Part 1 Question 2

N.B. This was written in exam conditions in 25 minutes (no editing) then typed as verbatim into the wiki.

Appropriation of state income is necessary in order to gift federalism with a level of balance and separation regarding the imposition of commonwealth policy. To remove such a balance casts a negative light over the position of the states and Australian federalism as a whole.

Firstly, removing all state taxing ability and replacing it with a system of federal rebates has pertinent ramifications with the issue of tied grants. Herein lies a certain ability for the federal government to tie conditions with the funding of certain policies and projects. Tied grants are a dangerous precedent in a federalist democracy such as Australia because they primarily enable and confer supreme power to one omnipotent authority. This ultimate referral of power through tied grants has dangerous and unwieldy consequences. For example, the Howard government introduced a policy whereby school wishing to attain federal money must fly a flag outside their school in an effort to convey a meaning of national pride and unity. Whilst not incredibly scrupulous, debatable and somewhat trivial, it illustrates the power in which the federal government has over the gifting of tied grants to state institutions. It was not the state policy which implemented or called for the flag policy… this is the federal government going outside the conferral of power in s 51 to imposition and impregnate their policy in that of the state. It is this dangerous precedent, one in which federal governments can dictate what states get what amounts of money that has widespread ramifications for federalism. Moreover, states in this new paradigm, whereby all the taxable income will be diverted through the federal government will lead to almost ‘powerless puppets’ in the state government, being propped up the spine of the commonwealth and the autonomy of the federal government. Given that states control most of the operations in the country (hospitals, transport etc…) this precedent is both dangerous and unwieldy.

Secondly, imposing a blanket ban on state taxes will not ameliorate the existence of vertical fiscal imbalance (VFI). The conferral of taxing powers will only deteriorate the existing state of state affairs (pun not intended). Removing all state taxing power and this denying states the ability to apportion new taxes if situations change regarding levels of funding and debt. What may and most likely, will happen is that states will resort to other means in order to attain ‘untied’ income. As such, they will have the unconfined power to increase water levy rates, license fees.. anything that they have the lawful authority to increase This will ultimately lead to greater pressures on families, in direct contravention to the intended meaning of the new laws (‘lessening the pain on Australian citizens’). So then - what does this new law achieve? Nothing. Removing all state taxing power merely creates a larger imbalance that states will attempt to compensate for through other (non tax) means, akin to what the media would call ‘cash grabs’. Increases to the cost of living will ensue if the proposed law passes.

Finally, and somewhat more nuanced, is the fact that this proposed law only applies to ‘states’ and not ‘states and territories’. This has widespread ramifications in the future as states, who will inevitably raise the cost of living, will drive people to the edge of their budgets causing many to consider alternate means of sustaining their quality of life and financial independence. As the Territories are exempt, this may fuel an exodus of those who are financially displaced to the territories, which have a less restrained tax and income situation, without the burden and necessity to ‘cash grab’.

Clearly, imposing such a blanket fiscal reform on the taxing system of Australia is conferring ultimate power to the commonwealth, which will result in state governments resorting to unscrupulous means in order to attain sufficient funding for various purposes.