PRODUCTIVITY COMMISSION INQUIRY INTO HORIZONTAL FISCAL EQUALISATION

The Minerals Council of Australia has released its preliminary submission to the Productivity Commission’s inquiry on the way the GST is distributed between Australia’s states and territories.

The submission highlights the impact of perverse incentives in the current GST distribution system that are holding back economic growth in Australia.

A priority area for reform in the GST distribution must be the treatment of revenues from mining and petroleum developments which have been a key driver of the Australian economy over the past 15 years.

In effect, current approaches penalise state governments which seek to maximise their revenue base and grow their economies through the attraction of minerals development.

Conversely, state governments which actively reject minerals development are effectively rewarded at the expense of the states which develop their mining sectors.

The assessment of states’ GST funding must provide an incentive for states to develop their resources. 

The mining industry not only provides substantial direct economic benefits such as investment, regional employment and higher wages it also supports a significant supply chain of services providers across Australia.

Mining is a key driver of Australia’s economic growth, yet the current perverse incentives in the GST distribution system mean that some states – in spite of anti-mining policies – are getting a free ride on the back of those states that develop their resources sectors.

The Minerals Council of Australia proposes to apply a 25 per cent discount on the impact of the mining revenue assessment to recognise the differences in the broad suite of state policies that affect the development of their resources. 

This will deliver a fairer and more economically efficient system by taking account of policy differences between the states and recognising the positive impact that mining activity has on the national economy.

The submission is available here.

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