The move by NSW, Victoria and Western Australia to set up an inquiry into federal-state financial relations should be dismissed for the political stunt that it is. The Treasurers of the three states met last week to announce their review. The three are net contributors to the equalisation process – called horizontal fiscal balance. Queensland and the ACT are about neutral, though just on the receiving side and the Northern Territory, South Australia and Tasmania receive the lion’s share of equalisation payments.
So this inquiry is a whinge about these three states having to shoulder their fair share of the responsibility of being part of the Australian federation.
The benefits of federation have been shared among all Australians for more than a century. They include the benefits of free trade, the efficiencies of more uniformity than if the six colonies had become separate nations, the benefits of being able to deal with the world as a larger block and the intangible benefits such a the pride of nationhood. These benefits outstrip the detriment suffered by the better off states in being called upon to make equalisation payments.
The payments are fundamental to nationhood. Their objective is to improve equity for all Australians, so that every Australian, no matter which part of the nation they reside in, can enjoy as far as practicable equal access to government services.
Over the years, a complex process has developed by the Commonwealth Grants Commission to calculate these payments. The fact it is complex does not make it unfair. To the contrary.
The whole arrangement was given a thorough overhaul at the time of the introduction of the new tax system. For the first time since World War II, the states got direct access to a growth tax – the GST revenue. All states, territories and the Commonwealth had direct input into the overhaul and they all have input every year into the process of setting the grants.
The NSW Treasurer, Michael Egan, lamented that while NSW did not mind propping up the weak, he had objection to helping the strong, like Queensland which had no debt and the ACT which had the highest per capita income in Australia.
He misses several vital points. Queensland and the ACT are only just on the side of being given any payments. Debt position and average income are not the main criteria for equalisation payments. The payments are made to overcome natural attributes of the state or territory that result in governments having to spend more or being less capable of raising as much revenue as average. Northern Territory has a low population with a high proportion of Aborigines; Tasmania has the difficulty of Bass Strait and South Australia has huge desert with fewer natural resources than Western Australia. Queensland is large and the ACT has special costs from being the national capital but those are largely balanced out by other favourable things.
The inquiry proposed by the three contributing states will inevitably be tainted with bias in the absence of input from the Commonwealth and other states and territories.
These three states should realise that Australia is not a loose arrangement of colonial states, but an integrated nation. The proper place to put their concerns is to the Commonwealth Grants Commission. If they are well-argued and have merit, they will result in change, as the ACT found out when it argued for change in the late 1990s.