Proposed GST Changes to Support Australian Mining Sector

Australia’s resource sector is rejoicing in light of updates from the federal government regarding an eight-year plan for the distribution of the Goods & Services Tax (GST).

The changes set to take place are meant to “reinforce and protect” the system used to distribute GST, called Horizontal Fiscal Equalization (HFE). The adjustments are intended to remove volatility in how GST funds are distributed by eliminating the impact of external shocks, such as ups and downs in mining, according to a statement from Treasurer Scott Morrison.

“Our preferred model involves moving to a new benchmark that will ensure the fiscal capacity of all States and Territories is at least the equal of NSW or Victoria (whichever is higher),” the statement reads.

“Benchmarking all States and Territories to the economies of the two largest states will remove the effects of extreme circumstances, like the mining boom, from Australia’s GST distribution system,” it says.

The proposed update would involve transitioning to a new HFE system over the span of eight years, starting either in 2019 or 2020. It would also include placing a “floor” on the relativity a state can receive, with the proposed floor being 70 cents per person, per dollar of GST, from 2022 to 2023. That floor would rise to 75 cents from 2024 to 2025.

Morrison’s statement describes how a previous mining boom in Western Australia affected relativity, which eventually hit 30 cents in the dollar per person of GST, with that state receiving less in distributions from GST during that time period.

“Today’s proposal should mean no Australian State or Territory is disadvantaged for encouraging the development of the mining and mineral exploration industry,” Warren Pearce, CEO of the Association of Mining and Exploration Companies, said in response to the news.

Pearce elaborated by reiterating Morrison’s sentiments about Western Australia having previously been disadvantaged by the current GST HFE formula, explaining that it resulted in the redistribution of sizeable royalty receipts from its mining sector to other states.

“This announcement provides certainty for State and Territory Governments, certainty on a major budget item, and reduces a substantial disincentive for Governments to encourage the investment in Australia’s mineral resources,” he said.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.