The Productivity Commission will investigate a contentious GST deal established by the previous Morrison government, which is projected to cost Australian taxpayers over $60 billion. Treasurer Jim Chalmers announced the inquiry today, highlighting its aim to assess whether the arrangement offers good value for both the nation and its taxpayers. This examination comes amidst growing concerns regarding the financial implications of the deal for the federal budget.
Chalmers noted that the commission’s inquiry would focus on optimizing the allocation of GST funds to ensure they effectively support essential services such as schools and hospitals across Australia. He stated, “This work will ensure we have the best possible system to pay for the schools, hospitals and essential services Australians need and deserve.”
The investigation’s terms of reference require the commission to evaluate the ongoing commitment to the original GST arrangement while also exploring potential alternatives that could alleviate fiscal pressures on the nation. The inquiry will examine if the current system incentivizes state reforms and whether it provides adequate certainty for budgeting purposes.
The GST deal, initially projected to cost $2.3 billion over four years, has significantly exceeded expectations. It was designed to ensure that no state receives less than 75 cents for every dollar of GST collected, with the federal government supplementing the national pool. In contrast, Western Australia‘s share had fallen below 30 cents per dollar prior to the deal’s inception.
Economist Saul Eslake has been a vocal critic of the GST arrangement, characterizing it as potentially the “worst public policy decision of the 21st century.” He expressed concerns about the long-term sustainability of the deal, particularly given the rapid increase in costs. Eslake emphasized that the inquiry serves as a critical test for the government and its approach to fiscal responsibility.
The inquiry will also assess the impact of fluctuating iron ore prices, which have remained robust, contrary to earlier projections that anticipated a decline. With current spot prices averaging over US$100 per tonne, the financial implications for the GST deal could escalate further.
Initial submissions to the Productivity Commission are due by February 27, 2024, with an interim report expected by August 28, 2024. A final report must be submitted to Chalmers by the end of next year, aiming to provide clarity on the viability of the current GST framework.
The inquiry is likely to shape the future of fiscal relations between the federal government and the states, especially as various jurisdictions express dissatisfaction with the GST allocation process. As the Albanese government navigates this complex landscape, the findings of the commission may have significant implications for both political dynamics and economic stability in Australia.
