25/03/2010 - 00:00

Tax hikes to pay for centralised system

25/03/2010 - 00:00


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Canberra doesn’t have the money to take control of the health system – yet.

EVERY time I ask why the federal government should take over the part of the health system it doesn’t fund, everyone says it’s because they have the money.

Yet, at the same time, we hear all sorts of discussion about the federal budget and how no-one seems to be able to deliver anything without a new tax – the Liberal Party included.

In the wake of the GFC, the truth of federal government finances was exposed. It had the financial capacity to fund the stimulus package because, compared to state governments or most rival national treasuries, Australia’s net debt is low.

But it is not as low as it was and, if Australia wants to remain financially secure, it ought to be kept low.

So, in my view, Canberra doesn’t have the money. It only has the capacity to get more. And unless health spending miraculously plateaus, the federal government only has enough money to fund that system in the future if it raises more taxes or increases debt.

We all know what will happen if we leave our vastly expensive and rapidly growing health system in the hands of one government. It will inevitably raise taxes and increase debt because the electorate will demand the impossible, and competing political parties will outbid each other to promise to supply it.

The state governments have already been doing this but have reached their fiscal limit because they have topped-out on debt and have limited ability to raise more taxes.

Handing this problem over to Canberra won’t solve anything and is likely to make it worse, by putting off real reform which ought to be taking place right now – to wean all but those whose needs are most dire, off the public health system.

White knight

AS Kevin Rudd tries to portray himself as a white knight out to save the states’ hospital systems – by taking 60 per cent of the financial responsibility and about a third of their GST funding – it really is worth asking if this is what the federal system was designed for.

Health will become just another case where state government responsibility shifts from managing funds to appealing for them.

And there is nothing to suggest that this will be, in any way, a fairer process than what we are seeing with so many federally funded areas, with the money failing to land in Western Australia on a per capita basis.

As I have pointed out in a story in this week’s news pages, more and more people in Perth have to spend their time lobbying Canberra for funds and waiting anxiously for the federal budget to see how their long-distance appeals have fared.

The numbers suggest they are not very successful. No doubt this is how the people of regional WA felt until they voted as a bloc and the Royalties for Regions policy was put into place as a result.

The GST carve-up, which is not actually decided by the federal Treasury but a different group of bureaucrats in Canberra, is the worst example. Yes, WA enjoyed a few bumper years of above-weight benefits but it is now in for a long GST drought, forecast to fall to 5.7 per cent of total GST collected in 2012-13.

For a state that has more than 10 per cent of the national population, plus above average growth in population and infrastructure needs, this is a very poor result.

But look at almost any federal funding of WA and it’s the same story.

At the last budget, Infrastructure Australia had committed $6.28 billion in major project funding. None of that was for WA.

Admittedly, since then, the federal government has announced $769 million in funds for big-ticket items in WA such as the Northbridge Link, Oakajee Port and the Ord River Scheme expansion. But whether this will be above the notional 10 per cent of the national total is difficult to know and, when combined with the 2009 commitments, it’s likely to be underweight in WA.

History shows us the numbers are fairly consistent and generally negative. In two tranches of Education Investment Fund commitments worth $1.51 billion, WA got $20 million for Curtin University of Technology. That’s about 1.3 per cent.

I’m told the Australian Research Council funding for WA was about 5.7 per cent in 2009. The National Health and Medical Research Council funding was also underweight at 8.4 per cent.

Again, there are positives. There’s the Health & Hospital Fund, a big nation-building spender that has committed to $3.17 billion, including $454 million in WA. That’s 14 per cent, so we are punching above our weight there.

But that doesn’t swing the

pendulum back to the 10 per cent we look for.

In arts funding, recent Australian governments have placed more and more funding emphasis on national groups in theatre, dance and classical music. None of these is based in WA, so we just miss out. And, except for a couple of consistent travellers, most of these national groups barely ever deign it necessary to bother visiting Perth.

Well this isn’t good enough.

Whatever the reasons, the states gave up their income taxing powers during the Second World War and it’s been a downward slide ever since. Instead of competitive federalism where states can adjust taxing levers to drive the economic outcomes they need, they must go cap in hand to Canberra for handouts. One government is dictating all the play.

The GST calculations might appear fairer but they are equally damaging to states that want to drive their own destiny. As I have stated previously, the GST equation actually penalises states that lower the few taxes they control. No wonder Colin Barnett wants to raise gold royalties.

And it’s not as if this history has created cooperative feudalism, either.

Instead, the states with bigger capacity to lobby, due to proximity and (dare I say it) voting power, are managing to get a bigger slice of the federal pie than genuine equality would suggest is appropriate.

While I acknowledge that, from Canberra’s point of view, just handing over money without any accountability may seem inappropriate, equally our federal leaders need to show responsibility in ensuring that a fair hand is dealt to all.


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