Tuesday, December 26, 2006

Guest columnist: The Chief Minister

The ACT Chief Minister Jon Stanhope has taken issue with last Tuesday's column: Poor Little Rich State.

The Canbera Times printed his response today:

Peter Martin (op-ed, December 19) asks if he is “missing something” in relation to the ACT’s fiscal situation.

Well, yes. Starting with an understanding of Commonwealth-State fiscal arrangements, ACT finances and the ACT economy.

Mr Martin queries why, since Canberrans earn proportionately more than other Australians, their Government cannot afford to run buses more than once an hour in the middle of the day, or keep schools open...

Ignoring for a moment the fact that the most recent ACT Budget committed more funding to schooling than at any time in the history of self-government — including a massive capital injection for new schools — Mr Martin ought to be aware that there is no automatic correlation between the prosperity of a particular population and the fiscal situation of the government that serves that population.

It is true that people who earn higher incomes pay higher taxes, but in Australia this revenue flows overwhelmingly to the Commonwealth Government — not to the ACT Government — in the form of income tax, GST and excises. State and municipal taxes and charges are only weakly linked to community prosperity.

Taxes collected by the Commonwealth are not distributed dollar-for-dollar back to the communities that generated them. Rather, taxation revenue is distributed to the States and Territories according to a principle of horizontal fiscal equalisation, which ensures that those jurisdictions that have, for example, higher needs — the Northern territory, with its sparsely distributed population and special circumstances comes to mind — receive proportionately more back from the kitty than they can contribute.

Thus, there is no logic in the proposition that a community of high income-earners ought to be able to run off-peak buses more frequently than once an hour, or that such a community ought to be able to keep open schools when the system as a whole is operating at two-thirds capacity.

Is Mr Martin seriously suggesting that the Government ought to maintain 18,000 empty desks in our schools, just because our average incomes are higher than the Australian average and we pay higher income taxes to the Commonwealth? On what educational grounds? On what fiscal grounds? On what grounds full-stop?

Mr Martin comments that the ACT spent “only” $27 million more per year than the national benchmark on schools in 2004-05. He evidently regards this as an insignificant amount, but to put it in context, that’s 10% of the education budget — or more than a quarter of the policing budget. It doesn’t take too many lots of “only” $27 million to add up to a real strain on a small jurisdiction’s Budget. Indeed, our historical tendency to overlook or dismiss such “onlies” has meant that since self-government, across the board, the ACT’s expenditure on services has cost 20% more than national benchmarks.

Mr Martin claims that Grants Commission figures show that, on the whole, the ACT has overspent “only” in the areas that it has had to. Another “only”. And a list of “onlies” that, as Budget Paper 5 for 2006-07 shows, includes everything from preventative health and family and child services to superannuation, public services, pre-schools, tourism, public safety, housing and vocational training.

Mr Martin criticises the ACT for offering (until the recent reforms) its employees a ‘gold standard’ superannuation, but fails to acknowledge that this was an inheritance from the Commonwealth, bequeathed at the time of the creation of the ACT Public Service and the transfer of Commonwealth public servants to the territory service.

Mr Martin also seems to confuse taxation effort with taxation revenue. The ACT has had a taxation effort of around the national average, as assessed by the Commonwealth Grants Commission. However, the Commission also assessed that in 2004-05 the ACT’s capacity to raise tax revenue was $163 per capita lower than the national average. And when you look at overall revenue the gap is even larger - $307.

Perhaps instead of searching in vain for a non-existent nexus between private wealth and so-called public parsimony next time he waits for an ACTION bus — joining the other 2300 passengers an hour who will catch a service that has the capacity to carry 5000 passengers an hour, even after the recent network changes — Mr Martin could read up on Commonwealth-State fiscal relations. The answers to the questions he poses are not actually hard to find.

Jon Stanhope is the ACT's Chief Minister.