It makes a ripper yarn in Western Australia.
Western Australia is being ripped off, according to WA Treasurer, Eric Ripper.
In a colourful statement this week he called for “a complete overhaul of the system for distributing Commonwealth grants to the States’’.
“It is a crazy system that sees WA subsidising the Volvo driving, latte set of the Australian Capital Territory who have the highest per capita income of all Australians,’’ he said. “WA deserves greater recognition of the wealth it generates for the nation. The irony is that with a fairer funding system, WA could generate even greater wealth for the nation.”
This jingoistic tripe is dished out regularly by one state premier or another whenever they see a financial disadvantage to their state or see that a bit of good old Canberra bashing will attract a few votes.
Remember in 1998, NSW Premier Bob Carr put out a newspaper advertisement stating, , “If you never never go, you’ll never never know where $540m of NSW taxes get snapped up every year.” Under a picture of a crocodile it explained, “The shores of Lake Burley Griffin has a more formidable predator than the salt-water crocodile. It’s called the Commonwealth State Grant system and it costs the NSW taxpayer and arm and a leg. Last year, for example, the combined demands of the Northern Territory, South Australia, Queensland and Tasmania put the bite on NSW for a staggering $1.5 billion.”
Ripper spun the same yarn. The grants system “fleeced Western Australians of $374 million this year’’, he said.
Ripper got himself into a big non sequitur. He said all those latte-drinking, Volvo-driving Canberrans had “the highest per capita income of all Australians’’ and so did not need the extra Commonwealth funding.
He misses the very point of federation. The “fairness’’ of the distribution of Commonwealth grants cuts both ways if viewed in Ripper’s simplistic way. On the distribution side, one might argue that the money should be distributed according to population. But what about the revenue side? Surely, if a state or territory contributes a give portion of revenue it should get the same portion back in distribution. Now, as Ripper states, the ACT has the highest per capita income in Australia and the highest gross sate product per head. That means it contributes more to Commonwealth revenue per head in income tax and GST. So surely, it should get a commensurately greater share back.
On the population equation, the ACT has 1.63 per cent of the population yet gets 1.86 per cent of the funding projected under the current Budget. Shock, horror. Subsidy to latte-drinking, Volvo drivers.
But on the revenue equation, the ACT provides 2.4 per cent of revenue to Commonwealth coffers yet gets just 1.86 per cent of the funds, as Chief Minister Jon Stanhope pertinently pointed out this week. Shock, horror. Over-worked, highly educated, high-income-earning Canberrans subsidise lazy, uneducated rust-bucket states.
The transfer of money from the Commonwealth to the states is a big-ticket item. At $54 billion it is about one 15th of total gross national product and a little under a third of total Commonwealth revenue.
The money is dished out under a formula worked out by the Commonwealth Grants Commission. The formula and the commission try to do the decent thing by individual Australians. It recognises that Australians are Australians first and residents of a particular state or territory second. States and territories that have certain natural disadvantages should get extra Commonwealth money so that the individual Australians residing in those states and territories get the same advantages as residents of other states and territories when it comes to the provision of government services. That is why our federation is called a commonwealth. It ensures that the common wealth is for all. Australian national public finances are igneous not conglomerate. They are a single revenue account not a collection of separate state and territory accounts.
The Northern Territory has a large indigenous population; Queensland is highly decentralised; South Australia has large deserts with no resources; Tasmania has to contend with Bass Strait. These things need to be accounted for in the division of Commonwealth funds.
As for the ACT, we are indebted to Kate Carnell for getting a better deal from the Feds. Instead of warbling like Ripper or placing newspaper advertisements like Carr, she addressed the right forum – the Commonwealth Grants Commission directly. She argued — successfully — that the ACT suffered major disabilities as home to the national government. The ACT had large areas of unrateable national land. Its main employer (the Commonwealth Government) did not pay payroll tax. The bus service had to ply across ceremonial and national land where there were no passengers. As a result of her arguments, the ACT moved from being a net contributor to Commonwealth money to being level or a modest receiver.
In the meantime, the real issue goes unaddressed. The level of government that spends half the money (the states), raises less than a quarter of it. That level then has to go cap in hand up the line. It means that, whenever anything goes wrong in the delivery of public services, the states can always blame the feds for lack of money and the feds can always blame the states for failing to apply the money its gives the states effectively.
At least the states now have a guaranteed 100 per cent of all the GST raised. (And again, far more is raised in the ACT than is handed back). But they still rely too much on the feds. As a result, their tax base is getting narrower. The states rely too much on gambling and property taxes (particularly the ACT). And they stupidly gave away death duties in the 1970s. But that is story for another column.
In the meantime, WA’s Eric Ripper should keep his head down. I can add to Stanhope’s store of armoury if Ripper pushes his argument for a change to the funding system. In the 2002-03 Federal Budget, WA gets 11.3 per cent of the special purpose grants for only 9.8 per cent of the population – an “over-payment” of $325 million – almost exactly the same amount he asserted he was being ripped off.
There are swings and roundabouts in this federation and it is better to be on them than on your own.