Commission of Audit report and the federalism debate

Watching the aftermath following the release of the Commission of Audit report, it was interesting to see the skepticism and comments about the "radical" notion of devolving income tax power back to the states.

In 1942 the Uniform Tax Act came into force which saw the federal government become the sole collector of income tax where previously both state and federal levels levied their own. As the Parliamentary Education Office states "intended as a wartime measure, the arrangement has remained in place ever since. As a result the states are now more dependent on the federal government for revenue".

What is so radical about turning back time to give the states something back that was taken off them during a time of war? The most radical recommendation is, surely, the abhorrent idea of effectively dismantling Medicare.

The states - everyone's favourite punching bag

Like it or not, we all interact with our respective state government more than we do with the federal government. Many aspects of our public transport services started off as private operations only to be nationalised by state governments early last century. Roads and Streets are overwhelmingly a state government responsibility - our mobility is fundamental to living our daily lives and its the states who deliver the infrastructure to make it happen.

I think what's lacking in this initial debate surrounding the report is that how we transport ourselves to work, to school or to a GP is just as important, if not more, than other traditional government sectors of health and education.

How we shelter ourselves, how we move and how we plan for growth is fundamental to how a society progresses - and this is overwhelmingly within the remit of the state government right now. But when Canberra's holding the purse strings - and the levers to raise income to pay for new infrastructure and services thanks to the drift of power from state to federal levels since Federation - what incentive is there for a state to get the best possible outcome?

The status quo as it currently stands see states in the idiotic scenario where they blame the federal government for not helping pay for infrastructure. Along comes the Commission of Audit report with its recommendation for allowing states to levy their own income taxes once again and here's an opportunity to nip some major state-federal frustrations in the bud.

Lobbying one government is easier than lobbying two

The horrible situation we find ourselves in at present with our Prime Minister on record as saying a federal government should only fund roads in our cities and the state government being the arbiter of a long laundry list of transport projects without funding cannot continue.

The current state government in Victoria made the bold decision to prioritise the East-West freeway project over the Melbourne Metro project and more recently we've seen an announcement involving the launch of phase 2 of the project with the federal government looking likely to tip some cash in to the project. Ask yourself: if a higher level of government has a policy of picking winners in one type of transport infrastructure investment over another, then why wouldn't you exploit that for your own benefit?

That no doubt played a part in Spring Street's thinking but it equally highlights the absurdity of a government far removed from the shaping of our cities having undue influence when the state government is in a far better position to determine what's best for the citizenry in this divisive public policy area.

Will giving state governments income tax power (or greater shares of GST) stop them investing in road projects or increasing investment in public transport or vice versa? Not likely, the same assessment processes and debates would hopefully still occur.

But one thing is for sure: state governments would lose their own punching bag (the federal government) and gain greater responsibility for raising revenue for their infrastructure policies, and that in my mind is a good thing.

It's been over a century since federation, it's about time we had a sensible debate about the way we govern ourselves.

Lead image credit: flickr