Federation Reform Must Consider The Needs Of Everyone Not Just A Few

14/04/2016 5:46 AM AEST | Updated 15/07/2016 12:51 PM AEST
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Malcolm Turnbull, Australia's prime minister, speaks during an economic forum hosted by the Melbourne Institute in Melbourne, Australia, on Thursday, Nov. 5, 2015. Any set of tax reforms must raise revenue while sharing the burden fairly, Turnbull said. Photographer: Carla Gottgens/Bloomberg via Getty Images

The basic rights and interests of people in Australia to adequate essential services, including schools, child care, health care and housing -- regardless of where they live -- should be at the heart of the current debates about the federation, not the rights or interests of Federal and State Governments.

To this end, it is worth recalling that the current COAG health agreement commits to providing "all Australians with timely access to quality health services based on their needs, not ability to pay, regardless of where they live in the country".

While all governments must share the responsibility to find more efficient and sustainable ways to fund services into the future, the principle of equity -- irrespective of location -- means that our national government cannot vacate the space. Its attempts to do so have been rightly rejected by state leaders.

It is clear that more revenue is required and that this should be raised in a way which minimises economic harm. How to do this is the debate we should be having.

Instead, we've been diverted by convoluted and complex revenue proposals: first it was a tax mix switch from income to consumption, and last week, state income taxes. Neither met the fiscal, efficiency or fairness tests.

The proposed tax switch would have been regressive, requiring huge amounts of compensation to cure its inequities, with few, if any, efficiency benefits and little or no extra money for services.

The latest state income tax proposal would have been unlikely to increase overall revenue; if anything, interstate tax competition would have further eroded the current revenue base. The net result would have been a marginal shift in funding for the States, uneven revenue impacts around the country, ongoing challenges in the coordination of health services and the abandonment of fair resourcing of schools based on need.

Things could have played out very differently. If the tax and federation reform papers had been released and there was widespread and informed discussion about the issues, we may have by now defined our policy goals and reached agreement on how to get there.

The Councils of Social Services around the country have developed a federation reform proposal that has the interests of people, whoever and wherever they are, at the centre. We propose the development of legislated service guarantees funded by fair and efficient tax reform.

Service guarantees would provide national minimum standards or entitlements in major areas of shared responsibility including health, schools, early childhood education and housing. In the process, reforms to services should encourage cost-effective delivery, especially in health. The current system is too focused on acute care, neglecting the opportunity to achieve significant savings through effective preventive and population health approaches.

It should not be beyond the ability of governments to work out a funding system that guarantees a decent service and provides strong incentives for states to improve cost effectiveness while leaving them with sufficient autonomy to get on with the job.

On the revenue side, just increasing rates of tax off an unfair and inefficient tax base is not the answer. We must instead make sure that everyone pays according to their ability.

In recent days, the Prime Minister has raised the case for state governments moving away from reliance on stamp duties to a broader land tax. Now this, finally, is a tax reform worth the hard work. This reform has widespread support, including at last year's National Reform Summit between community sector, business and unions. Importantly, there is virtually universal agreement this reform would clearly improve economic efficiency and economic growth.

Reform of superannuation must also be high on the list, when fewer than one in five older people pays any income tax. We propose strengthening the superannuation taxation system to help pay for health and aged care. Fund earnings in retirement should be taxed at least at 15 percent and tax-free thresholds for over 64s should be reduced (now almost $60,000 for a couple). This would close loopholes in the fairest tax base we have: personal income tax.

To reach the end point, we need a clear agreement on where we want to go and a roadmap showing how to get there. That requires close collaboration between all levels of government and the community. The Commonwealth started off well with major reviews of tax and federation, but went off track with its ambush of the states, and the community, in the 2014 Budget.

Let's hope that the 2016 Budget does not repeat these mistakes at the expense of those on low incomes who are already experts in 'living within their means'.

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