Reform of the federation.

[telsor]

Abbott has made a speech about reforming the federation, with a white paper to follow in about a year after consultations.

http://www.theage.com.au/federal-po...-all-states-a-fair-go-pm-20141024-11bbcu.html

Seems like he's trying to at least look like he's leaving all options open and stepping back from his previously expressed centralist position, with the main emphasis being on equalising the disparity between revenue and spending between federal and state levels. (better balance of GST transfers are also mentioned, but I think fixing the first would do a lot here anyway).

What do people think?
What revenues/services should be handled at which levels of government?

 

[little graham]

I always thought feds should have more power in the health system. That was until Rabbitt Abbott and Cockey Hockey got in. I'm very thankful now they don't and also very thankful I'm in SA.

 

[Power Raid]

The Feds should be a small government focused on currency, RBA, adf and leave the services to the states (obvious exceptions though).

Education and health should be 100% state based and the Feds simply handing over funds to a state general pool.

We need a healthy level of competition and creativity between the states which helps foster innovation and efficiency.

 

[Power Raid]

I always thought feds should have more power in the health system. That was until Rabbitt Abbott and Cockey Hockey got in. I'm very thankful now they don't and also very thankful I'm in SA.

Yep

Big singular centralised govt is dangerous. By decentralising govt, people have more accountable govt to their electorate.

 

[Gough]

I predict that it will mean less money for the states forcing them to agitate for a GST increase.

 

[Play by Numbers]

Yep

Big singular centralised govt is dangerous. By decentralising govt, people have more accountable govt to their electorate.

We do agree on some things.

Centralization and streamlining of governments, mean less power in the hands of citizens. A degree of inefficiency and dispersion of power is esential, for healthy democracy.

 

[telsor]

I tend to agree with devolving the services to the states as far as possible.

I'd have some federal involvement in Education for example, in order to ensure some basic standards and that qualifications are recognised).

In Health, some specialised services wouldn't need to be in every state (and people should be able to cross state lines to get required health care, although some transfer of funds would presumably be necessary)...e.g. the big new Specialised Cancer hospital being built in Melbourne...It would be a waste to build a similar facility in Hobart.

Transport. Some coordination of transport facilities are required when they come close to borders (we certainly don't want an equivalent repeat of the farce from when they built the rail lines in 3 different gauges).

The problem though comes down to the financial side of it. While the feds control the purse strings, they're not going to cede control of the spending (and credit for the spending). How do you devolve the revenue?

 

[Ice-Wolf]

We should just kick NSW out, would solve a lot of problems.

 

[Power Raid]

I tend to agree with devolving the services to the states as far as possible.

I'd have some federal involvement in Education for example, in order to ensure some basic standards and that qualifications are recognised).

In Health, some specialised services wouldn't need to be in every state (and people should be able to cross state lines to get required health care, although some transfer of funds would presumably be necessary)...e.g. the big new Specialised Cancer hospital being built in Melbourne...It would be a waste to build a similar facility in Hobart.

Transport. Some coordination of transport facilities are required when they come close to borders (we certainly don't want an equivalent repeat of the farce from when they built the rail lines in 3 different gauges).

The problem though comes down to the financial side of it. While the feds control the purse strings, they're not going to cede control of the spending (and credit for the spending). How do you devolve the revenue?

I think it is hard to dispute the RBA has done a great job handling inflation, currency and interest rates. I would like to see two new functions outsourced from governments hands to independent government bodies, like the RBA, to handle revenue and revenue distribution.

1) revenue being tax reform, rates and total budget incomes
2) revenue distribution being the split between the states and the federal government. Importantly the this function is limited to who gets what but not what they spend it on (that is left to the respective governments).

 

[telsor]

I think it is hard to dispute the RBA has done a great job handling inflation, currency and interest rates. I would like to see two new functions outsourced from governments hands to independent government bodies, like the RBA, to handle revenue and revenue distribution.

1) revenue being tax reform, rates and total budget incomes
2) revenue distribution being the split between the states and the federal government. Importantly the this function is limited to who gets what but not what they spend it on (that is left to the respective governments).

Not so sure I'd be happy handing tax policy over to bureaucrats, however successful they've been in the past at their current role.

Having a fixed % of federal revenue go straight to the states without federal influence (as in, by a fixed formula...by population for example) is certainly an option however.

That said, I seem to recall that income tax was 'handed' to the feds during WW2...Perhaps it could be handed back? (I know in Canada, there are both federal and state income taxes, although they're collected together..So 15% federal and 22% state would 'just' be worked out as a 37% rate ...If memory serves, they tend not to have as many deductions though, although that could be a good thing too).

 

[Power Raid]

Not so sure I'd be happy handing tax policy over to bureaucrats, however successful they've been in the past at their current role.

Having a fixed % of federal revenue go straight to the states without federal influence (as in, by a fixed formula...by population for example) is certainly an option however.

That said, I seem to recall that income tax was 'handed' to the feds during WW2...Perhaps it could be handed back? (I know in Canada, there are both federal and state income taxes, although they're collected together..So 15% federal and 22% state would 'just' be worked out as a 37% rate ...If memory serves, they tend not to have as many deductions though, although that could be a good thing too).

I would be thinking 75pc would be allocated on a formula like you suggest and 25pc allocated by discretion and needs basis.

Most importantly it is a no strings attached. If a state fails to achieve objectives, so be it. That is what elections are for and people can always jump in the car and leave if the state is a total f up (ie SA 87-95).

 

[Pessimistic]

I tipped this GSTtttttttttTony !

Was planned all along yet they abandoned the stuff they actually did promise

Should be doing a swap deal on fuel taxes to the states to make easier for the states to reform the road funding model.

Wont need nearly so much gst to pay for infrastructure then

 

[Power Raid]

I tipped this GSTtttttttttTony !

Was planned all along yet they abandoned the stuff they actually did promise

Should be doing a swap deal on fuel taxes to the states to make easier for the states to reform the road funding model.

Wont need nearly so much gst to pay for infrastructure then

Yep

But you make it sound like a bad thing

 

[telsor]

I would be thinking 75pc would be allocated on a formula like you suggest and 25pc allocated by discretion and needs basis.

Most importantly it is a no strings attached. If a state fails to achieve objectives, so be it. That is what elections are for and people can always jump in the car and leave if the state is a total f up (ie SA 87-95).

Not sure I agree with the mix...I imagine social security would remain federal for one thing, which takes up a major part of the budget. Look at the % that the feds fund of the services handed over and work from there.

 

[Pessimistic]

Yep

But you make it sound like a bad thing

Ita 20% already in the UK, and income tax hasnt come down that much

Not even the mafia extort that much

 

[telsor]

Ita 20% already in the UK, and income tax hasnt come down that much

Not even the mafia extort that much

Government has to raise taxes to pay for services. If you want lower taxes, advise what you'd cut first (remembering that you have to cut ~$30-40B before you reach balance to start with).

 

[Pessimistic]

Government has to raise taxes to pay for services. If you want lower taxes, advise what you'd cut first (remembering that you have to cut ~$30-40B before you reach balance to start with).

There the balance between individual taxes and company taxes. Gst is pushed hard by corporates because the weight of burden is off them.

By all means do that, but companies then have to share more of their profits with employees

 

[Pessimistic]

And id start with cutting politicians and their spin doctors

 

[Power Raid]

Government has to raise taxes to pay for services. If you want lower taxes, advise what you'd cut first (remembering that you have to cut ~$30-40B before you reach balance to start with).

I think that is the big issue. governments in the western world are trading on borrowed time.

They spend like their is no tomorrow but they can't raise taxes as we have seen with GST people shop online, if they increase corporate taxes businesses set up overseas or get around transfer pricing and there is only so much you can tap people for personal tax rates before they start hiding behind negative gearing or corporate vehicles.

for me a GST of 15% or less;
corporate taxes in my opinion at 30% is fine but they will drop to the low 20s overtime to remain internationally competitive; and
personal tax rates should average 25% after tax thresholds at about $100k

Given international competition will limit tax revenues, governments will need to prioritise and budget rather than spending like drunken sailors.

 

[Power Raid]

There the balance between individual taxes and company taxes. Gst is pushed hard by corporates because the weight of burden is off them.

By all means do that, but companies then have to share more of their profits with employees

sorry mate but that is simply wrong. you could make corporate tax rates 0%, 30% or even 100% and it wouldn't make a difference. As it winds up equaling the personal tax rate of the recipient after franking credits.

and as you know GST hardly impacts companies.

so companies actually don't pay tax, rather they simply pre-pay tax on behalf of shareholders. given this is the case, they don't care too much about taxation as long as it is fair, efficient and doesn't sabotage business.

 

[telsor]

sorry mate but that is simply wrong. you could make corporate tax rates 0%, 30% or even 100% and it wouldn't make a difference. As it winds up equaling the personal tax rate of the recipient after franking credits.

and as you know GST hardly impacts companies.

so companies actually don't pay tax, rather they simply pre-pay tax on behalf of shareholders. given this is the case, they don't care too much about taxation as long as it is fair, efficient and doesn't sabotage business.

They pay for the profits they don't distribute. (Not sure how franking works with OS shareholders).

 

[Power Raid]

Not sure I agree with the mix...I imagine social security would remain federal for one thing, which takes up a major part of the budget. Look at the % that the feds fund of the services handed over and work from there.

agree

I was suggesting the 75pc would be locked in as a split by formula which may mean the feds get 50% of that and the states the remaining 50% of the 75pc is spread amongst the states. the remaining 25% would be allocated based on special needs (natural disasters, infrastructure, etc).

 

[Power Raid]

They pay for the profits they don't distribute. (Not sure how franking works with OS shareholders).

1) undistributed profits are taxed but the franking credits are recorded and stored until distributed thus it is simply a pre-payment or installment. If a low income earner was to receive the franked dividend, they get the $0.30 repaid. Thus the 30% corporate tax forms a liability on the governments balance sheet, that is why they want to reduce company tax rates.

2) generally foreign entities deriving passive income in oz such as investing and receiving franked dividends do not need to submit tax return and the dividends are not subject to WHT (unfranked dividends are subject to WHT). The franking credit is usually recognised in their own country even if there is no double taxation agreement.

 

[telsor]

Just a quick skim of recent budgets...

If you include current payments to the states, education and about half the health budget ( feds can keep the Pharmaceutical benefits scheme and medicare subsidies for example), you're probably looking at something like $100Billion.

GST makes up about $50B, which currently gets cut up according to 'need' and distributed to the states.

The other 50 could be made up from (say) a guaranteed 1/3 share of Income taxes ( That'd actually be ~$54B, but we're going rough figures here). Make that go straight to the states divided by share of population or maybe even by where the income was raised...I'm sure the tax department could work that out easily enough.

 

[Max zero]

I think that is the big issue. governments in the western world are trading on borrowed time.

They spend like their is no tomorrow but they can't raise taxes as we have seen with GST people shop online, if they increase corporate taxes businesses set up overseas or get around transfer pricing and there is only so much you can tap people for personal tax rates before they start hiding behind negative gearing or corporate vehicles.

for me a GST of 15% or less;
corporate taxes in my opinion at 30% is fine but they will drop to the low 20s overtime to remain internationally competitive; and
personal tax rates should average 25% after tax thresholds at about $100k

Given international competition will limit tax revenues, governments will need to prioritise and budget rather than spending like drunken sailors.

And this is where democracy falls down.

The majority will not vote for austerity, no matter how much its needed.

People vote to spend public money in a way they would never spend their own. The problem has never been revenue its always spending.