Garnaut Fitzgerald Review of Commonwealth-State Funding

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CHAPTER 12: Overall Assessment and the Need for Reform Tasmania Tasmania has almost completed a difficult structural change due to the decline of some traditional energy and capital-intensive industries that were once dominant in the economy. At the same time, Tasmania’s high-value agricultural industries, and the footloose services industries servicing national and international markets, have now been growing strongly for long enough to significantly affect the State’s economic aggregates. Tasmanian Chamber of Commerce and Industry Chief Executive Tim Abey commented recently: ‘after a decade of being belted up unmercifully in the economic stakes, Tasmanians now have much to look forward to’ (Tasmanian Chamber of Commerce and Industry 2000). The Tasmanian Chamber of Commerce and Industry (2001) has estimated that the Basslink project alone will inject over a billion dollars into the Tasmanian economy over the next decade and sustain almost 1 000 new jobs. Tasmanian Treasurer Dr David Crean reinforced this positive outlook recently, stating in the 2002–03 Budget Speech that the jobless rate has declined from ‘10.5 per cent to 8.6 per cent over the past three and a half years substantially due to jobs growth…the unemployment queue has reduced by more than 4 000 people’ (2002). The Territories The Territories also have good growth prospects. The Northern Territory’s economy and population have grown far more strongly than the rest of Australia through the past two decades, and official projections by the ABS anticipate it will continue to do so. The gradual improvement in Darwin and State infrastructure – soon to be joined by completion of the Alice Springs to Darwin railway – have allowed the Territory to make increasing use of the advantages of proximity to Asia. After the interruption of the Asian financial crisis 1997–98, neighbouring Asia is again growing much more strongly than the rest of the world. Natural resource discoveries, most importantly offshore petroleum, provide exceptional prospects for a small economy. The Australian Capital Territory has been expanding as a centre for private sector service industries, serving national and international markets. It has advantages from the strongest per capita education, research and skilled labour base of any State. Its competitiveness as a location for high-value service industries is enhanced by rising real estate and other costs in Sydney. 12.7 The need for reform The Review of Commonwealth–State Funding has revealed large weaknesses in established arrangements. Around these weaknesses are intensely politicised differences among the States on the way untied grants are distributed, and between the Commonwealth and States on the levels and character of SPPs. Identifying weaknesses – even major flaws – in the existing system, and recognising deep differences within the Australian community about them, does not in itself make a case for change. The case for reform also requires demonstration of an alternative that would work better in practice. It must be capable of being implemented with transitional arrangements that avoid costly dislocation, and generate overall benefits that exceed the costs of transition. It must be feasible within the Australian political framework. FINAL REPORT [182]
CHAPTER 12: Overall Assessment and the Need for Reform There is a better model, and a path of implementation that would avoid dislocations in transition while retaining most of the net benefits of reform. This creates an attractive opportunity for reform to achieve greater equity, efficiency and transparency in an important area of public policy. Reform always requires political and community leaders to make the case for change once they have been convinced of its necessity or value. We hope that leaders on both sides of politics and at Commonwealth and State level will give thought to the alternative model, and weigh its merits. The best model is not an improved version of the status quo, patched up to remove the most obvious flaws in methods of assessing untied grants to the States (see Chapters 4, 5 and 11), and of management of SPPs (see Chapters 2 and 5). It would be possible, for example, for the CGC's calculations to take sensible account of public investment needed by the States for relatively strong economic growth. Economic rent, rather than sales value, could be introduced as an indicator of taxation capacity in the natural resource industries. Inconsistencies in accrual and cash accounting that have introduced anomalies into assessment of superannuation-related expenditure disabilities can be resolved. However, small improvements would not remove the biggest weaknesses in the CGC's current interpretation of HFE. • It would continue to distort the size of the public sector, and therefore the political economy, of States that are the largest recipients of transfers via the Commonwealth. • It would continue to drive a wedge between the effects of State policies on State economic performance, and the benefits enjoyed by the relevant State communities. • It would continue to override Australians’ preferences in relation to the availability of minimum levels of the most important merit services across the national community. • Most importantly, a system that is already so complicated that only a few Australians understand it would become even more complicated and opaque to community interest and accountability – despite its relevance to delivery of services of great importance to all Australians. Equally there is little merit in marginal reform of the established system of SPPs. In submissions and other representations to the Review, interested parties on both sides of Australian politics and in all States recognised the need for fundamental reform of funding through SPPs because of: • blurred accountabilities derived from overlapping Commonwealth–State responsibility • deadweight costs of game-playing over funding and responsibility • resulting underperformance in areas that are most important to Australians. FINAL REPORT [183]
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Review of Commonwealth-State Fundin
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Review of Commonwealth-State Fundin
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TABLE OF CONTENTS CHAPTER 9: Equity
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THE REVIEW COMMITTEE FINAL REPORT [
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EXECUTIVE SUMMARY Overall assessmen
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EXECUTIVE SUMMARY Each State would
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CHAPTER 1: Overview and Summary of
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CHAPTER 2: How the System Grew: A H
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CHAPTER 3: The Current System TABLE
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CHAPTER 3: The Current System 3.3 G
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CHAPTER 3: The Current System Natio
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CHAPTER 3: The Current System FINAL
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CHAPTER 4: Allocation of General Pu
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Chapter 5: Specific Purpose Payment
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CHAPTER 6: Comparative Fiscal Posit
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CHAPTER 7: Other Federations 7.2 Ve
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CHAPTER 7: Other Federations Sales
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CHAPTER 7: Other Federations The Un
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CHAPTER 7: Other Federations Popula
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CHAPTER 7: Other Federations In add
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CHAPTER 7: Other Federations Compar
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CHAPTER 7: Other Federations FINAL
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CHAPTER 8: Federal Policy Effects o
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CHAPTER 9: Equity Chapter 1 notes t
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CHAPTER 9: Equity Both SPPs and gen
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CHAPTER 9: Equity Table 9.3 shows t
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CHAPTER 9: Equity 9.3 Horizontal di
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GLOSSARY merit goods (health, educa
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FINAL REPORT [234] GLOSSARY
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BIBLIOGRAPHY Buchanan, JM 2001, Fis
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BIBLIOGRAPHY Government of Victoria
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BIBLIOGRAPHY Watts, RL 1999, Compar
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INDEX E economic activity / growth
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INDEX O other Federations Canada ·
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Garnaut Fitzgerald Review of Commonwealth-State Funding

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