Sometimes the taxpayer has to rescue prime ministers from exquisite political dilemmas. So, take a bow, taxpayers, you’ll be paying for Malcolm Turnbull’s GST “solution” for decades to come. Just like you’ve been paying for Julia Gillard’s Gonski “solution” for years now.
Gillard’s problem was that the logic of Gonski was re-allocating education funding toward disadvantaged students. Of course, that was never going to fly for a political party that Mark Latham managed, with impeccable political judgment, to tar with the brush of having a “hit list” of private schools. So everyone had to get extra money in Gillard’s version of Gonski to make sure not even the most elite private school in the country missed out. Poor policy, but an absolute political necessity. Only now are Turnbull and Simon Birmingham managing — bravely — to undo some of it.
Turnbull finds himself in the same position on the GST. The Productivity Commission presented him with the prospect of fixing Western Australian concerns about GST allocation — and therefore helping to save a swag of seats at risk in the west — at the cost of upsetting, particularly, the Queenslanders. Queensland, inevitably, just so happens to be the other state where a bunch of Coalition seats are at risk. It was a Gordian Knot that could only be severed with lots of money — for everyone. So taxpayers will be handing out billions of dollars extra to the states in coming years while more money is sent across the Nullarbor. Turnbull doesn’t have any politically alternative.
The policy imperative for all this is considerably less than for the Gonski funding reforms. The current GST allocation formula is certainly volatile, and creates perverse disincentives for states to avoid tax reform. Putting an artificial floor in to reduce volatility, however, merely addresses the symptom, not the problem.
It’s not the fault of the Commonwealth Grants Commission or the eastern states that Western Australia blew its resources revenue boom, about which they were warned years ago but kept on spending. But it will take more than policy bravery for a future government to unwind the extra spending Turnbull and Scott Morrison are locking into the budget — the states will have to agree as well.
Still, $8 billion in extra funding for the states, over $100 billion in income tax cuts, $80 billion in company tax cuts, new childcare subsidies… anyone would think we were in a strong fiscal position.