Interview on ABC Radio Adelaide, Breakfast with Ali Clarke and David Bevan
GST distribution




David Bevan:   Senator Simon Birmingham, good morning. Is South Australia going to be worse off?  


Simon Birmingham:    No.  The great news is that South Australia is going to be better off. South Australia under the Turnbull Government’s proposed changes to the GST would be an estimated $257 million better off by 2026/27 than if we left the status quo in place.


Ali Clarke:                    So then where’s the money coming from if no one is going to be worse off?


Simon Birmingham:    What we are proposing to do is to increase the pool of funding that is distributed to the states so there is of course all the money that is collected by the GST, the Federal Government will increase that pool with a top-up that will apply about $600 million beginning in 2020-21 growing to about $1 billion by 2024-25, which would then be distributed according to the new GST distribution formula that is being phased in.  But that combination of putting more money in the pool, growing the pie essentially and then distributing it according to the new approach will leave SA clearly better off as it will all states and territories. 


Ali Clarke:                    Okay so great, but with that pie growing idea, where’s that money coming from?         


Simon Birmingham:    Well that’s what you can do when you’ve got a strong economy and an improving budget. The Federal budget is forecast in 2020-2021 to be in surplus of around $11 billion thanks to the hard yards we’ve done over the last few years. So you manage to actually get yourself in a position when you can undertake these types of reforms to fix what I think most people recognise is a broken GST system. I don’t think anybody thinks it was particularly fair when Western Australia’s share of the GST slumped to getting only about 30 cents in every dollar of GST they paid back. So we’re trying to get back to a position that is fairer that meets the intent of the GST distribution arrangements, which is to say that smaller states and territories, jurisdictions who might struggle should receive a greater degree of support from the Federal Government.  That’s what this does, that’s why South Australia wins out of it, gets an extra $250 million but of course you’re doing so in a way that ensures you’re not ripping off to some disproportionate extent a state that might be doing well as in the case of WA.


David Bevan:               Stephen Mullighan is the Shadow Treasurer here in South Australia, and he joins us, good morning Stephen Mulligan.


Stephen Mullighan:       Good morning David and Ali, good morning to your listeners?


David Bevan:               Are you buying what Simon Birmingham is selling?


Stephen Mullighan:          Absolutely not.  I mean this is obviously a watering down of the current GST arrangements which have been very, very good for South Australia and we know that they’re being watered down because they’re changing how the GST is to be distributed.  It’s not no longer going to be benchmarked against the fiscally stronger states.  It’s going to be a choice of either Victoria or New South Wales, either or one of which may not be the strongest in the federation and the Federal Government’s also saying that we need compensation.  Now people don’t receive compensation unless they’ve lost something and it’s clear that under these new arrangements, South Australia in the future will be worse off compared to the current arrangements that we have at the moment and I guess what I would urge is, I’m a South Australian politician, Simon Birmingham is a South Australian politician, we should both be focussed on what’s in the best interests of South Australia, not what is the best fix-up job for Western Australia at the expense of the rest of the nation. 


David Bevan:   What guarantees would Simon Birmingham have to give you this morning for you to come onside?


Stephen Mullighan:       That there would be not one dollar in GST less than what the current arrangements for the distribution of GST and not one dollar would be lost to South Australia against those arrangements and they can’t make that guarantee. They can’t make that guarantee because they’re changing how the GST will be distributed.  They’re putting in more caveats, they’re putting in more [indistinct] for states like Western Australia, whom I might point out, while their GST share has gone down, their mining royalty revenue went from $700 million a year to six billion a year over the course of time.  While there’s a floor being put in and while there’s a watering down of the formula, that’s going to impact other states and its going to impact smaller states who traditionally have received more than 100 per cent of their GST allocations and that’s a bad thing for our state. 


David Bevan:   Simon Birmingham, can you give the guarantee that Stephen Mullighan is demanding?


Simon Birmingham:    Based on all of the modelling that the Commonwealth Treasury has done, yes I can and our invitation to states and territories will be that they should do their own modelling here.  There is no compensation, there is no temporary adjustment here.  This is a permanent increase to the pool of funding that will be distributed to the states and territories so it’s wrong for Stephen Mullighan to go out and say that there is a compensation element to this. That’s not the case.  We’re increasing the total pie and therefore there is more money available to be spread across the nation and that’s why South Australia gets more as a result.  But there’s also another element which is that the Treasurer has been very clear.  If in the end a state or territory says, “We would rather stay with the same formula under the same pie”, well they can choose to do so. That’s how confident we are that this is a better deal for each state and territory and ultimately they will sign up because they will see that there is more money available for them to spend on their schools, their hospitals, their police services as a result.


Ali Clarke:        Well, South Australian Treasurer, Rob Lucas, will you do your own modelling?  Will you make this decision?    


Rob Lucas:      Well look the first thing that we’d say is we welcome the fact, which I think Steve has missed so far, is that the Federal Government has actually rejected what would have been a disastrous recommendation of the Productivity Commission which could have resulted in South Australia losing $500 million a year.  That was the elephant in the room that was obviously terrifying, should have terrified all South Australians and we welcome the fact that that’s the first decision taken by the Federal Government to reject that particular recommendation.  What we now have is a promise from the Prime Minister that South Australia and no state will be worse off and we welcome that promise. We’ve seen the figures that the Federal Treasury have produced and what we’ll be doing over the coming months is our State Treasury will have a look at that to assure us that as a State Government that we’ll be no worse off and we won’t sign a deal and the Federal Treasurer’s acknowledged this, he doesn’t expect it, but we won’t sign a deal unless it is in South Australia’s best interest to do so.  But I think people are missing the point, they’re just jumping over what’s been a key factor, that is that a Productivity Commission recommendation which lots of people in the media and people like Stephen Mullighan and others were sort of bleating about and correctly I might say, that it may well be disastrous for South Australia if the Federal Government was to impose the Productivity Commission recommendations.  They’ve not done so and I think that’s the first important step, one of the reasons that’s occurred is it’s been a very respectful discussion between the Premier and the Prime Minister and the Federal Treasurer and that’s been done productively behind closed doors and I think there’s a touch of bitterness in Stephen Mullighan’s voice that the sky was going to fall in warnings that he’s been bleating about…


David Bevan:               Because if the Commission report had been accepted, the South Australian budget and the services that flow from that would have been gutted?


Rob Lucas:      Well $500 million David as you know, that’s money we spend on schools, hospitals, child protection services etc.  That would have been calamitous for the state of South Australia.  That’s why we said before the election, that’s why we said after the election, it doesn’t matter whether it’s a Federal Labor Government or Federal Liberal Government, Steven Marshall’s Government won’t be supporting any deal which duds South Australia and that deal would have duded South Australia and that’s why we welcome that first step which I think people are conveniently just jumping over at this stage in terms of deciding how much the new formula will allocate to each of the states.


David Bevan:               Can South Australia veto this new proposal that Scott Morrison has put on the table?


Rob Lucas:      Well the advice that we’ve been given and I’m sure the former Labor Government was given the same advice, is that the Federal Government could have imposed any particular deal.  Ultimately it has the legal power to impose any deal so it could have imposed the Productivity Commission deal which was the view that the State Labor Party were putting …


David Bevan:               But wasn’t the GST signed up all those years ago back in 1999 on the proviso that all of the states agreed with this and if one of them doesn’t agree with changings such as the rate of the GST, then it won’t happen?


Rob Lucas:      That’s right David, so what’s locked in to that agreement is essentially the rate, that is the 10 per cent and the scope of the GST needs to be agreed but the issue in relation to HSE, that is the way the GST is actually distributed between the states, the advice that’s been given is that’s ultimately a decision that the Federal Government has.  What has occurred by convention, not by legal requirement is that no Government Federally, Labor or Liberal has actually implemented a change unless it’s been agreed by all the states and territories but they weren’t legally required to do so and that’s what’s been made clear to the former Labor Government here and that’s what made clear to us as an incoming Liberal Government.  So the Federal Government could have, and it hasn’t, and we welcome that, it could have imposed the disastrous Productivity Commission recommendation and ultimately it does have the legal power if it so chooses to impose any new deal on the states but the Federal Treasurer and the Prime Minister are saying no, this is a commitment, the promise we’re making, no state’s going to be worse off. And they said let’s work together over the coming months so our State Treasury officers will need to do the analysis and the modelling, and to see whether or not the figures that Federal Treasury have produced are indeed accurate in relation to South Australia.         


Ali Clarke:                    Quickly just back to you, Simon Birmingham, you said this is all about growing the pot of money and that will be key to doing this and you said one of the reasons that you can do this as the Federal Government is because this is what happens when there’s a strong economy.  What if there’s a blip in the economy in the near future?              


Simon Birmingham:    Well Ali we have very strong now budget protections and what we’ve seen even since our budget was handed down in May is that the tax revenue being received by the Federal Government is higher at the end of the financial year than had even been forecast in May.  So we’re confident that we have undertaken conservative projections for the future and the strength of the economy is such that hopefully we will see continued improvements against those projections but the guarantee here is that there will be a pool of funds that is the entire sum of the GST plus some $600 million added to that in a couple of years that will be permanently indexed into the future to ensure there is a larger pie for distribution to the states and territories to invest in essential services. 


David Bevan:               These changes kick in from 2021-22 and they take six years.  If South Australia’s economy isn’t performing to the national average by then, we shouldn’t be complaining about the GST should we, we should be looking for a new State Government?


Simon Birmingham:    Well, South Australia in the way horizontal fiscal equalisation works is yes, there’s an element of how strongly a state performs but there’s also a recognition that states with greater regional populations, greater indigenous populations with greater budget pressures that might apply and indeed states that don’t have the same economies of scale as the bigger states will receive almost always additional funding and support, so you would expect SA to be a net recipient under any GST approach for a long time into the future, short of some type of extraordinary short term boom, the likes of which WA saw but really here this is a very fair deal.  It means more money for South Australia for essential services, it fixes a fundamental problem in fairness of the GST that had been hurting another state in WA and it does as Rob Lucas points out, reject what would have been a proposal that could have cost South Australia around $3 billion over the next years and instead delivers not that loss of $3 billion but status quo plus an additional $257m


Ali Clarke:        Okay Senator Simon Birmingham, thank you for your time, Treasurer Rob Lucas as well and also Shadow Treasurer for South Australia Stephen Mullighan, we appreciate that.