Wednesday, July 14, 2010

A bridge too far for WA?

I have wondered previously about the growing strains on our federal structure, pointing most recently to tensions revealed by Mr Rudd's health proposals as well as the mining rent tax. In Does Australia face a constitutional crisis? I concluded:

Even if some form of compromise can be found, it will still leave the general problem. At some point, the growing problems in Commonwealth-state financial problems will simply make the whole system unworkable.

I am left wondering whether the current position with WA might not prove to be a bridge too far. As I understand it, WA is still refusing to participate in the health proposals even at the cost of foregoing Commonwealth support, while a report from the WA Treasury is highly critical of the tax. I quote from the Australian:

The hard-hitting Treasury report released yesterday calls for the proposed mineral resources rent tax to be scrapped before it can be implemented in 2012.

It estimates the tax would increase WA's net contribution to the commonwealth by about $3 billion in 2013-14.

And it questions the federal government's estimates that the MRRT would raise $10.5 billion in its first two years, noting its own budget estimate that iron ore prices are set to fall by 30 per cent between 2011 and 2014.

Setting the scene for a potentially bitter clash over states' rights, the DTF report said the commonwealth's "apparent intention" to replace state royalties on iron ore, coal and petroleum would be strongly opposed by any West Australian government.

It said the move would further erode WA's sovereignty over its finances. In a veiled warning of a High Court challenge, the report said state royalties had "historical and constitutional primacy" over any federal mining tax.

There were media reports that some form of deal might be in the making on the health care side, but a story in The West Australian suggests that the two sides are as far apart as ever. I quote:  

Colin Barnett has flatly denied that Julia Gillard offered him any special health deal when the pair met in Perth on Friday.

And public comments yesterday from the Prime Minister, Federal Health Minister Nicola Roxon and her WA counterpart, Kim Hames, suggested zero progress has been made towards ending the impasse.

The Premier and Dr Hames again restated the State Government's absolute refusal to relinquish control of WA's GST revenue to pay for an activity based funding model for health care.

I am not concerned in this post with the arguments for or against or indeed the constitutional issues involved; that's a matter for another post. I am simply interested as an observer in the dynamics and what it might mean for the future.

I have no idea how all this will play out. However, I think that we can be sure that there is likely to be a reasonable degree of hard-ball from both sides.

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