Queensland premier says too much funding 'comes through Canberra mix-master' with strings attached

The Queensland premier has thrown his support behind setting aside a portion of income tax for the states and territories, arguing that too much federal funding for local services “comes through the Canberra mix master” with strings attached.



Campbell Newman outlined his ideas for an overhaul of responsibilities and funding as the federal government launched the next stage of its review to transform the federation.

The prime minister, Tony Abbott, said the white paper on the reform of the federation would aim to reduce duplication and inform the Coalition’s policies for the next election, due in 2016 – a sign that major reforms could form the basis of an agenda for a second term of office.

Terms of reference released on Saturday showed the review would consider the practicalities of limiting commonwealth policies and funding “to core, national interest matters” and striking a deal between state and federal governments “about their distinct and mutually exclusive responsibilities and subsequent funding sources”.

In an acknowledgment of the existing funding imbalance, whereby the federal government collects the majority of revenue but the states deliver the main frontline services, the terms of reference said the white paper would look at “how to address the issue of state governments raising insufficient revenues from their own sources to finance their spending responsibilities”.

Labor’s treasury spokesman, Chris Bowen, said he was concerned that Abbott would use the white paper “as cover to cynically cut even more funding from essential services, and blackmail state governments into accepting an increase in the GST [goods and services tax]”.

Bowen said the prime minister had already strained federal-state relations by clawing back $80bn in future health and education spending in last month’s budget.

Newman said he did not support an increase in taxes, but he said governments must reduce duplication and inefficiency, and address the issue of federal-state relations.

He said the states and territories could gain access to a portion of income tax collected by the Australian Taxation Office. Instead of a rate-in-the-dollar for each tax bracket, the tax tables could include two rates: one for the federal share and another for the state share.

This would not represent an overall increase in tax, but would ensure a portion went directly to state and territory governments without strings attached.

“Forty per cent of the Queensland budget right now comes from federal government funds, so that’s the GST and also direct grants, tied and untied,” Newman told Guardian Australia on the sidelines of the Liberal federal council meeting in Melbourne. “This money is coming to us now, but it comes through the Canberra mix master.”

States would be allowed to increase or decrease their income tax rates under the plan.

“These used to be state taxes. This used to be owned by the states in totality and they were handed over in World War II and then, after the war, the commonwealth kept hold of them and never gave them back,” Newman said.

Newman suggested the states should claw back their traditional responsibility for health and education as part of an overhaul that would require a major “political negotiation”.

“I’m quite happy to see us negotiate an outcome where the federal government basically gets out of the space in terms of the running of hospitals, the running of early childhood, primary and secondary education, and we take responsibility for that,” Newman said.

“But we then need the revenue streams to do that, because we then should be funding independent and Catholic schools as well. We clearly can’t do that without the revenue streams.”

Newman cited the national disability insurance scheme (Ndis) as an example of an area for which the federal government could assume all funding responsibility. He said disability services had traditionally been provided by the states but the Ndis arguably was a “social security scheme” because it was being set up with self-funding packages involving non-government organisations and private-sector partners providing the service.

Asked if there should be a policy leadership role for the federal government in health and education, Newman said: “I don’t think there does need to be one. What I’m advocating is competition between the states.”

He said if people in a state saw that another state was getting better hospital or school performance, there would be “immense political pressure on the premier, or the first minister, of that state or territory to sort it out”.

Bowen accused Abbott of taking a “narrow view” of the federation, which did not reflect modern Australia and argued the commonwealth should continue to take an active interest “in making us a stronger and fairer society”.

“The commonwealth plays an essential role in making sure our kids get the very best education, our loved ones receive quality care in well-resourced hospitals, and our infrastructure gives us the capacity to keep our economy growing,” Bowen said. “For Labor, schools, hospitals and aged care will always be matters of core national interest.”

Abbott said the commonwealth would continue to have a leadership role “on issues of genuine national and strategic importance” but there should be less commonwealth intervention in areas where the states had primary responsibility.

The prime minister said the federation white paper, to be developed with the states and territories, would be released by the end of next year and would “inform the policies we take to the next election” due in 2016.

“We all know that our federation has great strengths – combined with buck passing, duplication, waste and inefficiency,” Abbott said.

“With Liberal-National governments in Canberra and most of the states and territories, now is the time to make each level of government sovereign in its own sphere.”

A related white paper on tax reform will be prepared.