Features Australia

Wrong diagnosis, again

Raising the GST will make the problem worse, not better

25 July 2015

9:00 AM

25 July 2015

9:00 AM

Repeat after me. ‘Finding ways to raise more money for government is not the same thing as undertaking much needed reform.’ Say it again, and again, and if you happen to be in Cabinet in this Coalition government, get it tattooed on your derrières.

Let’s make a short mental list of what needs repairing in Australia . Well, we have the most dysfunctional federalist arrangements in the English-speaking world. True, this has been driven since 1920 by our top court which is the most centralising top court in the common law Anglosphere world, and I mean that literally. Of course it’s true that in every federal country the politicians at the centre try to take as much power as they can from the States, or Provinces, or Lander, or Cantons. The job of the top judges is to read the written constitution plausibly, and honestly, and in doing so stop those sort of power grabs.

Our High Court has a terrible record on this front. Have I made that clear? For instance, they have nodded through the usurpation of the States’ income tax power, the result of which manifests itself in this country’s appalling vertical fiscal imbalance, and its attempt to get money to the States via a GST regime which not only rewards poorly-performing States with a bonkers equalization scheme but also hammers those which develop their assets. In short, it entrenches a system in which those spending the money (the States) are not the ones raising it (that’s Canberra), because the States have next to no way to raise money other than a few stamp duties and aggressive speeding fine regimes (which is a topic for another day).

No sane person would want the sort of incentive system in place that we have here in Australia, thanks to the High Court over the last nine decades. But there it is. And then we hear that a plurality of State Premiers now want an increased GST. You shock me. Well of course they do. It’s nothing to them. They’ve been turned into mendicants, the whole lot of them. Beggars always want more of someone else’s money.

If the States were responsible for their own income tax and so had to raise most of what they spent – as is the case in Canada, Germany, the US, and Switzerland, places that have federalist systems that are, you know, sane – then these Premiers from NSW, South Australia, Tasmania and so on would have to go to their voters and say ‘We are raising your taxes’. I doubt they’d be so insouciantly pro-tax were that the case. And we’d also have a dollop of competitive federalism, with different State income tax rates in different States (as in Canada, and the US). That is what makes federalist systems far more successful than unitary ones. Competition and learning from what works and doesn’t work. Not trite, virtually incoherent talk of ‘co-operative federalism’.

A second needed area of reform in this country is labour relations. As a native born Canadian I was stunned when I arrived here to see a bizarro world of awards and enterprise bargaining and bureaucrats injected into the system. Other democracies, yes even other far more left-leaning democracies, do not have this system. We desperately need reform. It’s killing our productivity. It’s killing our standard of living.

Oddly enough, however, this is also a federalism problem. Take the Howard government, for whom there was no greater cheerleader working in an Australian university at the time than I. But Mr Howard was no federalist. And when his government sought to liberalise labour relations via Workchoices two things were clear. First off, I thought the substance of the leglislation was pretty good. But secondly, it was plain to me that there was no constitutional basis on which to enact these laws. This was a State matter.

Of course that was to forget our High Court. Surprise, surprise it nodded these laws through under the corporations power; forget the fact only a lesser industrial head of power had explicitly been given to the Commonwealth and forget those failed referenda where the Commonwealth (knowing it didn’t have this power) had asked the voters for it, and the voters had said ‘no’. To the High Court that was all irrelevant. What the centre wants, the centre gets in Australia.

Now let me be clear. I liked the substance of these Workchoices laws. But they were unconstitutional on any reading of our written constitution that paid any attention at all to the framers’ and ratifiers’ intentions. Or that adopted a Canadian-style ‘pith and substance’ federalist interpretative approach. Our High Court disagreed with Justices Callinan and Kirby in dissent, a near unheard of thing which is telling in itself.

So the Commonwealth got this power too. And once the Rudd/Gillard/Rudd team came in they used it to hop into the Delorean sports car, hit 88 miles per hour and take our labour laws back to the future. Here’s the point. If the Howard government had left well enough alone, so that these powers were with the States, then this country’s labour laws would be much more liberal than they are today. The pressure to liberalise would be nowhere near as great. The dangers to any Coalition government in broaching such reforms would be miles less. It could be left to the States. This was a policy disaster, and it flowed from the usual Canberra-attitude that the Commonwealth government is all-knowing and all-seeing while the States are backwoods amateurs who couldn’t run an ice cream stand.

This centralising attitude was on display last week on The Bolt Report when Treasurer Joe Hockey talked about how what Australia needs is efficiency, efficiency and more efficiency in its Commonwealth-State relations. Well, no Joe. France, New Zealand and Britain are efficient in the sense you talk about, but they significantly underperform real federal systems such as Germany, Canada and the US. It is the different State policies and the concomitant competition that drive success, not whether you have one Treasurer or seven, or one level of government rather than two. In fact, unitary systems tend to have more public servants per capita than competitive federal ones.

This has been a circuitous way for me to say ‘Do not raise the GST Mr Hockey’. A worse option is hard to imagine. It will not be a cure-all. It will be the fast-track to more and more government spending under the same dysfunctional set-up.

Want to do one single thing to start making things better in this country? Find a way to give the States back their income tax powers, whether they want them or not. It is a national disgrace that the UK, which is not even a federation, will soon have decentralised income taxing power (most obviously to Scotland) far more than here, a nominal federation.

Got something to add? Join the discussion and comment below.

You might disagree with half of it, but you’ll enjoy reading all of it. Try your first 10 weeks for just $10

Show comments