Architect of current GST system says its 'working exactly as intended'

Former WA senator Mathias Cormann defends current GST system as 'working exactly as intended' In short: Former WA senator Mathias Cormann has defended the current GST system, saying it is "working exactly as intended". His comments come after an interim report by the Productivity Commission recommended the WA GST deal be scrapped as it was costly and unfair. Mr Cormann says Australia has one of the most comprehensive systems of horizontal fiscal equalisation in the world and an "appropriate balance" is needed. One of the architects of the Morrison government GST deal that for years has seen state premiers bait each other with insults over their slice of the fiscal pie says the deal was "working exactly as intended". Former Western Australian senator Mathias Cormann's comments were the latest in attacks launched by WA's political leaders against the Productivity Commission, which on Friday issued an interim report that described the 2018 deal as a costly mistake and recommended it be scrapped. Premier Roger Cook has called the report's authors "east-coast clowns" and said he had assurances from Prime Minister Anthony Albanese that the current arrangements would remain. Meanwhile, South Australian Labor premier Peter Malinauskas described it today as a "dud deal" for the rest of the country that needed to be scrapped. Loading...Mr Cormann, who was a WA senator between 2007 and 2020, was federal finance minister in the government of Scott Morrison that approved the deal. He said "the unbelievable unfairness that Western Australia was on the receiving end of [was] addressed" by his government's changes. Those changes included adding a "relativity floor" that righted a wrong that had seen WA taken advantage of for its mining industry, he told 102.5 ABC Perth. "The national economy and the national budget benefit from Western Australia, having developed these resources,"Mr Cormann said. "That is why our federal budget is so sensitive to movements in iron ore prices, up or down. Because it has such a massive impact on the revenue of the Commonwealth." 'Appropriate balance' The 2018 GST deal ensures WA gets a bigger slice of GST revenue every year than it would under the national formula. That original formula was meant to give states the ability to offer a similar level of services by giving more money per person to states with higher needs or lower financial means. It had been contentious because it resulted in GST payments falling at the same time Western Australia faced falling iron ore royalties. The 2018 changes still courted controversy, because they delivered WA rising GST payments at the same time as its mining royalties surged as a result of high iron ore prices. Mr Malinauskas said the interim report had found that situation a "dud deal for the rest of the country". “Premier Cook can call other people clowns all he likes but it won’t change the independently-verified report that now says it’s a dud deal for the rest of the country,” he said. He warned the federal government would be blamed in South Australia if it failed to intervene. Mr Cook's government, however, has maintained that changing the GST distribution would unfairly punish WA for its success. Mr Cormann said he believed in the GST being used to support equal service delivery across the country, but that pursuing it single-mindedly extracted too much from WA. "There's got to be an appropriate balance,"he said. No state worse off The Commission's provisional report on the 2018 reforms is part of a review required by the legislation which introduced those changes. According to the Commission, every state and territory besides WA has 98 per cent of their expenditure met with the addition of GST returns, compared to WA's 113 per cent. For everywhere else, the "no worse-off guarantee" tops up the remaining two per cent. Mr Cormann said other states and territories were fairly accommodated for in the GST deal via this guarantee. "No other [state or territory] has been left worse off as a result of those reforms," he said. The Productivity Commission is due to issue its final report in December, and Prime Minister Albanese has said he would decide on the matter then. Mr Cormann said while the debate over the deal would help "inform the best possible final report", he still stood by the structural changes made to the GST distribution model. "You can always make refinements to improve things at the margins, but the core architecture of the reform should remain in place."