I think I must reluctantly agree with Christopher Sheil (and I conceded in my previous post anyway) that any scheme to levy a state-based income tax would in all probability be a political suicide note for any state government introducing it.
However, as Chris also observed, the States clearly need to do something to give themselves leverage and inhibit the Howard government’s plans for a large-scale centralist takeover that would effectively destroy federalism. Here are a few other possible ideas that the States might entertain, that don’t involve the massive downside of introduction of a new tax:
- The States could withdraw from the national Corporations Law scheme and repeal the laws allowing ASIC to regulate and administer the incorporation of companies. The High Court decided in NSW v Commonwealth (The Incorporation Case) in 1990 that the Commonwealth lacked constitutional power to regulate the incorporation of companies, and so the Commonwealth is dependent on State co-operation for its ability to implement a comprehensive corporate regulatory regime.
- The States could decline to allow federal offenders to be imprisoned in State prisons. Generally speaking, the Commonwealth does not maintain a system of its own prisons at all, so this would be a major inconvenience and expense for any federal government.
- The States could withdraw co-operation with National Competition Policy in relation to opening up state infrastructure and services to private sector and interstate competitition.
I’m sure there must be other areas where the States could effectively threaten to withdraw co-operation with the Commonwealth that would cause it substantial inconvenience or expense. Do readers have any additional ideas?
Of course, it would be essential for the States to emphasise that they are only making these threats (or taking action) as a last resort because of the Commonwealth’s abandonment of any commitment to co-operative federalism, and that constructive co-operation would be resumed as soon as the Commonwealth stopped acting as centralising thugs and bullies betraying the spirit of the federal constitutional compact.