Prime Minister Tony Abbott wants a debate on reforming the federation and is dangling the tax carrot to get the states on board.
Mr Abbott was to kick off a debate on the future functioning of the federation tonight.
He says Australia needs a more rational system of government with less duplication, overlap and waste.
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Mr Abbott says nothing is off the table and his government will consider tax and funding changes to get states involved.
“The Commonwealth would be ready to work with states on a range of tax reforms that could permanently improve the states’ tax base – including changes to the indirect tax base with compensating reductions in income tax,” the prime minister is set to say.
He will also speak about “horizontal fiscal equalisation” which is supposed to give each state and territory a similar capacity to provide public goods and services.
“It’s basically about giving everyone ‘a fair go’ – but it has to be fair to the states making the financial contributions as well as to those receiving them, to those who give as well as those who receive,” Mr Abbott will say.
“It should be possible to make these arrangements more equitable between the larger states with the smaller states no worse off.”
The prime minister will also speak about how he’s changed his thinking, since writing that the Commonwealth needed to take more power off the states in his 2009 book Battlelines.
“Better harmonising revenue and spending responsibilities is well worth another try,” he will say.
“Our federation, I stress, is not entirely or even substantially dysfunctional – our country couldn’t succeed if it was – but it’s plainly not optimal either which is why reform is worth striving for.”
Queensland Premier Campbell Newman backed Mr Abbott’s call, saying there were far too many areas where federal and state responsibilities overlapped.
“All Australians are the losers in this because billions of dollars are wasted on unnecessary bureaucracy,” he said in a statement.
“I also believe that getting out of each other’s way will not only mean more efficient government, but more accountable government.”
The federal opposition and other state and territory leaders are yet to comment on the prime minister’s call.