The Commonwealth Grants Commission has continued a trend of calling on Western Australia and Queensland to pull their weight in the federation.
The main beneficiary of this trend has been the Sydney-Melbourne-Canberra axis.
Expect some screams from Premiers Richard Court and Peter Beattie. The screams will be inconsistent with their boasts that their states are the new economic powerhouses of the Commonwealth. They are the new powerhouses and so should pull their weight under the general federal principle that the common wealth of the nation is distributed so each resident of the nation gets, as far as possible, equal access to government services.
The ACT used to help subsidise (although only slightly) the poorer states (South Australia, Tasmania and the Northern Territory) now it will be slightly subsidised by the larger states.
In 1993, Victoria, NSW and the ACT subsidised the others. Now Western Australia has joined the subsidisers, and Queensland has gone from being subsidised to being almost exactly on par. So the extent of NSW and Victoria’s subsidies has fallen. We can ignore the yelps from NSW and Victorian Premiers Bob Carr and Jeff Kennett suggesting the contrary.
The Table shows the extent of subsidy. A rating of 1 means a state or territory gets the average per head of Commonwealth grant money. Less than one means it is getting less than average and is subsidising the states with a figure greater than 1. The Northern Territory is hugely subsidised.
Overall the Commonwealth gives the states and territories $22 billion in general grants.
In striking the grants, the commission looks at the relative capacity of the states to raise revenue and to provide services.
The cost of service provision is fairly uniform (NT aside), but the capacity to raise revenue differs markedly, mainly due to economic conditions. Western Australia has shot up and now has the best revenue raising capacity of any state, 15 percentage points above average (SUBS: percentage points not per cent). The ACT’s revenue-raising capacity has gone down in recent years and is now 10 percentage points below average. This is mainly due to falling property prices, which affect critical areas like rates and stamp duty. The ACT’s cost of service provision is just a tad above average.