GST Funding Arrangements
Under the Intergovernmental Agreement that accompanied the introduction of the GST, the Commonwealth passes all of its GST revenue collections to the States.
However, at the same time the Commonwealth has ceased paying financial assistance grants to the States, and a number of other State revenue sources have also been abolished, including fuel, tobacco and alcohol revenues, financial institutions duty, stamp duty on listed shares and debits tax. Furthermore, the States pay GST administration costs and the cost of the $7,000 grant for first home owners, all of which offset the benefit of the GST revenues.
One of the main purposes of the GST funding arrangements was to improve the financial position of the States by ensuring that the States had access to a growing revenue base. All States are now financially better off than they would have been under the old arrangements (after an initial period in which top-up grants were needed). However, the replacement of State taxes by GST revenues has increased the States’ financial dependence on the Commonwealth.
All States and Territories have committed to schedules for the abolition of taxes listed for review in the Intergovernmental Agreement (IGA), including stamp duties on non-real conveyances, unlisted marketable securities, leases, mortgages, credit/rental arrangements and cheques. The only exception is stamp duty on real business conveyances.
The decision to abolish stamp duties listed for review in the IGA has further reduced the financial benefits from the GST reforms. The table below shows Western Australia’s estimated net benefits from the GST reforms, including the abolition of these stamp duties. The table also includes the impact of the Commonwealth’s unilateral decision to abolish National Competition Policy payments after 2005-06. Since 2000-01, these payments had been authorised under the Commonwealth’s GST grants legislation. Their abolition was justified on account of the States receiving the GST revenue. Taking all relevant changes into account, the projected net fiscal benefit from the GST reforms to Western Australia in 2006-07 has been reduced to $70 million.
Budget Impact of GST Tax Reform on Western Australia
|
| |
2006-07
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
Impact of GST tax reform published in the
Commonwealth MYEFO(a) |
+322
|
+455
|
+600
|
+455
|
+462
|
Less adjustment for Commonwealth changed
assessment method(b) |
-53
|
-63
|
-75
|
-86
|
-99
|
Less cost of abolishing stamp duties subject
to review under the IGA(c) |
-137
|
-148
|
-244
|
-22
|
-136
|
| Less NCP payments abolished(d) |
-62
|
-64
|
-66
|
-69
|
-71
|
Full impact of GST tax reform
|
+70
|
+180
|
+215
|
+268
|
+156
|
(a) Impacts are net of cheque duty from 2006‑07 onwards, and net of stamp duties on leases, credit/rental arrangements and mortgage duty from 2009-10 onwards, by which time all States will have abolished them.
(b) In 2002, the Commonwealth Treasurer unilaterally decided to remove the inflation component of petroleum safety net revenues from the calculation of revenues forgone by States as a result of the GST reforms.
(c) Includes IGA taxes abolished by Western Australia that are yet to be included in the impact published by the Commonwealth Treasurer as all States have not abolished them.
(d) Estimated on the assumption that Western Australia would continue to receive the same proportion of the maximum available payments as it did in 2005‑06, plus an extra 5% from 2006-07 due to liquor reforms.
|
| Source: Commonwealth 2007-08 MYEFO and 2006-07 Final Budget Outcome and Department of Treasury and Finance. |