Some Labor states would rather rob the poor

The recent release of the Grants Commission's annual update of the relativities used to distribute GST revenues among the states and territories was accompanied by the usual litany of complaints from New South Wales and Victoria: that they are unfairly subsidising the rest of Australia.

Although making such complaints has long been part of the job description for the treasurers of these states, it nonetheless always comes as a surprise to hear Labor politicians complaining about the redistribution of taxes from the rich to the poor.

For that is precisely what the Grants Commission's assessments are all about.

The commission is required by its terms of reference to recommend a distribution of GST revenues that would allow each state or territory to provide services to its population at the same standard as the average of all of them (after taking account of differences in the usage of various services and the cost of providing them in each state and territory) if each made the same effort to raise revenues from its own sources (after taking account of differences in the capacity of each state and territory to raise revenue) and operated at the same level of efficiency.

In other words, the distribution of GST revenue recommended by the Grants Commission recognises that some states or territories have a lesser capacity to raise revenue from the typical array of state taxes because they have, for example, lower average wages or lower average land values than others; and that some states or territories face proportionately higher levels of demand for services typically provided by state governments, or higher unit costs of providing them, because of the characteristics of their populations (for example, a higher proportion of Indigenous inhabitants) or their dispersion.

NSW and Victoria get less out of the GST pool than they would if the pool were distributed on an equal-per-capita basis because they are relatively rich states - with, for example, wage and salary incomes (subject to payroll tax) and land values (subject to land tax and stamp duty) above the national average, and below-average proportions of their populations of Indigenous origin or living in remote areas.

Conversely, Tasmania, South Australia and Queensland (yes, Queensland) have below-average incomes and land values, above-average proportions of low-income households and (in Tasmania and Queensland) persons of Indigenous origin.

On the basis of the values that they traditionally espouse, one would have expected Labor politicians to have applauded redistributions of economic resources in this way.

At the federal level, no one seriously suggests that those who pay the top marginal income tax rate are entitled to have their tax payments returned to them in the form of an equal amount of federal government spending on them or their families.

The Labor governments of NSW and Victoria do not believe that the full amount of the land tax and stamp duties that they collect from the well-heeled citizens of Pymble, Killara and Double Bay or from Toorak, Brighton and Camberwell, should be spent in those suburbs rather than in, say, Mount Druitt or Broadmeadows, or in the Hunter and Latrobe valleys.

So why on earth do they believe that the GST paid by the relatively affluent citizens of NSW and Victoria should be entirely spent on them?

It is true that the present resources boom is significantly enhancing the capacity of the Queensland and West Australian governments to raise revenue from mineral royalties and other taxes.

And that is reflected in the Grants Commission's latest assessment, which reduces their share of the 2006-07 GST pool by 1.1 per cent and 1.5 per cent respectively, from what they will get from the 2005-06 pool.

Indeed, if the distribution of GST revenues in 2006-07 were to be made on the basis of the assessed revenue-raising capacities and expenditure disabilities for 2004-05 (the latest year for which data are available) alone - rather than, as the Grants Commission's terms of reference require, on the average of these relativities for the five years from 2000-01 through 2004-05 - then Queensland and WA would also be net contributors to the GST pool. Assuming the resources boom lasts for another two or three years, Queensland and WA probably will be net contributors after the boom has peaked.

The redistribution (over many years) of revenues collected by the Federal Government in accordance with the Grants Commission's principles is one of the reasons why the differences in living standards - including access to services such as education and health - are much smaller between, say, Tasmania and NSW than between, say, Alabama or Mississippi and Connecticut or Vermont in the United States, or between Newfoundland and Alberta in Canada.

In that sense, the Grants Commission's principles are part of the glue that holds the Australian federation together. It is thus both surprising and disturbing once again to hear Labor politicians, especially from Australia's richest states, suggesting that these principles should be jettisoned.