Tasmania must brace for taxing times ahead while WA enjoys GST windfall

Perth is now the Las Vegas of the Australian states.

It is mystifying that a conservative prime minister could generate such a lucrative deal with a very wealthy Labor state.

In a few years' time Tasmania's GST share will be cut by about $100 million a year.

By comparison Western Australia's share will grow by $5.6 billion.

This bonanza will be in addition to WA's own mining royalties worth up to $9 billion a year.

While other states are carrying big deficits, WA posted a $5.5 billion surplus in its recent Budget.

At this point I could bore you witless with the maths to show what a dud deal this is for Tasmania, but on a lazy weekend I'll try not to.

Keeping it simple, up till now Tasmania received almost $2 for each dollar of GST distributed to the states, while the whingeing West received only 42 cents in the dollar.

Under the GST distribution formula Tasmania's population is recalculated so that our GST share is 4.1 per cent instead of 2.1 per cent.

The difference is $3 billion instead of $1.5 billion a year.

This was partially fair because Tasmania does not have the revenue raising options like Western Australia, with its huge mining export industry.

But rather than balance this out a bit Scomo has delivered the McGowan government a hideously fabulous gold mine of federal payments, at the expense of other states.

We'll get no sympathy from the other states because they all think we're a mendicant manifestation of Oliver Twist. The runt state that always gets pampered by Canberra.

Not any more.

I can only conclude that Scomo is trying to shore up his parties' stocks in the West, after the state Liberals and National Party were slaughtered at the recent state election.

The McGowan government holds 53 of the 59 seats. The Libs hold two and the Nats four. Like I said, it was a slaughter.

Worse still, the WA Libs have lost two of their biggest draw cards, former Foreign Minister Julie Bishop and former Finance Minister Mathais Cormann.

Both hugely popular, while another prominent WA Liberal Christian Porter is in a world of pain, with his reputation shredded.

I'm not sure a seismic shift in GST shares will redress his party's stocks in the West, but Scomo has to do something.

I think the nuclear subs deal was part of that redress, despite what one of our worst PMs ever, Malcolm Turnbull, may think.

The Western Australia GST rort was another.

Turnbull says we can't be trusted for junking the French deal, but why would you trust a PM who struck this stupid dud deal in the first place.

In the long term the revamped GST won't help Tasmania survive, so we should agitate for a state income tax surcharge.

In the 1970s former PM Malcolm Fraser legislated for the states to raise their own income taxes.

The states had given the Commonwealth the power to levy all income taxes in 1942, understandably to help finance the war effort.

Former PM Bob Hawke raised it again as a sure means of revenue for the states, but Paul Keating killed that idea when he became PM in 1991.

In 1999 former PM John Howard abolished the Fraser legislation because of the new GST.

But what if we revived it?

In 2014 the National Commission of Audit proposed a state income tax surcharge.

It would mean the Commonwealth allowing part of the income tax effort to be pursued by the states.

This would allow the Commonwealth to scale back big commitments such as education ($43 billion) and health ($98 billion) or housing ($8 billion) when it doesn't run a school or a hospital or build public housing.

The GST would continue and its distribution methodology could be used to ensure both GST payments to the states and income tax surcharge collections by the states were fair.

It's called a surcharge because it would be an adjunct to the main stream of income taxes.

There would not be an increase in overall taxation, but rather the Feds and the states would better share in what is currently raised.

It probably wouldn't fly with the major parties federally, because control of the purse strings gives the Commonwealth immense political power over the states and territories.

But it would help to build a proper federal compact.

The $149 billion a year GST was supposed to do this, and end the annual bickering over how income and company taxes were used.

But it has failed now.

In time other states will gang up on the WA government and we'll have the debate all over again.