It is highly possible that the deal signed by Kristina Keneally with Kevin Rudd will provide NSW with more money in the short term and less money in the long term.
We should not forget this Government which has rushed to sign an agreement with the Federal Government has not got a fine record for looking at the fine print.
It is the same Government that signed the Cross City Tunnel contract which is now before the Courts, the Lotteries contract which is being studied by the Auditor General, and the Metro contracts which to date have costed over $500 million.
It’s in the fine print that Kristina Keneally has possibly traded away NSW’s longer term financial position, against a quick truck load of cash.
In agreeing to sign away a future portion of GST revenues, Kristina Keneally has signed away a portion of a tax which will grow as NSW grows. I don’t credit Bob Carr with much, but when he signed the GST Agreement in the late 1990s he recognised that the GST was a tax that could provide greater stability to NSW’s finances. Indeed Carr took on then Federal Labor Kim Beazley over the issue and said ‘it’s better for the states to get that, a growth tax, than to subsist on grants from the Commonwealth that rise only with the CPI, that don’t rise in response to the growth of economic activity.’
Truer words have never been spoken.
The GST is the most reliable, stable and broadest of all state taxes. Unlike stamp duty which is very volatile, and payroll tax which impacts NSW’s economic performance, the GST is a very efficient and stable tax that allows State Governments to budget for the long term. It is a revenue, that grows not with CPI, but with the actual growth of the state itself.
Whilst there is no denial that health costs are surging due to the ageing of the population and that increased federal funding is required to meet what is forecast, the question is should we have given up part of what is the best stream of revenue for NSW?
In simple terms if our economy improves going forward then the upside in GST revenue now goes to Canberra. So despite the rhetoric, a large portion of the increased funding costs for health may in fact be covered by increased revenue from the States’ GST.
In addition as alluded to when economies hit downturns it is the GST which is the most stable and mitigates the impacts we saw in the GFC of falling stamp duty and payroll tax revenue. Under this plan this economic support has been diluted.
It is for these reasons that Brumby and Barnett fought to happily make a contribution to an increased federally funded plan but wanted the GST to remain with their States.
Now the States have come the full circle. We have traded away a stable, growth tax and in so doing, will become even more dependent on the Commonwealth than if a more rational and long-term approach had taken place in these negotiations.
We are yet to see the final details of what has been negotiated but at the very least the Premier should insist that a sunset clause is in place. This would ensure an automatic return to current arrangements should this plan fail to improve patient care or if it proves to be unworkable.
I am not disputing that NSW needs more funds for its health system but, why trade away part of the most important source of taxation revenue for NSW in just a day?
Could it be the coming election ... or could it be that NSW Labor has no confidence in their ability to manage their economy going forward. Could it simply be that Premier Keneally believes the days of NSW’s economic growth are behind us? Or maybe something almost as bad, maybe they didn’t read the fine print once again?
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