Despite all its low tax rhetoric, the Commonwealth’s tax-take has leapt by almost 40% since the GST was introduced, recent ABS figures show.
At the same time, a paper prepared by the Victorian State Treasury says transfers to the states have dropped from an average of 6.7% of GDP in the 1980s to 5.2% during the past six years.
With Budget day tomorrow, it appears as if we have a case of fiscal feast and famine. Canberra’s tax-take is at an all-time high, while its effective funding of state and local functions remains at a three-decade low.
Canberra is not being generous with its cash, and state services are suffering.
While school retention rates have ballooned, Canberra has cut its general-purpose grants to the states. While hospital admissions have leapt and costs blown out, Canberra has cut its general-purpose grants to the states.
While road use has grown, particularly road transport, Canberra has failed to fully make up for the states’ loss of fuel franchise levies, failed to fulfil its promises to fund the national highway system and reduced its specific purpose grants for state and local roads.
While demand for skills has grown, Canberra has not only cut general purpose grants to the states but put a lid on specific purposes grants for vocational education and training, exacerbating the skills crisis.
Over recent decades, the states have had their revenue bases undermined by Federal Government policy and High Court decisions, while facing huge growth in demand for the basic services that it has been their role to provide since colonial times.
It’s pretty easy to see how a solution could be found — and why it won’t.
The only workable fix is for the states to have their own income taxes, as in Canada. There’s a very strong argument that the level of government closer to the action should raise the taxes and get the job done in areas such as education, training, aged care, health and hospitals.
Indeed, implementing policy this way might even ensure that the people best equipped to design and deliver the services were attracted to the right level of public administration.
But it would also threaten the Budget big-noting and blame-games that are standbys of our system. And they are much more important to politicians than any provision of services.