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Wednesday, 3 November 1976

Mr HURFORD (Adelaide) -I move:

That all words after 'That' be omitted with a view to substituting the following words: the House declines to give the Bill a second reading until it has been redrafted following proper consultation with the State Governments concerningits objectionable features'.

I give notice that I, or a colleague of mine if I am not here at the appropriate time, will be moving a similar amendment in relation to the Local Government (Personal Income Sharing) Bill 1976. In that case the consultation should be not only with the State governments but also with the Local Government Association of Australia. In no way has there been proper consultation at this stage. All I have heard- I have had to hear this on the grapevine- is that telex messages have gone to the Premiers tonight telling them of the small changes which are being made to clauses 4 and 6 of the local government Bill. Those telex messages will have reached the Premiers' offices after they closed. In no way is this consultation about the details to which all Premiers have objections, and rightly have objections.

These Bills give legislative effect to the socalled Fraser new federalism. That concept is a sham. For that reason and for others, these Bills are full of objectionable features and should be withdrawn and redrafted. Not only do we in the Australian Labor Party Opposition consider that these Bills have objectionable features but so also do many other people including, I repeat, the Premiers and key and informed local government officers. That is why we believe that there should be consultation with representatives of the other tiers of government before the Bills are redrafted and submitted again to the House.

Before embarking on the details of my speech I shall summarise some of our objections and some of our constructive thoughts on these Bills. Firstly, there is uncertainty concerning the volume of funds to be received by States and local government bodies in future years because personal income tax at a time of tax indexation probably will not be a growth tax. Further, the Treasurer (Mr Lynch) by a stroke of his pen can call a part of income tax a surcharge and exclude it from the calculations. That is not altered in any amendments that the States have been told about tonight in some cavalier fashion at the last minute.

Let me now move to a second constructive thought about these Bills. Secondly, we believe in uniform standards of service to be provided for people in every part of our nation through uniform taxes. Thirdly, States being allowed to raise their own income taxes is not only double taxation but also weakens national economic management. Fourthly, these Bills perpetuate a sham to the effect that there is a transfer of power from the Federal to the State sphere when no such transfer takes place, as we have seen from the alterations that have been hurriedly and unsatisfactorily made at the last moment by a Government which has been forced into these actions.

Fifthly, there is a wasteful establishment of State local government grants commissions when the Austraiian Grants Commission was doing a thoroughly good job in this area, supported by States other than those who for political reasons wanted to make something of it. Sixthly, if local government grants commissions are to be set up, why not use the Australian Grants Commission with all its expertise to monitor or audit them instead of bureaucratically interfering with them in a centralist fashion, as the Government is doing even after the amendments about which it has told the States at the last moment in what I repeat is a cavalier fashion? Seventhly, the local government Bill fails to allow for changes in the proportions payable to each State when those States with areas not covered by local government achieve the establishment of corporations in those areas. That is clause 5 of the Local Government (Personal Income Tax Sharing) Bill and it is not altered in any way by the latest amendment.

Mr Wilson -That is nonsense.

Mr HURFORD - That is one of the amendments asked for by at least one of the States. Finally, the Bills perpetuate the untruths being perpetrated by this Liberal-National Country Party Government that funds in real terms allocated to the States and local government have increased when only general grants have increased and total funds in real terms have decreased. The Australian Labor Party does not suggest that there is an easy solution to the problems inherent in Federal-State relations. However, unlike the present Liberal-National Country Party Government, we are intent on producing a policy which can work in practice as well as sound attractive in theory. As we approach the next federal conference of our party, we are working in collaboration with our State colleagues to produce a workable policy which will minimise the tensions which inevitably arise in a federal system. It must be remembered that the Australian States moved into a federal system knowing full well that they were structuring a tiered system of government in which the political objectives of each tier would at some stage not coincide. It should be the object of a policy in this area to provide for each tier sufficient funds to do the job required of it.

The Australian Labor Party's policy in this area would embrace 2 major principles: Firstly, that the States have sufficient funds effectively to pursue their essential duties; secondly, the provision of a mechanism for the carrying out of joint Federal-State programs directed at the general aim of improving the quality of life of all Australians. The Australian Labor Party in government set out on this task of achieving the second objective through its special purpose grants in fields such as education, health and hospitals, social security, recreation and sport, and urban and regional development. As evidence of that we have to direct our minds only to the Australian Assistance Plan, the area improvement plan and the medical centres, to name just a few. We pioneered a method of setting up genuine joint programs, jointly administered by Federal and State officials. The United States federal system, though not identical to ours, has very many programs that are jointly Federal-State concerns. We in the Australian Labor Party intend to learn from other federal systems and to develop still further true cooperative federalism in the form of joint programs.

Mr Hodgman - Centralism.

Mr HURFORD -This is not centralism, this is a recognition of the need for national involvement with State administrations to satisfy people's needs. The present Government differs markedly from Labor on the subject of joint programs. It appears to have adopted as an article of faith that the Federal Government should withdraw its involvement in any area that could conveniently be administered by a State alone, whether or not the State has the resources. From the inane interjections we have heard tonight we now know that some of these backbenchers who have reason to feel very insecure are against joint programs like the Australian Assistance Plan, like the help that Labor gave to recreation and sport, like the setting up of health centres.

These are the sorts of things that they are compaigning against. The Fraser Government plans for the Federal Government to abdicate its responsibility to act in concert with the States and local government to fulfil the essential duties of that tier of government in providing for people's needs which are not otherwise being fulfilled. Surely if there is any justification for the States of

Australia joining in a federation it is the hope that the Federal Government will ensure that Australians are provided with uniform standards of service by their Government and have a uniform system of taxation to fund those services.

In reaching a viable policy on Federal-State financial relations, the Australian Labor Party wishes to ensure that the States have sufficient funds to carry out their essential duties. In doing this we recognise that policy and administration have developed differently over time from State to State. It is these differences that render the use of an arbitrary mathematical formula a difficult method of arriving at the amount the States should receive. The Labor Party is not permanently wedded to the present State boundaries as convenient administrative units for all purposes.

Regions within States vary widely in thenrequirements. In the future we will have to look much more closely at regional differences as well as State differences. The ideal situation would be if the disbursement of funds to the States could be removed from the arena of political squabbling. Honourable members will note that this is one of the things the present Government's policy is supposed to do in theory. In practice the squabbling has never been more intense, as we have witnessed in the last week from the telexes and letters which have flowed from Liberal and Labor State leaders to the Federal Government.

I am attracted to the notion of an institution outside politics advising on the level of allocation of funds to the States and local government for those tiers of government adequately to fulfil their services. We have a High Court to arbitrate when legal disagreements arise between the Federal Government and the States. Why not a body of similar stature to give expert advice and to lay down priorities on funding arrangements? Perhaps an interstate economic commission could be established or the necessary powers given to the Australian Grants Commission. The latter already has considerable expertise in and an extensive knowledge of matters concerning the State's financial requirements and so would be a first choice for me if we decided that such an institution should do this work.

I now turn to some of the specific measures contained in the States (Personal Income Tax Sharing) Bill, the first of the 2 Bills being debated in this cognate debate. This Bill replaces the present formula as a method of calculating State revenue with a provision for a guaranteed percentage of personal income tax. The percentage is to be 33.6 per cent, and it is of a base amount to be determined by the Commissioner of Taxation. Earlier I canvassed the problems associated with over-reliance on a mathematical formula of any description for determining State revenues and suggested an alternative. However, if there is to be a formula for the present, I assert that the States would be better off under a restructured version of the old betterment formula. It is interesting to note that as far as general revenue grants are concerned, the States are in total only 3 per cent better off under the percentage of income tax arrangements than they would have been under the old formula. Differences of this magnitude are compatible with extra grants given when the previous formula determined revenue. Anyway, the previous betterment formula was due for renewal and in the course of being updated when the Australian Labor Government lost office.

The States are well aware of the problems they will have in trying to estimate their revenue now that it is to be based on tax receipts. In February they expected 36 per cent of tax revenues, but because Treasury was so wide of the mark in estimating receipts, this figure became 33.3 per cent. Then after another of the confrontations that this policy supposedly avoids the figure reached 33.6 per cent. There is no guarantee that such miscalculations will not occur again. Tax receipts apparently vary quite substantially according to the amount of effort the departments expend in collecting them. The States' capacity for useful forward budgeting can be severely impaired. Furthermore, we are living in the era of tax indexation which will probably mean that income tax is not the growth tax so desperately needed by the States and local government to provide their essential services.

Another aspect which is rightly causing considerable concern to the State Premiers and certainly to the Labor Opposition in this Parliament is the provision which allows the Treasurer to determine which receipts are surcharges that need to be included in the base amount. It was very generous of the Prime Minister (Mr Malcolm Fraser) to explain during question time yesterday that the provision was there to protect the States and the Treasurer would use it only after consultation with them. I presume that, as this promise was not made during an election, the Premiers are expected to believe it and to put greater faith in it. To believe it they would need great faith. If they believe it they will be more gullible than the Australian electors who believed in promises regarding full wage indexation, promises about the maintenance of Medibank, and promises about the saving of gold rnining in Kalgoorlie. So many promises have gone completely down the drain, the excuse being that they were promises made at election time, and we need not take any notice of Liberal promises made at election time.

Although the States have the guarantee that they will at least get as much in the way of general funds in the near future as they would have received under the old formula, the tying of the grants to personal income tax eventually will restrict the States' access to a growth revenue. I repeat: With tax indexation, personal income tax is no longer the great growth tax it was. A percentage of total revenue as qualified by betterment ratios offers a fairer deal for the States and for local government. Perhaps the key to this decision is the commitment of the Prime Minister to the reduction of the role of the public sector. By restricting the growth of States' revenue perhaps he hopes to force them in the long run to follow his own ideological bent. If the States do raise their own taxes the Federal Government has essentially passed the buck as far as the responsibility for taking this action is concerned. At this stage I seek leave to incorporate in Hansard a table showing that total funds going to the States are well down in real terms, the increase being only 8.6 per cent whereas the expected inflation rate is 12 per cent and the rise in public sector prices is approximately 1 5 per cent to 1 6 per cent.

Mr DEPUTY SPEAKER (Mr Drummond)Order!Is leave granted? There being no objection, leave is granted.

The table read as follows-


Mr HURFORD - It is worth while noting that one of the objects of giving a fixed percentage of income tax to the States is apparently to reduce the wrangling which occurs at Premiers Conferences. The public debate we have had between the present Government and the States would suggest that, at the very least, any wrangling over the old formula will be replaced by wrangling over what the tax percentage should be. When all these changes to the method of arriving at State revenue are taken into account, the Centre for Research into Federal-State Relations notes in its 1975 report:

Except to the extent that they are protected by the guarantee provisions and by their ability to impose surcharges, the States will be subject to the risk of greater fluctuations in revenue yields than in the past.

That is a quote from an expert body in this area. This is hardly a basis for sound government. It certainly shows up what a sham it is for this Government to consider itself a good federalist government and its Opposition a centralist one.

This Bill opens the way for the imposition of State income taxes and possibly the destruction of the uniform taxation system. In other words, this Bill paves the way for the imposition of double taxation. With the States able to impose their own taxes, effective economic control by the Federal Government is reduced. Whilst the States have to consult with the Federal Government concerning the imposition of tax surcharges, once they have been imposed the Federal Government will not be able to have them removed if economic policy calls for their reduction. Although it appears that the extent of freedom offered to the States under the theory and the practice of Fraser federalism are vastly different, it is obvious that in the theory little thought has been put into the implications of State income taxes for economic management. Even less has been mentioned in respect of the resource allocations aspect of different States offering differing fiscal deals to attract investors.

It is conceivable that under these proposals any Federal-State conflicts will be replaced by interstate conflicts. The Centre for Research into Federal-State Relations pinpoints this problem when, in the conclusion to an evaluation of the Government's federalism policy, it warns:

The particular arrangements which have been made for distributing the total share of income tax are likely increasingly to divert the attention of individual States to questions of horizontal distribution, in which the adversary position is taken by the other States rather than by the Commonwealth.

One of the big questions over the Government's policy remains the method of incorporating specific purpose payments into general revenue grants. The intention of doing this has been announced and I have previously mentioned the large difference between the Government and the Opposition regarding a continuing role for such grants.

In a recent address Mr Justice Else-Mitchell, the Chairman of the Grants Commission, highlighted this problem. He warned that fiscal inequalities were likely to arise as specific purpose grants were incorporated into general purpose grants. In fact he doubted whether the essential form of federalism we have had for the last 20 years would alter under this Government because the problems, as we have seen even so far, of implementing the theory are so huge.

During this speech I have covered a number of areas including the ridiculousness of debating these Bills at this time at all and the differences between the Fraser federalism in theory and practice, and I have put forward the basis on which Labor hopes to develop a real and useful policy to cater for the future of Federal-State relations. I have not yet outlined in detail the effects of the implementation of Fraser federalism on economic management, apart from mentioning the disabilities caused by States having income tax powers. It is when we look at this area that we see just what a sham the whole thing is. Perhaps I have paid the Government too great a compliment in bothering to deal with criticisms of the theory of its policy. In practice we find that there has been no shift of power from Canberra to the States at all. We find that in the clauses of the Bills that have been so hastily altered. What extraordinary federalists supporters of the Government are. They are only federalists in theory. In practice they are the horrible centralists that they accuse us of being.

The Federal Government says that the public sector must be cut back, and the States have very little choice but to go along. I have many times pointed out the error in the Federal Government's thinking in this area. I has caused a setback to the economic recovery which was under way when the present Government took over. It has caused the particular stagnation that we are now suffering. An effective drop of approximately 8 per cent in real terms in Federal outlays is retarding economic growth and recovery. Despite the Treasurer's words, the rest of the world is not following this policy. This Government has in real terms cut back the rate of growth of government spending. They have not cut back the absolute level of spending.

Mr JusticeElse Mitchell and others are right when they suggest that no real change in the system of the last 20 years will occur under Fraser . federalism other than a change for the worse for the States. No real change of power will occur and all the Government will succeed in doing will be to subject the electorate to a fascinating charade which I believe will take a lot of time and energy and will come to nothing. At the next opportunity the people will vote into office a Labor government which will put co-operative federalism, with all its tensions, into practice but will not waste time window-dressing in seeking to persuade people untruthfully that it is made up of people who in attitude are States' righters.

Let me turn to the second Bill which concerns the funding of local government. It is necessary to commence my remarks on this Bill by correcting another of the great untruths which this Government is attempting to sell to the Australian people. Despite the way in which the Prime Minister, the Treasurer or Senator Carrick may attempt to mislead the people, total funds for local government, as with total funds to State government, have not been increased this financial year. In absolute terms, and in real terms of course, they have been reduced. In money terms they will fall from $272.5m in 1975-76 to an estimated $93.3m in 1976-77, a fall of 29.1 per cent. In real terms this is a drop of roughly 40 per cent. The Treasurer could probably spend the rest of his life telling local government authorities, as he has attempted to do in the past, that they have no justification for raising charges. But local governments, faced with a 40 per cent real drop in income, will have difficulty in believing him. I seek leave to incorporate in Hansard a table setting out Federal funding for local government which shows that there has been a decrease of 29.1 per cent at a time when there is an expected rise of 12 per cent in the inflation rate and of 15 per cent to 16 per cent in public sector prices.

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