WA’s dodgy GST deal looks safe – unless the states finally go to the High Court.

 There is now only one way Western Australia’s lucrative GST deal can now be overturned – and that is by the High Court, which has never ruled on the matter.

Anthony Albanese has joined Scott Morrison in promising to keep it, giving the other state premiers only two ways out: roll over yet again and accept the huge and unfair hit to their budgets, or start a serious and unified legal challenge.

For both federal politicians, endorsing the deal – however unfair it might be – is a no-brainer. The polls reveal huge swings to Labor in the west, and Albanese is not about to risk the election by pissing off Mark McGowan. And this was Morrison’s deal right from the start.

So if the states decide to go to court, what sort of case might they be able to put? The question, as usual in the High Court, will hinge on whether the Commonwealth Parliament has the  constitutional power to take a particular action – in this case, to unilaterally overturn a crucial element of one of the two defining documents of the Australian federation.

You may never have heard of the Intergovernmental Agreement on Federal Financial Relations, but it holds the key to how services are delivered in Australia, how the states have the money to build hospitals, schools and roads, and to pay their staff. It provides the framework for policy collaboration across all areas of dual responsibility. It profoundly affects how each one of us lives.

Under this umbrella come subordinate national funding agreements on healthcare, skills and workforce, disability, tax reform, public accountability, performance reporting, payment arrangements and overall national reform.

This agreement is special. It’s not just another political stitch-up.

Legally, two questions are involved. Was a clause in the GST Act of 1999 – that the rate and base of the GST could not be changed without all parties agreeing – actually binding on the federal government? Did it actually mean anything?

The second question is whether the Intergovernmental Agreement is binding, or whether it has the status of a mere deal of political convenience that can be abrogated at will?

On the first, the prospects for a successful court action are dim. Various eminent constitutional experts have been unanimous that this measure meant nothing at all. A law enacted by the Commonwealth parliament can be changed or repealed altogether by a second Commonwealth law. That’s in the Constitution.

“The Commonwealth Parliament cannot abdicate its legislative power,” said Professor Anne Twomey. “The Constitution gives the Commonwealth Parliament its power to enact tax laws and only an amendment to the Constitution could limit or take that power away.”

The second question – whether the Intergovernmental Agreement can be held to be binding – is far less clear. If there’s a reasonable basis for a challenge, it will probably be found here.

At first glance, the prospect doesn’t look good. An opinion by constitutional lawyers Bret Walker SC and Tony Lang, commissioned by the News Corporation papers, said it was not binding and could not be enforced by the High Court.

But the court has never ruled directly on such a matter involving an agreement as significant as this one. They based their opinion on a single paragraph in a journal article by Professor Cheryl Saunders in the Public Law Review. They quote her this way:

An intergovernmental agreement may in some circumstances be able to be enforced as a contract. Usually, however, lack of precision in the terms of the agreement, or the political nature of the undertakings in it, dispel an intention to create binding legal relations and place it beyond the normal authority of the courts to enforce. Even where the conditions of enforcement of a contract otherwise are right, an agreement may specifically deny an intention to create legal relations. (My emphasis).

From this, Walker and Lang concluded that:

The GST intergovernmental agreement would appear to be largely political in nature. It is thus most unlikely in our view that a court would be prepared to enforce the GST intergovernmental agreement against the Commonwealth.

But would it?

This agreement is so broad in scope and so fundamental to the operation of the federation that it seems a stretch to regard it as just another political deal. When you look at the examples used by Professor Saunders to show what constituted a “political” agreement, it’s clear that they are on a very different, vastly less significant, scale. Typically, they deal with such matters as real-estate deals between two levels of government.

Nor does Professor Saunders think this is a settled matter. She ended her article by saying:

It is likely that these matters will come before the High Court again, in the short or medium term … It will not be able to resolve these questions by reference to the Constitution alone which, while it provides some signposts, in the end is inconclusive on these points. The court could and should derive further assistance from consideration of structure, not only of the Australian federation but also of the system of representative parliamentary government, which the Constitution has put in place for the Commonwealth and which it has saved for the States.

Another issue the High Court could perhaps consider are the basic fairness and natural justice aspects of the WA deal. The Grants Commission’s website describes the task of GST allocation this way:

 It is the job of the Commonwealth Grants Commission to advise the Australian Government on how the GST pool should be distributed to ensure each state can provide comparable services, if they all make a similar effort to raise revenue from their own taxes.

This is founded on a laudable ideal: that everyone in the country, no matter which state they live in, has an equal right to healthcare, education, transport and all the other services provided by state governments. According to this basic ideal, it is not acceptable for the people of some states to be able to access services of a standard expected in a developed western democracy while other Australian citizens cannot. In the end, we are Australians first and Queenslanders, Tasmanians and Western Australians second.

For most of the time since 1910, when the Commonwealth started topping up state budgets, money flowed from the eastern states into WA. In all but seven of the 96 years after general grants -- the GST and its predecessors -- began, they got more than their population share.

Only with the start of the most recent mining boom, when mining royalties poured in, boosted further by hikes in the rate miners paid to the state, did that change. WA went from being a poor state to the richest in the land.

Because their iron ore royalties were so high, they necessarily received a much smaller share of the GST pool than other states. Tasmania and South Australia, which cannot raise as much on their own, benefited.

The new deal, brokered simply for partisan electoral advantage, overthrew that basic ideal of fairness and equity. The arrangements by which the federal government tops up the state budgets to compensate lasts only for another four years. Then, unless other arrangements are made, all states except WA will have their budgets substantially depleted so Western Australia can both get a high share of the GST and keep all its mineral royalties.

The Tasmanian Treasury has estimated that the state budget will be around $450 million worse off over the five years to 2031-32. Modelling a year ago by the Victorian Treasury shows that in another mining boom, Victoria would take an annual hit of $1.2 billion, Queensland would lose $850 million – but WA would gain $4.9 billion.

In fact, the mining boom never ended. For the new GST deal to have no effect – for WA’s own revenue stream to decline to the level of other states – the iron ore price would have to be around $US75 or below. The last time it was at that level was in 2018. The recent dip in the market only saw the price fall to $US92. It’s now back to around $US160.

The economist Saul Eslake has calculated that every $US a tonne on the iron ore price delivers an extra $A82 million into Western Australia’s coffers.

Is that fair? Perhaps that’s a question to ask the High Court.