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Thursday, 9 June 1994
Page: 1651


Senator ABETZ (5.17 p.m.) —I rise to speak on the appropriations debate, with real concern as to what this Labor government is doing to my state of Tasmania and my country Australia, and indeed what it has been doing since 1983. I also want to take this opportunity to expand upon comments that I made in my first speech in this chamber about Commonwealth-state funding relationships.

  The 1994-95 budget tax implications have caused me a great deal of concern. I am concerned because this labor government has not been able to keep promises pledged to the Australian electorate. Even those taxation promises which the Prime Minister (Mr Keating) said were legislated—in other words, L-A-W, law—have now been broken. How does this Labor government explain the estimated tax revenue increase of $9.154 billion from 1993-94 to this financial year? That is the increase in just a year. How does this Labor government explain the 1994-95 tax revenue of $103.3 billion? The last budget delivered by the Fraser government on 17 August 1982 provided for that year estimated tax revenue of $41.8 billion. The estimated tax revenue for 1994-95 is $103.3 billion. This represents almost 2 1/2 times as much. The saying is true—`Labor equals high taxes', thus reducing individual choice. How does the Labor government explain the real tax revenue increase of 7.4 per cent between 1993-94 and 1994-95?

  Paul Keating told our fellow Australians that the tax decreases were already law: l-a-w. The deceit and dishonesty of this government appears to know no bounds. Labor taxes ordinary Australians and businesses to the hilt to cover up its mismanagement and incompetent handling of the Australian economy.

  Despite the increase in taxation under this government, we have not seen the gap between rich and poor diminish. Indeed, the gap between rich and poor is widening. The unemployment problem facing this country has not been addressed. Unemployment queues did not decrease with the One Nation package and I seriously doubt whether the current white paper will make a dent in these queues. Sure, we will see a fluctuation from time to time, but to hear Senator Schacht tell us during question time today that an unemployment rate of 9 per cent plus is good news is appalling. It is like saying to the Australian people, `You ought to be thankful that it is not 10 or 20 per cent; that 10 or 20 per cent of you aren't unemployed.' The so-called reduction, in fact, is only a reduction from the Labor-created, all-time high.

  I now seek to deal with the role of states and territories vis-a-vis the Commonwealth and service delivery. Traditionally, the states and territories have played a major role in the provision of public services in Australia. In fact, the states own purpose outlays represent about 45 per cent of total public sector outlays. The present allocation of tax powers in the Australian Federation means that the states and territories cannot efficiently and equitably fund these expenditures from their own revenues. State expenditure responsibilities substantially exceed their revenues. The reverse applies for the Commonwealth government.

  The trend over recent years not to reduce the impact of the so-called vertical fiscal imbalance by increasing state funding through general purpose grants has worsened the impact on the states. For people like me who cannot grasp the economic jargon `vertical fiscal imbalance', it means the people who raise most of the money do not spend it, namely, the federal government, and the people who do most of the spending do not raise it, namely, the state and territory governments. State government outlays are concentrated in areas of direct and real service provision, such as education, hospitals, police, and public transport. Commonwealth outlays are dominated by transfer payments such as pensions.

  The different role of Commonwealth and state outlays has important implications for financial relations between the Commonwealth and the states and, therefore, our Federation. While it can be argued that productivity savings are possible in state outlays, the same can also be said for Commonwealth outlays. We must also recognise that demand for state services rises with inflation, population growth and community expectations associated with any rise in living standards. The Commonwealth tax base reflects the changes in economic activity, including inflation and changes in population. State tax bases are less responsive to these trends and are more responsive to asset price fluctuations.

  As a senator with the honour of representing Tasmania, I am fully aware of the impact that Commonwealth-state financial relations have had on my state. Some of the concerns which need to be raised include: the extent of cutbacks in Commonwealth payments; the continual changes to funding arrangements since the termination of the revenue sharing arrangement in 1984-85—naturally, this extends to the on-going uncertainty regarding Commonwealth funding to the states from 1994-95 onwards; and the increasing intrusiveness of the Commonwealth government through the use of tied grants in expenditure areas which should be undertaken at the state level.

  When the Commonwealth government took over responsibility for income tax powers during World War II, the Commonwealth agreed to provide general purpose grants to the states as compensation. In fact, if we refer to Mr Chifley's second reading speech on the States Grants (Income Reimbursement) Bill 1942, he said:

The Government has undertaken to make to each State agreeing to that response a grant of financial assistance to compensate for the income tax revenue lost to the State . . .

He went on to say—and this is the vital point that needs to be grasped by this centralist government:

In the proposed grant, the Government has approached the problem reasonably and even generously so that no charge of interference with normal State functions can be seriously put forward by those opposed to the plan for a single taxing authority.

It is pity that this current Labor government, which seeks to eulogise Chifley, pays no attention to the words of Ben Chifley in 1942. I repeat what he said: `No charge of interference with normal state functions.' I will outline more of that later.

  Since that time, these grants have been calculated on a number of bases ranging from ad hoc percentage increases to a fixed proportion of a subset of Commonwealth revenues. From 1984-85, under this Labor government Commonwealth payments to the states have generally been determined on an even more ad hoc basis. The exception has been that the Commonwealth guaranteed to maintain the total level of financial assistance grants in real terms over the period 1991-92 and 1993-94.

  The current level of financial assistance grants to the six states as a proportion tax revenues has substantially declined over the past 20 years. Financial assistance grants are moneys paid in general revenue and can be spent at the discretion of the state or territory government concerned. For example, 1976-77 to 1984-85 financial assistance grants as a percentage of Commonwealth tax revenue stood at 18.9 per cent based on revenue sharing arrangements. Comparable figures adjusted on a compatible basis with the earlier period show that for 1993-94 this has fallen to 14.6 per cent—a substantial decrease and part of Labor's campaign of destroying our federal system and bleeding the states white.   Data indicates that in monetary terms there has been a cutback in the level of general revenue payments of $4 billion compared to the average level under the revenue sharing arrangements. How much is $4 billion? It is like winning $1 million every day for the next 4,000 days or for the next 10 years. That is a huge amount in anybody's language.

  While the level of financial assistance grants has fallen significantly, the reverse is true for the level of tied grants. Tied grants are federal moneys given to the states and territories to be used only for specific programs. They are generally known as specific purpose payments. Tied grants go to programs such as housing initiatives under the Commonwealth-state housing agreement and disability programs under the Commonwealth-state disability agreement.

  Compared with the period 1976-77 to 1984-85, the proportion of funds in the form of tied grants has increased significantly from 32.4 per cent to 43 per cent in 1993-94. In dollar terms, the increase in specific purpose payments between 1976-77 and 1984-85 was in the order of $235 million. Over the period from 1976-77 to 1993-94, tied grants initially decreased as a share of total Commonwealth tax outlays. However, from 1982-83 they have increased rapidly under Labor. When the Fraser government came to power in 1976 we saw a decrease in the number of tied grants. The Liberal government upheld the spirit of cooperative federalism between the Commonwealth and state governments. From 1983, when Labor came to office, the situation reverted and has got progressively worse. It says a lot about the spending priorities of this Labor government. Instead of concentrating on federal funding issues, the Labor government spends its time and energy pulling state and territory government purse strings. So much for the so-called `no charge of interference with normal state functions' which Ben Chifley, the Labor Prime Minister, advocated in 1942. So much for Paul Keating and the Australian Labor Party seeking to eulogise Ben Chifley. It is just further proof that Labor's rhetoric is not matched by its actions.

  At the end of the day, these budget figures, as figures, are not very exciting but their implication for our unique federal system of government is horrific. Funding for specific grants, as opposed to general purpose grants, does not mean very much to the average Australian by way of terminology. However, what is relevant is the impact this type of funding has had on the states and territories.

  States like Tasmania have suffered under the impact of the growth in tied grants. Tied grants give the federal government leverage to get the priorities on service delivery that it wants implemented in the states, irrespective of the priorities set by the democratically elected state government. In typical Labor centralist style it believes that, out of its glass house in recession-proof Canberra, it is able to determine Tasmania's needs and accordingly dictate Tasmania's priorities.

  Tied grants do not allow state governments to exercise their own independent judgment based on local knowledge and an understanding of the aspirations of their residents. Surely state governments, with their local knowledge and capacity to be responsive, should determine the priorities for delivery of services to target those in most need.

  Tied grants restrict the fiscal flexibility of the states to provide the necessary targeted services that state governments are responsible for providing. It is just like having a financial gun barrel held to the head of state governments. Indeed, this Labor government is nothing better than an assassin of our country, our flag and our unique and dynamic federal system of government.

  State governments are on the ground. They are close to the people who need day-to-day services such as hospitals, schools and other essential services. In fact, state governments are closer to the people than Canberra-based bureaucracies and deliver the day-to-day services that are required more efficiently, equitably and flexibly and know which services are a priority.

  Under this federal Labor government, tied grants have meant that state governments have not been able to determine priorities because their hands have been tied behind their backs. This centralist federal Labor government has sought to make political eunuchs of the state governments. Not only does it deny states from exercising their right to set priorities, it also seeks to dictate their domestic laws based on spurious decisions.

  Indeed, centralism under Labor is now going from the states to Canberra. And if that were not bad enough, Labor now takes it from Canberra to Geneva. Labor is centralism gone mad. The dominance of specific purpose payments has continued despite the endorsed objective of the October 1990 Special Premiers Conference to reduce the level of tied payments to that of the 1980s.

  Another consequence of the prevalence of tied payments is the costly duplication and overlap between Commonwealth and state service delivery. Over the past ten years there has been an increasing concentration of Commonwealth expenditure in areas of traditional state responsibility, such as education and health. At the same time, state and territory governments are undertaking functions that have traditionally fallen within the realms of Commonwealth responsibility—for example, income support and public rental housing assistance.

  The figures I have outlined today indicate that since 1984-85, when formal revenue sharing arrangements ended, the approach to Commonwealth-state financial arrangements has substantially disadvantaged the states. This is especially the case in small states like Tasmania.

  Measured against the benchmark data outlined earlier, financial assistance grants to the state and territory governments as a share of total Commonwealth tax have declined by $4 billion. The offset has been a $235 million increase in specific purpose grants to the state governments. This equates to a total net loss to the states of $3.765 billion. The states are paying very dearly for the federal government's overseas debt and gross mismanagement of the economy.

  And what about our debt? It is currently running at $164 billion! That is about $10,000 for every man, woman and child in Australia—approximately $10,000 worth of debt for every Australian. There is no social justice in living it up now at the expense of our children. This Labor government is mortgaging Australia's future and my children's future.

  On top of this chronic debt we have chronic unemployment. Without the debt, how chronic would our unemployment really be? Fundamental structural problems are facing my country and I despair at the duplicity of commentators and of this Labor government in refusing to acknowledge these gigantic problems.

  I have noted with interest the emerging battle in cabinet and caucus over the plan to reduce the proportion of specific purpose grants to the states. There appears to be a bun fight looming over this whole issue—a further indication that Labor has lost the plot. These Labor ministers should take themselves out of their airconditioned offices and limousines in Canberra and get amongst the real world.

  Back in the states and territories, the electorate is saying, `We want genuine service delivery. We want accountable service delivery. We want value for our taxes.' Hardworking Australians do not want to hear that their taxes are being hurriedly `tied up' by ministers in Canberra, as one journalist put it in the Canberra Times of 8 June. Nor do they want to hear and read that ministers are arranging new tied funding for specific programs with the states to protect their own ministerial portfolio funding power game in Canberra.

  Ministerial power games in Canberra do not deliver services to my fellow Australians; genuine concern, cooperate federalism and local decision making will. The Australian community deserves much more from their elected representatives, particularly those who make up the federal Labor ministry.

  In the light of the data I have put before the chamber today, the federal government should look seriously at redressing the imbalance in Commonwealth-state funding arrangements. I challenge the Prime Minister and the Treasurer (Mr Willis) to redress the Commonwealth-state funding arrangements at the 1994 Premiers Conference. I conclude by saying that I look forward to the return of economic responsibility that will be delivered in the first Downer budget.