$200m hit to state coffers

Date
    March 16, 2013


Victoria's new Treasurer has called for a fairer return for the GST the state has paid and flagged the possible abolition of stamp duty on house sales as part of an overhaul of its tax regime.    

Michael O'Brien made the comments as Victoria's hard-pressed finances took another blow.

The Commonwealth Grants Commission has recommended that the state lose up to $200 million in GST revenue in 2013-14 - on the grounds that the state's economy used to be doing well.
Newly appointed Victorian Treasurer Michael O'Brien.



The commission's annual revision of state shares of the GST has slashed Victoria's share for the second year in a row, leaving it with barely 90 per cent of what it would get if the GST money was distributed to all states in equal per capita shares.


It comes as a snapshot of the Victoria's finances released by the state Treasury shows the budget was in deficit by $349 million in the first half of the 2012-13 financial year. But Treasury said the result should not be taken as a sign the government would fail to meet its target for a minimum $100 million surplus.

The Grants Commission's hit effectively takes back the gains Victoria made from last year's review. It is now back where it was in 2011, after the commission took away 4 per cent of the state's GST revenue.

Next year Victoria will subsidise the smaller states and territories - except Western Australia - by $1.2 billion, because the commission estimates the same services can be provided here more cheaply than in larger states with high Aboriginal populations.

Mr O'Brien said the decision was unfair, but not unexpected. ''If Victorians simply received back the GST they paid, they would be $203 per person better off than they are under the Commonwealth's unfair system,'' he said.

''Victoria remains committed to working towards the GST being distributed on an equal per capita share.''

Mr O'Brien, who took over as Treasurer on Wednesday, also suggested that lowering or abolishing housing stamp duty should be a priority for discussion, provided the revenue could be made up elsewhere.

''Arguably it [stamp duty] leads to people staying longer in places they don't want to stay in because the transaction costs of moving are so high,'' he said. ''But we are not in a position to look at scrapping it or making significant changes to it until we work out how that would be funded.''

The 2010 Henry taxation review recommended eventually abolishing key state taxes, including stamp duty on house and motor vehicle sales, saying the revenue should be replaced by more efficient taxes on income and consumption.

But the prospect of abolishing stamp duty - which has been blamed for helping to make Australian houses among the most expensive in the world - remains distant, with state revenue being squeezed by slower economic growth and a shrinking share of the GST pool.

There was anger in Perth, meanwhile, after the commission - whose proposals are always adopted - decided to make WA the sugar daddy of Australia. In 2013-14, in effect, WA's huge mineral royalties will subsidise Queensland, the smaller states and the territories by $3.1 billion.

WA Premier Colin Barnett said it was the first time that any state had received less than half its per capita share of GST grants.

The commission decided that WA and Victoria should get lower shares because their economies had been the strongest over the three years from mid-2009 to mid-2012, the period over which it calculates the states' spending needs, relative costs and capacity to raise revenue.

It estimates that Victoria needs to spend $4 billion a year less than other states to produce the same services, because fewer of its children are in government schools, fewer of its people are Aboriginal and few people live in remote areas.

But Victoria's relative lack of minerals means it raises $2.2 billion less in revenue, and receives $600 million less than its share of Commonwealth specific purpose payments. The bottom line is that it gets $1.2 billion less than its share.    

Victoria's budget update roughly matched the $341 million deficit recorded for the same six months last year, which became a $571 million surplus for the full year. However, capital investment was down 20 per cent on the same period a year earlier.

Read more: http://www.theage.com.au/victoria/200m-hit-to-state-coffers-20130315-2g6ca.html#ixzz2NgPBDI9X

The commission recommended that WA receive half-a-billion dollars less in GST revenue in the coming financial year because of its booming mining sector.  Now fair go Mr Barnett, Victoria is in a recession.