Alan Eggleston (WA, Liberal Party) Share this | Hansard source

There is no doubt that financial relationships between the states and the Commonwealth government have changed radically since the federal Constitution was written and the Commonwealth was established. Clearly, the problems which now exist need to be reviewed. In the original Constitution, it was the states who had income tax powers, and they were handed over to the Commonwealth as an emergency measure during World War II. While this meant that some states got more money than others, nevertheless, that was the system that existed. But, when Malcolm Fraser sought to hand the income taxing powers back to the states, there was no agreement to do so because the less wealthy states did much better under the Commonwealth system of collecting taxation and then distributing it on the basis of some sort of horizontal fiscal equalisation than they did relying on their own resources.

The fact remains that the states do have enormous responsibilities for education, health services and infrastructure. In Western Australia, for example, where I come from, although we only have 10 per cent of the Australian population we have 33 per cent of the land area—a third of the area of Australia—so we have a need for extra finance for important infrastructure, such as roads, and because Western Australia is so vast. Almost in every town you have to duplicate schools and hospital services because regionalisation just does not work with the great distances between these centres.

John Howard introduced the GST as a funding stream for the states, but this has not assisted, because of the formula under which the money is distributed. Under that formula, Western Australia—again, taking a very parochial Western Australian point of view—has missed out. Premier Colin Barnett has said that he is dismayed by the share of the GST allocated to Western Australia. He said that if the projections did not change he would have no choice but to significantly raise taxes in Western Australia, which would be an added burden on the people there. At this stage, Western Australia only get 45c in the dollar of our GST. The Northern Territory, for example, would be getting more than Western Australia—while we in Western Australia have 10 times the population of the Northern Territory, Mr Barnett said.

So there really is a need to review Commonwealth-state financial relations. It is not an argument which is sustainable to say that this audit of Commonwealth finances should not go ahead. It is quite clearly the intention of the Abbott government, with this audit, to take a root-and-branch look at the whole spectrum of Commonwealth-state financial relationships and the way that various services are funded in this country. This can only be regarded as a very laudable objective.

We should look around the world at what other federations do. In Germany there is a totally different formula for the distribution of money to the states, which seems in many ways to be a fairer system than we have in Australia. In Canada, where they have provinces, as we have states, the distribution of funds from Ottawa to the provinces seems to be fairer and more balanced than in Australia. Not only do we have to consider the needs of the states, but, as has been said today already, we have the problem of the ageing Australian population and the implications of needing to care for a country in which something like 25 per cent of the population will be over 70 within a few years. We also have to think about the repayment of the huge debt left by the Labor administration.