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14 November 2017 at 8.30 Am __________________________________________________________ PRODUCTIVITY COMMISSION INQUIRY INTO HORIZONTAL FISCAL EQUALISATION MR J COPPEL, Commissioner MS K CHESTER, Commissioner TRANSCRIPT OF PROCEEDINGS AT FOUR POINTS BY SHERATON 707 WELLINGTON STREET, PERTH ON TUESDAY, 14 NOVEMBER 2017 AT 8.30 AM Horizontal Fiscal Equalisation 14/11/17 © C'wlth of Australia INDEX Page WA DEPARTMENT OF TREASURY MR RICHARD WATSON 59-92 MR BEN WYATT MR MICHAEL COURT MS KIRSTY LAURIE MR ALEX SCHERINI PARLIAMENTARY NATIONAL PARTY OF WESTERN AUSTRALIA MR TERRY REDMAN 92-106 MR DAMIEN KELLY 106-115 DR MIKE NAHAN 115-131 MR ERIC DAVIES 131-135 Horizontal Fiscal Equalisation 14/11/17 © C'wlth of Australia RESUMED [8.30 am] MS CHESTER: Okay, folks. We might get under way. Good morning, 5 and welcome to the public hearings of the Productivity Commission Inquiry into Horizontal Fiscal Equalisation or better known as how we divide up the GST bucket. My name is Karen Chester. I’m the Deputy Chair of the Productivity Commission and I’m one of the Commissioners on this inquiry. I’m joined by my fellow Commissioner, Jonathan Coppel. 10 I’d like to begin by acknowledging the traditional custodians of the land on which we meet today, the Whadjuk people of the Noongar Nation, and I would like to pay my respects to elders past and present. 15 Today is our second day of two days of public hearings in Perth. We will also be holding hearings in Melbourne, Darwin, Adelaide and Hobart over coming weeks. We will then be working towards completing a final report, which will be submitted to the Australian Government early next year. 20 Now before I run through very briefly how we go about conducting our hearings, I’m obliged by some legislation to say the following, if alarms go, common sense tells us not to use the lifts and to follow someone who looks like they’re a staff member to an exit and get the hell out of here. 25 Okay. Now turning to the conduct of our hearings. So the purpose of the PC’s hearings are really to allow public scrutiny of our work and to get feedback on our draft report. It’s also to allow scrutiny and feedback on the submissions of other participants, and we’d encourage you to do so. 30 We like to conduct our hearings in a reasonably informal manner, but a full transcript is taken by the young gentlemen over here. So, for that reason, we can’t entertain any comments from the floor. But that said, at the end of today’s hearings, if there is somebody who’s not registered as a 35 formal participant for today and they have a burning desire to be heard, we’re happy to hear from you briefly later today. Now participants are invited to make some short opening remarks. The debater’s bell goes at five minutes, Treasurer. Keeping these brief would 40 be appreciated, because this does allow us time to really discuss the matters raised, open your submissions in greater detail, and our draft report. Now participants are not required to take an oath, but we just simply ask that you be truthful. Horizontal Fiscal Equalisation 14/11/17 58 © C'wlth of Australia Most importantly, the transcript from today’s hearings will be available on our website as are our participants submissions to the inquiry. Now for any media folk here, and we do have some present, there are some general rules that apply. You should already know what they are. If you don’t, 5 please find one of our staff members and they’ll make sure that you behave yourselves. Most importantly, there’ll be - no video or audio recording of participants is allowed past the opening remarks. Now I’d like to invite our first participants, and welcome you for 10 joining us here this morning, the West Australian Treasurer and representatives from the Western Australian Government. So before we get underway and before you make your opening remarks, maybe if you could each just identify yourselves for the purposes of the transcript recording, thanks. 15 MR WATSON: Richard Watson, Executive Director, Department of Treasury. MR WYATT: Ben Wyatt, the WA Treasurer. 20 MR COURT: Michael Court, Acting Under-Treasurer, WA Treasury. MS LAURIE: Kirsty Laurie, Director of Revenue and Inter-Governmental Relations at WA Treasury. 25 MR SCHERINI: Alex Scherini, Inter-Governmental Relations, WA Treasury. MS CHESTER: Great. Thank you very much for your pre-draft report 30 submissions, the meetings we’ve had with your officials, Treasurer, and your post-draft report submission which you got in to us just in time for these hearings, which are much appreciated. But if you’d like to make some brief opening remarks, then we’ll get into some questioning. 35 MR WYATT: I would. Thank you, Deputy Chair, and my remarks will be brief, you’ll be pleased to know. Can I also acknowledge the Noongar people, and can I thank the Commission for the opportunity to speak to you today? Can I also note that we have Terry Redman with us this morning? I think he’s presenting afterwards. Terry is the member for 40 Warren-Blackwood, a senior member of the National Party, and I think leader of the opposition is presenting later today. Just to highlight I think there is a fairly bipartisan position in respect of the implications of Horizontal Fiscal Equalisation in Western Australia. Horizontal Fiscal Equalisation 14/11/17 59 © C'wlth of Australia My opening statement will focus on three key areas in respect of the policy debate. Firstly, the deficiencies of the current system which, by and large, will have already been well-ventilated. The package of reforms required to address these deficiencies and how we ensure that those reforms 5 are implemented, are perhaps one of the key issues. The WA Government was encouraged by the Commission’s draft report. We are particularly encouraged by the Commission’s key message that the current system is broken and needs to be fixed. The Commission 10 importantly recognises the scope of the system to decrease incentives to states to develop their resources and to set optimal tax rates. These findings complement a position paper released by the CGC in September, the Commonwealth Grants Commission in September, which recognised the system is failing to achieve policy neutrality, especially with respect to 15 some minerals, and I think, no doubt, we’ll have some questions in that space. So clearly, there is a growing recognition that the system is broken and needs to be repaired. Given this position has been held by the WA 20 Government for some time by consecutive governments, we do feel a certain degree of vindication in respect of this. In characterising the current system, however, we think it is important to also note that it fails to meet its equalisation objective in any consistent 25 sort of way. This is despite the system’s bewildering level of complexity. Nor does the system meet any reasonable standard of fairness. While “fairness” was not explicitly mentioned in the Commission’s Terms of Reference, clearly whether the system meets the community expectation of fairness is relevant to the policy debate and fundamental to broader 30 confidence in the Fiscal Federation that is our country. Western Australia’s strong mining industry is no accident, but the result of a long tradition of pro-development policies. We, Western Australia, have poured billions of dollars into developing our mining sector. Despite 35 this support and the ensuing mining boom, because of the objectives of HFE, our revenue growth over the past decade has been no greater than other states. At the same time, communities that bore none of the costs or risks 40 associated with facilitating the development of our mining sector, reap these windfall gains. Yet, while our revenues have been equalised with other states, much of the significant expenditure associated with developing our mining sector was not, and certainly as highlighted in our submission, the North West Shelf, I guess, is a classic example in that regard. This isn’t 45 fair, nor does it promote equity. As a result, discussions about gains and Horizontal Fiscal Equalisation 14/11/17 60 © C'wlth of Australia losses to states in the context of moving away from equity are meaningless. They assume equity currently exists. So what are we left with? A system that fails to meet its policy 5 objective. A system that cannot ever be made to meet its policy objective, and a system that in nonetheless trying to achieve that objective, does great damage to our economy distorting economic activity, reducing productivity, economic growth and our nation’s prosperity. Now, clearly, the system must be reformed. 10 To this end, I support the Commission’s recommendations for an HFE objective that aims for reasonable rather than full equalisation. We consider that achieving a reasonable standard is best achieved by equalising to the average State. The chief advantage that equalising to the average has over 15 the other options is that it does the best job of increasing incentives for states to grow their economies. It also does much more to improve budget management by providing longer term stability to GST relativities. Clearly, this would represent 20 significant reform. But, given the significant deficiencies in the system, we should not be aiming for anything less. At the very least, the highly distorting effects of the mining revenue assessment must be addressed. This is the standout failing of the current system, and I regard fixing this as the minimum threshold for meaningful reform.
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