08 November 2011
Mr MORRIS (Mornington) — One of the enduring facets of federation is the concept of horizontal fiscal equalisation, which has existed for over 100 years, indeed since the beginning of special grants from the commonwealth to Western Australia in 1910–11.
The creation of the Commonwealth Grants Commission in 1933 exacerbated the problem for Victoria with the introduction of allocations to the states based on the concept of full fiscal equalisation.
This contrasts with other federations, notably Germany and Canada, which have a much narrower focus. According to Department of Treasury and Finance data, Victoria’s contribution to the rest of the country as a donor state now tops some $66 billion.
Since 1981 further modifications have seen the model change from absolute dollar requirements to relative disadvantage, the addition of the territories to the funding pool and, finally, the introduction of the GST.
The states now depend on the Commonwealth Grants Commission for 25 per cent of their revenue. The current system actively punishes those states, including our own, that achieve efficiencies in service delivery, and it rewards poor performance.
As members will be aware, a panel has been formed to review the GST distribution methodology, which is a welcome step. I was therefore very disappointed to read over the weekend an article reporting a response from the federal Treasury which amounted to a strong endorsement of the current system.
The system is broken, but the commonwealth Treasury refuses to participate in mending it, even though it concedes that the current system fails to deliver.
The stance of the commonwealth is a real and immediate risk to Victoria.
Legislative Assembly 8 November 2011
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