Mr HOCKEY (Financial Services and Regulation) (10:03 AM) —in reply—I would like on this occasion to thank the erudite member for Lowe. He is certainly a vast improvement on his predecessor, who could be regarded only as incompetent and lazy and of course who failed to properly represent the very diverse views of the people of his electorate. The electorate spoke at the last election by sending Mr Zammit off to a new career. The only disadvantage of the current member for Lowe is that he is not a Liberal. Apart from that, I commend him for his wise words on Badgerys Creek. I can assure him that we have mutual interests in this issue.

I must in passing take this opportunity to criticise the state government for not taking a more robust stand on Badgerys Creek. I am very aware that Labor Party policy at federal level and at state level is unambiguous. It supports a second international airport in the Sydney basin. Even Kim Beazley, the Leader of the Opposition, knows that the only site for a second international airport in the Sydney basin is Badgerys Creek; he just cannot bring himself to say that. That is the beauty of being in a position of not having to make a commitment. As Leader of the Opposition, you do not have to make a decision; you just get to criticise everything. At any rate, I thank the member for Lowe for his comments.

This is indeed an historic moment, because the States Grants (General Purposes) Amendment Bill 1999 is the last states grants bill to pass through this parliament. Since the 1930s and the transition in the collection of revenue by the Commonwealth and the states, and as part of a wartime measure—through the development of the Premiers Conference for the major collection of revenue by the Commonwealth on behalf of the states—there has been a funding process where the Commonwealth sits down with the states at a Premiers Conference and holds so-called negotiations about the amount of revenue provided to the states for the forthcoming year.

I understand that the financial assistance grants process was instituted in 1985 by the then Hawke government. There were two streams of funding for the states: the financial assistance grants, which are untied funding levels for the states and were the bulk of support to the states; and the specific purpose payments, which are tied grants at the direction of the Commonwealth to individual streams of activity. For example, there is a specific purpose payment for home and community care where the Commonwealth contributes so much money and the states are then asked to contribute a certain amount to fund that particular program.

I have said it before in this House but, in this historic bill, it is worth repeating that the major flaw in our current Commonwealth-state relationship is that each year the states have to come to the Commonwealth asking for a certain percentage of the growth revenue in the Commonwealth. Funding schools, funding hospitals, funding police, funding the court system, building the majority of roads and funding the transport system are the growth areas of expenditure for governments across Australia. Whilst the expenditure levels have been going up, the revenue for the states has been falling. Why? Because the tax base of the states is narrowing. Financial institutions duty is narrowing. Bank account debits tax was a Commonwealth tax but was handed over to the states by Simon Crean, the current shadow Treasurer. That tax on every cheque is a diminishing tax. The other taxes that the states have, such as land tax and stamp duties, are all diminishing as we become a more global marketplace. The only tax that is a growth tax for the states is payroll tax, and we all agree that payroll tax is a fairly insidious tax because it is a tax on jobs.

What have the states done in order to try to fund the schools, the hospitals, the police and the roads? They have gone to the only new source of revenue that they could grab, and that is gambling taxes. I plead guilty to doing that as well when I worked for the Premier in New South Wales, because we had no option but to meet the existing growing obligations of the state from finding new taxes. In New South Wales the Labor government has instituted a bed tax. It has extended land tax to people's homes. It has significantly extended gambling taxes, issuing more poker machines and further taxing the casino. States have turned to these insidious taxes because they have had no choice. They have had nowhere to turn, and that has a fairly profound impact on the cohesion in our community.

In my view, the most significant initiative and the most enduring and important part of the GST package is that we are giving the states growth revenue that will meet the obligations of their expenditures over the next few years. We are giving them a tax base which is a GST. Every cent of the GST goes to the states. It will continue to grow because as each year passes and our GDP grows we will spend more. It is a growth tax, and that growth tax can meet the growth obligations of the states. That is the most significant initiative of the GST package, and it is one that I recognise is very hard to explain in an election campaign. It is very hard to explain on popular television or on the radio that it is going to have the most profound effect on the future of government activity in Australia.

The bill before the House now will be the very last bill that is a handout from the Commonwealth to the states as we know it. I note the shadow minister for finance talked about vertical fiscal imbalance. I understand where he is coming from. The substance of the definition of vertical fiscal imbalance is that the states have to raise their own revenue. In this case, we are collecting it on behalf of the states. Whilst economists and various others can argue about vertical fiscal imbalance and whether a GST is a state tax, the simple fact is that all the revenue, no matter what it is, goes to the states. Therefore, it goes a very long way to addressing many of the systemic problems of Commonwealth-state relations that have occurred over the last few years.

At this historic juncture, I can say—and I think I join my colleagues on the other side of the House in saying—that we the Commonwealth are glad that the states now have a growth revenue stream. Notwithstanding our differences on a GST, we can all say in this parliament, in this House and from an historic perspective that we are glad that the Commonwealth is no longer being forced to go through a process that is inglorious for all government relations in Australia. That process is the Premiers Conference each year, which has increasingly become a farce. I remember the Premiers Conferences that I went to as an adviser. I well remember how all the state premiers agreed to launch a campaign against the Prime Minister at the time, Prime Minister Keating. In the states' view, Prime Minister Keating was penalising the states for having good balance sheets. The Commonwealth had a bad balance sheet at the time. We drew up these ads: `Can someone please tell Canberra that the rest of Australia is no longer a penal colony?'

We thought they were great ads and they were signed at the bottom by all the premiers, but there was one bad apple and that bad apple came from Queensland. While agreeing with the principle of the ads and saying, `We really do want to belt up Canberra,' the Premier of Queensland, Wayne Goss, refused at the last moment to sign the ads and we could not run with the campaign. When we got to the Premiers Conference, we found out why. Queensland managed to have a major windfall from the Commonwealth out of that conference and it has been ever thus. The Liberal prime ministers have done it with Liberal states and Labor prime ministers have done it with Labor states. In my view—and I think in the view of everyone here—that is not particularly conducive to good governmental relations or good public policy into the future.

We can all now breathe a collective sigh of relief for Australia's future that we do not have to have those Premiers Conferences and the inglorious scenes on television where premiers walk out—usually storm out—of a Premiers Conference saying how badly off they have been treated and how their state has been a loser. We do not have to go through that farce each year of all the jockeying leading up to the Premiers Conference. What we will have is growth revenue for growth expenditure and, hopefully, in all our estimations that means better schools and hospitals, better qualified and more appropriately resourced police, and better court systems and roads. Importantly, it means that those insidious taxes, such as gambling taxes—and the profound impact that those are having on our community—are going to be tossed to the side and are not going to be needed by the states to fund their expenditure. I commend this historic bill to the House.

Question resolved in the affirmative.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.