Simmering tensions between Canberra and the states have been further exacerbated by the announcement of grants revenue allocation for the next financial year.
Simmering tensions between Canberra and the states have been further exacerbated by the announcement of grants revenue allocation for the next financial year.
The Commonwealth Grants Commission released its advice to the federal and state governments last week, regarding the distribution of GST and health care grants revenue in 2007-08.
The resource-fuelled economies of Western Australia and Queensland are the main losers in the redistribution, with WA to receive $271.6 million less funding in 2007-08, and Queensland to lose $166.4 million.
WA’s loss will effectively be New South Wales’ gain, with that state’s share of grants revenue set to increase by $277 million during the period.
Victoria, South Australia and the territories will receive a small increase, while Tasmania’s share will decline slightly.
The commission’s recommendations are based on data from the preceding five-year period, 2001-02 to 2005-06.
Chairman of the Commission, Alan Morris, said the new distribution reflected the changing fiscal capacities of the states relative to one another during the past five years.
“The strengthening economic conditions in Western Australia and Queensland have boosted their own source revenues and consequently, in line with the objective of promoting fiscal equalisation, reduced their share of GST funding,” he said.
WA’s decline in share of grants revenue, which constitutes a 0.5 per cent decrease between the financial years 2006-07 and 2007-08, is being partly attributed to the recent property market boom, with median house prices increasing by 20 per cent in 2005-06.
Treasurer Eric Ripper said WA was being punished for its economic success, with the WA Department of Treasury and Finance calculating the current $271.6 million cut would grow to $1.2 billion by 2010-11.
Mr Ripper said the reduction in grants revenue would adversely affect the state’s ability to provide infra-structure and services, particularly in remote areas, and failed to take into account rising cost pressures.
“The commonwealth receives the majority of the fiscal returns from WA’s major resource projects, but makes relatively little contribution to the infrastructure and other costs supporting these developments,” Mr Ripper said.
He said the federal government gave back only $24 billion of the $28 billion it collected each year from WA.
“WA is subsidising the other states to the tune of $4 billion a year, or by more than $2,000 for every Western Australian – the highest per capita subsidy in the nation,” Mr Ripper said.
Earlier this year, the state government called for the commonwealth to increase its infrastructure funding in WA by establishing a $2 billion national export infrastructure fund.
However, WA Chamber of Commerce and Industry chief executive John Langoulant said a better strategy would be a review of commonwealth-state relations.
“The states should be provided access to the income tax base; that would allow the states to abolish a number of the very inefficient taxes it currently levies,” Mr Langoulant said.
Last month, federal opposition leader Kevin Rudd proposed giving WA $100 million a year, or 25 per cent of royalties from the planned Gorgon gas project, which lies in commonwealth waters, for a transport and water infrastructure fund.
The proposal was ruled out by Prime Minister John Howard, who said he believed it was “not good national economic policy to be earmarking according to geographic location, particularly revenue streams to particular states based on geographic location”.
