Australia could pay as much as $1 billion more to China to settle disputes over GST payments and customs duties than it does to pay to cover the shortfall in revenue, according to a new analysis.
The Australian Treasury has forecast that the Government’s proposed GST and customs revenue-sharing arrangement with China could generate an additional $1bn for the Treasury over the next two years.
The report by the Australian Council of Social Service economists, based on a review of previous GST arrangements with the two countries, said Australia would end up with about $600m to cover $1billion of GST revenue-share costs, with another $1b of revenue sharing to cover some $2.3bn of GST obligations.
That would be enough to cover about $3.2bn of the deficit.
The Treasurer, Scott Morrison, said he was happy with the outcome of the audit, which he said demonstrated the Government was following its “core values” in dealing with China.
“We are following our core values, and I think the audit shows we’re following those core values,” he said.
“The Government will continue to be open and transparent about our negotiations with China, but I also know the public will want to know what’s happening in our negotiations and we want to make sure we are doing everything we can to do that.”
A report by Mr Morrison’s department in June showed the Government had not taken the necessary steps to secure China’s compliance with the agreement, a failure that led to the Treasurer’s decision to withdraw the GST agreement in July last year.
Mr Morrison said at the time that he had “serious concerns” about the Chinese agreement and he wanted to make it clear to China that he would not tolerate any further breaches.
“I don’t believe that there is a way for us to avoid this,” he told Parliament.
The Treasury’s new audit said Australia was “lacking clarity” about how it would be paid to China and that the Treasury’s negotiating position was “difficult to reconcile”.
It found there were “considerable gaps” in the details of the GST and Customs arrangements and that Australia could not guarantee that China would “recover” lost revenue.
“Given the uncertain nature of the relationship between the two sides, the Government is unable to guarantee that the agreed revenue-receipt arrangements will be maintained or will be effective in the long-term,” the report said.
“As a result, the Treasury does not believe that the agreement will be sustainable and will have a significant impact on the Australian economy.”
The report also said Australia could potentially lose up to $700m to China over a four-year period if the Government did not pay the Chinese side of the agreement.
But the Treasury said it did not consider that the report’s findings would be “unacceptable” and that it was “possible” that the revenue-to-China agreement could be amended to make the revenue share payments contingent on China complying with the terms of the arrangement.
The Government has said that its new agreement with China was not a trade deal but a “competition mechanism” designed to provide “fair and reasonable” revenue-collection payments to the Chinese government.
But a number of economists and business groups have argued that the current arrangement is unfair to China because it gives the Chinese state a financial advantage over smaller, less-powerful Australian businesses.
The Australian Council for Social Service said it believed the Treasury report was the “most significant contribution” to the Australian public debate about the GST negotiations.
“This audit confirms that our negotiators have done everything possible to meet China’s requirements for fair and reasonable revenue-reciprocity,” the group said.
The group said it hoped the report would be a “wake-up call” for other countries that were “losing out” to China in the negotiations.