said the most pressing issue was future health and education funding shortfalls.

"You shouldn't change the whole system for those single issues and certainly they have got the capacity to deal with it," Mr Baird said. 

"The biggest issue here is the health funding, the health and education funding. That quite frankly makes the GST debate that we are talking about right now look like a pimple to the size of a pumpkin." 

Queensland Premier Annastacia Palaszczuk said Mr Barnett's Black Saturday comments were "offensive" and that he should move on. 

"I just say to Colin Barnett, accept the independent umpire," she said.
"This is what the decision has been, no-one has gone against it for 30 years and there is absolutely no reason whatsoever to go against it. There's no way I'm going to cop Queensland losing $556 million."

That's pretty black and white. But here's the bit Pleiades sent from the AFR that's pretty damning:

So, how could WA manage to make it through a once in a century commodity price spike and still not manage to deliver a surplus? Easy. They spent a fortune subsidising the mining industry. 

Just last year the WA Treasury wrote to the commonwealth to explain how expensive it was to host the mining industry. Among other gems they wrote that "the cost of Western Australia's assistance to the North West Shelf project – e.g. payment of subsidies to the state's power utility to help cover the losses it initially incurred under crucial 'take or pay' gas contracts – is estimated to be around $8 billion." 

The WA Treasury goes on to criticise the Commonwealth Grants Commission for dividing up the GST revenues between states on the basis that "it fails to equalise many state expenditures that support resource development, particularly provision of infrastructure". They openly describe government decisions to pay for much of the mining industry's infrastructure as "a significant subsidy cost". 

The WA government has spent a fortune subsidising some of the world's biggest companies in the middle of a mining boom. Their own state budget papers show the cost to be around $6.2 billion over the past six years and their own Treasury calls such payments a subsidy. 

WA's tantrum at COAG, combined with Tony Abbott's tenuous grip on power, has reportedly delivered a $600 million windfall to Western Australia. Just imagine if Jay Wetherill or Daniel Andrews spent a few billion dollars subsidising the car industry. Would their industry policy decisions be cross-subsidised by the other states, or by the Commonwealth?

Ouch. Kind of shows how badly 'managed' (and I use the term very loosely) the whole mining boom was in WA. Basically, Colin Barnett took the mining revenues and gave it right back to the mining industry even though there was no reason to subsidise a booming industry. Instead of subsidising something that needed support during a time of a high dollar an over-dominant mining industry, Colin Barnett and his WA government went and doubled-down on the mining industry and effectively doubled-down on the Dutch Disease. Now that the moment has arrived, he's complaining his state has no income stream other than mining. You sort of wonder how he lives with himself.

The other state premiers are no saints either - they're simply talking along their lines of interests as is their prerogative; which is also true of Colin Barnett. But if you're an outsider of the process looking in, it's pretty obvious that Colin Barnett contributed greatly to his own states' predicament.