Tuesday, February 27, 2007

Slicing the states' pie

At last. NSW and Victoria have stopped subsidising Western Australia and have almost stopped subsidising Queensland.

From here on in it looks as if the big four will be sudsidising the rest together.

As the Reserve Bank Governor said - Australia's economies are converging rather than moving apart.

Here's my report for tomorrow's CT:

New South Wales, Victoria, South Australia and the ACT have emerged winners from the latest carve up of the nation’s financial cake, with Western Australia the big loser.

The new arrangements recommended by the Grants Commission will give the ACT $13 million more next financial year than it would have got had the old split continued.

In addition the ACT will benefit from an extra $55 million it is expected to receive because of an increase in the size of the GST cake.

NSW is by far the biggest winner from the new split, gaining an extra $277 million, largely to compensate for sluggish earnings from stamp duty compared to other states.

Western Australia gets $271 million less than it would have under the old split, mainly to take account of what the Commission describes as the “unprecedented strength” of its economy.

Previously subsidized by NSW and Victoria, Western Australia now joins them as states assisting the rest of the country...

Queensland now barely remains subsidized, losing $166 million in grants as a result of the new split.

The changes are less severe than they would have been had they fully taken into account the current financial strength of Queensland and Western Australia. By legislation they are based on data averaged over the previous five-years.

Nevertheless Western Australia’s Treasurer Eric Ripper yesterday slammed the new split saying that the west was being punished for its economic success. He said the rest of Australia was happy to enjoy the fruits of its economic boom, but not happy to put money back.

“Our state is subsidising the other states to the tune of $4billion a year, by more than $2,000 for every Western Australian - that’s the highest per capita subsidy in the nation,” he said.

Driving the increase in the ACT’s share of the pie is the hit in revenue it took when it phased out a number of taxes at the Commonwealth’s request. The ACT lost more revenue per person from that decision than other states.

The ACT is also being compensated for relatively low stamp duty collections.

The Commission’s report says that the ACT property market has been the second slowest in the nation over the last five years.

The Chief Minister Jon Stanhope said he was pleased with the Commission’s decision to award the ACT an extra $13 million and that it was more than he had expected.

“However it is not more than we are entitled to or more than is justified,” he said.

The NSW deputy premier John Watkins was less gracious saying that even though his state was $277 better off it was still subsidising the rest of the country it was still some $2.4 billion short.

“If we had our fair share, if we had that $2.4 billion extra we would put it into frontline services such as hospitals, schools and police and transport,” he said.

The Chairman of the Grants Commission Alan Morris said that the changes reflected the accelerating pace at which the state’s earning capacities were changing.

“Western Australia and Queensland have boosted their own source revenues and consequently, in line with the objective of promoting fiscal equalization, reduced their share of GST funding,” he said.

The report highlights was it says is a “convergence” of economic capacity among Australia’s four most populous states - NSW, Victoria, Queensland and Western Australia, although it says more recent data suggests that process may be slowing.