Henry Tax Review

Give the states back their money

One of the hidden costs of these endless republican and flag changing campaigns is that they distract from a proper consideration of those constitutional issues which call for a solution. We have spent the better part of two decades on an elite quest for an unattainable politicians’ republic and a squabble about which beach towel design should replace our Australian National Flag.

Now is the time to be serious and face the real problems relating to the governance of our indissoluble Federal Commonwealth under the Crown. One is the way the States have been made so dependent on the Federal Government and their responsibilities encroached on without the people agreeing to constitutional change. The solution is not through abolishing the States; it is by restoring their financial sovereignty.

This problem will be highlighted when the Henry Tax Review is eventually released next Sunday, the opposition receiving a generous four hours’ notice. The government has been criticised for sitting on this so long and having it undertaken by the Head of Treasury who will then presumably advise them on its terms and implementation.

It is a principle of Federalism that the states should be essentially financially dependent on the voters who put them there and not on the Federal Government. This is so that their voters can hold them to account for the way in which they have managed the taxes they have imposed on them.

The politicians, State and Federal, Labor and Coalition, as well as some former High Court judges have managed to obfuscate the accountability and responsibility of both levels of government. Of all true federations, the Australian States are the most dependent on the Federal Government.

The result is confusion, a blame game which will never end, and poor performing State governments. Western Australia with Queensland is now being eyed by Canberra as the goose which can lay the golden egg to provide even more money for Canberra to spend. Both have well and truly lost their rank as poor States who should be helped by New South Wales and Victoria.     

As The Australian’s Economics Editor says, “Canberra tries to pluck mining states’ golden goose,” 27/4,  the latest Grants Commission report means Western Australia’s share of the GST will  fall by $222 million, or nearly $100 a person, next year. Premier Colin Barnett argues that the State will be $1.5bn a year worse off than if the GST were divided up on an equal  per capita basis . They keep only 68c in the GST dollar; he wants a floor of 75c in the GST dollar for Western Australia.

In the recent negotiations over hospital funding, the States asked to see the Henry Review before a decision was taken. The Federal government kept the report secret, but only Western Australia refused to hand over 30% of their GST as demanded by Prime Minister Rudd.

On the GST Mr. Rudd is a real politician.  Speaking of this tax in 1999 he told Parliament: “When the history of this Parliament, this nation and this century is written, 30 June, 1999, will be recorded as a day of fundamental injustice – an injustice which is real, an injustice which is not simply conjured up by the fleeting rhetoric of politicians, it will be recorded as the day when the social compact that has governed this nation for the last 100 years was torn up.”  

The Henry Review is predicted to propose the replacement of State mining royalties with the federal resource rent tax, which economists say is more efficient in retaining a greater proportion of our mineral  wealth here. The model will be the Hawke government’s 40 per cent offshore petroleum rent tax, which Canberra could impose as a result of a favourable High Court ruling. The Federal Government will claim they can better negotiate with international mining companies than the States can.

The Western Australians and Queenslanders will be unlikely to be willing to surrender their mining income. They will argue the Constitution does not allow the Commonwealth to impose such a tax. That surely was the intention of the Founding Fathers.

This problem can be solved neither by the politicians nor by the judges nor by the experts. Only the people can. The solution may well lie through a convention on the 1998 model, but sitting longer.

That model was half elected, but this time postal voting should not be used. The remainder came from the leaders of the nine Parliaments, together with certain eminent persons. There were also some delegates chosen from otherwise underrepresented groups, for example, youth and Aboriginal and Torres Strait Islander Australians.

Such a convention could only be successful if the nominated component were chosen fairly as John Howard did in 1998, not by the sort of infantile gerrymander which so marred the 2020 Summit.