Prime Minister Malcolm Turnbull has beefed up his argument in favour of allowing the states to directly levy a portion of income tax, arguing it could also allow them to directly fund public schools.
Yesterday Mr Turnbull unveiled a broad plan to allow state and territory governments to collect a percentage of income taxes directly, rather than having the money funnelled through federal grants.
Mr Turnbull defended the announcement after criticism from a number of states, saying it had not come “out of the blue” and he was confident states would spend money “more wisely” if they directly collected it.
The Prime Minister has already suggested the states use the changes to directly fund hospitals.
This morning he told Radio National it was possible to make a “very powerful case” for the states to take over full responsibility for public school funding if they had direct access to income tax revenue.
“They [states] would then have the responsibility for state schools, which are the schools that they manage, they have the resources as well,” he said.
He said the Commonwealth would not relinquish control of funding for private and independent schools.
Some smaller states are already concerned they will not be able to raise the money to fund essential services if the proposal proceeds.
“A fundamental premise of any reform like this would be that the smaller states could not be disadvantaged,” Mr Turnbull said.
The issue will come to a head when the Prime Minister meets premiers and chief ministers tonight at The Lodge for dinner and on Friday at the Council of Australian Governments (COAG) meeting.
“The detail comes at the meeting,” Mr Turnbull said.
Victoria’s Premier Daniel Andrews has been heavily critical of the details Mr Turnbull has revealed so far, arguing it is based on no-one paying any more tax.
“So, if you have got a new set of arrangements that don’t raise any revenue over and above what you collect now — how does that deal with the revenue problem?” Mr Andrews asked on 7.30 last night.
“The Federal Government proposes to reduce the amount of money that they provide to the states so the whole thing balances out — apparently no-one pays any more but somehow everybody’s got more.
“That doesn’t make any sense to me.”
Critics worried about proposed changes
Professor Peter Whitehead from the Crawford School of Public Policy at the Australian National University is waiting to see the details of the plan but says there are potential areas of weakness.
“The two poorest parts of the country are Tasmania and South Australia, so I think they would tend to do worse out of these sorts of proposals, depending on precisely what they involve,” he said.
Professor Brian Galligan from Melbourne University said the Commonwealth would still need to compensate those states with grants.
“But this happens in other federations as well, so it is not necessarily an argument against returning tax power to the states.
“The Commonwealth is trying to do a lot of things which it can’t do very well, and it should get out of areas that it can’t do very well,” he said.
“And to do that it has to also give back the revenue raising capacity if it is going to shed responsibilities say for education and health and so on.”
Greens leader Richard Di Natale argued the states are right to be wary that they could eventually have to have competing income tax rates.
“It will lead to this competition between states to cut taxes and make the revenue problem worse,” he told Lateline.
“We’ll get this dog breakfast of different tax scales.
“You will get smaller states like Tasmania and other states who will find it hard to simply raise the revenue they need to fund essential services.”
Senator Di Natale wanted the Commonwealth to keep paying, particularly for hospitals. He argued it would help avoid cost-shifting between the two levels of Government.
He has announced a policy to increase federal health funding by $10 billion in the next four years by phasing out the private health insurance rebate.