1
Apr
2016

Turnbull on Federal State Relations

It is becoming more difficult by the day to guess what rationale is behind the limited  policy announcements Malcolm Turnbull is starting to make. One interpretation of Turnbull’s latest announcement is that he reached a personal view that he needed to announce something new. That led to his decision to announce a “new” policy on federal-state relations without providing substantive detail because he thought that there would general agreement that something needed to be done to reduce  the vertical fiscal imbalance between the Federal and State governments. And that there would be much discussion of the idea and praise for him for initiating it.

Such an interpretation would fit with the neophile concept to which I referred in my last Commentary. Sure, follow the usual path and announce an increase in hospital grants to the states (The Parliamentary Budget Office estimates an increase of $7.9 billion over the period to 2019-20 compared with what was envisaged by the Abbott government). But announce also a new approach to Federal-State relations.

Never mind either that the no-substantive-detail-new-policy is claimed to involve one of the greatest reforms to Federation in ‘generations’ and the greatest health reform since the introduction of Medicare (the Queensland Premier say the policy is a blank page). The discussion of the general issue will, Turnbull hopes, occupy much time and attention in the lead-up to the election and he will be praised for raising it.

Never mind that the announcement was made at a press conference at a football ground and no written document was released.

Never mind that Treasurer Scott Morrison was not aware that Turnbull contradicted himself by first saying that the arrangement would  not involve an increase in the overall burden of taxation and then saying that “in the long term” States should be free to raise or lower income tax rates. The long term is a long way off but it shows vision.

Andrew Bolt argues in Bolt on Turnbull’s Tax Plan that “none of this makes sense as a political  strategy just months out from an election” and that Turnbull’s statement is open to different interpretations which Labor will surely use to the utmost.

None of this to say that the vertical fiscal imbalance is not too large (with the States relying on large grants to  finance their services and the Federal Government unduly intervening in the operation by the States of their services). But it is one thing to identify a problem and a much more complex and politically difficult thing to reduce it.

The States have instituted policy changes, such as privatisations and contracting out, which have improved standards of services and which reduce them from unwarranted political influence. Today’s Australian refers to the increase in efficiency of Queensland health services implemented under the Newman government (see Improvement in Ql’d Health Services) but another report indicates that 14 per cent of public hospitals are used by people who carry insurance. That should be drastically reduced and would save considerable sums.  I was personally involved in assisting the Kennett government in Victoria to improve the standard of services in that State.

The difficulty is in finding political leaders in the States who are prepared to initiate reforms which inevitably involve reductions in spending. Finding such leaders and providing them with politically usable analysis is more likely to improve standards of services than a reduction in the vertical fiscal imbalance.

To my mind Turnbull’s various statements on Federal-State relations has now confirmed that he should not be PM nor leader of the Liberal Party. But that party has locked itself to him for the election.

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