Mr CREAN (9:36 AM) —The process leading to this debate quite frankly has been a disgrace. The government quite deliberately delayed the introduction of these new tax bills until last Wednesday, giving the opposition minimal time to examine them and generally treating the parliament with contempt, something we will not continue to tolerate. It is not as if the government could not have brought these forward earlier. These should have been brought in last December. There are still more parts of the tax package legislation outstanding, including new fuel and tobacco legislation and fringe benefits tax legislation. This should have been in the parliament today. We have not yet seen any of the anti-avoidance legislation that was also announced as part of this government's great new tax reformation of the century.

The Treasurer rails against supposed obstruction by us, but we have met the timetable the government has laid down. It is Mr Costello who has been the delayer. Today's debate is an example of how he leaves until the last minute the scrutiny by this House of those bills. Little wonder more time has to be spent in another place undertaking what should be done here.

These are not technical taxation bills but essentially states grants bills which should have been introduced last December with the main GST legislation. It leads to the situation where we have insufficient time. It also severely limits the ability of the Senate GST legislation inquiry to properly examine it. Unfortunately, this simply continues the trend of the Treasurer—hide and conceal everything to do with the GST for as long as possible in the hope that the people will not find out. Despite his attempts, people are finding out and we will continue to highlight the deficiencies of the government's plans.

The bills before us today are proposing something truly historic, that in fact we look backwards on ourselves. These are not history making bills in a forward looking sense but rather looking back in history. I would like to be here today debating proposals which are bold and visionary reforms and which are appropriate for the next century, something that Labor could embrace and support. Unfortunately, we are not in a position to do it. I move a second reading amendment to these bills:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the Bill a second reading, the House:

(1) notes that the rate of GST has increased in almost every OECD nation with a GST and the same will inevitably occur in Australia;

(2) notes that the proposed lock-in mechanism is totally ineffectual and will not prevent future Commonwealth Parliaments from increasing the GST rate or removing exemptions;

(3) notes that the GST will be more unfair as the rate increases, as international experience is generally that no compensation is paid when the rate of GST is increased with or without the agreement of the states or territories;

(4) notes that the GST revenue is only forecast to increase by 2.7% in 2002-03 which is less than under the current financial assistance arrangements, suggesting that the GST rate will need to be increased in order to finance the needs of the states;

(5) condemns the Government for the funding model in the Bill as it will inevitably limit the ability of the Commonwealth to ensure minimum national standards apply for basic community services, and will therefore lead to a more unfair and uneven delivery of public services to Australians;

(6) condemns the Government for the funding model which, over time, will force the Commonwealth to restrict the specific assistance granted to states in respect of health, education and other community services thereby leading inevitably to the contraction of Medicare and other vital services;

(7) condemns the Government for the lack of equality of opportunity that will inevitably result from the removal of significant national involvement and national standard setting in the delivery of basic community services;

(8) condemns the Government for the New Tax System package which, far from reducing, actually worsens, vertical fiscal imbalance, thereby increasing the reliance of the states and territories on Commonwealth revenue sources;

(9) condemns the Government for the proposal which seeks to replace the principle of horizontal fiscal equalisation, based on an independent assessment conducted by the Commonwealth Grants Commission—which operates to ensure that all Australians have the opportunity to enjoy equal levels of services wherever they live—with a system under which the Federal Treasurer will have the absolute right to determine the future general purpose funding levels of each state and territory and the apportionment of relativities under it without their agreement".

Unfortunately, we are debating proposals which are truly awful, which seek to permanently diminish the role of the national government and to inexorably turn Australia from a cohesive nation back to merely a collection of states and territories. Make no mistake, the proposals contained in these bills are designed to and will lead over time to the cessation of national standards for service delivery and equality of opportunity for all Australians. In this plan are the seeds of the Commonwealth being forced to withdraw from Medicare, withdraw from education, withdraw from providing housing and other community services. The mechanism through which this withdrawal will be done is the granting of the GST revenue to the states proposed in these bills.

The philosophy is clearly atavistic. This model of financing government does not consider national goals and national outcomes as desirable. It is based on the past rather than on the future. We will continue to oppose the heart of this proposal, the GST, until we succeed in defeating it and, with it, the associated plan to dismantle the activities of the Commonwealth. We are not weakening in our resolve to oppose the GST. We will use every argument and every tactic to defeat it.

The underlying justification for this proposal to alter Commonwealth-state financial arrangements is the so-called problem of vertical fiscal imbalance. I say `so-called' because this complex sounding term merely describes the situation where the revenue collections of the Commonwealth exceed its direct spending responsibilities and, by extension, the own source revenue of the states falls short of their direct spending responsibilities. But is vertical fiscal imbalance really a problem? The answer is no. There are actually considerable benefits which flow from Australia's VFI system. First, by definition, it means a more uniform national taxation system than would occur with more state based taxes. As well as lower compliance costs for businesses and taxpayers arising from a more common national tax regime, there are also significant economies of scale in having a centralised national tax administration.

Critics argue that VFI then supposedly leads to the situation where the states are not really accountable for their level of spending because they do not have to wear the political odium of raising their own revenue. This is simply wrong in practice. When states wish to make additional discretionary expenditure—for example, in their state budgets—the additional revenue has to be financed by the state. They are totally accountable for that financing task. In practice, the lack of accountability argument under significant VFI is wrong. The Federation has operated under this supposed handicap for many decades. What has it achieved? Relative to the rest of the developed world, it has delivered a low tax, low public debt country with high levels of public services. The great Australian nation we enjoy today was built under this system.

VFI is not a serious problem. It is simply an excuse for those who advocate a lesser role for the Commonwealth. VFI simply requires a sound system of general revenue funding for the states from the Commonwealth. Such a system is already in place. It involves the Commonwealth annually providing a real per capita increase in the total level of general purpose funding to the states. This system gives certainty to the states by allowing proper budgetary planning and adequate resources. The first full year growth in GST revenue in year three of this package is only 2.7 per cent, less than the level of real growth and much lower than the alternative under the current system of real per capita growth of around 3.5 per cent. The states are being dudded.

The advantage of the current system to the states is that in periods of economic downturn when revenue collections fall considerably state budgets are largely insulated from the fall in revenue due to the Commonwealth maintaining its grants. Quite literally, the Commonwealth budget takes the hit and the states face less pressure to cut their services than they would if they copped the full loss of revenue. So is there a pressing need to fix VFI on economic or other grounds? We say no. However, even if one considered VFI a problem, this legislation does not fix it. It actually makes it significantly worse because the Commonwealth will be collecting more of the states' revenue than it currently does.

The states are not actually obtaining a new tax base under the GST. They are actually giving up some of their existing tax bases, such as stamp duties, and thereby becoming more reliant on the Commonwealth budget. VFI will be getting significantly worse under this plan despite the fraud of the Commonwealth classifying the GST revenue, and the safety net revenue for that matter, as state own source revenue. It is not; it is Commonwealth revenue.

The states have no guarantees that the revenue from the GST will flow to them. That risk is a dual one. First, at any time in the future the Commonwealth parliament can amend this legislation to limit or remove the appropriation of moneys to the states. It only takes a four-page bill to do this—essentially, four bills but four lines in each of them. First of all, it can create a situation that repeals section 10 of the amendment to A New Tax System (Commonwealth-State Financial Arrangements) Act—a single line repeal bill that says `repeal the section'. Similarly, in schedule 1 of A New Tax System (Goods and Services Tax Imposition-General) Act, an amendment to section 4 could omit 10 per cent and substitute 15 per cent. There could be a similar amendment to the other two bills that are before us in this chamber. In other words, four bills of one line each—four lines—repeal the lock-in and increase the rate.

Secondly, even the bill as drafted does not provide any real guarantee to the states in respect of revenue flows. The reason for that is simple: in the end, the Commonwealth Treasurer retains complete control over how much GST money the states will be allocated. Clause 17 of the main bill reads:

. . . financial assistance payable to a state under this act is to be paid in such amounts and at such times as the Treasurer determines in writing.

So states only get the money if the Treasurer says so. So much for the greater independence of the states. This is really making them become vassals. The Treasurer is also empowered under the legislation to determine what the per capita relativities are that will apply to each state. There is no mention of the acknowledged expert independent arbiter, the Commonwealth Grants Commission, in the legislation at all. The fate of the residents of the smaller states is quite literally in the Treasurer's hands. And I ask them: would you buy a used car from that man?

What are the Treasurer's obligations concerning the derivation of these various relativities under this legislation? The answer is under subclause 9(2). The only check on the Treasurer's powers is that simply before making the relativities factor determination `the Treasurer must consult each state'—that is, a phone call telling them how they have been dudded. What will happen is that he will simply tell the states what they are getting after he has made the decision. In addition, the position of the states is made even more precarious by the need for annual determinations to be made by the Commissioner of Taxation before 15 June in respect of the amount of GST revenue to be paid. What is the situation if such a determination is not made? It appears that no GST revenue would flow to the states. To argue, as the Treasurer has done, that these new arrangements will mean that the states will have greater inde pendence from Commonwealth funding is completely wrong. Indeed, it would be naive to believe so given the track record of this government.

During the recession and the budgetary problems that entailed, Labor honoured in full its general revenue commitment to the states. On the contrary, the Howard government reneged on its pre-1996 election commitment not to cut state grants at its first possible opportunity, the 1996 Premiers Conference. We all remember the dog day afternoon on 12 June 1996 when the Commonwealth ripped $1.5 billion off the states. In the end, the Treasurer was humiliated and excluded from the final meetings. The Prime Minister had to conduct the final negotiations on his own.

In the last election we saw the unseemly blackmail of the Prime Minister in not freeing up funding to the states but forcing Tasmanians to sell their Hydro if they were to get debt relief. Labor made the same commitment without requiring the sale. For the states to accept on trust the Treasurer's word on this issue is naive. Labor argues that this is not a good deal for the states for revenue security.

As well as being risky for the states in revenue security terms, the government's package is also a bad deal in terms of actual revenue returns. We have the Treasurer's claim that `a key feature of the new tax system is the Commonwealth's offer to the states and territories of a stable and growing source of revenue'—that is, he is saying that these new arrangements will be a fiscal bonanza for the states.

Let us look at the truth. In fact, this system does not even give the states the same amount of revenue as the current system provides for at least the first three years, either individually or in aggregate. Pages 35 and 155 of the ANTS document detail that the Commonwealth has to provide a grant of almost $1 billion in 2001-02, a third of a billion dollars in 2000-03 and an interest free loan in 2000-01. So even the government admits that there is no additional revenue to the states in aggregate for the first three years. Furthermore, some individual states are expected to be in deficit from this package for years beyond the first three. But of course these figures actually understate the true revenue losses to the states.

The real position is hidden by the fiscal fiddles which are included in the package to make the states' position look better. There are two of these: a growth dividend which yields $200 million a year in year one and supposedly grows to $400 million in year three, and a reduction of costs of $540 million in year one rising to $600 million by year three. So these add to an additional $1 billion of revenue shortfall per year that the states are simply assumed to pick up. How convenient. Some growth tax! In year three, it is 2.7 per cent—below the real rate of growth in the budget papers. The only way to make it a growth tax is to lift the GST rate, and that is what they will do when they get it in. The states are being conned.

One state in particular is being singled out for particularly savage and unfair treatment, and that is Queensland. This discriminatory treatment is meted out through the so-called transitional provisions. In fact, these provisions are specifically designed to rip off Queensland taxpayers. These proposals are a $465 million heist on Queensland taxpayers.

Mr Truss —Don't believe what Peter Beattie says.

Mr CREAN —We will believe what Alex Somlyay says, my friend, because he admits this.

Mr Truss interjecting—

Mr CREAN —He did say it. You lead with your chin and you'll get it! This led to the Queensland government quite properly rejecting the Commonwealth's offer and refusing to sign the Premiers Conference agreement.

Queenslanders are currently enjoying low tax in that state. They will have to pay more indirect tax than they currently do, and they are not going to get their fair share of the new unfair GST. In effect, they are going to be forced to pay for the repeal of higher levels of indirect tax in other states. They are being penalised for running a tighter ship than other states. The government's claim that the Queensland government will be no worse off is a fraud. The point is that Queensland taxpayers will be worse off.

Understandably, Queenslanders totally reject this discriminatory treatment. This has led to an unprecedented campaign by Queensland business leaders in the form of an open letter to the Prime Minister from Queensland business leaders calling for a fair deal for Queensland. Even the member for Fairfax has been reported in the Sunshine Coast Sunday paper:

"He agreed with the Qld Labor Treasurer's . . . assessment that the state could draw the short straw of GST revenue" and "he could find no fault with the state government's submission on GST funding."

To add insult to injury, the government does not even know how long the transitional period is going to be. This an extraordinary botch-up.

Clause 1 of schedule 1 of the bill defines the transitional period as `the first three GST years and'—wait for it—`other years that are prescribed'. So the government is giving itself a blank cheque to extend the transitional period for as long as it likes beyond three years, and it can be extended by regulation without even having to come through this parliament. Why would the Treasurer be trying to give himself the power to permanently rip off Queensland unless he wants to make use of it? This is extraordinary treatment, and it graphically illustrates that, as well as the tax package being unfair, it simply does not add up.

But it does not end there. There are many other problems with the GST for state budgets that require further compensation. Just a few of these involve: additional public housing costs of hundreds of millions of dollars a year under the Commonwealth-state housing agreement, the cash flow costs with the new financial arrangements, the states' costs of complying with the GST, the loss of state imposed wholesale sales tax equivalents revenue and attribution to state budgets of the claimed embedded savings to local government. So this proposal is basically a shambles.

But all of these problems pale when we consider the greatest con in this GST debate—the so-called lock-in mechanism. The lock-in mechanism is a completely cynical strategy engaged in by the government to attempt to deal with the undeniable reality that the rate of the GST will increase. Everyone knows the international facts. All 26 OECD countries with a GST have now increased the rate, with the exception of Canada, the most recent country to introduce one, and probably with the exception of Japan, and Japan has put theirs up.

The latest country to increase its GST is Switzerland on 1 January 1999. No doubt it is just a matter of time in Canada as well. Some famous examples are the UK from 10 per cent to 17½ per cent, New Zealand from 10 per cent to 12½ per cent and Denmark from 10 per cent to a whopping 25 per cent. So the government's claim that a 10 per cent rate is high enough to stop it going up is shown to be completely baseless. Put simply, if the GST comes in, the GST will go up. And, as it goes up, it gets even more unfair than it will be at 10 per cent.

Remember that the estimate is only for the GST revenue to grow in year three by 2.7 per cent, below the real rate of growth in the budget papers. The lock-in mechanism is a fraud, and any future Commonwealth parliament can remove it with an ordinary, very short act of parliament, and I demonstrated that before. Similarly, it can amend the rate of the GST just as easily: a bill to repeal the 10 per cent, a bill to take it up to 15 per cent—simple one-line bills. The public relations stunt is a transparent fraud and it is symptomatic of the misleading campaign the government has run in promoting its GST.

This legislation also seeks to repeal the Local Government (Financial Assistance) Act by bringing to an end a 25-year history of Commonwealth-local government partnership. Who was it that introduced local government financial assistance? It was Labor. We introduced those direct payments because of our long held commitment to local government. Commonwealth funding is a way of recognising the roles of councils in our community and of building their capacity to provide the facilities, services and infrastructure that every community needs.

When the Whitlam government introduced the local government grants bill in 1974, its purpose was clear. That purpose was set out by the then Special Minister for State, Lionel Bowen, in his second reading speech when he said:

The government recognises that many councils are faced with financial problems in providing a full range of municipal services of proper standards. The government believes that these grants will go a long way towards alleviating these deficiencies.

There can be no doubt that Commonwealth funding has been essential to the development and improvement of local government services over the past 25 years. The Australian community benefits from competent local government participating as a partner with the Commonwealth and the states. The Commonwealth currently provides untied financial assistance to local government consisting of financial assistance grants and identified local road grants. The grants are distributed to the states on a per capita basis for passing on to local government.

In 1997 these general purpose grants amounted to in excess of $1.2 billion. The Local Government National Report for 1997 lists the purposes, and they are important: the financial capacity of local governing bodies; the capacity of local governing bodies to provide their residents with an equitable level of services; the certainty of funding; the efficiency and effectiveness of local governing bodies; and the provision by local governing bodies of services to Aboriginal and Torres Strait Islander communities. These are important principles and ones that the Commonwealth should not be walking away from.

Around two-thirds of the grants currently go to rural and regional councils, with over half to rural councils. But the National Party is voting to disadvantage these rural communities because it believes that local government is simply a creature of the states.

This is a government that has cut local government out of the picture at every step of the way. It has shown utter contempt for local government, and this bill is simply another example. As a final insult, the government seeks to hand local government over to the states on the basis of an agreement with the premiers—an agreement that local government is not a party to.

Local government has strongly objected to this proposition. That opposition has been voiced by the Australian Local Government Association. The government has consistently ignored local government's serious reservations about the GST package. Quite simply, local government has been excluded. At the general assembly of local government last year attended by some 700 local government representatives, a very detailed resolution was carried.

But the entire package of legislation that is before the House today ignores every aspect of the motion that was carried by those 700 delegates representing local government. Not one part of this request made by 700 local government representatives has been met by this government. So much for the commitment to regional services. This legislation is further evidence that the Howard government has abandoned the regions. The legislation before us now has significant long-term ramifications for local government, especially in regional communities.

Local government is fundamental on a number of levels. Local government touches the life of every Australian—providing vital infrastructure, local roads, sporting facilities, rubbish collection, recycling, footpaths, and in some states sewage and water and public transport. In addition, it delivers an enormous range of services to families and communities, to the elderly and to people with disabilities.

Why does the coalition want to belittle and ignore local government? Indeed, why did the coalition, led by Peter Reith, disgracefully oppose the constitutional recognition of local government proposed by Labor? It is because the coalition does not understand the benefits of working in partnership to achieve national goals. The coalition is good at tearing things down, but it does not know how to build for the common good.

Labor will not let the regions down. We will support and champion regional development. It is fundamental to our future. Regions must be supported and further empowered. Labor is totally opposed to cutting local government adrift. We will move amendments later in the debate to defeat this proposal. We will oppose the provisions of this legislation that seek to hand over local government funding to the states. We will move consequential amendments to reduce the amount of GST revenue to the states by the amount of the local government financing to enable the moneys to be granted to local government. The coalition has comprehensively dudded local government, and the Labor Party will not stand by and watch 25 years of history destroyed.

I have shown in this debate that the proposals in these bills do not deliver what the government claims. They treat the people and government in the state of Queensland with contempt. If implemented, the funding model is designed to limit future specific purpose payments from the Commonwealth. Inexplicably, they also involve ridiculous proposals to terminate a successful quarter century partnership with local government. Finally, they will not stop the GST rate from inevitably rising over time. These bills are part of a plan—the GST plan. It is the wrong plan, and it should be defeated. (Time expired)

Mr Emerson —I second the amendment and reserve my right to speak at a later time.