Revenue sharing is not responsibility

 

 The Queensland government submission to the Productivity Commission review of GST distribution suggests the Commonwealth government should share its income tax revenue with the states.

At first glance, this looks like an attempt to change the conversation from GST redistribution options floated by the PC that could cost Queensland up to $1.6 billion a year in GST revenue grants. After all, what has income tax revenue sharing got to do with GST distribution?

To be fair to the Queensland government, it was picking up a thread in the PC’s draft report — that although it has been tasked with reviewing GST distribution, there are broader problems with federal financial relations, “… the roots of which lie in the very high degree of vertical fiscal imbalance between the Commonwealth and the states and the unclear delineation of responsibilities for service provision across governments.”

The PC is right about that. GST distribution is a second-order issue compared with the broader problems.

The approach floated by the Queensland government would involve the Commonwealth granting a share of its income tax revenue to the states as untied funding in place of some existing tied grants — such as those for health and education.

This would be an improvement if it meant less Commonwealth meddling in services that are constitutionally the responsibility of states, but it would not be a solution to vertical fiscal imbalance. The states would be just as dependent on Commonwealth grants as they are now.

Reducing that dependence requires the states to exercise more revenue-raising power of their own, such as by levying their own personal income tax at rates set by their parliaments in place of part of existing Commonwealth income tax.

All the indications are, however, that states (and particularly Queensland) don’t want that responsibility. When it was suggested by Malcolm Turnbull almost two years ago, state premiers ran a mile.

They are happy to indulge in more sharing of revenue raised by the Commonwealth — particularly if it means more untied grants in place of tied grants — but there is a world of difference between more revenue sharing and more revenue responsibility, which brings with it political accountability.

Robert Carling is a Senior Fellow at the Centre for Independent Studies.