Mr TANNER (10:17 AM) —The A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 purports to lock in the proposed 10 per cent rate for the GST and to give the entire GST revenue to the states. It also in effect gives the Treasurer the unfettered power to determine what the distribution of that revenue is as between the states rather than with reference to the Commonwealth Grants Commission, as has always been the case in the past. The Deputy Leader of the Opposition has moved a second reading amendment which I support, which outlines in some detail the concerns that Labor has with this legislation.

I turn first to the question of the lock-in proposal. This is in effect an entirely fraudulent proposition, by seeking to suggest that in some way this parliament can bind future parliaments not to amend legislation without the consent of the states. That is an absolute nonsense. It is simply not constitutionally possible. The government knows it; every commentator in the country knows it. It is ludicrous that this should be put into legislation, because it is quite clear that any future Commonwealth parliament may choose to amend this legislation or the other GST bills without reference to the states even though this provision purports to say otherwise.

In virtually every OECD jurisdiction where a GST or an equivalent tax has been introduced it has been subsequently increased, and the threat of that occurring is still very real, irrespective of what this government puts in this piece of legislation. It is important to point out that the more a tax of this nature increases, the more unfair in relative terms it becomes and the more likely that compensation for the impact of the GST will erode further over time. It is worth pointing out in parenthesis that, of course, a substantial proportion of that compensation is already effectively a phantom compensation, particularly for pensioners who are guaranteed a rise of 3½ per cent under the provisions of minimum pension increases relevant to the rate of 25 per cent of average weekly earnings. So there is a massive double counting going on here anyway. The compensation is already grossly inadequate on a number of fronts and, if the GST does increase in the future, it will be further eroded in value.

The second theme that it is important to acknowledge—and perhaps in some respects from a longer term point of view it is just as important—is the question of the relationship between the Commonwealth and the states. In this regard, this legislation is doubly deficient. First, because it increases the problem of vertical fiscal imbalance by increasing the extent to which the states are reliant upon the Commonwealth to raise their revenue.

At the moment, the states raise roughly 57 per cent of their own revenue—the balance, of course, comes primarily from the Commonwealth. Under the proposals being put to this parliament as part of the total tax package of this government, that figure will drop to roughly 42½ per cent. In other words, the existing problem—which has been the subject of many commentaries in recent times—will actually be exacerbated, and the states' responsibility for raising their own tax revenues will actually diminish quite substantially.

The reason why this is doubly bad legislation is that it reduces the Commonwealth parliament's power to set a national agenda to develop uniform national standards to ensure that across this country there is some degree of minimum access to resources in areas like health and education. What will almost inevitably occur as a result of this tax system will be that specific purpose payments to the states—which at the moment are only slightly less in total than the financial assistance grants—will be squeezed because over time the GST revenue will rise and the federal government, particularly if it is a coalition government, will be forced to reduce the specific purpose payments in respect of health, education and the like. So we end up with the worst of all worlds—less state responsibility for revenue raising and less Commonwealth responsibility for setting national standards to ensure minimum equal access to resources across the country in areas like health and education.

It is also noteworthy that as part of this process, as the Deputy Leader of the Opposition pointed out, the direct federal financing to local government will finish and this will now all notionally occur through the states. As we have such well-known friends of local government in charge as the Premier of Victoria, Jeff Kennett, I am sure that local government is trembling at this prospect.

Currently, in the 1998-99 fiscal year, financial assistance grants to the states total $16.9 billion and specific purpose payments total about $15 billion. Some 46 per cent of the total Commonwealth payments to the states are specific purpose payments, and 68 per cent of those are for health and education. It is easy to see what is going to happen in the longer term as a result of the introduction of the new tax system. The traditional role of the Commonwealth as a setter of standards and an equaliser of resource provision across the country will be eroded. That is no accident; it is a deliberate strategy of this government to reduce the role of the Commonwealth in areas like health and education and to allow the deficiencies that tend to occur in particular state governments to flourish.

According to government figures, the initial shortfall from the GST for which the states will be compensated occurs over the next three years or so and then, from 2003-04, the equation goes into surplus. According to their figures, it will be $370 million extra in 2003-04, building up to $1.25 billion extra over 2004-05. New South Wales challenges those figures but, even under its figuring, clearly it goes into the positive for the states after about five years.

The impacts of this will be variable in different states. In particular, Queensland is entitled to be aggrieved at what this government is doing. Queensland has a lower tax base—which is a matter, ultimately, of political choice for the people of Queensland—and hence it has a tax advantage in terms of business competition. Being a Victorian, I may not like this and we may well debate the merits of it, but it should not be attacked by stealth. If there is to be a debate about this issue and if there is to be change, it should ultimately be as a result of decisions taken by the people of Queensland and should not be done by stealth by this government.

Queensland also suffers because it has a lower per capita income than any mainland state. In fact, in 1995-96 the per capita income of Queensland was $18,910 compared with the national average of $21,103. This means that the already regressive impact of the GST will be substantially more regressive for Queenslanders because they have a lower per capita income. Queensland suffers in addition because it is a more services dominated economy, it has less manufacturing; therefore it stands to benefit less from things like the abolition of the wholesale sales tax and the shift in emphasis to taxation of services.

There is a double straitjacket in this legislation for future governments at state and Commonwealth level. Individual states will have less autonomy because less of their tax resources will be coming from within their own revenue raising capabilities and more will be coming from the Commonwealth, and they will not be able to make the decisions by themselves to change that level of tax revenue—either down, as Queensland has chosen to do, or up, as other states may wish to do.

Equally, the Commonwealth is restricted in its access to indirect taxation for the future because it has effectively handed over its indirect taxing power to the states, without the responsibility that goes with it, and it will be unable to provide the vital national leadership that the Commonwealth parliament needs to provide in areas like a national curriculum in education or sorting out the mess in the health system so that one body is ultimately responsible for ensuring that people get decent universal access to a proper public health system and the like.

These things are going to go backwards as a result of this legislation. We need a national presence in health and education. We need national standards. We need a Commonwealth parliament that actually ensures that people are not subject to the vicissitudes of particular state governments making decisions that will disadvantage their state or parts of their state on these issues. Over the medium to long term, this tax system will diminish substantially the capacity of the federal parliament to do this.

It also ensures that the Grants Commission is sidelined. In the past we have had a transparent, albeit rather complicated, process for carving up funding to the states on a fair basis. On page 84 of the tax package it is stated that the Grants Commission will develop new allocation processes to:

. . . reflect the capacities and needs of each State as it currently does, as well as the fact that not all States currently levy the whole range of taxes to be eliminated.

That last bit again has some dangers for Queensland. There was a suggestion that not only was the Grants Commission going to be involved but the formula was going to be changed to reflect the actual taxing behaviour of individual states. However, in this bill the Treasurer is aggregating to himself the entire power to determine the distribution of the tax revenue between the states. He may choose to ask the Grants Commission in the future. Who knows. Clearly, this should be spelt out in the legislation. Once again, particularly Queensland but also New South Wales and Tasmania—states that have Labor governments—are entitled to be nervous about the intention behind this particular provision.

The tax package statement contemplates that new component in the carve-up process. Where is it? What is the approach going to be? We do not see it in this legislation. There are reasons for concern about that proposal. We now see that the Treasurer seems to have dumped it and is simply taking the approach of saying, `I will just do it. I will get out there with the ruler and the set square and say that you can have this bit and you can have that bit, and away we go.' Sadly, I do not think any of the states can trust the Treasurer as the independent arbiter of who should get what resources.

In conclusion, I support the second reading amendment that has been moved by the shadow Treasurer. This bill is an attempt to fraudulently persuade people that the states can lock in a rate on a GST when actually any future Commonwealth parliament can change the legislation without reference to the states. It reduces the role of the national government to set the agenda and to set national standards in health and education. It increases vertical fiscal imbalance and it removes, in effect, the protection that the states have from the Grants Commission that ensures that the national cake is carved up in a way that looks after all of the states and the people within them.