Let's not be whimps on constitutional reform

Tony Abbott over the weekend has framed the work of his Federation White Paper by proposing we fix the federal vertical fiscal imbalance by increasing the States revenue raising to match the functional responsibilities.

It is a significant change of stance by Mr Abbott, as he acknowledges. In his book Battlelines - written to make him seem credible - he stated that "as long as particular levels of government continue to exist, it's important to give them meaningful tasks to perform." From this he said that it should be possible to move responsibility for an area of activity from one level of government to another.

He went on to note that "it's almost an iron law of politics that voters will demand action from any level of government with a realistic prospect of making a difference." He went on to note "The states have legal responsibility for issues that only the national government has the political authority and financial muscle to resolve."

One is left to wonder what has changed since he published this in 2009 and today. The relevant extract from the weekend's speech is:

Now I remain a pragmatic nationalist – but the states exist, they have wide powers under the constitution and they can’t be abolished; so – rather than pursue giving the Commonwealth more authority over the states, as I proposed in my 2009 book, Battlelines – better harmonising revenue and spending responsibilities is well worth a another try.


Back then, my thinking was that the states should become subordinate legislatures to the Commonwealth: in a parallel to the way local councils are subordinate to the state governments.


But I now doubt that any such constitutional change could succeed; and, in any event, it’s a good principle to propose the smallest change that will actually tackle the problem – that’s why resolving the mismatch between what the states are supposed to deliver and what they can actually afford to pay for is worth another go.

It is seldom that Tony Abbott so brazenly declares himself to be a whimp. The mechanism he proposed in Battlelines was an amendment to section 51 to enable the Commonwealth powers under section 51 to be expanded by act of the Commonwealth alone.

His mechanism was by a law passing the House twice not less than six months apart. A more democratic version would be a law that was passed by successive Parliaments. That is, the people would get to vote on the proposed expansion of powers as part of the overall consideration of a Government's program.

It is worth recalling that Mr Abbott started talking about reform of the Federation in the year before his book in an address in the same town - Tenterfield - as his most recent contribution. In that he said:

I appeal to the distinguished academic political scientists and professional students ofgovernment here tonight: don’t assume that changing the constitutional position of the statesis mission impossible. What’s the point of political science faculties if they merely analysethe system rather than help to make it better?

What has changed in the six years between these two speeches? Did the academics let Mr Abbott down, is that why his Government hates Universities?

Maybe it is as Guy Rundle suggested that Mr Abbott is Australia's greatest sycophant. His sudden embrace of federalism can probably be traced to some business leader or lobby group. Much of the Prime Minister's program seems to be incorporated in the BCA's July 2013 paper on tax, fiscal policy and federation. Is it any wonder that the BCA's Jennifer Westacott has been included in the new "group" to advise on the Federation White Paper.

The BCA view is somewhat surprising, and I suspect that they use the federation argument as a means to argue for the GST increase and nothing more. But business that complains of "red tape" not ony are confronted by overlapping powers from Federal and State Governments. They also confront eight different state and territory administrations.

National co-ordination and uniformity is what they crave - both for their own costs and to facilitate labour mobility.

The national curriculum is an instructive policy area in this regard. Why was there a need for the Federal Government to get involved in curricula? To create an education system that made it was for parents of school age children to move interstate.

The history of "vertical fiscal imbalance" is also instructive. At Federation the Commonwealth Government only had excise and tariff revenue. The imbalance worked the other way - especially as the newly formed national Post Master General needed capital to extend the telegraph and telephony services.

The massive shift in the reverse occurred in the Second World War, and if there ever was a Government that had the opportunity to address the imbalance it was Menzies from 1949-1966.

He didn't. He used the Commonwealth;s financial power and section 96 grants to take over University funding and form the University Commission. He used the same powers to provide state aid to independent schools - notably the first "Building the Education Revolution" building science blocks and libraries.

Whitlam used the mechanisms Menzies had established to, under the Karmel scheme, increase and redistribute Federal school funding on a needs base. (In other words - Gonski isn't all new).

Fixing the fiscal imbalance only has meaning if the States get to set the rates at which their taxes are raised...in this case it would be differential GSTs. This is a nightmare for national businesses. And it creates the negative prospect of inefficient interstate competition on tax rates.

The Queensland Government - relatively wealthy on skewed commonwealth contributions and mining royalties, abolished death duties. This forced the other states to follow, despite not being able to fund their programs.

The only reason GST revenue is tied to the States is because it was the Federal compact to eliminate a raft of State taxes. The compromise with the Democrats reduced the GST take and hence not all taxes went away.

Let's hope Mr Abbott is sparking a genuine national debate on Federation and he doesn't get away from undertaking serious reform.



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Vanstone unloads on "the politics of envy"

Nothing is surer than that once a week someone, somewhere will berate Labor for either attempting to reignite "class warfare" or criticise Labor for "the politics of envy."

Today it was Amanda Vanstone's turn writing in The Age.

Vanstone starts by saying "All this stupid rich-versus-poor debate does is stir up the politics of envy."

She complains about the media coverage given to the rich and suggests the way to "get some perspective" is to look at tax contributions. Because the top 2 percent of individuals pay 25 percent of the tax we are told we should be "delighted these people have done so well economically."

This, of course, simply ignores the fact that were the distribution of income more equal, then so would be the distribution of tax.

Vanstone then runs the trope that old-style Labor reviled big business, then had a period of embracing it as the source of wealth. But, we are told, "old anti-rich and anti-big-business mantras have crept back into the Labor lexicon." Paul Kelly devotes almost the whole of Triumph and Demise to stating and restating this thesis.

Vanstone then runs the usual guff that the only hope for the poor is for the rich to keep making more money. This is really nothing more nor less than the Randian thesis espoused in Atlas Shrugged, a pernicious book that has had far more influence than it would ever have had if written as a one page economic theory than it has as hundred pages of fairly tortured prose.

This theory - that the rich create jobs - is of course simple rubbish. As the very excellent video below shows what creates jobs is consumers spending money.



Vanstone finishes by passing over the technical reality of increasing inequality and instead focussing on the degree of social mobility in Australia. The un-stated message is that it doesn't matter if you are poor today because you can be rich tomorrow. But as Andrew Leigh notes in his book Battlers and Billionaires research he conducted (with Dan Andrews) in 2009 found evidence that nations with more inequality in the mid-1970s were less socially mobile in the ensuing quarter-century.

That is, as inequality increases the social mobility offered as hope decreases. (Leigh cites other research to back this).

Unfortunately this guff about the politics of envy or class war really plays well with the audience it is intended for - the 'aspirational'. They are sold a proposition that their life can be better but it is the concern with inequality that is holding back their (and this is usually a very personal "their") chance for a better life.

Unfortunately the wider Left just reacts to this stuff with a degree of incredulity - "What you expect us to feel sorry for the rich?" It needs, however, to be more directly critiqued on the fundamentals.

The first is to focus on the fact that increasing inequality has a negative impact on growth. As the video says growth comes from cashed up consumers, not wealthier capitalists.

The second is to remind the rich what a poor underclass means for society, most notably the direct threat to the security of the well off.

These were the factors that motivated true Liberals - from Deakin to Menzies - to embrace the concept of the state as a deliverer of economic and social security, not just national and personal security. This is what differentiated the Australian Liberals from the historic concept. It is why the original Australian Liberals look more like what American conservatives decry as 'liberal' - what we would call social democrats.

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Burqa and niqab

Seldom has there been so much fury directed at an item of clothing. That is perhaps not since the bikini first arrived on Bondi beach.

While the sanctimonious amongst us lecture on the idea of freedom in clothing it is worth remembering the history of the requirements in Australia over appropriate bathing attire. The old "neck to knee" costume was mandatory, and Annette Kellerman's athletic version was banned in 1906.

As Waleed Aly points out in this morning's SMH, as with others, highlights the fact the public debate about the burqa is really about the niqab. The Wikipedia entry (though weak in parts) is a good start http://en.m.wikipedia.org/wiki/Niqāb. 

He goes further and explains this attack isn't just based on ignorance, it is also sexist. As he says "whatever the outrage, whatever the fear, and whatever the cause, it is women that must suffer first and foremost."