There are reasons for changing our fiscal system

Comments on Ken Wiltshire “Why change our fiscal system?” 6/04/2011, http://www.theaustralian.com.au/national-affairs/commentary/why-change-our-fiscal-system/story-e6frgd0x-1226034313730

Wiltshire has made a number of good points based on his experience at the Commonwealth Grants Commission.

The question on the inconsistency and contradiction between the Gillard and Swan rush to this review of the GST carve up and their strenuous refusal to include GST in the tax summit or forum late this year is particularly pertinent and significant.

However, as some commentators have said or would say, the current arrangement may be on the side of extreme with a strong equality centric that is in a strange way tentatively why Wiltshire argues that “AUSTRALIA'S approach to our GST carve-up is the envy of the world.”

It appears that there may be some dynamics in federal politics that could have forced Gillard to make some truce with the states and territories or delay some almost irreconcilable issues in federal relations that have a strong bearing on the Gillard government, so the latter won’t be seen as a complete retreat or abandoning its well publicised policies or reforms.

It is good tactics that both Rudd and Gillard governments should have adopted or adopted it earlier, so their focus can be on federal issues, as opposed to being seen as fighting with the states and territories at the same time being subject strong and formidable opposition attacks led by Abbott.

However, a fundamental review on the GST carve up is well and truly overdue. There have been so many reforms in Australian taxation to lower tax rates to provide stronger incentives to income earners. Equally the company tax rate has been reduced substantially. So far, there has been little change in the way of the GST carve up, or “the most comprehensive fiscal equalisation system in the world”, to use Wiltshire articulation.

It is the most comprehensive, virtually by the fact that it includes not only revenue equalisation as some other major industrialised federations (such as Canada and Germany) do, but also expenditure equalisation.

Further it is virtually 100% equalisation, only limited by the ability of CGC in devising assessment methods.

It is comprehensive indeed!