Tasty snippets...The state that should be the richest is in desperate straits as it enters a recession-like conditions, global resources companies — having eluded billions in tax commitments — are notching up losses by the score and a manufacturing industry being killed by a resources boom that paid only temporary dividends.
The first pressure point is Western Australia, the state that should be the nation's strongest. Having raked countless billions from companies supplying the minerals that fuelled China's incredible growth, it has emerged from the boom in a parlous financial position. Its credit rating has been smashed and state debt has mushroomed.
The second is the sudden realisation that almost all our major resources companies — minerals and energy — got it horribly wrong when it came to managing the boom, and now are in the throes of writing off billions of dollars of dud investments.
Western Australia Premier Colin Barnett has launched a strident campaign about the raw deal meted out to his state when it comes to carving up the proceeds of the Goods and Services Tax. But those tears are pure crocodylus porosus. The GST funding crisis enveloping the West was the State Government's own making and the consequences were entirely predictable.
For almost the entire history of federation, Western Australia has been on the receiving end of financial support from the eastern states. Even in the modern era, since 1981, it has been subsidised in 19 of those 35 years. Of the remainder, it has only ever contributed more than NSW and Victoria on eight occasions; from 2008 until now. There is no shame in that.
When the states formed a federation in 1901, they committed to the principle of providing the same standard of services and infrastructure to citizens across the nation. Ever since, richer states have distributed tax proceeds to less well-off states.
Read the full article here:So how did it come to this? Why is that WA now receives just 30c from every dollar it raises in GST, the lowest of any state in Australia's history? Simple really. WA hatched a plan to ensure the Commonwealth retrieved virtually nothing from the mining tax by ramping up its state royalties, so the proceeds of the mining boom remained in WA. That pushed its income into the stratosphere for a brief few years.
WA seized on a mistake by the Gillard government when it was forced to hastily renegotiate the mining tax and included a clause that the federal government would reimburse companies for any royalties paid to the states. Effectively, that meant the Commonwealth paid the state royalties, not the miners. On cue, the WA government doubled royalties just as iron ore prices soared to $US190 a tonne, which pumped revenues threefold. Cash cascaded into WA's coffers, while virtually nothing flowed to the feds.
The WA Premier and his Treasurer always knew this would be a short-term phenomenon, that the cash deluge ultimately would hit the GST take. The GST carve-up is calculated using a three-year moving average of state income. So, a lag is built into the system and the day of reckoning was always just a few years down the track. As WA's per capita income soared to the highest in the land, the formula dictated it would only take a few years before the Commonwealth Grants Commission equalised payments by shifting GST revenue to other states.
Not content with the initial bonanza, WA raised the royalties a second time, all the while proclaiming the evils of the Rudd Gillard mining tax. Not only that — because of the lag associated with the way the distributions are made, WA was receiving a far greater share of GST during the boom than would have been the case if the payments were calculated on an annual basis.
Even when the Abbott government axed the mining tax, WA maintained its sky-high royalty charges, rejecting calls by the industry to reduce the impost. In the past financial year, even after iron ore prices had collapsed, the effect of the royalty hikes and the huge lift in production enabled WA to raise $5.9 billion more in revenue than the average of all the other states and territories.
http://www.abc.net.au/news/2016-08-29/t ... my/7793146