A shift in the centre of gravity

3 Mar 2005

John Howard has turned out to be as much a centralist as Gough Whitlam, according to Kenneth Wiltshire

DURING the life of the Howard governments, one of the most remarkable transformations in the history of Australian politics has occurred. The Liberal Party, once the champion of states’ rights, has become centralist.

This cannot be explained simply because all of the state and territory governments are controlled by Labor. The prime minister has, for some time, been describing states as ‘service deliverers’ with little role to play in national policy making. The conditional funds which come from Canberra, about half of all federal transfers to the states, have had more and more conditions attached to them, in a manner that almost makes the Whitlam government pale by comparison.

In more recent times the trend has become sharper. The Commonwealth has sought to exert control in many more areas which, under the Australian constitution, are state government powers. These include the health system and public hospitals in particular; in schools - literacy and numeracy, assessment, teacher training, and curriculum; in vocational education and training with the establishment of new Commonwealth colleges and the abolition of ANTA (the Australian National Training Authority) which, as a joint Commonwealth-state body, gave the states (which provide the majority of VET funding) some leverage; and universities where more Commonwealth powers have been mooted.

A Commonwealth takeover in industrial relations as part of the Howard government’s reform agenda is looming. Local government funding also is in its sights, with funds to flow directly to councils rather than through the states. And moves are in train to allow business to enter national rather than state worker’s compensation schemes. Add to that the abolition of the national competition payments and their diversion to water initiatives and it is a picture of a national government determined to override or bypass the states.

These moves have met with some support from a more mobile Australian public who are fed up with lack of uniformity in government services between states, and who want to ensure accessibility, portability and high standards in all parts of the nation.

The states have been partly to blame for poor school standards, chronic hospital waiting lists, infrastructure lagging behind development and clogging up economic growth and exports, and broken promises on taxation as they practise ‘government by Moodys’, trying to preserve their credit ratings rather than provide government services to proper standards. And with Victoria having handed its industrial relations system to Canberra and NSW Premier Bob Carr offering to do the same with hospitals, it is no wonder that the average person is confused. Worst of all, many state governments have become their own worst enemies by being poor on accountability to their citizens and clients for the standard of services they deliver.

Now we have the biggest initiative so far - Treasurer Peter Costello’s threat to attach conditions to the GST funding to the states which has been free of any conditions to date. This is really radical centralism, especially as Costello has threatened to monitor the performance of state governments in their spending of the GST, which they believe to be ‘their’ money in the first place.

Australia is the only federation in the world in which a national government’s consumption tax has been handed to the state governments, and they have been given a primary say in the level of the tax. Of course, it replaced the old untied grants which the states used to receive from the Commonwealth basically in return for their having given up the right to levy income taxes during the second world war. The GST has been growing like wildfire, as do all consumption taxes, and it is at last putting the states ahead of the game in their need for a growth tax to meet significant pressure on their budgets to meet the demand for their services.

This money, which makes up the other half of national transfers and therefore comprises about a quarter of their total revenue, comes to the states free of conditions. They see it as their sovereign right to determine the priorities on which it is spent. No wonder Costello’s remarks have set the Canberra cat among the regional pigeons. What could the states do? In some fields such as industrial relations, which is a constitutional mess because Australia was in effect six economies a century ago when the constitution was written, there is some prospect of a partial victory by mounting a legal challenge in the High Court. In the taxation arena the states still have the ultimate weapon of forgetting the GST and bringing back their income taxes, which would be quite legal as long as they all did it together.

Although that move may not be so popular with business and the public, the fact is that in every other federation in the world there are both national and state (and sometimes local) income taxes, and it would force the Commonwealth to lower and possibly restructure its own income tax system.

A rewrite of the Australian constitution, especially Section 96, to limit the power of the Commonwealth to attach conditions to state funding might be a possibility, but that requires the messy referendum process. It also means looking to the Senate where, in the greatest irony of all, our so-called states’ house is about to be taken over by the new Coalition centralists.

Above all else, it signals that we need a deep debate in Australia about the pattern of governance we want and need. Australia is already the most fiscally centralised federation in the democratic world. Although the boundaries of the existing states often make little economic or social sense, and the performance of state governments often leaves much to be desired, do we really want a nation micro-managed from Canberra?

All our major political parties are centralists now - and that’s scary. Whatever else, it is clear that for the next few years the true federal opposition in Australia will not be Kim Beazley and his crew; it will be the state and territory premiers.

Professor Kenneth Wiltshire AO is the J. D. Story Professor of Public Administration at the University of Queensland Business School. He is an expert on comparative federalism and recently completed his term as a Member of the Commonwealth Grants Commission. This article first appeared in the Courier-Mail.

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