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Former advisor suspicious of PM's warning -

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LISA MILLAR: For nine years Ken Wiltshire was a member of the Commonwealth Grants Commission - the
body that advises on federal-state finances.

He's now a professor of public administration at the University of Queensland and he's suspicious
of Kevin Rudd's warning to the states about tough economic times ahead.

I asked him earlier if the leaders, though, would be surprised by the message.

KEN WILTSHIRE: Well, perhaps not but I mean I am a bit surprised. The Prime Minister and Treasurer
have been telling us for days that the Australian economy is robust and it will survive this crisis
and there is nothing to worry about and now all of a sudden we've got a panic on our doorstep.

LISA MILLAR: Well, they have been told to expect lower tax revenues at least. What sort of disarray
might that throw the states budgetary planning into?

KEN WILTSHIRE: Oh, I am sure their revenues will fall. That is for sure but they are making hay out
of the GST. The GST has been an enormous growth tax ever since they inherited it so that is an
offset and from what we can hear, the property values will start to rise before too long as well.

Their other main source of income is payroll tax and there doesn't seem to be any great increase in
unemployment so at the moment, I don't think the states are facing a crisis.

LISA MILLAR: The suggestion is that the state government budgets are under pressure because of
falling property turnover while the Commonwealth is missing out on capital gains tax and
superannuation fund tax revenue.

KEN WILTSHIRE: Yes, well I am sure all those things are true but don't forget the Commonwealth is
sitting on a budget surplus of more than $20-billion. It has got about three major funds stacked
away including infrastructure funds and I see Premier Brumby is calling for that money to be
brought forward which to me makes a lot of sense in the current climate.

So, you know, I think the Federal Government is using this as a ploy. Just as an excuse to try and
cut back the funding to the states.

LISA MILLAR: You think that is their ulterior motive here?

KEN WILTSHIRE: I am sure of it and also it looks like they are going to put the pressure on states
- more conditional funding for schools and health. I mean, let's be honest about this. Kevin Rudd
is morphing into John Howard. You know, cooperative federalism is dead. He is just running a
centralist agenda and he is using every excuse he can to exert control over the states including
the threats of takeover of hospitals and some areas of education.

So, I mean he was elected on a promise of ending the blame game but what is going to happen today
is that has been killed off as well and from now on the states will be able to blame Canberra and
quite legitimately.

LISA MILLAR: Well, given that all but one of the leaders belong to the Labor Party, what do you
think the reaction is going to be?

KEN WILTSHIRE: Well, I think the honeymoon is over. I mean even New South Wales is not going to cop
it.

You may have noticed they refused to accept the computer funding in schools from the Federal
Government because the Federal Government won't provide all of the extra servicing and
infrastructure costs that go with it.

The states are unhappy about a number of other policies. You know, I think this was all window
dressing for the election and the whole thing is starting to fall apart and it is not just because
there is a Liberal government in Western Australia. The other states too are starting to realise
what they are in for.

We've got the climate change costs coming up shortly as well and the states haven't been guaranteed
a reasonable share of the infrastructure fund so they are obviously quite nervous and the ones that
are facing elections pretty soon are going to be very nervous and putting pressure on the Federal
Government.

LISA MILLAR: What are they going to say when Kevin Rudd today tells them to tighten their belts?
Expect less money?

KEN WILTSHIRE: Well, I think they are going to rebel. I think this is the end of cooperative
federalism. I think this will be the beginning of the states starting to say well enough is enough.

We have played along with this and we have done a lot in harmonising regulation. We've harmonised a
whole range of legislation and we have tried to achieve uniformity in creating a common market.

It is about time the Commonwealth Government now played its part in this so-called partnership.

LISA MILLAR: Are any of the states in a better position to wear a downturn in their budgetary
outlook?

KEN WILTSHIRE: Well, obviously we have got a two-speed economy and Australia in the states like
Queensland and Western Australia who have a bigger resource base have traditionally been stronger,
mainly because of the export of commodities.

But New South Wales is considered to be, to some extent to be the basket case at the moment. So
there are differences between the particular states and territories as well.

But if the climate change policies are introduced, you can imagine what that will do to states like
Queensland and Western Australia if the resources sector gets slammed despite the fact that there
might be concessions for export industries.

So, yes, it is not an even picture across Australia but the differences are not enormous yet.

LISA MILLAR: You think today might be a bit of watershed as far as state-federal relations go?

KEN WILTSHIRE: I do. I think in terms of attitudes and in terms of crimes and of course, in a
crisis you know, these positions usually come to the fore because people get particularly concerned
about the future but if the Commonwealth really tries to wave a big stick and uses the global
financial crisis as an excuse, I just don't think the states are going to wear it.

LISA MILLAR: That is Prof Ken Wiltshire from the University of Queensland.