Finance Alan Kohler: The states now have power without the glory of money

Alan Kohler: The states now have power without the glory of money

National Cabinet shut down
With national cabinet seemingly on the way out, Scott Morrison has to make a bold move, Alan Kohler writes. Photo: AAP/TND
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Now that the proceedings of the national cabinet can’t be kept secret, it will presumably be shut down.

That would be a great pity. It’s one of the few good things to come out of this horrible pandemic: If used properly, and transparently, a forum for the nation’s leaders could be the basis of a new era of political solidarity and openness in Australia.

“Get a grip Kohler,” I hear you say.

Who are you kidding? The words “political”, “solidarity” and “openness” can’t be used consecutively in this country, even during a pandemic, let alone after one.

On Thursday, Justice Richard White in the Administrative Appeals Tribunal upheld the Freedom of Information application of independent Senator Rex Patrick to get access to national cabinet minutes, on the grounds that it is not a subcommittee of federal cabinet as asserted by the Morrison government.

Justice White wrote in his judgment that the government’s case was “tantamount to a submission that any committee may be a “committee of the cabinet” for the purposes of the FOI Act merely because the Prime Minister of the day has purported to establish it as such. This premise is unsound”.

That’s the end of the national cabinet I imagine.

The Morrison government’s position on such matters is very clear: Transparency is not to be tolerated.

So it will be interesting to see how the renaissance of state power produced by the pandemic plays out in the absence of a formal structure to give it expression.

Scott Morrison national cabinet
Mr Morrison’s national cabinet turned out to be a bit of a bungle.

A fractured history of federation

After a 175-year drift of power to the centre, and ever-increasing control by the Commonwealth, the pandemic has reasserted both the role and the constitutional authority of the states in ways that Canberra finds both irresistible and uncomfortable.

At a practical level, it happened because states still have power over matters of health and their own borders, and also because since 1994 the states have been able to borrow money on their own without having to ask the Commonwealth to do it for them.

It has been compounded by the federal government’s failures with two of the things over which it has control: Vaccines and quarantine.

But a pandemic is all about health and borders, so the Prime Minister, the federal Health Minister and the federal Treasurer have been rendered spectators and reluctant financiers of state lockdowns and border closures.

And that has delivered both moral and political authority to state Premiers that they haven’t had since they were called Governors.

The push for federation began in 1846 when Governor FitzRoy of New South Wales sent a despatch to London suggesting a central colonial authority.

But the drive to federation didn’t really get going until the 1880s, with songs and poems about the idea of Australia by writers like Henry Lawson and Banjo Paterson, leading in a wave of nationalism to the Australian Constitution of July 9, 1900.

But the drift of federalism didn’t stop there.

The Loan Council was established in 1923 to prevent the states and Commonwealth competing for money from overseas, but basically it was an instrument for federal control of state borrowing.

Sir Charles FitzRoy federation
Sir Charles FitzRoy started the push for a federation. Photo: Getty

In 1933 the citizens of Western Australia voted two to one in a referendum to secede from Australia (we can now call it Wexit) to get away from the crushing manufacturing tariffs of the eastern states, but the Privy Council overturned the result because of the words “indissoluble commonwealth” at the start of the constitution.

The Grants Commission was established in 1936 to appease the West Australians by distributing more Commonwealth tax revenue to WA than it would be entitled to on a per capita basis, and giving Canberra control of the purse strings.

And then in 1942 Prime Minister John Curtin took over all income taxing powers as a temporary wartime measure which, of course, became permanent, although there was a half-hearted attempt to give it back in 1951.

A poem was found on a scrap of paper on the conference table after that premiers meeting, supposedly written by Sir Robert Garran the Solicitor-General, which neatly summed up what happened:

We thank you for the offer of a cow

But we can’t milk and so we answer now

We answer in a loud resounding chorus

Please keep the cow and do the milking for us!

Ever since then the ownership of the income taxing cow, otherwise known as “vertical fiscal imbalance” (the fact that the states spend the money but only the Commonwealth can raise it) periodically surfaces, and the answer usually is that Canberra needs to take over more of the spending.

Except, that is, in 2000, when the Howard government led another cow into the shed called the GST.

He made it as a states’ tax, with all the money raised going to the states, in addition to cash from the Grants Commission.

And then in 2018 the next Coalition government did what can only be described as pork barrelling, by giving WA even more of the national milk to secure its votes, even though it is now the country’s richest state.

Will the states now ask for the income taxing power back? Or perhaps just the right to tug on a teat?

The way forward – together

On May 20 this year, the Victorian budget introduced a payroll tax levy on businesses with a national wage bill of more than $10 million, to help pay for a new mental health program.

It was widely denounced as a back-door attempt to introduce an income tax, until the fourth Victorian lockdown began seven days later and everyone had something more important to worry about.

The states collectively will rack up about $500 billion in debt next year.

It’s about half that of the Commonwealth, but arguably more of a burden for state treasuries that rely on very limited and inefficient taxes – payroll tax, property stamp duty and casinos – for their own revenue.

Taxing employment, homes and gamblers is no way to run a railroad … or a state newly autonomous because of a pandemic.

Something might have to be done.

Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC news

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