Emergence of a new federalism

The competitive landscape facing Western Australian businesses will become a lot clearer over the next few weeks after the state and federal governments release plans for tax and industrial relations reforms.

State Treasurer Eric Ripper will hand down his annual budget next week, while Prime Minister John Howard is expected to release details of his industrial relations reforms ahead of a meeting with state premiers on June 3.

The first event will be a platform for Mr Ripper to reaffirm the state’s opposition to the growing centralism emerging from Canberra.

The second event will offer Mr Howard the chance to argue why he believes Canberra needs to take charge of industrial relations and introduce a unitary national system.

Both men need to be careful that Australia’s carefully balanced federal structure is not tipped out of kilter by an obstinate refusal to listen and compromise.

Mr Ripper gave some insights into his tax plans in a speech delivered to a CEDA breakfast earlier this month.

He argues that WA is not a high-taxing stake, which may come as a surprise to the many businesses clamouring for lower stamp duty, lower land tax and lower payroll tax.

Mr Ripper says that WA is consistently the lowest or second lowest taxing state, when tax is measured as a share of Gross State Product.

In his speech, he also cited analysis in the Northern Territory budget, which concluded that WA was the lowest taxing state on a “typical medium-sized business” operating from CBD premises.

“While there are any number of assumptions behind analyses such as these, it does tend to put paid to the idea that WA is a high taxing state, particularly following the Government’s two rounds of tax cuts in 2004-05,” Mr Ripper said.

The Chamber of Commerce and Industry of WA prefers to focus on business taxes per capita, which show that WA is the second highest taxing state after NSW.

While Mr Ripper reckons this measure can be misleading at a time of divergent economic growth rates, he nonetheless accepts the need for tax cuts.

“Maintaining and indeed improving our state tax competitiveness will continue to be a key target for the State Government in its new term, and this will again be evident in our State budget on May 26,” the treasurer said.

The challenge will be to introduce major and sustainable tax reforms, though Mr Ripper has left himself little flexibility.

While the state will have a healthy budget surplus in 2004-05, the cost of election spending promises means the surplus in future years will be wafer thin.

Whatever Mr Ripper decides on the tax front is unlikely to please Federal Treasurer Peter Costello, who is pushing WA to fall into line with other states (except NSW) by cutting certain state taxes.

Mr Howard’s industrial relations reforms will only add to the tension between Canberra and the Labor states, but in this regard the State Government has only itself to blame.

WA has an appalling industrial relations record over the past 18 months and its industrial relations reforms have been shunned by the business community.

Labor would win many friends in the business world – and may even start to demonstrate that it has some empathy with the concerns of the business community – if it acted more assertively on the state’s industrial relations problems.

Australia's federal history has been punctuated by rare moments of state and federal governments engaging constructively to solve problems. Now would be an ideal time to see some more of that.