$664m Question: GST figures disputed
A change in the way the Commonwealth Grants Commission treats WA's iron ore royalty revenue will cost the State a whopping $664 million of GST next year if Federal Treasurer Joe Hockey follows its recommendations.
In its GST methodology review released last week, the CGC has departed from its previous treatment of WA's royalties from iron ore "fines".
In assessing the States' revenue-raising capabilities for the GST carve-up, the CGC had classified royalties as "low rate" or "high rate".
For the past four years the CGC had been explicitly directed, first by former Labor treasurer Wayne Swan and then by Mr Hockey, to treat royalties from fines as "low rate".
But that direction was not given for the 2015 methodology review and the CGC now treats all iron ore royalties the same.
The effect of the change will be a cut in WA's GST share of $664 million, which is partly offset by $434 million because of another methodology change, which puts minerals in one of eight groups instead of two.
The revelation prompted WA shadow treasurer Ben Wyatt to accuse Mr Hockey and his State counterpart Mike Nahan of dropping the ball.
"When you actually read the CGC report, it is clear that Joe Hockey changed the methodology in how the CGC treats iron ore fines to hurt WA with a massive $664 million extra loss of GST," Mr Wyatt said.
"Even worse is that it is clear that the Barnett Government dropped the ball and did not argue for Mr Hockey to keep the same methodology as had been previously used by Mr Swan and, as a result of this oversight, WA has lost a further $664 million."
Mr Hockey was travelling to New York yesterday and was unavailable to comment.
Dr Nahan said Mr Hockey and Mr Swan had "overruled" the CGC in the past but this was a "one-off".
"This time the CGC shifted away from the old treatment to a mineral by mineral (treatment), thereby eliminating the ability of the Federal Treasurer to treat fines separately," Dr Nahan said.
Although the WA Treasurer has argued for annual assessments of revenue capacity instead of the three-year average - which is catching WA in the double crunch of falling GST grants amid falling iron ore prices - the CGC's report sounds a note of warning.
It says WA's total GST receipts would have been $7 billion lower over the past four years had Dr Nahan's preferred methodology been used.
Dr Nahan disputed the figure, saying the CGC had failed to consider the full range of costs WA had incurred in developing the iron ore industry.
Federal Finance Minister Mathias Cormann has proposed freezing WA's GST distribution for 2015-16 at the existing level of 38 cents in the dollar instead of the CGC's proposed 30 cents.
This would mean WA would get $467 million more than the CGC has proposed.
Freezing GST relativities would lead to Queensland losing $577 million and South Australia $263 million. Victoria's share would fall $171 million. But NSW would be better off by $535 million under a freeze and the ACT would improve its return by $47 million.
WA senator Dean Smith said a freeze of the GST relativities was a silver medal.
"A gold medal would be the freeze coupled with a commitment to impose a floor under which relativities for any State or Territory could not fall," Senator Smith said.
"The commitment to a floor will benefit WA over the short term but will act as an insurance policy for States like Queensland and South Australia that are expected to experience strong economic conditions over the medium term."
Senator Smith cautioned his Federal colleagues against being too prescriptive about possible economic reforms in WA, saying the Premier and State Treasurer were "best placed to develop an economic program".
But depressed iron ore prices are not only affecting the WA Budget. The West Australian understands that Federal Treasury is recasting the Federal Budget on gloomy forecasts that predict the price of iron ore staying under $50 a tonne for the foreseeable future.
