State GST Windfalls, Scoresby Freeway, Competition Policy, Coalition Campaign – Press Conference, Treasury Place, Melbourne

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State GST Windfalls, Scoresby Freeway, Competition Policy, Coalition Campaign – Press Conference, Treasury Place, Melbourne




Press Conference

Treasury Place, Melbourne

Friday, 17 September 2004



SUBJECTS: State GST Windfalls, Scoresby Freeway, Competition

Policy, Coalition Campaign


Ladies and gentlemen, the Pre-Election Economic and Fiscal Outlook updated

the state of the Commonwealth Budget which was released last Friday. Today

I release the figures updating the position of State Government Budgets

based on those figures. These figures show that the State Governments are

now receiving an unexpected financial bonanza from their GST revenues. If

I can take you to Attachment A, in the year 2004-2005 every state will receive

GST revenue above the guaranteed amount, that is the amount that they would

have received under the old tax system. And the bonuses in total will be

around $2.2 billion. In 2005-2006 every state will be receiving a bonus

over and above the guaranteed amount and it will be $1.7 billion. In 2006-07

every state will be receiving above the guaranteed amount and in total it

will be $2.7 billion and on the updated forecasts for 2007-08 the state

windfall will be $3.9 billion.

If I can take you to Attachment B, Attachment B shows the bonuses which

the States are getting now as compared to the forecasts which were put down

at the time of the Ministerial Council in March 2000. In March of 2000 when

the original Ministerial Council agreement was reached, it was expected

that in 2004-05 only Queensland and Western Australia, sorry the ACT and

the Northern Territory would be beneficiaries from the GST system which

would deliver in total a benefit of $544 million. I have just taken you

to the fact that in fact in 2004-05 every state is a net beneficiary and

the net beneficiary is around $2.2 billion.

The top table just repeats the benefits for every state, the second table

compares it to what was expected in March of 2000, and the graph shows the

difference today between what the States will be receiving as compared to

what they expected to receive in March 2000. What that shows is that the

States and Territories of Australia will get a cumulative windfall of $11.8

billion over and above their guaranteed amounts as was expected in March

of 2000. Let me say that again, the States and Territories will be receiving

a windfall of $11.8 billion over and above what they expected to receive

in March of 2000 when the agreement was entered to introduce GST and give

the revenue to the States.

The GST revenue, every single dollar of which is being received by the

eight Labor State and Territory Governments has delivered, or will deliver

up until 2007-2008 a windfall of $11.8 billion. Now that $11.8 billion,

not the total amount they are receiving, it is the windfall amount, over

and above what they would have received under the old system, is the money

which has given the States an increasing source of funds to finance schools,

hospitals and police services. That is a growing source of revenue and State

Governments have to be held accountable in relation to that.

Now, it is plain to me, two things we can draw out of this, first, State

Governments are playing Mr Latham on a break. They are increasingly trying

to shift some of their legitimate functions to the Commonwealth Government

and get Mr Latham to promise to pay for them whilst they are enjoying this

$11.8 billion windfall. And when you have got an inexperienced person like

Mark Latham, you are an easy pushover for a State Premier or Territory Chief


The second thing is, needless to say, you can imagine the financial windfall

which the States would be eyeing if they managed to increase the Commonwealth

Government to put up the rate of GST. The GST rate can only be changed with

unanimous agreement between the eight States and Territories and the Commonwealth.

The eight States and the Territories and the Commonwealth are not of the

one political colour, but if Mr Latham is elected would be. You can imagine

the financial windfall the States would be eyeing off in that situation.

Now, this is the graph which represents what the States expected to have

as their benefit from the GST system when the original agreement was signed

in March of 2000. This red line shows what is expected to be the benefit

on the basis of the Pre-Election Fiscal Outlook, the difference is an $11.8

billion windfall to the State Governments, a significant part of which,

the part which has arisen since the PEFO, is not factored into their forward

estimates in relation to their budgets. Any questions?


Next year it is about $2.9 billion, is it not, windfall gain to the States

and Territories?


Well in 2004-05 if I can take you to Attachment A, the windfall for New

South Wales, you can read the figures, $269 million, for Victoria $360,

you can read across there, the total, approximately $2.2 billion.


So isn’t this just proving that you as Treasurer is one, or is the highest

taxing Treasurer that this country has ever seen, I mean this is just a

matter of the New Tax System taking more from consumers.


This is State Government revenue.


But it is not a State Government tax though, this is GST take which is

a federal tax.


No, all GST is received by State Governments. The fact that the GST goes

up doesn’t give one extra dollar for Commonwealth expenditure, it is appropriated

to the States. The fact that it went up by $2.2 billion doesn’t give the

Commonwealth an extra dollar to spend. What it does is it gives the States

an additional $2.2 billion to spend.


But it was a tax introduced by the Federal Government.


It was a tax introduced as part of an intergovernmental agreement that

it would all go to the States on the condition that the States abolished

State taxes. It replaced State taxes. Like gaming tax, bed tax, financial

institutions duty, bank account debits tax. The States gave up indirect

taxes in order to get the GST, and they substituted their own tax bases

for a GST return. Without going into those points, the reason I am making

these points here today is you saw crass, political opportunism from the

State Premiers saying that, oh, we are going to be affected by competition

payments. The point is, let me just tell you what competition payments are

by the way. Competition payments in 2004-2005 are $777 million. That GST

windfall dwarfs competition payments, dwarfs the competition payments, and

to have the statement that I heard made yesterday, oh now we will cut back

on health or eduction because of competition payments, they have, collectively,

a $2.2 billion windfall.


Why does Queensland get a windfall in excess of $3 million while Victoria

gets less than $2 million?


Oh yes that is the way in which the GST revenue is distributed by the Commonwealth

Grants Commission. The Commonwealth Grants Commission takes into account

how big the State is, how widely dispersed the population is, and also takes

into account the State’s tax base, and Queensland has always had a lower

tax regime than Victoria.


How do you explain though to Mums and Dads out there who are paying for

the GST this windfall? They’re the ones …


Well, they ought to see it in better State schools, better State hospitals,

better state roads. You know, let us come to Victoria, since we are in Victoria

at the moment, Victoria will be receiving $7.3 billion of GST revenue for

its schools, its hospitals, its police, its roads, which is $360 million

more than it would have got under the old tax system. Now, you know, these

are financial windfalls, these are enough to build the Scoresby Freeway.


Why is this windfall happening? Is this a result of (inaudible)?


It is a stronger economy. We had, this document has been sent to the States

with the Pre-Election Fiscal Outlook. It revised up again. If you had seen

this graph, just to explain this, if you had seen this graph at Budget time

it would have been sort of like that. When the Pre-Election Fiscal Outlook

was released, that line has been revised up to where it now is. Why? Because

consumer spending has been stronger than was even anticipated at Budget

time. Now I updated the Commonwealth financial position to the Pre-Election

Fiscal Outlook, now I am updating the State Governments fiscal positions.


So are you saying Victoria should spend it on the Scoresby Freeway, or

police, hospitals or schools?


Well I think it should spend it on the Scoresby Freeway of course. Victoria

has more than enough money to pay for the Scoresby Freeway. It’s the point

I keep on making. It is not as if Victoria does not have the money in its

bottom line to pay for the Scoresby Freeway. It can. It can afford it. It

could almost pay the full amount out of its windfall. But when you take

together its windfall and its entitlement, of course it can afford it. You

have been given no explanation by the Victorian Government as to why it

will not build the Scoresby Freeway. It is not a financial matter.


Your argument would be that the windfall has pretty well costed the freeway?


Well, that’s the windfall …


So they should spend the entire windfall on the freeway?


Well they could, but they don’t have to fund the freeway just out of the

windfall, Michael, they can fund the freeway out of the base as well. Their

base is $7.32 billion. That’s just one year’s windfall. By the way the Scoresby

Freeway is a project which we factored in over four years. Their windfall

over four years would be more than the cost of the Scoresby Freeway. But,

leave aside the windfall, they can fund it out of their base. There is no

financial reason why they can not do it. Mr Bracks’ bottom line is bigger

than his share of the Scoresby Freeway. There is no financial reason why

it can not be done. I have been at a lost all the way through as to why,

why he can not do it. But leaving all that aside, that is not the purpose

of me releasing all these figures today. The purpose of me releasing these

figures today is to update the State financial positions and to put paid

to what was crass politicking yesterday, the State Governments saying; oh,

if competition payments are not renewed, we will have to cut back. They

are in a massive financial bonanza. They do not have to cut back on anything.


Mr Costello why did you can the competition payments when the Productivity

Commission is mid-way through a review into competition policy?


Well the competition agreement made provision for competition payments

to be paid to 2005-2006. No provision for any payments in 2006-07, or 2007-08.

So nothing is being taken away from any state government, that is the first

point. The second point is this. As part of the competition agreement, here

they are here, there was an agreement in relation to electricity, gas, water

resources and roads. A good part of the electricity has now been accomplished,

mostly gas has been accomplished, mostly the competition review has been

accomplished. The big outstanding agenda under competition policy was water,

and water was not the area where we were making good enough progress. So

we are going to take water resourcing and water policy much more seriously,

and we are going to pull financial resources that could have gone to general

projects, could have gone on other competition type issues, and we are going

to focus them right on water, and we are going to try and make some steps



But none the less it was part of the specific part of the reference to

the Productivity Commission the fact that competition payments (inaudible).


Oh no. We said that we would refer to the Productivity Commission to report

on competition policy generally. The Productivity Commission does not report

on the Commonwealth payments, on policy generally. And if the Productivity

Commission makes some recommendations at to how we might promote competition

in other areas, we will certainly look at it.


How can the Government during this campaign continue to say that these,

this tax take is a matter of good management, when it is based on a tax

system that is based purely on consumer sentiment? On consumer positivity,

you said the reason that this is up is because consumers are spending, but

that’s not always likely to be the case; it’s not necessarily good financial



Sorry what was the question?


Well, is it good financial management to base a tax system purely on the

basis of consumer confidence?


Well a tax system always depends on the state of the economy. You can tax

consumption, it will rise and fall with consumption, if you tax income,

as we do, it will rise and fall with income. Let me make this point, if

Australia were to go into recession and hundreds of thousands of people

were thrown out of work your income tax collections would fall. The company

tax system is based on company profits. Companies make profits you get more

revenue from companies. If companies are unprofitable you get less. State

taxation systems are built on land. Land values rise, they get more, if

they fall, they get less. The tax system is always geared to the economy

in one way or another.


Steve Bracks says he needs every cent of that GST money because you have

slashed the health budget. He also says that you are a “smart alec”.

What do you think of that?


Yeah well, I regret the fact that Mr Bracks has got personal. I know that

he will be upset because I keep reminding him that he promised a freeway

to the people of the Eastern Suburbs. But if he wants to break his promise

to the people of the Eastern Suburbs I think he should give them a real

reason and I don’t think getting personal will do his argument any good.

And I would say this to you, I think he must be feeling the heat on that

broken promise. When you tell a lie about your funding plans and you break

your word, then you really owe an explanation to the people and getting

personal is not the explanation that they are listening for.


So do you think Premiers have been crying poor when they are not? He says

he simply can’t afford to build the Scoresby without tolling it. So is he,

he has, you’re saying he has the money…


Well he is saying he has the money, look at his Budget bottom line.


He is saying he can’t do it without putting tolls on it.


Well look at his bottom line. We have allocated $560 million over four

years. His Budget surpluses are way in excess of $560 million over four

years. His Budget surpluses are even understated because they don’t take

into account the revised figures upwards. There is no financial reason why

the Scoresby Freeway can’t be half funded by the Victorian Government. For

some reason he has just decided he wants tolls and he won’t listen to reason.

Now people of the Eastern Suburbs, I make this point over and over again,

you have got one last chance to register your demand that Labor keep its

promise and that you get your freeway that’s on October the 9th.


Given that Mr Doyle would also inherit this windfall would you now urge

him to say that, to commit to spend whatever it takes to undo the contracts

and turn what will be a toll by the next election into a Freeway?


Well Michael can I make this point, there are no contracts. This is another

point that puzzles me in all this. There is no contract for a tollway. There

is no contract for a tollway. No contract for a tollway has been signed.

There is only one contract in existence as of today. That is the contract

between the Commonwealth and the State for a freeway. The contract that

he has got to overturn is the one he has signed for a freeway before he

enters into any new contract. I mean, they are sort of trying to give you

this idea that there is some contract in existence that requires tolls,

there is no contract in existence that requires tolls.


So should Mr Doyle commit to turn it into a Freeway (inaudible)


Mr Doyle should do as I am doing, everything in his power to make sure

no contract for a toll is ever introduced. That’s what he should do.


You mentioned crass political opportunism by the States, that’s what you

labelled it, is that how you would label their opposition to the Coalition

Water Plan?


Well look, the States as I understand it, said yesterday, we’re going to

oppose your water plan because we want competition payments to be paid in

2006-07, 2007-08 although there is no agreement for competition payments

in 2006-07 or 2007-08. Now they would have made out to you that they had

had some entitlement or that these were large sums. The only point I am

making on these figures here, is the States are in an incredibly strong

windfall position in both 2006-07 and 2007-08. The windfall of $2.7 billion

in 2006-07 and $3.9 billion in 2007-08. There is no financial reason for

that at all. That is the point I am making. It was just crass politics.

Now you would expect the State Labor Leaders to try and help Mr Latham in

an election campaign but all I am doing is I am just putting their figures

out there. They are there for everybody to see. I think they speak for themselves.


Mr Costello we’re at the halfway point of the campaign, what is your assessment

of where you are placed?


I think at the beginning of this campaign my view was that it would be

a close campaign. That Labor would go into the campaign as the favourite.

I think, as we approach the halfway mark it is still close. And I couldn’t

predict the outcome but I think that the Government really wants to put

forward to people the importance of the issues, the importance of the economy,

the fact that nobody can take strong economic times for granted. It is not

an accident and it is not a fluke that Australia is enjoying a strong economy.

It takes disciplined management and all of that could be at risk on October

the 9th. And that’s the point that I make. Don’t take it for

granted. Sure, our economy has performed better than many others around

the world. That’s not accidental and it could very easily be lost under

inexperienced management.


Treasurer just finally another issue that has been around in the election

campaign, is Mr Howard’s intentions and Senator Hill. What do you reckon

about his view the Prime Minister’s looking so good, so fit and so confident

that he should hang around for the next three years should he get in?


Oh I think the Prime Minister is looking very fit and very confident. We’re

campaigning very strongly as a team and we put ourselves forward as a team

to run the Australian economy. Mr Latham puts forward himself and Mr Crean.

And I think people can assess the difference between our team and our record

and the calibre and the experience and the policy of Mr Latham and Mr Crean.

And think very carefully about those issues. Thank you.