Use the Mining tax to reduce vertical fiscal imbalance

Comments on Dennis Shanahan “Gillard retreats on levy to save hide”, 22/12/2010, http://www.theaustralian.com.au/gillard-retreats-on-levy-to-save-hide/story-fn6nj4ny-1225974698079

While it is obviously a moot point to move the fight from with the miners to with the states, one would hope that is only a face saving tactics.

If the Gillard government really wants to fight with the states on mining royalties, they may well lose that war constitutionally, given that the states are custodians of their land including the mineral wealth embedded in the land. What it means is that the states are entitled to mining royalties and if the mining tax is a form of royalties, then they should belong to the states as opposed to the Commonwealth.

Even leaving the constitution issue aside, the existing vertical fiscal imbalance suggests that it is not wise for the Commonwealth to grab more tax powers from the states. Rather, it should do the opposite, that is, to give more tax powers to the states to strengthen their finance for meeting the future challenges of services provisions.

This is particularly clear in the wake of the national health / public hospitals reform, which used the prospect of the states’ inability to have the necessary revenue in the longer term to meet the needs of public health in the future.

Further centralisation of revenue powers is not necessarily good for the nation. It blurs the already unclear responsibilities and accountability between the two important layers of government in Australia.

The Commonwealth should not act as a big brother and treat the states with contempt. A truly cooperative federation requires the Commonwealth to be wiser and altruism, focusing on what it should do and do them better, as opposed to bully the weaker states.