The Australian, January 9, 2017
Miners have called for a dramatic overhaul of the GST carve-up — warning that present rules are smashing the nation’s growth potential and urging a renewed reform push, including corporate tax cuts, curbs on union power, streamlined approvals processes and a crackdown on environmental activism.
In a submission to the Productivity Commission’s five-year productivity review, the Minerals Council of Australia has called for a rethink on the GST distribution formula known as horizontal fiscal equalisation, which it warns is rewarding passive states that do not develop their resources at the expense of states that do.
It cites research suggesting that the present arrangements encourage the growth of the public service in recipient states.
The MCA submission will add to calls from NSW and Western Australia for reform of the GST system. NSW stands to lose up to $10 billion over the next four years as a result of its strong economic performance and Western Australia’s share of the GST has been reduced to as little as 30c in the dollar as a result of the mining boom.
The MCA submission urges policymakers to tackle a number of contentious reforms such as ending coastal shipping protections, streamlining environmental approvals processes into a one-stop shop and cracking down on vexatious environmental legal challenges to major projects.
The call to arms on reform by one of the nation’s most powerful industry groups will increase pressure on Malcolm Turnbull on contentious issues such as corporate tax and industrial relations reform, at the start of a political year during which he will be confronted by a hung Senate and criticism that he lacks conviction on key reform proposals.
In the submission, MCA chief executive Brendan Pearson takes aim at the Productivity Commission, accusing it in its latest review of seeking to “shrink’’ its proposals to those that are politically feasible. Mr Pearson is critical of the commission’s call for “new and novel” reform ideas and its inclusion of political feasibility as a benchmark.
“The Productivity Commission must argue the case for reforms on their economic merits, not shrink its proposals to levels that it assesses, rightly or wrongly, are politically feasible,’’ Mr Pearson said.
He said the policies needed to encourage productivity “where it actually happens — at the workplace’’. “Policies can only be regarded as good for productivity if they strengthen competition, support the accumulation of skills and capital and enable firms to respond flexibly to changing market conditions,’’ he said.
On the current horizontal fiscal equalisation method of distributing the GST to the states — where states with strong economies subsidise weaker states — the MCA argues this is disadvantaging administrations prepared to develop their resources and is restricting national growth.
A key problem was a Grants Commission assumption that all states sought to develop their mining resources with equal vigour. “The result is that states which take a passive or negative approach to resources development can be rewarded for doing so,’’ the submission says.
For example, Western Australia, which had developed its resources, had forgone $35.8bn in GST revenue in 13 years, while Victoria, which had long banned uranium exploration and which recently banned onshore gas exploration and is phasing out coal electricity generation, had gained $21.4bn over the same period.
The submission cites research by professor Ross Garnaut and Vince Fitzgerald in 2002 in the early years of the assessment system, which found that the existing horizontal fiscal equalisation system resulted in the public sector playing a larger role in recipient states than donor states. “Such state control of resource allocation is less efficient than allowing markets to distribute resources according to consumer demand.’’
The MCA says Australia’s corporate tax rate of 30 per cent is “too high for a capital-hungry country’’ and must be reduced to at least the OECD average of 25 per cent.
And it takes aim at the Fair Work Act, declaring it reversed 16 years of labour-market reform by granting unions a “disproportionate’’ role.
It backs a PC proposal to give the Fair Work Commission more power to deal with right-of-entry disputes and a higher threshold for union representation on projects.