When the Australian colonies agreed, humbly relying on the blessing of Almighty God, to unite in one indissoluble Federal Commonwealth under the Crown and under the Constitution, it was assumed the States would continue to rely on taxes they raised and to face the electors and account to them how they had spent their money.
The Founding Fathers, erudite men that they were, were well aware of the fundamental point made by the American Founders, that:
"In a federation, the individual States should possess an independent and uncontrollable authority to raise their own revenues for the supply of their own wants." (The Federalist Papers)
In the video below Professor David Flint explains how this principle was intended to apply to Australia when the Constitution was written.
But over the years, with High Court interpretations and political machinations we have reached the stage where the original intention of the Founding Fathers has been thwarted. The result is that to day, our Federal Commonwealth of Australia is the most fiscally centralised of the OECD federations. The States and territories raise only 19 per cent of taxes but are responsible for 40 per cent of public spending.
While the benefit to Australia from being a federation is estimated to be 10 per cent of the GDP, this could be raised significantly by further decentralising our taxation system, thus raising average incomes by $4,188 per annum. (The 2007 Twomey-Withers Report to the Council For the Australian Federation.)
The result is that the States are over dependent on the Commonwealth; technically we live in a federation poisoned by "vertical fiscal imbalance".
Just as healthy adults who are welfare dependent tend to lead dysfunctional lives, this imbalance has tended to reduce the quality of State governments, making them dysfunctional and reducing them to mere service providers and not true governments.
The Commonwealth government this year has already tried to take 30% of the GST, a Federal tax which John Howard valiantly tried to give the States to make up income they had lost thanks toa centralising High Court. Alone among the States, the Western Australian government has vetoed this.
The proposed super profits tax will only exacerbate this situation and make the States even more dysfunctional. The proposal in the Henry Review was that the Commonwealth take over State royalties. Fearful of the fight a direct seizure would provoke, the government will probably cap them and slowly expropriate them.
The decision how the people are to benefit from mining is a matter for the States, not Canberra. That is after all what the Constitution, approved by the Australian people, intends.
…other ACM briefings…