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Thursday, 18 November 1993
Page: 3225


Senator GIBSON (10.36 p.m.) —The States Grants (General Purposes) Bill 1993 gives effect to arrangements arising from the Premiers Conference and the Loan Council meetings of 5 July of this year whereby the Commonwealth and the states agreed on revenue grants and general purpose capital grants for this current financial year. I wish to talk about two major issues that have been with us for quite some time with regard to the financial relationship between the Commonwealth and the states. The first issue goes by the terrible name of vertical fiscal imbalance and the second issue relates to disclosure of financial status of the governments and accrual accounting.

  In relation to vertical fiscal imbalance, Australia's federal arrangements are about the most imbalanced in the world. The Commonwealth currently collects 79 per cent of tax revenue and spends 51 per cent of total outlays. The states and territories collect 17 per cent of tax revenue and spend 43 per cent of total outlays. Before World War II the Commonwealth transfer payments to the states were only about 11 per cent of Commonwealth outlays; today they are 43 per cent of Commonwealth outlays. In my home state of Tasmania they actually represent 54 per cent. During World War II the Commonwealth took over the taxing powers from the states and since then there have been progressive increases in its revenue base and a decrease in the states' revenue base. In 1952 the land tax was left by the Commonwealth exclusively for the states. In 1971 payroll tax was left exclusively for the states.

  This fundamental imbalance between the Commonwealth and the states leads to very serious problems because responsibility is not tied to revenue raising. In its new federalism policy, the Fraser government introduced legislation to allow income tax sharing between the Commonwealth and the states and allowed the possibility of the states to have a tax surcharge. That was not taken up by the states and the act was repealed by the Hawke government in 1989. As to the problems with this imbalance, we have had increasing control by the centralist Commonwealth government and creeping increases in specific purpose grants. We have seen great increases over the last 20 years. In the early 1970s specific purpose grants were 20 per cent of Commonwealth grants; today they are up to 53 per cent.

   Without that responsibility for revenue raising by the state governments and without the Commonwealth also being closely tied to the expenditure, we have silly decisions being made. We have a disincentive for creativity, efficiency and responsibility in government revenue raising and expenditure. Just recently we have had the crazy example of expenditure in southern Tasmania—where I come from—on a double highway to the airport, which was a Commonwealth government decision, when there was no proven need for such expenditure. This is at a time when other parts of the state of Tasmania could really do with expenditure on upgrading of roads, to the better efficiency and economic wellbeing of the whole of the state.

  We have states spending 50c dollars and so there is little incentive to control costs and promote efficiency. This federal-state financial relationship has also been a problem in other countries such as Canada and the USA. To keep the matter short, the recent report of the Auditor-General entitled An audit commentary on aspects of Commonwealth-state agreements also criticises the lack of clear objectives, absence of performance indicators and delays in financial reporting; in other words, no direct responsibility. The Auditor-General's report found that there was reduced incentive for the Commonwealth to monitor and manage special purpose payments.

  The coalition's policy, announced in 1991, entitled Building a Better Federation, firstly, advocated support for the federal system; secondly, agreed that the Commonwealth-state financial arrangements needed reform; thirdly, acknowledged that there needed to be a matching of revenue and expenditure by all governments, in other words, we believe in competitive federalism; fourthly, agreed with the proposals by the Hawke government, the premiers and chief ministers in 1991 to work towards cooperative federalism; and, finally, asserted that reform of these arrangements would be one of the most effective and lasting ways to boost Australia's economic performance.

  What happened? The Hawke government recognised these problems and, after conferring with the premiers, arranged a Special Premiers Conference for December 1991 to discuss the possibility of returning some income taxing powers to the states to reduce this vertical fiscal imbalance. However, this initiative, aimed at the strategic wellbeing of all Australians for the long term, was killed off by Mr Keating's attack on this process.

  Mr Keating's attack was aimed at his own personal ambition in trying to secure the support of the Left to overthrow Mr Hawke, and it was also motivated by his very strong belief in the centralisation of power here in the Commonwealth, Mr Keating being a born centralist, as we have seen in recent days with the push for Mabo and the industrial relations bill.

  If we wish Australia to prosper, this issue of responsibility between the states and the Commonwealth and the imbalance between revenue raising and expenditure must be addressed. It is one of the most important things that has to be tackled in the near future.

  The second issue that I will deal with very briefly relates to disclosure. Following the fiasco over the Kirner government's exceeding the Loan Council agreements, we must have a system of better disclosure of governments' financial status. One of the key parts of that—the Senate Select Committee on the Functions, Powers and Operation of the Australian Loan Council, of which I am a member, is dealing with this matter—is a move to accrual accounting by all governments so that there is a proper understanding of the real financial status of governments, the same as happens in the private sector.


Senator Panizza —And local government.


Senator GIBSON —And also in local government. There have been significant changes in the last two years. Arising from the heads of treasury meetings, a couple of reports have been put before the meetings of the premiers and the Prime Minister on this issue. Arising out of that, today we now have better reporting of where things are and, essentially, a commitment to have better reporting in the future. In the end, we need to have all governments committed to giving full accrual accounts of their total financial situation—that is, not only their borrowings but also their forward budget estimates and income estimates—so that all Australians understand where governments are going. We will then have more responsible and more effective government in Australia.

  These are two major issues which will have to be addressed during the 1990s. I have raised them tonight because they are very serious and important strategic issues for Australia.

  Question resolved in the affirmative.

  Bills read a second time.

Ordered that consideration of the bills in committee of the whole be made an order of the day for the next day of sitting.