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Wednesday, 11 November 1998
Page: 200

Mr KELVIN THOMSON (4:01 PM) —Mr Deputy Speaker, I join with other honourable members in congratulating you on your re-election to that most important role within the parliament. The States Grants (General Purposes) Amendment Bill 1998 is a non-controversial bill and as such is supported by the opposition. It provides the untied Commonwealth financial assistance to the states and territories for 1998-99. The untied assistance, of course, is that which may be spent according to the states' own priorities.

The bill authorises payments for the funding agreed to at the 1998 Premiers Conference of $17.1 billion for the financial year 1998-99. In doing so, the government has continued the Labor practice of indexing the pool of funds on a real per capita basis—that is, increasing both for inflation and for the increase in population. That is a fair funding formula in the view of the opposition, as demand for state services such as health, education, infrastructure, and the like, is often driven by both inflation and by population changes.

The bill also authorises the revenue from the safety net arrangements introduced to make up for the state revenue shortfall arising from last year's High Court decision in the Walter Hammond case, which invalidated state business franchise fees concerning tobacco and the like as being uncontroversial, that is, $6.5 billion for 1998-99.

The Prime Minister likes to pretend that he is a successful federalist. He pretends that the Commonwealth is good at cooperative relationships with the states. However, frankly, his government's record has been somewhere approximating the worst in history. There have been three premiers conferences with Prime Minister Howard and Treasurer Costello. All of them have been disastrous, which I think is an unparalleled effort.

Just prior to the 1996 meeting, Treasurer Costello announced an enormous new tax burden on the states, some $1.3 billion per annum. That ambushing poisoned the water for the conference. It was a farce. In the end the Treasurer had to back down on his tax proposal, except in respect of some cars. Instead, he cut $1.5 billion from the funds available to the states over three consecutive years, thereby cutting much needed services for Australian families. This was the meeting where the states put on the record what they really thought about the Treasurer and in the end the premiers refused to meet with the Treasurer, and the Prime Minister had to meet with them alone to finally salvage an outcome.

Last year we saw a complete collapse of the COAG process, which has remained completely stalled through the whole of this wasted period of office. Finally, we had an unprecedented result where the premiers simply walked out and went home. Without question, this government has the worst record in Commonwealth-state relations of any government.

We saw the proposed start of a new five-year Medicare agreement delayed due to this government's ongoing incompetence. We were unable to get, for a very long period of time, an agreement between governments of this country concerning the delivery of health care for their citizens—again, an unprecedented outcome which smacks of incompetence. So, if we look ahead at what is in store in relation to federal-state financial relations, I do not think the picture looks too rosy. I want to come to some of the thoughts that opposition leader Kim Beazley has been expressing about the future of federal-state financial relationships in the event of the GST tax package being successful.

In addition to the issue of federal-state financial relations, we also need to remember that the GST will detrimentally affect the third tier of government—local government. I know that local government has been expressing great concern about the impact of the government's tax package on it, both in terms of the direct extra costs which local government will experience through its own GST liabilities, but also through the way in which the change to federal-state financial relations proposed by this government through the GST will impact on direct local government financial relationships and diminish its position. I think that is a bad thing. Local government plays a most important role in the life of Australians, and to see its financial position disadvantaged in the way that the federal government proposes is not a good thing.

This debate, which looks at the Commonwealth-state implications of the government's tax package, amongst other things, needs to look at what implications the tax package has for other policy areas, the social policy areas. Indeed, I think what we have to do is to look at the social implications of changes to Commonwealth-state financial relations which the coalition proposes. One of the things that will increasingly be understood about the tax debate is that it did not end on 3 October; in many important respects it is only now beginning, as people come to understand and want to debate what its implications will be in a whole variety of areas which were not covered by the taxpayer funded $15 million or so in advertising supporting the government's changes.

We need to have a much closer examination of the GST package's implications for Commonwealth-state financial relations. As opposition leader Kim Beazley has observed, what this government is proposing with its GST is the most radical change in Commonwealth-state financial relations since the Commonwealth's acquisition of uniform taxation powers during the Second World War. That much has certainly been recognised in the debate, but only ever suggested as a good rather than for its potential dangers.

What the supporters of the change fail to recognise in particular is the very clear intention of this government in proposing the structure it does for Commonwealth-state financial relations. What we have not recognised sufficiently so far is that this issue goes to the very heart of government service delivery. It goes to the heart of an agenda of some 30 years standing in which, through special purpose payments, the Commonwealth government has jointly with the states laid the fundamentals for equity and social justice in the Australian community. That is an agenda which certainly developed in the postwar climate where we had a greater sense of understanding of Australia as a nation and the need for the Commonwealth to be involved in service delivery; and it certainly came very much as a result of the work of the Whitlam government, during the mid-1970s, drawing attention to the need by Australians for better services as our community matured and developed.

The theory on which this government operates is that it is now time to sweep that aside, that premiers conferences should come to an end. The basis of the Commonwealth's tax package is that it will vacate about $30 billion of direct and indirect taxes and the system of financial assistance grants. The states, in return, will vacate a series of indirect taxes and will gain GST revenue worth about $30 billion. That, it is said, will give the states financial independence. And the public awareness of this shift is largely focused on the government's promise that the GST will not rise without a unanimous state vote.

We note that no less—or more incessant—a critic of the ALP than Alan Wood has written of John Howard's tax plan, that it:

`. . . leaves the Commonwealth largely dependent on the income tax base for its revenue, a situation it will not long accept. There are several ways it can get around this, such as pushing spending programmes onto the States, cutting back Special Purpose Payments to the States . . . or simply legislating to reduce State access to GST revenue.

We can see from this that the Commonwealth has a number of options if it finds the package unsatisfactory in future.

Kim Beazley has pointed out that this is likely to be highly detrimental to long-term equity in the tax system, that it is confusing in a range of public policy areas critical to both fairness and productivity in Australian society, and that these dynamics will produce constant challenges to the political process when confronting the adequacy of public provision in areas like health, education, community services, transport and the like. So the situation we will have is the Commonwealth's passing more and more responsibility onto the states and the states operating with a veto over changes to the GST. However, increasingly they will be forced to respond at the level of the lowest common denominator, that is to say, the cheapest possible service.

It ought to be noted while we are on this theme that there is nothing preventing the states from reinstating the taxes which they are required to abandon as part of the GST plan. They are required to abandon them now but there is no constitutional or other limitation on the states simply reintroducing those taxes or user charges in response to cuts in Commonwealth special purpose payments. So for this reason I think it is necessary that the Prime Minister guarantee that, as part and parcel of the taxation arrangements, there will not be cuts in Commonwealth specific purpose funding for the states, so that we will not come to a situation where we are faced with a terrible choice between fewer services, higher GST, or a myriad of increased state taxes and user charges. I think we would all understand that both of those revenue raising options there would be highly regressive.

We are concerned that the Commonwealth is prepared in the first instance to cut special purpose payments and require the states to pick up the slack. That view was something the Prime Minister was expressing during the election debate. When the issue of dental care arose, the Prime Minister said, `That is a state responsibility.' He has that same position whether the issue be education, aged care, transport, or other community services—eventually, I guess, everything bar defence and pensions. Currently, the Commonwealth provides in the order of $16 billion a year in special purpose payments. Within that sort of funding, we get all the equity programs in education and the Commonwealth contribution to aged care funding via HACC, just to point out a couple. These are important areas where continued, ongoing Commonwealth support will be necessary and where we cannot afford to have the Commonwealth retreating from the field.

If we look at the area of public hospitals, the states have referred to an annual shortfall of $1 billion. The Commonwealth's initial response in the area of the Medicare agreement was $180 million. The states may have been submitting an ambit claim, but certainly the Commonwealth's offer was inadequate; it was simply not going to meet the ongoing health needs of this country. So Labor responded to that with an election policy for an extra $500 million per annum over and above the coalition's $180 million. We considered that sort of additional support to be essential.

At the same time as the Commonwealth is inviting the states to fill holes in the area of services, it is also going to need the states to help it fill a hole in the business tax agenda. We saw during the election campaign quite a few business organisations going quiet in the hope of post-election concessions, the foremost of which, no doubt, was the abolition of payroll taxes. This is now in the gift of the states, but it was the Commonwealth that started off debate in that area. The not so subtle invitation to the states now will be to raise the GST by the required three to four per cent, in order that the payroll tax can go.

Mr Hockey —No.

Mr KELVIN THOMSON —Well, the minister says no, but the government knows that initially modest GSTs in Europe have risen up to 25 per cent under various pressures, entirely similar to the ones that we are talking about now—the same sorts of pressures with the same sort of outcome: up goes the GST. And there is plenty of room to move.

Dr Southcott interjecting

Madam DEPUTY SPEAKER (Hon. J.A. Crosio) —Order! The member for Wills has the call. I will call the member for Boothby in a moment.

Mr KELVIN THOMSON —As the Premiers Conference disappears, perhaps, and as the formula of state financial independence is reinforced, the cooperative model of the past 30 years of critical service delivery will give way to the opportunity for that electorally timed federal income tax cut. There is no doubt in my mind that this process is going to institutionalise—indeed, exacerbate—inequity in the Australian taxation system. It will reduce the progressivity of the Australian taxation system.

For those people who support a GST as a supposed growth tax which will be a way in which services might be protected, they are wrong. There is no protection or guarantee of service protection inherent in a GST. The prospect of the federal income tax cut will be to put more service responsibilities back onto the states, looking to them to boost the GST and to reintroduce some of those user charges that people are so distressed about; we will still see all of that. What we will have is the balance of regressive taxes in the Australian taxation system increasing as the balance of progressive ones decreases.

Public expectation of the Commonwealth is high in educational and social services and in public infrastructure. Regrettably, the government has been able to get away with things like cuts to dental services; but, if they are able to get away with the GST package, we will see them increasingly endeavouring to get out of the area of service provision, and passing those responsibilities on to the states.

Before I conclude, the other thing I ought to say about federal-state relations is that it is regrettable that we find a race to the bottom, or a dutch auction, going on in terms of state fees and charges. One of my colleagues in the Victorian parliament put a question on the notice paper to the Victorian Treasurer about the cost of the decision in 1995 by the Queensland government to cut stamp duty on share transactions, and the Treasurer's answer came back that, of course, in the light of the Queensland government's decision, Victoria had halved its rate of stamp duty on share transfers and that the cost of that tax change was estimated at an average of approximately $125 million per annum over the four years of 1995-96 to 1998-99. Clearly, that is a very substantial loss in income; and it was a theme which was picked up as recently as this morning by the Courier-Mail in its discussion of the states' arguments about—

Honourable members interjecting

Madam DEPUTY SPEAKER —I do not wish to interrupt the member for Wills, but I am finding it very difficult to hear you, and I am sure that Hansard is, as well. I would like some courtesy from the people sitting at the front table. Thank you, Minister Hockey; thank you, the member for Boothby. The member for Wills has the call.

Mr KELVIN THOMSON —Thank you, Madam Deputy Speaker. The Queensland Courier-Mail has been commenting this morning on what it describes as the `outbreak of war' among the states as they prepare to meet the Prime Minister to discuss the impact of the GST on their finances. We have had some debate between Queensland, New South Wales and Victoria about the way in which the GST package will impact on them—indeed, should it impact on them. It is regrettable when we get to a situation where states decide to reduce their own taxes and in turn cause other states to do likewise. As a result, the services which are needed in the community diminish.

It is certainly my belief that where Commonwealth-state financial relations are concerned there is an obligation on the states to do what they can to raise revenue in a progressive way. Where their taxation is regressive there is clearly a case for Commonwealth support but, where the taxation arrangements that they have in place are progressive taxes, I think it would be desirable that the states continue to maintain that taxation effort.

As I said at the outset, this is not a controversial bill and therefore the opposition will be supporting it.