Daniel Andrews v Steve Bracks on giving income tax to states

By The Mandarin

Friday April 1, 2016

Let the states collect their own income tax, Prime Minister Malcolm Turnbull declared yesterday. It’s a bold plan that took premiers by surprise. But it’s not new.

Turnbull, addressing the age-old vertical fiscal imbalance at the core of Australia’s federated system of government, said the “finger pointing and blame” must end through the ability for states and territories to raise their own revenue to fund healthcare and schools. Shifting some of the tax take from the Commonwealth to the states is “the only way that we can genuinely reform our federation”.

Most premiers were sceptical. But one former state leader advocated the change to The Mandarin in 2014. Steve Bracks (pictured), the Victorian leader for eight years, believes states need the defined revenue source to deliver better services in health and education. It would be more effective than adjusting the GST, he told us:

“The Commonwealth currently collects a significant amount under PAYE, pay as you earn, or income tax, and I would say a defined share of that to the states would help them deliver services better. I think that would be a preferable outcome.”

Vince FitzGerald, a former senior Canberra bureaucrat, believes “we have the most unbalanced federation in the world”. He previously told The Mandarin the fiscal imbalance allows the Commonwealth to “muscle in” on areas which were constitutionally meant to be administered by the states.

Of former PM Tony Abbott’s decision to cut back grants to the states for health and education — something Turnbull is willing to partially reverse — he told us:

“Without giving the states any enhanced ability to replace the funds the Commonwealth will hold back, it will push a significant part of its own budget problems onto the states.”

While Bracks may be on board, Victoria’s current Labor leader isn’t. Daniel Andrews said yesterday:

“I don’t think this has been thought through, I don’t think this has been properly examined.”

New South Wales leader Mike Baird said the reform “can be considered in the longer term” but the priority must be on partnering with the Commonwealth to restore funding for health and education. Only Western Australian leader Colin Barnett declared his support for Turnbull’s plan, saying “we need to better define respective responsibilities of the Commonwealth and the state”.

State and territory leaders dined with Turnbull at the Lodge last night and are meeting today as part of the regular Council of Australian Governments forum.

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