The Australian Institute for Progress has renewed calls for GST revenue to be distributed to the states on a per capita basis as galloping mining revenues in WA and Queensland expose the structural weaknesses in the current system.

AIP Executive Director Graham Young said that as advocated in the their 2019 paper “Horizontal Fiscal Equalisation and the Commonwealth Grants Commission“, GST should be distributed to the states on a per capita basis.

“The current system discriminates against states that perform better than other states and grow their economies and hence their tax bases. It works to discourage innovation and punish states that were better, or worse, than average.”

Mr Young said that the Palaszczuk government had previously rejected calls for reform of the distribution process, but now it is in a position of outperforming most other states it should rethink its position.

“The situation where there is a special deal for Western Australia and then another for Queensland is untenable, and the other states will seek to undo them.

“A per capita distribution is thus going to give a more politically sustainable situation than one of special deals.”

At the same time Mr Young noted that Queensland was only in this position because it had unilaterally rejigged coal royalties, making them the highest in the world.

“While the hike in royalties is superficially good for the government’s bottom line it will tend to suppress the industry over time, ultimately destroying its advantage. A permanently rejigged Grants Commission formula would encourage the government to think longer term, beyond the next election.”

Mr Young also called on the federal treasurer to get behind the reform.

“Growing productivity is the key to growing wages and standards of living. Fostering more innovative economic and taxation policies from state governments will only make his task easier.

“Instituting a clear and simple policy will also limit political friction between the states and the commonwealth, allowing them to concentrate on other areas where they can add value for their citizens.”