At the time I wrote the post, the suggestion that Prime Minister Turnbull might float the idea of returning income tax powers to the states was just that, a suggestion. The suggestion became a reality during the day in a short Prime Ministerial statement entitled Statement on Federation. The key part read:
Currently, Canberra collects taxes and provides the states and territories almost $50 billion a year in tied grants each year to fund services and build infrastructure. This results in ongoing arguments, negotiations and duplication in administration.
In many areas responsibility is far from clear and the only thing in ample supply is finger pointing and blame.
We’re all sick of it.
A way to solve this problem would be to give the states and territories a proportion of personal income tax - rather than demanding money from Canberra they would be raising money themselves and be accountable to their own voters.
The focus of governments should be about delivering better services – not arguing over funding.
The key principles will be that this is not about increasing the total tax take - any income tax surrendered by the Commonwealth to the States would be offset by a reduction in Commonwealth grants to the states.
Taxpayers would not notice any administrative change - the Australian Tax Office would continue to manage the collection of income tax.
So, clearer lines of responsibility, less duplication, more open accountability.
I know that I am something of a broken record in constantly stressing the importance of clarity, of the importance of clear definitions, of the need to untangle issues, in discussions on public policy. However, the response to Mr Turnbull's suggestion is a classic illustration of the difficulties I alluded to in Wednesday's post.
On Wednesday, I said that a third question related to the nature of Australia's Federation and especially the question of fiscal imbalance. I went on to suggest that everyone accepted that the current system was out of kilter. However, the solutions were not clear. I would add now that lack of clarity in solutions is largely political.
"Wednesday he had an idea which was going to be the best reform ever to Federation, the crazy idea of double taxation, allowing state income taxes to be levied on working Australians, only to drop it temporarily by Friday," he said.
"Mr Turnbull wants to move on from the train wreck of this week, with his outlandish idea to have double taxation, but Australians won't let him move on so quickly.
"The Prime Minister who says that this idea of allowing states to introduce income taxes on working Australians as the most important reform of Federation cannot be trusted when he says, 'Well, I don't want to talk about that idea anymore for the time being'." .This is populist crap, dreamed up by staffers in Mr Shorten's office for immediate political response. Leave aside the double taxation issue, it's not, the response does nothing to address the key issue, what do we do to make the Federation work better?. .