Tax would empower states GREG MELLEUISH THE AUSTRALIAN OCTOBER 30, 2014 AUSTRALIANS are not renowned for using theoretical concepts when discussing politics. Yet, in discussing the future of federalism, two theoretical concepts have emerged. The first, subsidiarity, appears in the first federalism issues paper, defined as devolving responsibility “to the lowest level of government possible”. The second, sovereign, has been used by Tony Abbott, who says each level of government should be “more sovereign in its own right”. The Prime Minister does not define sovereign but it generally means possession of ultimate power. If the government believes in giving responsibility to the lowest level of government possible and wishes to make the states into the sovereign entities they should be, this has exciting, even revolutionary, implications. Australia would be much more democratic and its citizens would have a much greater say in their affairs. But does Abbott mean what he says or are these just rhetorical terms to sweeten another grab for power by the commonwealth government? In his book Battlelines, Abbott said states should be little more than subsidiaries of the commonwealth. The discussion of federalism in Australia is already moving into technical and practical issues. One of the most crucial relates to taxation, or vertical fiscal imbalance. For hard-headed pragmatists it simply would be a matter of adjusting existing arrangements, but because the status quo vests so much power in the commonwealth, this would do two things. First, it would move control over local matters up to the highest possible level of government. Second, it would allow sovereign power to accumulate in the hands of that government. Across time, more and more power will accrue to the commonwealth and Australia will become an even more dysfunctional federation. States can possess sovereign power in their own sphere only if those entities also possess power over their finances. This means, as far as possible, they should raise the taxes that they then spend. This is called the Westminster system of responsible government and means a government is responsible and accountable to the people who elected it, and from whom it receives the taxation required to carry out its functions. If that money comes from elsewhere and, as is often the case, has strings attached, then the government is not founded on subsidiarity but is simply a subsidiary of another government. Put simply, there can be no responsible government, no subsidiarity and no sovereignty without a high degree of financial independence. The crucial issue is whether the commonwealth is willing and able to permit the states to possess such financial independence. It is well known the states are not in a very good position when it comes to raising taxes. They can’t impose sales taxes, as the constitutionally sanctioned commonwealth monopoly over Customs and excise does not permit them. They lost their power over income tax during World War II. There are no constitutional impediments, however, to the power to raise income taxes being restored to the states. Nevertheless, much academic opinion opposes such a move on the grounds that it will lead to a “race to the bottom”, as if the states cannot be trusted in such matters. Why the commonwealth government can be considered more trustworthy remains a mystery. But, in any case, a race to the bottom may not be such a bad idea. A federal system should encourage a healthy competition among its members so that they provide the best possible services at the cheapest possible price to their citizens. Through the introduction of the two key terms of subsidiarity and sovereignty into the discussion on federalism, Abbott and the government have indicated that there are matters of principle involved. One can only hope that in the longer-term principle is not trumped by mere pragmatism. Greg Melleuish is associate professor of history and politics at the University of Wollongong.
Posted on: Wed, 29 Oct 2014 21:18:56 +0000
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