With John Howard about to embark on his
great centralist dream, it’s worth contemplating what would happen if
an all-out war broke out in federal-state relations?

Parliament last Thursday, education minister Brendan Nelson threatened
to withhold $7 billion worth of funding for the states if they don’t do
as they’re told. But what would happen if the states got together and
decided not to accept another dollar of funding for anything from
Canberra? Initially, this would leave Canberra with a massive surplus
of cash, especially with an extra $40 billion from the GST, and they
would have to either directly spend it or slash taxes to give it back
to the public.

So how would the states then plug the huge holes
in their budgets? A range of new and increased taxes would have to be
introduced and property would be the obvious place to start. A flat 5%
annual land tax would quickly raise more than $100 billion, although
property prices would plunge.

Introducing an across the board
flat payroll tax of 10% would be the next most obvious option as an
effective, albeit regressive, state-based income tax. Death duties
would be another obvious place to go as would reintroducing all those
bank transaction taxes and stamp duties on share trading.

you have the ability of states to exploit their tax exempt status
through operating businesses. Get back into the banking business and
bring gaming licences under state ownership. Crank up the profits from
existing government-owned monopoly businesses in some states such as
water, electricity, public transport and some forms of insurance.

on energy and mining could also be dramatically cranked up and the
states could nationalise some aspects of the insurance industry such as
workers compensation and the lucrative CTP monopoly run by the TAC in

Given that universities are established under state
laws, the Feds could be kicked out of higher education because the
states would be rejecting their grants anyway. Dramatically increase
the amount of fees charged to university students.

alternative tactic in areas such as higher education would be to simply
vacate the field and say that the Feds are now totally responsible.
This might also be an option in health, given the nature of the
Medicare agreements and the Federal involvement with health insurance,
doctors and aged care. The states would have to hand over ownership of
their hospitals, but so be it.

Road funding would be another
area where the states could just vacate the field. However, given that
roads are largely controlled by the states, tolls on the major arterial
roads would be another lucrative revenue stream for the states in a
crisis situation.

It’s a fascinating scenario and one we will
tease out in the rundown to 1 July, when John Howard’s great centralist
push will really begin in earnest.

Send your suggestions on what would happen to [email protected]