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Wednesday, 31 March 1999
Page: 4829

Mr COX (11:41 AM) —by leave—I move:

(1) Page 11, section 12, (line 8), omit the formula:


Adjusted State


Total hospital







State hospital


State local

Adjusted total populations


government grant

(2) Page 11, Section 12 (after line 19), insert:

State local government grant means the grants of financial assistance for the State for the GST year payable under the provisions of the local Government (Financial Assistance) Act 1995;

These amendments will remove from the formula the quantity of money which is currently applied as state and local government grants. During my first speech, I spoke about the dependency of small states like South Australia on horizontal fiscal equalisation. Put simply, one of the functions of a federation is to provide some redistribution of income between the states making up that federation. In South Australia's case, historically we have almost always been dependent on some redistribution of national income to maintain the standard of living which is equivalent to the national average.

I made the point that the only practical alternative to horizontal fiscal equalisation would be a system focused on ensuring adequate Commonwealth funding of individual services like health, education and police to ensure that they are maintained at an appropriate national standard. The Liberals, on the other hand, have always favoured states' rights and state taxing powers. The so-called new tax system proposed by the Howard-Costello government uses the GST to provide a de facto new taxing power to replace financial assistance grants.

The undertakings which have been given to the states do not provide an adequate assurance that specific purpose payments will not be cut. All that has been said is that the Commonwealth has no intention to cut specific purpose payments. Any competent state negotiator would have demanded `will not' or `shall not' cut specific purpose payments as the necessary undertaking to be contained in the agreement on access to GST revenues. This bill represents the first cut to specific purpose payments. The Commonwealth has taken the decision to stop funding local government. It wants to hand all of that responsibility to the states. Funding is currently provided to local government through the states in the form of per capita financial assistance grants plus identified local road grants. The local government financial assistance grants were the creation of the Whitlam Labor government. The states have used their own processes of horizontal fiscal equalisation to distribute the money. In 1997-98 general purpose funding for local government amounted to $830 million and road funding to $380 million.

Local government have rejected the Howard government's proposal to put responsibility for their funding entirely within the hands of the states. Why? Because they do not trust the states to provide them with adequate funding. Once local government funding is entirely within state hands, it will be more vulnerable to cuts by the states and vulnerable to future Commonwealth cuts to the states because they will look to local government rather than their own activities for reductions in expenditure. Once responsibility for local government funding has been transferred to the states, this will be a matter of total indifference to the Commonwealth Treasury. In fact, they will probably see it as a convenient way of spreading the burden of any future fiscal consolidation. It is the antithesis of the Commonwealth providing either horizontal fiscal equalisation or adequate funding of services to ensure that they meet appropriate national standards.

The Labor Party's policy is to continue Commonwealth funding of local government. Labor's position is to maintain the current arrangement of the Commonwealth providing a per capita grant. In the context of this legislation, that means reducing the amount of funding allocated to the states from the GST by an amount equivalent to the value of general local government funding and identified road grants. In that way, the present system of Commonwealth local government funding can be maintained and the effect on Commonwealth outlays is neutral. Local government has put two main propositions to the government, and I will deal with these in the course of the committee stages of the debate.