States and territories in the age of entitlement

Carve 10 percentage points out of personal income tax, put it in the hands of a sub-national government, and reduce grants to said government by an equivalent amount. Malcolm Turnbull’s pre-COAG thought bubble? It sounds like it, but it’s what has actually just happened in the UK, as Westminster devolves fiscal power to Scotland.

Has the Australian federation reached such a sorry pass that we can take lessons from one of the most centralised of unitary states? For that matter, decentralisation is a global trend. As the Australian federation becomes more centralised, unitary states are going in the opposite direction.

We’ve travelled so far along the centralisation path that we’ve been conditioned to think the idea of our states raising more of the money they spend as freakish. In fact it’s nothing less than a bedrock principle of accountable, efficient federalism. The Premiers and Chief Ministers know that, and some of their predecessors even advocated what Turnbull proposed to COAG, but it suits them (the WA Premier excepted) to pretend otherwise.

Turnbull’s proposal has been put to rest for now, but the problem of unaccountable, inefficient federalism remains. More than that, the Premiers and Chief Ministers have become part of the entitlement culture.

Far from coming to an end, the age of entitlement long ago spread from pensions and other cash benefits to in-kind health and education benefits. It is the states and territories — not the federal government — that actually run public hospitals and schools, but instead of being held accountable for how they are run the Premiers and Chief Ministers have turned themselves into a pressure group for more federal funding as if that is the solution to all problems.

Public attitudes towards health and education in the age of entitlement make it politically difficult for the Commonwealth to make ‘take it or leave it’ offers to the states as in the past, but eventually something must give. The Abbott government’s so-called ‘$80 billion cut’ forced the issue into the open, but the nature of its resolution is not yet clear. The least satisfactory one would be more Commonwealth taxation to finance more grants to the states.