The South Australian Treasurer Jack Snelling has stated that a study undertaken by consulting firm Independent Economics confirms that the current system of sharing GST revenues among the states improves the welfare of all Australians.

 

GST grants are currently shared among the states using the process of horizontal fiscal equalization (HFE) - which ensures that each state has the capacity to deliver a similar standard of services irrespective of their economic or demographic characteristics.

 

This process is currently being reviewed following complaints from some states, particularly Western Australia, that it is unfair and damaging to the national economy.

 

Mr Snelling said the South Australian Government refuted those arguments, and that the new study provides further support for that position.

 

He said that removing HFE completely could leave a $1 billion hole every year in the South Australian Budget.

 

“The Government has lodged a report with the GST Distribution Review that has been prepared by the highly respected economic modeller Chris Murphy, head of the economic modelling firm, Independent Economics.,” Mr Snelling said.

 

“The report shows that if the current comprehensive HFE system were to be abandoned, then national welfare would be reduced.

 

“Per capita living standards would be lower in all states if the current HFE system is replaced by a system that removes equalisation.

 

“This is because people’s incentives as to where to live would not be based purely on economic opportunity, there would be added incentives to migrate through, for example, tax breaks offered by mining rich states.

 

“Independent Economics modelling of the efficiency impacts of HFE upholds the long held position that it promotes efficiency.

 

“No one would think it efficient if the Commonwealth Government allowed tax havens to operate in any part of Australia — yet not all the states are supportive of the principle of horizontal fiscal equalisation which ensures that this can’t happen.

 

“Those states that are opposed to horizontal fiscal equalisation are in effect trying to act as tax havens at the expense of other states and territories.”

 

The GST Distribution Review commenced in March 2011, when a Review panel was appointed comprising the Hon. Nick Greiner, the Hon. John Brumby and Mr Bruce Carter.

 

The Terms of Reference requires the Review to be guided by the position that jurisdictions should have equal capacity to provide infrastructure and services to their citizens.

 

Mr Snelling said any review recommendations that were at odds with this principle would be strongly opposed by South Australia.

 

“It is highly desirable that an independent Commonwealth body (i.e. the Commonwealth Grants Commission) continues to be responsible for HFE and for making recommendations about the appropriate allocation of GST revenues.”

 

The review panel is required to complete its final report by the end of September 2012 and produce an interim report by the end of March 2012.

 

Submissions to the review, including the South Australian submission and the Independent Economics report can be found at www.gstdistributionreview.gov.au