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Thursday, 1 September 1994
Page: 783

Senator GIBSON (12.20 p.m.) —My colleague Senator Short moved an amendment on behalf of the opposition with regard to the States Grants (General Purposes) Bill 1994. It dealt with two matters: firstly, the continuing mismanagement of Commonwealth-state relations and, secondly, compulsory student unionism. My colleague Senator Abetz has spoken on the latter point, and I rise today to support Senator Short on the first matter, that is, the mismanagement of Commonwealth-state financial relations.

  This is a very serious matter. It is a long-term, basically strategic, problem which must be addressed by the Commonwealth and the states, and it must be solved if we are to have sensible government in Australia. The essential financial problem is known as vertical fiscal imbalance, and it concerns the relationship between the Commonwealth and the state governments. The problem right now is that the Commonwealth government is not addressing this problem.

  It is only in very recent years that the state governments have realised the seriousness of this problem, have recognised the need for change and have started putting forward suggestions for change. All the business groups in Australia, which have been forced, thank goodness, at long last to be internationally competitive, have realised that we have to be also internationally competitive and a lot more efficient in our government.

  Just what is this problem? The facts are that the Commonwealth collects approximately 79 per cent of total tax revenues in this country but is responsible for spending only 51 per cent. On the other hand, the states collect 17 per cent of total tax revenue but spend 43 per cent. The imbalance is the difference between revenue and spending. The remaining revenue collection is taken up by local government.

  At present the state governments rely on the Commonwealth for about half of their revenue; the actual figure is about 45 per cent. In my home state of Tasmania the figure is 54 per cent. That is the imbalance between revenue and spending between the Commonwealth and the states. It is called vertical fiscal imbalance: vertical—basically because people think in terms of the Commonwealth on the top and the states underneath; fiscal—because it is about government spending; and it is imbalanced.

  If governments do not have responsibility for raising money via taxes and charges, how can we expect them to behave rationally and efficiently in the spending phase? We have had a long tradition in this country of the state governments blaming the Commonwealth for all their ills, when in fact what is required is balance.

  Good management in any organisation demands using the principle of subsidiarity. In business terms, business organisations split up their organisations into individual profit centres for the business unit. In people terms within business, we have delegation back to individuals so that at the personal level responsibility is given to individuals. The same principles must apply to governments. The business world is forced to look internationally. What are its competitors doing? What is best international practice? What happens if we look at this matter internationally?

  The other great federations of the Western world—West Germany, the USA and Canada—have their states and provinces basically in balance. They recognised much earlier that balance is required; in other words, revenue and expenditure need to be approximately equal within the subsidiary states and provinces.

  What has been the history in Australia? The Commonwealth has always made some form of transfer payment to the states. In the period from Federation to World War II the level of financial transfer from the Commonwealth to the states was about 11 per cent of state outlays. During World War II the income taxing powers of the states were voluntarily transferred to the Commonwealth because of the war effort, and that has continued ever since. It is that change which has led to this vertical fiscal imbalance—this imbalance between revenue and outlays between the Commonwealth and the states.

  The Fraser government introduced a new federalism policy by proposing income tax sharing between the Commonwealth and the states. Unfortunately, at the time the states did not recognise the strategic problems they were facing in the long term, and that policy was not used. That legislation was repealed by the Hawke government in 1989.

  Going back for quite some time, the Commonwealth has also used special purpose payments to interfere more and more with what is happening in the administration of the states. Today, in rough terms, about half of the payments from the Commonwealth to the states are special purpose payments. With those special purpose payments we have at least two levels of administration and control—and sometimes three when it goes down to the local government level.

  This duplication of administration does and must lead to very serious problems. I refer to a recent Auditor-General's report entitled An Audit Commentary on Aspects of Commonwealth/State Agreements. That report highlighted many of the difficulties in the special purpose payments arena. The report found that programs suffered from a lack of clear objectives, an absence of performance indicators, and delays in financial reporting. The report also highlights that the cost sharing arrangements reduce incentives for both the Commonwealth government and the states to monitor what is actually happening and to manage properly the special purpose payments.

  We have a very serious problem which, I know, is still being looked at. But in the end, something has to be done to address this imbalance problem so that we do not have duplication, waste and overlap, and so that we have much better management at Commonwealth and state levels.

  At the Special Premiers Conference in Sydney in 1991 Prime Minister Hawke and Premier Greiner of New South Wales aimed to discuss the financial relationship between the Commonwealth and the states. They had an initiative planned for that conference which would return limited income taxing powers to the states. What happened? Our present Prime Minister, who was then on his ambitious roll to become Prime Minister, killed off that proposal and Prime Minister Hawke was forced to drop the initiative. Since then we have had a government led by Prime Minister Keating, who believes in central power. He believes strongly in a unitary centralised form of government, a point he clearly highlighted in his speech to the National Press Club in October 1991 when he said:

The Commonwealth would not only lose control over the national economy, but also lose its existing ability to influence what happens in the hospitals, in schools, in road construction and housing.

The fundamental flaw in the economic strategy of the government is that, while it preaches that it wants Australia to be an open, competitive nation, able to compete effectively with Asia, it cannot totally achieve that goal in the confines of its current attitude towards Commonwealth-state financial structures. For Australia to be open, free and competitive, it requires a far greater degree of regional flexibility in such areas as labour relations, business taxation, and state government economic and industrial policy and for the government to concede its centralist approach to national policy.

  We need a return to the concept of true competitive federalism, under which the states are actively competing to provide the best system of government, the most efficient and least costly delivery of services and the most efficient public services. All these things require the states to have adequate access to funding—no strings attached—and a correction of the current level of tax revenue imbalance between the Commonwealth and the states.

  At a meeting in Sydney at the end of July this year, that is what the state and territory premiers and chief ministers opted for. That is also the approach favoured by the coalition. I support the amendment moved by Senator Short.