Blame game risks missing a chance to change

When I’m asked about what’s wrong with government, people are expressing their frustrations through the question, and usually complaining that Australians are over-governed.   ‘Too many layers’, ‘get rid of the states’, and so on. My standard response is ‘don’t waste your time, it’s not going to happen’. That being the case, what to do?

Well, it looks like Australia is finally having a long overdue debate about reform of the federation and, more importantly, reform of federal-state financial relations. A few green shoots of hope were evident in the Prime Minister’s recent Tenterfield speech. 

Complaints and threats issued by state Premiers are just further proof of how urgent these reforms are. “What I say to Tony Abbott very clearly ¾ show us the money, show us your bona fides. If you are serious about reforming the federal tax system give Victoria its fair share of GST. That's what we need,” Denis Napthine told Fairfax radio.

State Premiers, structurally starved by vertical fiscal inequity for decades, have become desperate. Many have run politically expedient campaigns in their home states to blame Canberra for unfairly allocating the GST or blaming others states for ‘taking’ ‘their’ GST, as Michael Egan did memorably in running an advertising campaign featuring a cane toad under the question, 'guess which state gobbles up $190 million of New South Wales taxes each year'.

The inefficient and arguably unconstitutional concentration of revenue-raising power in Canberra has resulted in the states learning a range of behaviours and slogans that now stand in the way of the ‘mature debate’ the PM has called for. Blaming each other and blaming Canberra has become so ingrained, Premiers are at risk of missing a 1-in-100 years opportunity to regain the right to raise and spend the taxes they need to serve their own communities. 

The Centre for Independent Studies has argued for reform of our federation over several decades. During that time we’ve seen the structural imbalance grow, and with it a deterioration of democratic accountability for both the amount of tax collected and the purposes to which it is allocated.

CIS senior fellow Robert Carling has shown Commonwealth tax revenue has doubled since 2000–01, a compound growth rate of 3 per cent in real terms for 13 years. At the same time, as he outlined in States of Debt in May this year, there has been a deterioration in state finances since 2007 with more trends suggesting worse to come. Over this period the commonwealth has also increased the number of hoops through which the states must jump for their federal grants introducing tight requirement on both spending and expected service outputs.

At Tenterfield the Prime Minister said: “A hundred years ago the states were clearly responsible for funding and operating public schools, public hospitals, public transport, roads, police, housing and planning. Under our constitution, the states are still legally responsible for them but a century of encroachment has left the Commonwealth financially responsible for vast services that it doesn’t actually deliver and can’t really control.”

The states should be acutely motivated to embrace the PM’s initiative and yet to date the cheering has been muted, absent or perversely conditional.

One hopes the lack of support does not reflect a perverse attachment to learned dependency and the political crutches that accompany it.

Rather than simply demanding more than others, or some impossible to determine ‘fair share’, the Premiers should be framing a different argument altogether. The real question is: how much government service provision do my constituents need and how much is reasonable for them to pay for it? How then can the states raise that much money?

The question of whether the money needs to come from an increase to GST or a share of income tax or something altogether different is less important than the question of how the states can be restored to full accountability for the money they raise and spend on behalf citizen taxpayers.

Moreover, as the debate, analysis and argument develops about the future of our federation, an understanding of the limits of government and the limits of taxation should be kept firmly in mind. There should be no excuse to take anything more from the taxpayer than the various levels of government already do.  Efficiencies and ending duplication should lead to a reduction in the government share of the national pie, leaving more resources for each citizen to use in the manner they think is best.

Another recent CIS publication Blame Games, Sovereignty and Tony Abbott’s New Federalism proposes: “The ideal, in a federal system, would be for each level of government to raise, and be responsible for raising, all the revenue that it needs to fund its responsibilities”.

The closer we get to ending the blame games, the more tightly some seem to cling to the political certainties of a failing system. 

Greg Lindsay is Executive Director of the Centre for Independent Studies