Scott Morrison has threatened state and territory governments with financial penalties by cutting their GST distribution if they limit gas exploration.
The Treasurer warned yesterday that the Productivity Commission was including states’ attitudes to the exploitation of natural resources in its inquiry into the GST formula.
Mr Morrison said he believed it was unfair that the Northern Territory received four times as much GST revenue as was raised in the Territory while imposing a moratorium on fracking exploration, while Western Australia was penalised under the GST formula for making the most of its natural resources. Western Australia receives only 34 per cent of its per capita share of GST.
“I think it needs a fair-dinkum look,” Mr Morrison said. “The Productivity Commission is looking at whether the way the states and territories operate is giving them a leave pass under the GST formula for not getting on and doing things. When you have states that get on and do things, should they be penalised by getting less GST?”
The government is seeking to put downward pressure on energy prices, with electricity price increases of 20 per cent due to kick in for some consumers next week. Increasing the supply of gas would help to ease the east coast gas shortage.
A penalty for holding back gas development could affect some of the biggest state economies, including Victoria, which has a moratorium on development, and NSW, which has restrictions on some areas.
Mr Morrison ordered a Productivity Commission inquiry into the GST formula in April to examine whether the method of distributing the tax was acting as a disincentive to economic reform. The inquiry was in response to Western Australia’s complaints that the benefits of its resources endowment are excessively redistributed to other states. The terms of reference asked the commission to examine “state laws and policies restricting the development of energy resources”.
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Coming under political pressure over the rapid rise in electricity prices, the Turnbull government has been highlighting the barriers that state governments impose on gas exploration, which it says is contributing to shortages.
The Commonwealth Grants Commission, which determines the distribution of the GST, is required to assess the effort that each state puts into raising taxes from its available revenue sources. However, it redistributes “windfall” receipts to other states.
One of the challenges in using the GST distribution as leverage is that most of the state and territory governments, with the exception of Queensland and South Australia, either have some form of limit on exploration for unconventional gas resources or are considering one. Although Mr Morrison praised Western Australia for its positive approach to resource development, its new Labor government included bans on fracking exploration in the southwest of the state and the Perth area in its election platform.
State Treasurer Ben Wyatt said he had been encouraged by Mr Morrison’s comments which acknowledged arguments the state has been making on the GST. “WA has been previously punished for the success in the mining sector which is why we have argued that one area of reform could be to increase the incentives for states to develop resources,” he said.
Federal Resources Minister Matt Canavan warned two weeks ago that the state’s new stance on unconventional gas risked undermining its pitch for a better deal under the GST.
Mr Morrison’s comments were dismissed by Tim Pallas, Treasurer of Victoria, which has gone further than any other state in banning exploration for both conventional and fracking gas pending the results of a government study.
“This is just another silly thought bubble from a commonwealth government struggling to deal with its own incompetence and inertia,” Mr Pallas said.
The NSW government also has large resources of unconventional gas. Although it has not imposed formal bans, it is withholding permission for exploration in some areas. It faces a major decision over whether to approve a large coal-seam project being promoted by Santos in the northwest of the state near Narrabri. A NSW government spokesman said that rather than impose a moratorium, the state gas plan had “paused” the sector, buying back exploration licences and strengthening environmental and social safeguards.
South Australia and Queensland are the only states without any restrictions on fracking. The Liberal opposition in SA has promised to impose a ban on fracking gas exploration in the state’s southeast if successful at next year’s state election. Queensland stands out for supporting one of the largest unconventional gas industries in the world.
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