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Monday, 11 November 1991
Page: 2877


Senator SHORT (10.24 p.m.) —The States Grants (General Purposes) Bill 1991 is a traditional machinery Bill which implements the decisions agreed at the Premiers Conference and Loan Council on 31 May this year. The Bill provides for general purpose assistance to the States and the Northern Territory in 1991-92 for an amount totalling $13.7 billion. The amount of funds paid by the Commonwealth to the States and the Northern Territory is, of course, based on a formula set out in the Bill. The formula is recommended by the Commonwealth Grants Commission and is based mainly on a weighting for the population. Payments to the ACT are presently covered by Appropriation Bill (No. 2) 1991-92 because the ACT, which has only recently moved to self-government, has not yet generated the statistical base for funding on the Grants Commission formula.

  The Commonwealth accounts for something like 70 per cent of public sector revenues—in fact, the figure is closer to 80 per cent—but its own outlays account for only about 50 per cent of public sector spending. This is the underlying content of the term `vertical fiscal imbalance'. Vertical fiscal imbalance, the imbalance between the relative expenditure and revenue raising responsibilities of the Commonwealth and the States, was recognised by all concerned until very recently—until the last few days—as a major problem and a major form of inefficiency in the operation of the public sector in Australia. Indeed, fundamental reform of Commonwealth-State relations is one of the most important requirements that this nation has, as we head towards the twenty-first century with the overwhelming requirement for us to be a more efficient and competitive nation. Integral to that overall reform is the need for major change to the financial relationship between the Commonwealth and the States.

  It was only 16 months ago, in July 1990, that the Prime Minister (Mr Hawke) announced, in a quite blatant and rhetorical blaze of self-promotion, the establishment of a series of Special Premiers Conferences to address reforms to the fundamental problems facing the federation such as the imbalance in the financial relationship and the fact that there is great duplication and overlapping of functions between the Commonwealth and the States. This duplication is due largely to the fact that, over decades, there has been a continuing encroachment by the Commonwealth into areas that constitutionally and traditionally have been the preserve of the States. In announcing the Special Premiers Conferences in July 1990 the Prime Minister, on behalf of the Commonwealth, gave the States every indication that the Commonwealth Government would be prepared to look seriously at the major review and reform of Commonwealth-State relations and, particularly, reform of the financial relationship.

  It is accepted on all sides that unless something significant is done to correct the vertical fiscal imbalance that now exists, and unless something is done to fix the financial relationship between the Commonwealth and the States, any other reforms that are undertaken will be gravely diminished by virtue of their not being accompanied by financial reform. The Prime Minister gave every indication that the Commonwealth was willing to look seriously at fundamental financial reform.

  In the ensuing 16 months the Commonwealth has, until the last two weeks, given every indication that it would be prepared to look seriously at significant reform of that financial relationship. In the last two weeks that has gone absolutely askew with the further charge on the leadership of the Government by the former Treasurer, Paul Keating. Tonight that has led to what I believe is a huge setback for Australia with the very understandable decision by the Premiers, given the attitude of the Prime Minister, to abandon the Perth Special Premiers Conference scheduled for next week. That is a devastating blow to the Prime Minister. It is a huge setback to Australia. Whereas two weeks ago we had every prospect of proper reform in this nation, that has now been blown out of the window.

  Debate interrupted.