In a post a week or so ago I lamented the seemingly imminent terminal dismemberment of Australian federalism at the hands of an arrogant fourth term Howard government with apparently little or no understanding or respect for the fundamental principles of liberal democratic constitutionalism and the checks and balances that help ensure a free society.
But what would you do if you were a State Premier facing the imminent prospect of being reduced to the status of a large municipal council acting at the direction and behest of an omnipotent federal behemoth? Would you complain impotently but do nothing? Hope that Howard and his minions come to their senses, or that State Liberal politicians miraculously acquire some backbone and begin fighting proposals that equally threaten their own political survival? Shrug your shoulders philosophically and accept the inevitability of political oblivion? Hope that the High Court realises in a blinding flash of insight that it has prostituted its constitutional role for much of the last century and decides belatedly to reverse a slew of appalling and unprincipled anti-federalist decisions?
None of those options strike me as even slightly attractive or effective. But is there anything effective the States can actually do? I reckon the answer is in the affirmative, although it’s a high risk strategy. The Premiers should immediately start planning to sieze back their powers to tax income and services.
They should certainly make it clear that it’s very much a desperate last resort, that they would greatly prefer to leave taxation in federal hands as long as the revenue is fairly distributed, and would instantly reverse their plans if the Howard government came to its sense and backed off its wholesale centralisation plans. But they should nevertheless make it uncompromisingly clear that they will follow that path if given no choice. That way the Commonwealth too faces a real risk: that by over-reaching itself it will end up sacrificing much of the power it has accumulated over the century since Federation. Although that power has several sources, control of the purse strings is by far the most important.
I suspect many readers assume that the Great Commonwealth Tax Grab of the 1940s is somehow constitutionally-based and irreversible. That simply isn’t the case. The taxation power is a concurrent one. The Commonwealth scheme relied in considerable part on the defence power in wartime conditions to allow it to confiscate State tax office personnel and premises to make it effectively impossible for the States to continue collecting their own income taxes. That power wouldn’t be available today.
There is nothing in the Constitution to prevent the States collecting their own income taxes (or taxes on services). The reality is that, despite a lot of conspicuous, confected indignation, it has mostly suited the States quite nicely to allow the Comonwealth to be the central tax collector. But there’s been a tacit federal compact whereby the States cede that role to the Commonwealth as long as it hands sufficient revenue back in a transparent and fair manner (either through Commonwealth Grants Commision or GST formulae), and as long as the Commonwealth doesn’t use its power to make tied grants under section 96 so oppressively as to utterly deny the States roles as even vaguely co-equal and sovereign federal partners. The Howard government appears about to comprehensively breach that tacit federal compact, so the States really don’t have any choice but to re-visit their willingness to continue allowing the Commonwealth to be the unchallenged central tax collector.
The States should all agree to set up a Joint State Tax Office that would levy a uniform state income tax on all Australian individuals and companies. The rate should be set so that it covers all state spending needs, so that the States can afford to tell the Commonwealth to shove its GST revenue and section 96 tied grants where the sun don’t shine. The Commonwealth would then be under intolerable pressure to reduce its own tax take back to the level required to fund only it own spending needs. It should be fairly easy for people to see which polity was guilty of greed and duplicity in that situation, and it wouldn’t be the States.
Of course, there are two major practical problems. First, would State Premiers be able to agree on a Grants Commission-style formula whereby tax receipts were remitted to smaller States at higher per capita rates so that all Australians could enjoy roughly the same level of government services? And would State Liberal leaders simply use the opportunity to campaign cynically against State ALP administrations in the same way Paul Keating did against Hewson’s GST?
On the first issue, I suspect the situation is now so dire that State Premiers will be able to reach agreement on a fair division of the revenue pot. What is the practical alternative? In fact they could do a lot worse than simply adopt current Grants Commission formulae. The likely opposition of state Liberal leaders is much more problematic. One would be naive to imagine that some if not all of them wouldn’t use the opportunity to run a fear and loathing campaign that presented Labor as evil tax grabbers. But at least some of the impact could be diminished by:
(a) enacting the legislation rapidly and pre-emptively, but postponing its actual implementation date to give the Commonwealth an opportunity either to back off its own centralist plans or abolish its own excessive tax grab; and
(b) enacting the new tax legislation with entrenching provisions requiring a super-majority of (say) 80% for repeal. That would effectively be signalling that the new tax regime is here to stay unless the Commonwealth comes to its senses and reverts to some reasonable facsimile of good faith adherence to the federal bargain on which Australia’s constitutional sysem is based.
In any event, quite frankly there would be little or no point in being a State Premier or Minister if the Howard government gets away with implementing all or most of its threatened centralising measures. Now is the time for a “crash through or crash” strategy. State Labor politicians could perfectly reasonably take the view that the Libs are welcome to the spoils of state government, such as they would be, if they fancy the prospect of poncing around State Parliament House with only the trappings of power and none of the reality.
Sadly, I’m not so naive as to really expect they will actually take such risks. Far too many will no doubt quietly decide to hang onto the cushy salary, super and travel perks that come with state government Ministerial office, and conclude that it’s a very comfortable, well-paid if powerless municipal council position, and use any plausible excuse to avoid taking a principled stand against the centralist power grab. But I really do hope I’m wrong, because federalism is a constitutional value worth fighting to preserve.