Government power is decided by money. The ability to collect money as well as hand it out. The Australian federal government is a big collector of tax money, in 2000 consuming 26% of Australia's GDP in tax. It is also a big spender of money, with 25.3% of the GDP being handed out by the federal government in 2000.

The Australian federal government has polluted our system of federalism by stealing from the States a government's autonomous right to tax for themselves. This not only leads to over-taxation but entropy of power to the central government. Canberra not only dictates policy, but funds it as well. The States are nothing more than a popularly elected bureaucracy to disburse federal funds.

Fortunately NSW never got over the fact that it didn't become "Australia", and on the western coast of the continent there are the Westralians, constantly suspicious of the t'othersiders, especially the ones in Canberra. Bob Carr and Geoff Gallop are both holding out for the moment.

If Carr and Gallop give in, they will effectively be handing over any last resistance to centralist principles. Australia will devolve into a Westminster system like Britain's where London dominates and nothing lies between Parliament and the local councils. The fact remains, the States need to take back from the Federal government their ability to tax.

The Failure of Federation

The failure of Federation was NSW's fault. The Australian constitution is devoid of enlightenment innovations such as a Bill of Rights, or an elected Executive. The "bearded men" knew of many of the flaws of the system and even tried to add in a few of their own. Griffiths for instance in one draft making the judicial arm subject to the authority of the legislature. Deakin was aware of the flawed federalism in the constitution, George Williams comments;

These can be traced back to when the Constitution came into force in 1901 when Alfred Deakin, one of Australia's first Prime Ministers, predicted that the states would find themselves "legally free, but financially bound to the chariot wheels of the Central Government".

NSW was the strongest colony of the time. It could have placed its stamp on the constitution, instead the Deakinists held sway and the flaws in the Constitution and Australian federal government continue to dog the country. The Deakinist world-view of Australia was an inefficient one. As Prime Minister he enacted, protectionism, discriminative immigration policy and centralised government. The first one took eighty years to get rid of, the second seventy years and the final we are still trying to disentangle from.

The Australian High Court has also been activist. Deciding for themselves that they, and they alone had the authority to turn the Australian Constitution into a living breathing document. The corporation's power is an example of this activism.

The Australian Constitution has proven difficult to change through the strict referendum and majority system. We lag behind the Swiss in this area of Constitutional responsiveness. Even so the static nature of Australian Constitutional change does not give the High Court the right to modify the meaning of the Constitution and federalism without public consent.

Emergency

In 1942 the federal government decided it needed more money to pursue the war against Japan and Germany. The demanded and got the ability to tax income. Previous to this the Federal Government was unable to tax income. Several states opposed the legislation, taking it to the High Court, but they lost. War is always a poor time for liberty, and political opportunists constantly use it to accrue more powers around themselves. James Madison had wise words on this subject;

In no part of the [US] constitution is more wisdom to be found, than in the clause which confides the question of war or peace to the legislature, and not to the executive department ... In war, a physical force is to be created, and it is the executive will, which is to direct it. In war, the public treasures are to be unlocked; and it s the executive hand which is to dispense them. In war, the honours and emoluments of office are to be multiplied; and it is the executive patronage under which they are to be enjoyed. It is in war, finally, that laurels are to be gathered; and it is the executive brow they are to encircle. The strongest passions and the most dangerous weaknesses of the human breast; ambition, avarice, vanity, the honourable or venial love of fame, are all in conspiracy against the desire and duty of peace.

To Madison's world-view, war and centralising power undermined the very foundations of free government. We are saying the ripples, if not the super-waves, of the collapsing of income tax power to the Federal Government today. The Australian Federal government over-taxes in order to impose its will on the states.

Cockroaches and Sandgropers

In the 1930s, the NSW Premier was Jack Lang. He was elected on a platform that included bashing the Bankers in London for being unsympathetic and out of touch with the realities of depression era Australia. Lang was fortunate he was given the perfect foil in the imperialistic arrogance of Sir Otto Neidermeyer.

NSW was still carrying loans to Britain from the First World War at higher rates of interest than they were paying to other lenders, such as the United States. Lang decided that he would default on the loans until he got better terms from the London bankers.

The problem from the Federal Government's point of view was that they had under-written those loans. If NSW defaulted, they were liable for those payments. Once again the pollution of the federal system led to conflict between the Federal Government and the States; in this case though, it nearly ended in Civil War.

The Prime Minister, Joe Lyons, decided he would take NSW's income tax rolls and do the taxing instead of NSW. But those rolls had been hidden, as had any cash NSW had in banks. Lyons was stuck, unable to get money out of NSW, and with Lang not changing his mind on defaulting. Lyons readied the Australian military to take government buildings in Sydney, while the NSW Police Force backed Lang to the hilt. Militias began forming all over NSW, some pro-commonwealth and some pro-state.

In the end the ambiguities of the Westminster system and reserve powers defused the situation. The Governor of NSW, Sir Phillip Game sacked the Lang government. It was most likely unconstitutional to do so. All it would have taken was for Lang to not recognize Game's authority and civil war would have descending. Lang said the words, "I am a free man, the bastards sacked me." There was no blood on the wattle that day.

We Secede!

The Western Australians were reluctant participants in Federation, concerned about the concentration of power in the Eastern States. When Western Australia held the referendum to join Federation, they were the last colony to do so, with the other colonies already approving their referendums.

The regional streak is strong in Western Australia, in 1933 the state voted to secede from the Commonwealth of Australia. To many Westralians, the federal government and Canberra were remote, far from them, and disconnected from the issues of the state. Several Leagues formed to promote secession of Australian unity. The Dominion League led the secession campaign.

The vote on secession was overwhelmingly in favour of seceding. The only district to vote no was the goldfields, presumably because of an influx of eastern staters in the gold-rush. Ironically the voters also removed the incumbant secessionist government from parliament and replaced it with a federalist one.

A petition was presented to Parliament in Britain, but British officials claimed they were unable to act without the Federal Government in Australia approving any secession. This left the Western Australian secessionist nowhere to go, other than a straight out repudiation of the Australian Constitution.

From the song, " Westralia Free ";

Plains of our pastures boundless,
Seas of our rainbow'd pearl,
Destiny is your breezes
Liberty's flag unfurl!
See its folds flung wide
And the challenge cried
"On to conquer ride,
"Wave o'er Westralia free!"

Land of the karri spring,
Land of the wheat and vine,
Aye to thy sons and daughters
Faith's altar and Love's shrine.
Lo! Our vows were sworn,
And the triumph born
In a nation's dawn,
"We made Westralia free."

By being ignored by Australian Federal Parliament, and politely fobbed off by the British Parliament, Western Australia was forced to seek its style of freedom within the Australian Commonwealth.

Claiming State Power Back

George Williams writes that the States may have a way through the corporations law to claw back against the federal government. The law comes up for review after five years;

There is however one area in which the Commonwealth does rely upon the states. The states have referred power to the Commonwealth to ensure that the Commonwealth has the power to enact key national laws. Without such power, the coverage of these laws would be incomplete, leading to confusion and extra cost. Recent referrals include giving the Commonwealth power over de facto relationships and terrorism offences. The referral most likely to be contentious is that by the states over corporations law.

Over 1999 and 2000 High Court decisions led to instability, problems with enforcement and a lack of confidence in the previous corporations law, which covered the creation and regulation of companies across Australia. It is generally accepted that Australia needs a national law on this topic. The states recognised this and in 2001 referred power to the Commonwealth. However, they did so in a way that will cease after five years. After that time, unless the states renew the grant of power, the uncertainty that plagued corporations law in Australia will return and business will suffer. Unfortunately for the Commonwealth, it will be seeking a further referral of this power at the same time as a new deal on GST revenues and a national industrial relations law.

The aggressor here is the Commonwealth government. It is the one that needs its wings clipped. We can start by not allowing the Federal Government to tax for the states. Ken Parish has written that Federal Government taking over initial income tax powers is reversible and could be the basis for the States taking back control of their own taxation . Parish writes;

The States should all agree to set up a Joint State Tax Office that would levy a uniform state income tax on all Australian individuals and companies. The rate should be set so that it covers all state spending needs, so that the States can afford to tell the Commonwealth to shove its GST revenue and section 96 tied grants where the sun don't shine. The Commonwealth would then be under intolerable pressure to reduce its own tax take back to the level required to fund only it own spending needs. It should be fairly easy for people to see which polity was guilty of greed and duplicity in that situation, and it wouldn't be the States.

Governments don't let other governments tax for them. A government is also only supposed to tax for its needs and nothing more. The federal government collecting income and sales tax for the states is a gross perversion of the principle of government.

The Nuclear Option

The states other than NSW and Western Australia have already given in to Costello. So the larger states like Victoria and Queensland are going to be no help in forming a power-block against the Federal Government. NSW will probably have to show some of the guts and gumption that it was incapable of in the 1880s.

Governments are addicted to, get fat, get wealthy and get powerful on tax collection. Economically NSW is the biggest state in Australia, and the tick of federal government is getting fattest on NSW's neck. The NSW 2004-2005 Budget contains revenue from;

• Taxation
  • 5,482,000,000 Stamp Duties
  • 4,696,000,000 Payroll Tax
  • 1,448,000,000 Land Tax
  • 1,243,000,000 Taxes on Motor Vehicles
  • 1,404,000,000 Gambling and Betting
  • 1,247,000,000 Other
• Commonwealth Grants
  • 9,648,000,000 GST Revenue Grants
  • ...96,000,000 GST deferral
  • ..260,000,000 National Completion Policy Payments
  • 5,944,000,000 Specific Purpose Payments
• Other
  • 1,670,000,000 Dividends
  • ..171,000,000 Licenses
  • ..114,000,000 Fees
  • ..242,000,000 Fines
  • ..300,000,000 Royalties
  • ...53,000,000 Fire Brigade Levy on Local Government
  • ...98,000,000 Other

Which comes to the totals;

• 15,520,000,000 State Taxation
• 15,760,000,000 Commonwealth Grants
• ...979,000,000 Other

NSW is only fifty percent self-sufficient, it is reliant on the Federal Government for about half of its revenue. NSW has several choices, be the federal government's lackey and subject to their every policy and political whim; or decrease the size of the state by fifty percent, making the federal government irrelevant; or the nuclear option, tell the Federal Government that NSW no longer recognizes the Federal Government's ability to tax income. Even better, that the Federal Government cannot tax in NSW at all - a reverse grant scheme.

Carr should claim that in 2006 a new taxation regime will appear in NSW. The federal government is no long able to tax in the state and to maintain the upkeep of the Commonwealth government, NSW will apportion grants to the federal government to ensure common issues such as the national defence, coast guard, customs and trade are maintained at the appropriate level.

To further poison the naked power grabs of the Federal Government the state of NSW should institute innovative taxation means, such as a flat tax of 25% for individuals and companies. This will neuter Costello's plea to NSW businesses to leave for other states. A flat tax will be far more palatable to individuals seeking to lower their tax burden.

For instance in the year 2002-2003 NSW had taxable income of;

• 128,551,645,861 Individuals
• 107,780,949,517 Companies (private and public)

Twenty-five percent flat of that income would be $59,083,148,844. Of this amount NSW only needs 15 billion or so to top up the needs of the state, the rest it can send onward as grants to the Federal Government. See how the feds like it that way around. I wonder who will be quickly crying poor?

cam

The DFAT website has an excellent collection of economic and trade data on the nations and the Australian states. Below is a comparison between the Australian states for economic and trade data in 2004. The states compared are; the Australian Capital Territory , New South Wales , Northern Territory , Queensland , South Australia , Tasmania , Victoria and Western Australia .

Population

The largest three states are NSW, Victoria and Queensland. The two largest states comprise more than half of the countries population. This is undoubtedly because of the two mega-cities in these states; Sydney and Melbourne.

• 6,731,295 : NSW
• 4,972,779 : Vic
• 3,882,037 : Qld
• 1,982,204 : WA
• 1,534,250 : SA
• 482,128 : Tas
• 324,021 : ACT
• 199,913 : NT

Gross State Product (AUD Millions)

The eastern economy is the dominant one. This is also where most of the nation's population is. For comparison, New Zealand's GDP is approximately between Queensland's and Western Australia's.

• 283,067M : NSW (34.8% of Au GDP)
• 206,733M : Vic (25.4% of Au GDP)
• 140,574M : Qld (17.3% of Au GDP)
• 88,935M : WA (10.9% of Au GDP)
• 53,897M : SA (6.6% of Au GDP)
• 16,246M : ACT (2.0% of Au GDP)
• 14,283M : Tas (1.8% of Au GDP)
• 9,494M : NT (1.2% of Au GDP)

% Real Gross State Product Growth Per Head

Western Australia tops the GSP Growth per Capita.

• 5.8 : WA
• 5.1 : Qld
• 3.7 : SA
• 2.4 : Vic
• 2.0 : NSW
• 1.8 : Tas
• 1.4 : ACT
• 0.1 : NT

Unemployment Rate

The ACT leads the unemployment rate, while Tasmania has nearly twice the rate of the ACT.

• 3.9% : ACT
• 5.2% : NT
• 5.6% : NSW
• 5.6% : Vic
• 5.7% : WA
• 6.2% : Qld
• 6.4% : SA
• 6.9% : Tas

Merchandise Exports (AUD Millions)

Western Australia and Queensland topped this list. WA's main exports were Iron Ore, non-monetary gold and crude petroleum. Queensland's main exports were Coal, Beef and Aluminium. NSW was little different, sharing the same major exports as Queensland. South Australia has as its major export, alcoholic beverages, which is testament to the strength of the wine industry in South Australia.

• 34,827M : WA (29.6% of national merchandise exports)
• 22,756M : Qld (19.4% of national merchandise exports)
• 21,323M : NSW (18.1% of national merchandise exports)
• 18,946M : Vic (16.1% of national merchandise exports)
• 7,755M : SA (6.6% of national merchandise exports)
• 2,439M : Tas (2.1% of national merchandise exports)
• 2,039M : NT (1.7% of national merchandise exports)
• 277M : ACT (0.0% of national merchandise exports)

Merchandise Imports (AUD Millions)

NSW's main imports were computer equipment, medical, motor vehicles and telecommunications equipment. Victoria imported motor vehicles, petrol, aircraft and telecommunications equipment. By comparison Tasmania's main imports were Ships, Electrical Plants, Pulp/Waste paper and Cocoa.

• 57,204M : NSW (40.5% of national merchandise imports)
• 43,256M : Vic (30.7% of national merchandise imports)
• 20,148M : Qld (14.3% of national merchandise imports)
• 12,755M : WA (9.0% of national merchandise imports)
• 5,949M : ACT (No figures)
• 5,500M : SA (3.9% of national merchandise imports)
• 1,598M : NT (1.1% of national merchandise imports)
• 610M : Tas (0.4% of national merchandise imports)

Services Exports (AUD Millions)

NSW and Victoria topped this list as would be expected with the eastern economy again dominating.

• 15,262M : NSW (44.3% of national services exports)
• 7,817M : Vic (22.7% of national services exports)
• 6,301M : Qld (18.3% of national services exports)
• 2,685M : WA (7.8% of national services exports)
• 955M : SA (2.8% of national services exports)
• 785M : ACT (2.3% of national services exports)
• 481M : NT (1.4% of national services exports)
• 173M : Tas (0.5% of national services exports)

Services Imports (AUD Millions)

The eastern economy was the main user of imported services.

• 16,407M : NSW (46.1% of national services imports)
• 8,722M : Vic (24.5% of national services imports)
• 4,400M : Qld (12.4% of national services imports)
• 3,336M : WA (9.4% of national services imports)
• 1,224M : SA (3.4% of national services imports)
• 1,087M : ACT (3.1% of national services imports)
• 254M : NT (0.7% of national services imports)
• 149M : Tas (0.4% of national services imports)

cam

Nice sensationalist headline; "FA-18s to protect MCG" . How about instead we take a cue from Bruce Schneier .

From The Age article;

FA-18 fighter jets will patrol the skies over the Commonwealth Games opening and closing ceremonies as part of security measures announced this morning.

A 74-kilometre "security bubble", centred on the MCG, will restrict the operation of small and some commercial aircraft for the duration of the Games.

Chief Commissioner Christine Nixon warned that planes that stray into the zone may be shot down, but only as a last resort and after intense discussions.

I can understand their caution, however, Bruce Schneier has a different view;

Exactly two things have made airline travel safer since 9/11: reinforcement of cockpit doors, and passengers who now know that they may have to fight back. Everything else -- Secure Flight and Trusted Traveler included -- is security theater. We would all be a lot safer if, instead, we implemented enhanced baggage security -- both ensuring that a passenger's bags don't fly unless he does, and explosives screening for all baggage -- as well as background checks and increased screening for airport employees.

This is true, the dynamic changed after three aircraft were flown into buildings, the fourth plane fought back. It was a civil response to a civil issue. One of the great tragedies of September 11th was the militarization of the response to terror. All it has done has collapsed more power into government, who have created more problems with the military response to terror, which in gives government the belief it needs to be more radical in its legislative path to combat terror.

Civilians acting together are armed enough to overcome a terrorist. The State police are well enough armed as well, and in the rare cases they aren't, specialist forces like the Tactical Response Group are more than armed enough. we don't need the SASR, or any other military arm being involved. The state police, State Emergency Services as well as other civilian and state based groups can answer the call.

The Eastern economy is NSW, Victoria and Queensland with Melbourne, Sydney and Brisbane being its epicentres and axis. NSW, Victoria and Queensland are the biggest exporters and importers of services in the country , contributing to 85.4% of services exports and 82.8% of services imports. Matt Wade reports that NSW may have a cold, if not the beginnings of the flu .

From the article;

NSW's jobs figures add to a litany of poor economic indicators. The state has had fewer building approvals in December than Victoria, Queensland and even Western Australia. Its small businesses are the nation's most pessimistic and are demanding lower taxes and less red tape. The state's share of the national economy is down from 36 per cent in 2000 to 34.3 per cent in 2004-05 - the lowest state ratio records began in 1989-90.

NSW's jobs outlook should keep interest rates on hold for the foreseeable future, although the Reserve Bank may find it tricky balancing the needs of the state with the resource-rich states.

In the fifties we rode the Sheep's Back, and it was not until the Hawke government of the 1980s that the economy was liberalised. Today we are in the lethargy of riding the Hole in the ground economy. The Howard government has been as much economic sticks in the mud as the Menzies and Fraser governments.

George Williams has an op-ed in the Sydney Morning Herald warning against not only the vertical tax imbalance present in our system of government, but also the unrestrained anti-federalism. His recommendation is to have another series of constitutional conventions, as we did in 1890, toward solving the problem of federal/state authority and rejuvenating our system of government. While Williams did not state that his recommendation would be part of a Republican convention, this is what maximalist Republicans would desire. Australian Republicans are democrats too and demand good government above all. Republicans are more than aware of the weaknesses in our system of government.

Tax

The vertical tax imbalance has been a constant topic of discussion on SSR. Prior to World War II, the states collected income tax for themselves. This changed with the Curtin government taking over that role due to the exception that was the second world war. That state of exception became a state of permanence, and federal government never again dropped their collection of income tax. John Gorton went a step further and saw the federal government as the collectors of revenue and the policy makers. The state were reduced to disbursing federal funds in support of federal policy. Whitlam accelerated this process. This is the power of federal tax collection. We saw it again recently when Peter Costello demanded the states drop stamp duty charges in return for receiving GST.

Williams writes;

NSW, for example, depends on the Commonwealth for about 40 per cent of its revenue. This was predicted by Alfred Deakin, Australia's second prime minister, who said soon after Federation that the states would find themselves legally free, but financially bound to the chariot wheels of the central government.

I had a look at the NSW state budget in April last year . According to the 2004-2005 NSW budget, state taxation raised 15.52 billion dollars while GST and Commonwealth grants combined to 15.76 billion. GST revenue and deferral was 9.74 billion. So nearly half of the state money comes from the federal government. The point of federalism is that each level of government is responsible to raise revenues to meet its obligations. This is not happening in Australia - the system is broken.

Westminster

The Westminster system of government has poor separation of powers, this conspires to make the political process weak in warding off centralisation. Until recently British government was totally dominated by London, with the next layer of government being councils. They have actually federated to an extent with the addition of parliaments in Scotland and Wales. At the last Australian federal election, all the major parties and the larger third parties had explicit policies of dissolving the states and leaving nothing between the federal government and the local councils. Federalism is a forgotten political methodology in Australia.

In reality it is the federal government that should be the smallest. It should only be taking care of issues that require a response internationally, and to inhibit arbitrary punishment, political or economic, between the states. The states should be the point of greatest diversity. This strengthens the system, allowing for Australians to move between states when one state fails, and encouraging policy competition between states. It also ensures that the state governments respond to local needs. One big, fat, stinking federal government providing policy for us all is a weakness. In a systems world unitary outcomes are single points of failure and to be avoided - if not routed around as damage. Anti-federalism is not a viable policy for the public health or prosperity of the country.

Williams' proposes;

While Australia has achieved important reforms in other areas, it has a poor record of retaining the structural weaknesses in our system of government. This is especially a concern given that Australia now has one of the oldest systems of government in the world. To get this process off the ground we should, like the conventions of the 1890s, hold a summit that will focus national attention and create space for new thinking. We need to fix our federal problems and in doing so ask ourselves what should be the role of the states in the second century of our Federation.

I would add to this, if we are to fix the weaknesses in our system, including poor separation of powers, poor federalism and a weak as dishwater constitution which does not protect minorities and individuals from political discrimination, retribution and violence - then make it a constitutional convention for a republic. The Bearded Men did a second rate job in 1901, there is no reason why we should do the same in the twenty first century. Fix the whole shebang.

This requires; Small federal government which is constitutionally limited (so the High Court can't slyly increase federal powers), a bill of rights to limit legislative authority, better separation of powers between executive, legislative and judicial, improved checks and balances, and finally a republic where the people are the sole authority for the government's legitimacy and have a more active role in its upkeep, processes, outcomes and integrity.

cam

The Australian History Summit was recently held by the Commonwealth Government in order to strengthen teaching of history in schools. Public schooling remains a State based responsibility so this can reasonably be viewed as an anti-federalist imposition by the federal government. However, there was some interesting comments by Paul Kelly on the Insiders which leads the question to be asked; in the current environment where governments are heavily entrenched at the federal and state levels, is the real opposition to the state governments the federal government and vice versa?

The Insiders is a politics as sport style television show, which to be quite honest normally bores me, however as an amateur historian who has produced several hundred pages of history since 1997 on the Australian Flying Corps page , as well as this site with a strong interest in Australian political and global constitutional history, I am intrigued by people's view of history in a national and public setting.

Paul Kelly commented on the history summit quickly dismissing that it was about a conservative-nationalist or anti-federalist agenda. But the fact is he casts it as a combative federal-states issue;

it's quite clear that the teaching of history and Australian history in our schools has fallen into gross disrepair; the present situation is most inadequate.

Now, if the states want to defend this, then they will have to defend what I think is a grossly inadequate situation, and the more these school curriculum are put on the bar of public opinion, the more they're analysed, then I think the more the states will be embarrassed and the more public opinion will turn against the states.

Which bunks any dismissal of the anti-federalist view. The more curious comment however was;

The reason the Commonwealth has intervened in this issue, the reason the Commonwealth wants to get involved, is because it's quite clear there is a significant problem.

And the documents make this quite clear. I think that, over time, if this debate does continue with some sort of confrontation, public opinion is likely to move behind the Commonwealth and also, the Commonwealth has got the force of intellectual argument behind it.

In a federal system the opposition to a state government that is neglecting its duties is the opposition party in the state parliament. However we are seeing the situation where the opposition to a state government is the federal government itself.

Shouldn't it be the opposition parties that are raising the issue of history being under-taught in the state schools, pointing out a deficiency in state governance?

Where are the opposition parties in the state parliaments? Why are they not doing their job? Are they unable to? Do they lack the media platform that the federal government has to shine a light on these issues?

Is this just more centralisation and anti-federalism? Yet we have seen many of the state Premiers act more as an opposition to the federal government than we have the opposition party in the federal parliament.

Is the parliamentary opposition so completely feebled by the politico-media system that they just have to wait patiently in the hope for a drover's dog election? Is this the entropy in a waitocracy?

Too many questions, and none of them bode well for the state of democracy in Australia.

cam

Decentralisation and local autonomy are important principles. The rules, regulations and restriction that govern Local Government are currently all done at the State level. The current issue over uniform proportional representation for Local Government in Western Australia is a good argument for Local Government to determine these things themselves.

I believe that preferential voting in multi-member districts produces superior outcomes, but remain to be convinced that preferential voting, rather than first past the post [FPTP], does similar in single member districts. Local Government should have the autonomy to create their own electoral and voting systems that fit the local environment. The increasingly unitary relationship between Federal government and the States is decried, but little attention is paid to the unitary control of Local Government at the State level .

I am not a fan of the GST. I consider it an anti-federalist tax. I would accept it if it was funding the federal government, but since it is redistributed to the states, and not one for one, it breaks the principle of a government only raising the revenue it needs to support itself and nothing more.

Guy Barnett has a speech in the Senate Hansard on Commonwealth Grants Commission Report on state revenue sharing relativities. The language from the government is that the GST is a windfall - suggesting it comes at no cost, and Barnett, as Costello has, suggests that the states should cut their payroll taxes amongst others due to the GST windfall.

I would argue the opposite. Payroll tax, business taxes etc are some of the few means of taxation the states have direct control over. I am not suprised that they guard them jealously, considering as last time they challenged the federal government (NSW did) on excise taxes the High Court came down on the states declaring that an excise was anything short of a sales tax, and consequently the feds had authority over any excise. It should be noted that the dictionary definition of excise is a tax on local production. Which the High Court ignored.

The GST has also been an expansive federal tax, as Barnett notes:

In terms of the ongoing windfall gain, I want to make it clear that the GST windfall from 2003 to 2011 is humungous in size. In 2003-04 it was a $69.5 million windfall gain; in 2004-05, $106.1 million; in 2005-06, $102.2 million; in 2006-07, $109 million; in 2007-08, $117 million - as I have just indicated; in 2008-09, $131 million; in 2009-10, $140 million; increasing to a $152 million windfall gain in 2010-11. They are very significant numbers. So during that time the estimated GST windfall gain to the Tasmanian government is $927 million more than it would have received under the old tax system

Which sounds to me like Tasmanians are over-taxed by the federal government with GST. If sales tax was leveraged at the state level, the states would be able to move the percentage of sales tax up and down according to their needs and the local economy. With an anti-federalist national tax, there is no refinement, and instead is just a whopping great coarse tax which envelopes both the Western Australian and Northern Territory economies in with the NSW and Victorian ones.

Barnett speaks:

The state government payroll tax is a tax on jobs. This is a particularly iniquitous tax. Tasmania has been benefiting from that tax significantly. That revenue increase in the 2003-04 year to the 2006-07 year was 34.6 per cent. So they should use the GST windfall to start phasing out this anti-jobs tax, in my view. This report makes it clear that the rivers of gold are flowing deep and fast into Tasmania with GST dollars. It is up to the state government to use those dollars wisely.

Alternatively, the federal government could reduce the GST rate since it is obviously overtaxing and supplying the state governments with more funding than they need.

From the ABS is the population statistics for the states. The 2007 stats haven't been released yet.

It is interesting to note on the report that population flows have been matching the states with booming economies. For instance, Western Australia, Queensland and the Northern Territory have to the largest changes over previous years with a 2.1% gain in WA. This suggests some mobility in the workforce in moving to opportunities though none of the states had negative changes, possibly due to immigration working to continue population increases.

Update: I take that last sentence back, oversea migration made up 52% of Western Australia's increase in population, there was almost no inter-state movement to WA either, it was all births or overseas migration. More at clubtroppo.

Power politics dominates the international scene and the US as the most powerful nation on the planet plays power politics hard. Power politics is also how the vertical power balance in a federal system is conducted. For instance in the US California tends to be very independent of the US national government. This is due to a mix of size, economic power and ability to raise revenue to support independent policy. So much so that Californian policy ends up influencing federal policies.

Australia has a far more centralised federal system which despite NSW's dominance of GDP at 33% has not translated into independent policy and political power since WWII. The main imbalance is tax, but a nationalist high court has helped as has a national government selective in its fights.

Three recent incidents are indicative of the power politics balance in Australia. The national emergency over Indigenous issues was between the National government and the Northern Territory. This is despite the Aboriginal people being well represented electorally wise in the NT as 25% of the population. The failure is the representatives in this system. In NSW, Qld and Western Australia the indigenous people are a much smaller percentage, under 2%.

The national government muscled in on the Northern Territory and not the other states because it could. NSW, Qld and Western Australia are big enough to tell the national government to bugger off, in polite words, but they can resist the take overs unless they agree to them. The federalist response for the Northern Territory should have been; thank you for your concern, it is a territory matter which the assembly will handle.

The next incident was the funding of a Tasmanian Hospital which centralising intensive care operations between two local hospitals. Would this happen in NSW or Victoria? Not without precedents being set in smaller states that have less ability to resist the national government and its dollars.

The third one is the Queensland Premier demanding results and explanations from the federal handling of the Haneef issue. There are electoral politics in play here, however, Queensland is powerful enough that it can go toe to toe with the national government and make administrative demands.

Power in politics comes from the ability to (or not) raise tax revenue and then redistribute it. Often in a democracy this is basis for electoral success as well. It is hard to see the funding of the Tasmanian hospital in any other light. Currently the national government does approximately 80-85% of all taxation in Australia.

The dirty little secret in Australian federalism is that the national government has income tax by agreement from the states. If the states truly wanted to assert themselves they would cancel that agreement, leave the national government with the GST and then raise the taxes to support their own government through income tax.

A basic component of republican government is that a government raises enough tax to support itself and nothing more. The states are dependent for 50% of their budgets on the national government redistributing GST and tied grants.

This is the vertical tax imbalance. However this can be rectified by the states re-asserting their sovereignty over their constitutional right to tax income.