Editorial Issue 79 – The state in the states
The State in the States
An ALP Government was elected in Victoria in November 2013. Elections are due in NSW and Queensland in early 2014. The result in Victoria, where a first-term Coalition Government was replaced, has alarmed the Federal Abbott Government and raised Labor hopes. Change of government seems unlikely in either NSW or Queensland although Premier Newman might lose his own seat.
Electoral frissons aside, State politics and governments usually attract little serious attention from the left. Federal-State relations are a significant issue though and Prime Minister Abbott called for a national debate to re-think them in his Henry Parkes Oration in October 2014. One of his declared aims is to make each level of government more 'sovereign in its own sphere'', with a 'federation reform' white paper promised before the next election. This links with propositions to increase the goods and services tax (GST) and/or expand its coverage and to examine the distribution of GST revenues between States and Territories.
Ambitious agendas for State economic issues are now relatively rare, unlike in the early twentieth century when there was a comprehensive expansion of the public domain (for example, sugar mills, meat works and butchers shops, hotels) and, in Western Australia, land nationalisation. State governments are, or have been, responsible for most of the public sector in Australia. Railways, irrigation and urban water, electricity, ports, insurance, lotteries, forests, roads, schools and hospitals are examples. Many of these were privatised and deregulated under the neo-liberal onslaught since the 1980s. Privatisation of electricity is at issue in both the forthcoming NSW and Queensland elections.
The Greiner Government in NSW and the Kennett Government in Victoria took an ideological position about ‘public sector reform’, corporatisation and privatisation. The Greiner ‘reforms’ were taken up by the Goss ALP Government in Queensland (it even used the identical legislation) and by the Keating Government in adopting the Hilmer Report on National Competition Policy.
Successive Federal Governments of both complexions have pressured the States into privatisations. National Competition Policy under Keating is one example; another is the incentive for privatisations (called asset recycling) introduced by Abbott and Hockey. State Governments have often claimed 'necessity' as the reason for privatisation, asserting that there are few other options to balance state budgets and raise investment funds. For example, the Bligh ALP Government in Queensland said it was forced to choose between investment in schools and hospitals, raising state taxes or privatisation.
There is considerable and convincing analysis that privatisation (and its variants such as public-private partnerships) is counter-productive. Polling and election results show the electorate is sceptical of the outcomes. This has not stopped State politicians feeling that, because their policy choices are limited, privatisation is the lesser evil. Thus, State ALP Governments have found themselves unable to resist privatisation as a 'solution' to keeping a triple-A credit rating or for funding 'new' infrastructure. Put plainly, defending the public sector has not been an instinctive response for Labor. Indeed, privatisation gets presented as a virtue, with many instances of 'the premier (insert name) saying that the government had no place running a business in (select one or many from ports, insurance, transport, electricity)’.
The bulk of public services and public utilities in Australia are provided by the States and Territory governments. The 'vertical fiscal imbalance', whereby the States spend $230 billion but only raise $130 billion in revenue, needs a more serious analysis. When Federal Governments pursue a balanced budget, or austerity or an ideological line of 'small government', they force the State and Territory governments to be their agents. Federal Government cuts to housing funds or changes to the indexation arrangements for hospital funding are delivered to users by State governments.
At times, the States have been able to 'offset' federal cuts to their incomes. In the 1990s-2000s, State governments used dividends and other payments from public utilities, especially electricity and water. This contributed to the rate of increase in electricity and water prices. It also meant that privatisation of electricity has further strained State budgets. West Australia and Queensland have been able to make some increases in revenue from resource royalties but this requires a willingness to stand up to resource corporations. Pressure to increase the GST is another fix; it would be socially regressive –hitting low income groups more than the wealthy.
There are other potential revenue sources but, the States have not seriously pursued them. High Court decisions have limited the scope of State revenue and taxes – for example the petroleum excise. Moreover, States continue to compete rather than cooperate; they are still selling their populations and their 'space' to the highest corporate bidders and investors. Land taxes could be a major revenue source. It is bizarre that so much of the wealth arising from rising land values goes into private hands rather than State revenues,
Inheritance taxes could also be re-introduced. Premier Joh Bjelke Petersen abolished Queensland’s inheritance tax to attract population growth from the southern States. The other States then abolished their inheritance taxes to stay competitive. Reinstating what is an effective revenue source and a means of reducing inter-generational inequality would require common action across the States and Federal coordination. It is highly unlikely that the Abbott government would even consider it: Perhaps a Shorten-led alternative should.
The neoliberal agenda of privatisations