After the usual political theatre that marks the Council of Australian Governments farce, the state premiers have been given ammunition that could have come in handy in the federalism argy-bargy — further confirmation that the Federal Government routinely lies about its record tax-take and its dubious carve-up.

The call that Peter Costello is Australia’s highest-taxing Treasurer has one level of credibility when it comes from a Labor opposition leader or premier. It’s harder to ignore when it’s the result of Macquarie Bank economist Rory Robertson dissecting apolitical Australian Bureau of Statistics data.

Robertson, who weighed into the federalism tax issue last year, last night updated his analysis for clients with a 5000-word paper on the latest ABS annual report on taxation for the last financial year. The bottom line is that, despite various tax cuts, the Howard-Costello Government is collecting a record 24.9% of GDP in revenue and its effective funding of the states is running at the lowest level in at least three decades.

Costello tells a porky to deny that reality — unlike the ABS, he excludes GST as federal revenue. But his version of history still includes the federal sales tax the GST replaced, among other things. The ABS version is the truth, comparing apples with apples — the Costello version is a lie that seeks to compare apples with oranges to deliver the desired political illusion.

Along the way, it looks like Costello has breached his own Charter of Budget Honesty. No, seriously, there is such a thing, but, of course, it’s still a joke.

Going beyond the statistics, economist Robertson reaches this conclusion:

When unscrambled, the evidence is that Canberra’s tax-take is at all-time highs, while its effective funding of state and local functions remains at a three-decade low. Canberra actually is not as good at (revenue) sharing as it claims.

Accordingly, future debates about federal/state financial relations should begin with the fact that state governments — whether you like them or not — are under more financial pressure than the Federal Government, despite Canberra having invented tax/GDP and spending/GDP measures that show sharp declines since 2000-01.

The extent to which Canberra understates its own record tax/GDP ratio while exaggerating its effective revenue-sharing with the states is important. Armed with a more-reliable sense of underlying Budget facts, the Australian public would be better placed to decide whether the current arrangements are exactly what they want.

I do not know the answer, but the question boils down to whether the public would prefer the next dollar collected as income tax by Canberra to be allocated to its “Future Fund” to cover pension costs of federal employees, or allocated to state and local governments, where — depending on your point of view — it either would be wasted or used to better fund public schools, hospitals, police, public transport and a variety of other functions and infrastructure that help to keep the show rolling in communities across our cities, towns and regions.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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