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Wednesday, 31 March 1999
Page: 4818

Ms JULIE BISHOP (10:40 AM) —The A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 and the A New Tax System (Commonwealth-State Financial Arrangements—Consequential Provisions) Bill 1999 are about more than an efficient and equitable tax system, critical though this is. The implementation of these bills will lead to a stronger Australian federation and a stronger Australian democracy, for real democracy depends on the dispersal of legislative powers as well as administrative authority that only the federal system can provide. A true federal system automatically provides checks on the power of central government, introduces healthy competition in government decision making and caters for diverse regional and local issues. A strong federation is dynamic, flexible and responsive.

We have before us the first real prospect for many years of enabling the states to fulfil the responsibilities that the Constitution lays upon them, by reducing vertical fiscal imbalance. It is not equitable that the decision of the High Court in 1997 abolishing state franchise fees left our second tier of government with control of just over 50 per cent of their revenue. It is a recipe for less accountable, less efficient government when the states can raise little more than half of their necessary revenue and must rely on regressive taxes like the financial institutions duty and the debits tax. State governments will support a national tax system that is efficient and equitable and which promotes the international competitiveness of Australian industry. The current regime does not satisfy these criteria. Many of the worst taxes that fall heavily on the business community are presently state taxes.

Genuine reform, as we have before us, must include abolishing the worst state taxes. This cannot be done without addressing the financial relationship between the states and the Commonwealth. The states cannot give up even their most inefficient taxes without access to an alternative tax base. It is true that vertical fiscal imbalance has been present in Australia to some degree since Federation. Over the century the states' dependence on the Commonwealth has, however, increased markedly.

We should all remember that the Australian people have never voted to transfer full income tax powers to the Commonwealth. It was a decision of the High Court. The uniform tax case was taken, significantly, in the first half of 1942 when Australia was in its time of greatest peril and, subsequently, it has been a political impossibility for the states to re-enter the income tax field. The people were not asked. Indeed, in December 1984 a majority of Australians in every state, including over 55 per cent of Western Australians, rejected a referendum proposal to allow the interchange of powers between the Commonwealth and the states. On the surface such a proposal might appear to facilitate cooperative federalism. But the electors knew that, with control of the purse strings, real transfer of powers could only move in a centralised direction, a direction to which they had never assented. In fact, in most comparable federations the regional provincial governments raise half or more of their revenue from income tax.

So we must never fall into the trap of thinking that fiscal centralism is inevitable, if not desirable, in a federal system. We must, rather, keep reminding ourselves that other federations avoid vertical fiscal imbalance or succeed in limiting it. We can surely learn from Germany and Canada, and from the United States, in particular, where the 50 states have access to more than enough revenue for their needs, where federalism is an unchallenged principle and where solid economic growth is achieved in the absence of vertical fiscal imbalance.

Australians have the right to elect state governments in the expectation that they will be able to implement policies and to stand accountable for them. This requires a stronger and more certain revenue base—the foundation laid by this bill. It also requires the firmness and flexibility needed to negotiate an established intergovernmental agreement for reform of Commonwealth-state finances. True federalism in Australia is about balancing the principle of fiscal autonomy with that of fiscal equalisation—the compensation of the less advantaged states. It is fair that there is some cross-subsidisation so that fellow Australians are not left in a national poverty trap, but equalisation and sacrifice on the part of the better performing states is a fact that needs to be better understood.

I will take my home state of Western Australia as an example. According to a Western Australian Treasury analysis, in 1996-97, Western Australia contributed $15 billion in revenue, a calculated share of the deficit of $515 million and received $13 billion in outlays. This amounts to a subsidy of over $2 billion, or $1,417 per head—the highest of any state second only to the ACT with its higher income and lower dependency levels. I do not state this fact by way of complaint but in order that our contribution be recognised so that economic success is not automatically penalised in reforming fiscal arrangements. It is hardly in the national interest to kill the goose that lays the golden egg.

Western Australia has gone from being a recipient to a donor, and the cumulative subsidy provided by Western Australia reflects the strong growth in Western Australia's economy over the decade. We have been only too glad to forfeit our status as a recipient, but the strength of our economy must be balanced against the cost of providing services and infrastructure across a vast geographical area. In revenue terms and per head, we have increased our contribution to the federation steadily since 1990-91. Our contribution per capita has risen from $923 in 1993-94 to $1,417 in 1996-97. The reduction in the per capita share of financial assistance grants to Western Australia over four years to 1997-98 amounts to $543 million. I acknowledge that the distribution of Commonwealth grants is only one element in the complex web of redistributional impacts arising from the totality of Commonwealth tax and expenditure policies.

Access to a broad based tax will, in time, give the elected state governments an improved revenue base. It presents an historic opportunity for the states to access a GST so that state revenues more closely match growth in the economy and the demand for state services. It is equally important to ensure that in transition arrangements fiscal equalisation is decided with justice so that economic growth and the fiscal responsibility of, for example, the Court coalition government do not further reduce its share of the Commonwealth revenue. All states and territories stand to benefit in significant and substantial ways from the introduction of these bills as part and parcel of the federal government's entire package, A New Tax System.

The rate of GST can be altered only by a unanimous request of all states. If the opposition were ever in a position to do so, it could seek to legislate to remove this requirement but, even if it passed the Senate, such a government would likely seal its own fate. The impossibility of either side of politics simultaneously holding government in every state, together with the electoral cycles of state politics, will ensure that no state government will be far enough removed from an election to incur the backlash of agreeing to raise the GST above 10 per cent. It is noteworthy that the checks and balances of federalism can be put to such a constructive use.

Those who support our federal system of government will welcome the statement that, from July 2000, responsibility for the financial assistance to local governments will be transferred to the states and territories. This is getting back to a great truth of the Constitution that local government is foremost the responsibility of state parliaments, a responsibility that should neither be usurped nor discarded. In 1974, 53 per cent of Australian voters and 59 per cent of Western Australian electors rejected a constitutional amendment that would have recognised local government as a third tier of government. In 1988, a similar proposal was rejected by a two to one national no vote—in Western Australia the no vote exceeded 70 per cent.

Australians do not undervalue local government, but they do not want to see it used as a centralist lever by the Commonwealth. My seat of Curtin has more separate local authorities than any other metropolitan division in Western Australia—seven wholly within its boundaries and parts of three others. Many dedicated people serve as unpaid councillors or work as professional staff. I am equally gratified that this legislation will ensure that there is no funding loss for an essential component of our free society.

There will be real and positive impacts on the Australian community because of our new tax system. The greater economic stimulus from the GST-free treatment of exports, reduced fuel taxes and the improved incen tives to work, save and invest, together with the restructuring of the Commonwealth-state financial arrangements, will be of enormous benefit to our federation. This is, indeed, a history making bill. I commend the bill to the House.