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Perhaps it's time for changes in Australian federation

Comments on Julie Novak “Cut leviathan's hunger for tax”, 15/01/2013, http://www.theaustralian.com.au/national-affairs/opinion/cut-leviathans-hunger-for-tax/story-e6frgd0x-1226553883178

The Australian federation has been unique in comparison to most other western federations, due to its small population and its geographical and possibly cultural isolation.

Because of its isolation, it may have largely been the case that the sum of the states together as a federation is relatively much greater than in those other federations.

If that speculation/assumption is correct, then it explains why Canberra has been much stronger fiscally and hence the large vertical imbalance without the states to secede.

Fiscal equalisation in its current form worked in the past because for most of the time the donor states were the two largest states, namely NSW and Victoria. Other states benefited from such equalisation, so few would secede.

But now the situation has changed. WA and Queensland have also become donors, due to their mining boom and the strong revenue from mineral royalties and associated stronger performance in the housing market.

International trade and globalisation have removed some of the isolation factors Australia had endured in the past. Economic integration and people exchanges have linked Australia to the increasingly stronger Asia.

What that means is not yet very clear.

It could mean the force of internal bound has weakened and one or more states may use succession as a means in gaining more concessions from Canberra in their negotiations.

So far the story has been unsuccessful for any states yet, although the agreeing to a review of the GST distribution by the PM and the Treasurer in 2011 announced in WA may be an indication of the potential power of WA – it has gained virtually nothing.

And that was expected given that WA had no representation in the review panel – that was consisted of former premiers of NSW and Victoria and a business person from South Australia.

Although WA was successful in forcing that review, it is far from satisfied by the review outcome. As a result, it is likely that WA will push for more changes – just think about the original design and subsequent legislation of the MRRT by the federal government and what it means for WA if that revenue could stay within WA.

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