STATES will face fresh pressure to dump regressive taxes such as stamp duty, as the Turnbull Government mounts a push to overhaul how the GST is carved-up.
Treasurer Scott Morrison will meet with his state counterparts in Canberra later this month to find consensus on GST reform, which gives states an incentive to scrap payroll tax and stamp duty.
But Mr Morrison has a battle on his hands, with proposed Productivity Commission modelling showing Queensland would have been up to $730 million worse off under the new system if it had been adopted this financial year.
Queensland is expecting its GST share to drop even without any change to the distribution method.
The Productivity Commission’s draft report, released yesterday, found states were penalised if they engaged in reformist tax policies because they could lose GST revenue.
Mr Morrison said any final position would ensure states could grow their revenue basis, such as replacing stamp duty with land taxes, without being penalised under the current system.
The Federal Government believes any loss in GST would be made up by states increasing their revenue streams.
Commission recommends changes to GST system
Mr Morrison said there would be a lead-in to any change, so that states would not suffer financial pain in the short-term.
“I have no guarantee other than other than I would work with the states in good faith to work up a fair transition plan,’’ Mr Morrison said.
He said Queensland, which has been lauded for maximising its resources, could particularly benefit from tax reforms.
The GST is redistributed under a horizontal fiscal equalisation model so that some states are propping up others, generally Tasmania and South Australia. Western Australia demanded the system be changed after it continued to bankroll other states despite the mining downturn hitting its revenue base.
The PC report said the current system embodied an undeliverable ideal to bring all states up to the financial capacity of the strongest state, which at the moment is Western Australia.
It has recommended it be modified to an average or the second highest average to avoid extreme swings.
Mr Morrison said while Western Australia had long raised the issue, the PC report revealed it was a national problem.
“The current way we do this is holding our economy back,’’ Mr Morrison said.
Queensland Treasurer Curtis Pitt said he would evaluate the report but would not sign-off on anything that unfairly disadvantaged the state.
Queensland, at the mercy of damaging weather and a mining downturn, received $15 billion in GST payments this financial year.