Respect the constitutional rights of states

Comments on Kenneth Wiltshire "WA pays heavy price for a problematic federation", 23/05/2011, http://www.theaustralian.com.au/national-affairs/wa-pays-heavy-price-for-a-problematic-federation/story-fn59niix-1226060664190

Professor Kenneth Wiltshire is one of few rare voices to acknowledge the constitutional rights of the states in mineral resources in the mining royalty/tax debate.

Most people ignore the constitution issues and simply argue that mineral resources belong to all Australians. It has become a complex issue with the MRRT/RSPT.

The MRRT/RSPT should have been designed as a replacement of the current less efficient state royalties and belong to the states, as opposed to the designs adopted by Canberra. In that way, the states including WA would have been on side and land their strong support.

In terms of further tax reforms, it is important that the Commonwealth learn from the GST experience to focus on national efficiency and national outcomes, as opposed to attempt to use it to further strengthen the revenue power of the Commonwealth as typified by the MRRT/RSPT designs.

As Professor Kenneth Wiltshire argued, it should consider how to address the vertical fiscal imbalances between the Commonwealth and the states and territories, currently to the tune of about $100 billion.

Swap the GST and personal income revenue is an option. Alternatively, a well designed income tax sharing arrangement may also work, still leaving the GST revenue to the states and territories as currently the case.

This, together with a new design of GST distribution, hopefully resulting from the current review Commissioned by the Prime Minister and the Treasurer, will rationalise the federal financial relation, to make it more efficient by better aligning service responsibilities with adequate revenue sources at the two levels of govenrment in the federation.