The Australian Bankers’ Association (ABA) has criticized the current system for distributing goods and services tax revenue and called for a comprehensive reform of the tax system. The ABA’s submission to the Productivity Commission’s inquiry into Horizontal Fiscal Equalisation (HFE) states that in unintended and undesirable consequences have emerged during the system’s 17 years of operation.

A key issue identified by the AB is the three-year averaging mechanism used to determine the GST allocation. It said that volatility in certain revenue streams – particularly in mining royalties – “leads to a situation where the averaging mechanism cannot adjust sufficiently quickly to compensate states for years when their key revenue source declines sharply.”

CEO Anna Bligh commented: “It is clearly untenable for states such as Western Australia to receive a GST share of fewer than 35 cents on the dollar, nor was this possibility foreseen or intended by the original GST agreement. It is worth considering whether states should keep a minimum portion of unique revenue resources to encourage innovation. The distribution should be able to better respond to fluctuations in revenue sources, to avoid unplanned budget deficits and financial market disruption.” More broadly, the submission called for “well-considered, evidence-based holistic reform of the taxation system which focuses on driving economic incentive, investment, economic activity and jobs, and which promotes higher productivity and a higher standard of living for all Australians.”

The ABA argued for a review of the various types of taxation across all three levels of government, to include corporate and personal income taxes, the GST, excise duties, royalties, payroll, and property taxes. It said the review should consider whether these taxes remain fit for purpose and ensure that all governments can be certain that they will be provided with the revenue they need.

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