Need to fundamentally reform federal financial relations

Comments on George Williams “O'Farrell needs to prove that states can do things better”, 29/03/2011, http://www.smh.com.au/opinion/politics/ofarrell-needs-to-prove-that-states-can-do-things-better-20110328-1cddj.html?posted=successful

It is true that money is the key determinant in the federal state relations.

Assuming that will continue to be true into the future, then what the states should and can do is to renegotiate with the federal government to iterate the state's role in many of the existing services and to realign revenue responsibilities between the two levels of government to relinquish some of the federal's financial power over the states by specifying more revenue sources transferred to the states as their own revenues.

For example, the MRRT is a resource rent tax, that is, a mineral royalty supposedly to be in a more efficient form, should belong to the states. Equally, the states should be given a fixed share of the income taxes, agreed by inter-governmental agreement, or a constitution reform, should it be necessary.

Past experiences from the performances of both federal and state governments indicate that each of them has provided poor services and wasted taxpayer’s money and neither has been perfect. For the federal government, the wastes and some disasters in the more recent pink batts and the BER programs have demonstrated its serious deficiencies in providing services.

Only when the financial resources of each and every level of the two levels of government in Australia are guaranteed to be adequate to the tasks of services, the Australia federation would function properly and in the most efficient way to provide the best services to all Australians.

There is no point for either the federal or the states to have an unfair advantage over the other, especially from the financial point of view.

While health reforms, education, infrastructure can all be short term targets for O’Farrell to work on in his fight with the federal government to reclaim state rights, he, and all other state and territory leaders should set their eyes on the longer term solution.

PS: of course, these fundamental reforms in the federal financial relations should be considered in the overall tax reforms that may include reforms to some state taxes to make the tax system more efficient and reduce distortions.