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High Court decision may affect State wholesale tax revenue from petrol, alcohol and tobacco; former Minister, John Kerin, to resign from Parliament -

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QUENTIN DEMPSTER: The experts say it will be one of the most important developments in Commonwealth-State financial relations; the Federal Opposition says it could mean a billion dollar tax bonanza for the States at the expense of you, the consumer. Here's Paul Lyneham with the details.

PAUL LYNEHAM: A racy headline writer would probably describe it as 'Porn kings spark billion dollar tax grab' - but of course there's a lot more to it than that. The story began here, in Canberra, as a row over tax between the ACT Government and the X-rated video industry. Next Tuesday, though, it will culminate in a High Court decision that many believe will put an end to more than $3 billion worth of State wholesale tax revenue - business franchise fees and excise on petrol, tobacco and alcohol. For the States, that's a nightmare, and if it happens only the Commonwealth can save them for the Court will have upheld section 90 of the Constitution that says only the Commonwealth can collect excise and it must be at a uniform rate.

Trouble is the States all have different rates at the moment and none of them want to lose revenue if and when the Commonwealth starts to collect it on their behalf. So what rate does the Commonwealth set? If the benchmark is to be South Australia, which currently has the biggest take overall, then most other State treasuries will get a windfall, while the wholesalers of petrol, tobacco and alcohol will face an extra tax bill that some say could be as high as a billion dollars.

Now, to stop them passing this bill straight on to us, the consumers, the Commonwealth says the winning States must give their windfalls back. But how? How real is the danger that we'll once again see that old budget time headline 'Cigs, booze, petrol up'?

Well, Shadow Treasurer, Alexander Downer, how real do you think is the danger that we're all going to get slugged over this?

ALEXANDER DOWNER: Well, I think it is very real, Paul. Of course it is dependent on the High Court's decision on Tuesday, but if it goes as generally expected it will go, the solution that the Commonwealth appears to be offering at the moment is to take the highest taxing State - as you say in your introduction South Australia is the benchmark - and then apply those taxes across the board which will not only mean an extra billion dollars worth of tax take by the Commonwealth but for, say, motorists in Queensland it's going to mean another 9 cents a litre on their petrol.

PAUL LYNEHAM: Yes, but the Commonwealth says the States insist that none of them lose and they've got no choice but to take the South Australian benchmark.

ALEXANDER DOWNER: Well, what we've argued is that the Commonwealth have had at least a year to consider this issue and, of course, there's nothing that can be done now about the past but to make the point that they, in that year, should have been sitting down with the States and talking about rebuilding Commonwealth-State financial relations which have just become a mess.

PAUL LYNEHAM: Well, they say they've been talking about this since the Premiers' Conference and that it's taken until the last few weeks for the States even to agree on anything, that it's a lot easier said than done.

ALEXANDER DOWNER: Well, the States' position is understandably that they don't want to lose revenue, and as you rightly say, it's hard to see a simple solution to that. And, of course, given the situation we're in now, and there has been no satisfactory overall review of Commonwealth-State financial relations, the Commonwealth will have to throw out a safety net after Tuesday. But, over and above that, the Commonwealth will then, in my view, have to move towards a total review of Commonwealth-State financial relations to do a couple of things - first of all to ensure that States retain at least some financial autonomy and secondly to ensure that Australians themselves don't end up with an overall increase in their tax burden which is, of course - and not surprisingly coming from Mr Keating - what the Commonwealth is proposing at the moment.

PAUL LYNEHAM: But the Commonwealth says it doesn't want to make a zack out of this, they want this to be revenue-neutral. Do you believe that?

ALEXANDER DOWNER: Well, they say that, of course, in the first year. Who knows what Mr Keating would do in ... years. But they say that the States should refund to citizens of those States any windfalls. But how are the States going to do it? For example, I mean, the money is going to come from smokers, drinkers and motorists. How is Queensland going to refund to motorists the 9 cents a litre extra that motorists will have to pay for petrol?

PAUL LYNEHAM: Well, one idea they're thinking about in Queensland, I gather, is to get rid of registration fees.

ALEXANDER DOWNER: Well, in other words, they could abolish some other taxes. That would be one ....

PAUL LYNEHAM: Directly affecting motorists.

ALEXANDER DOWNER: Well, in that case it would, yes. And in that particular instance you might or might not, depending on the amount of money involved, end up with a reasonably neutral solution.

PAUL LYNEHAM: Except if you use a lot of petrol.

ALEXANDER DOWNER: Yes, well of course it does depend on how much petrol you use, exactly. I mean, at the end of the day it is going to be all but impossible to refund precisely those people who have ended up paying the taxes. There will be winners and losers. In other words, the tax changes are going to amount to a redistribution within the tax system and they're going to amount to an increase in the overall tax burden.

PAUL LYNEHAM: My understanding is that the Commonwealth has told the States that unless the States can guarantee that the Opposition will see this through in the Senate, the Commonwealth will walk away from the deal.

ALEXANDER DOWNER: Well, I've spoken to three of the State Treasurers within the period of the last week and not one of them has mentioned that particular threat to me. We've talked through some of the implications of this issue, and obviously they don't want to lose revenue. I mean, that's understandable, from their point of view. But they ....

PAUL LYNEHAM: And you'd be fairly unpopular if you were the cause of that, albeit indirectly, wouldn't you?

ALEXANDER DOWNER: Well, we don't want the States to lose revenue. I mean, I don't want South Australia to end up - since I live in South Australia - to end up with a great shortfall in its revenue, so I want there to be a solution which is fair and balanced from the States' point of view. But, naturally enough, I don't want to see a solution which is unfair from the point of view of consumers in Australia, I mean, including motorists in low-taxing States like New South Wales, Victoria and Queensland.

PAUL LYNEHAM: And just quickly on another matter. I see John Kerin's decided to leave politics. Do you think he'll be a real loss to the Parliament?

ALEXANDER DOWNER: Well, he will be a loss because he's a man who, you know, at a time when the Labor Party is being taken over by a leader who is totally obsessed with partisan point-scoring, John Kerin is a man who has retained a bit of objectivity and balance. So I think we'll miss his objectivity and balance and it places more of the power in the Labor Party in the hands of people like Keating.

PAUL LYNEHAM: We could easily have a trifecta of by-elections in the new year, couldn't we - Mackellar, Werriwa and Bonython in South Australia?

ALEXANDER DOWNER: Well, at least. And there is talk of other Labor Members retiring as well who have previously been on the front bench and I think Australians will have some sort of super Saturday of by-elections during the course of the first half of next year, and we look forward to taking on the Labor Party in those by-elections.

PAUL LYNEHAM: No doubt you'd like to predict you'll sweep the pool, will you?

ALEXANDER DOWNER: Well, some of those seats, like Bonython I can tell you, are very hard for the Liberal Party to win, but look, I'm sure we'll do substantially better than we did at the last Federal election.

PAUL LYNEHAM: What a surprising prediction. Thanks for your time.