Ben Potter, 12 April 2016

Former top Labor adviser Ross Garnaut will urge the Turnbull government to not abandon $80 billion in cuts to state education and health funding and will urge state governments to raise the money themselves.

One way would be through a share of higher petrol excise, which is one of a number of radical measures the Melbourne University professor will propose at the Melbourne Economic Forum on Wednesday.

The $80 billion budget cuts, which the Labor party has campaigned on for several years, are “pretend” cuts, he will say. “Someone – Commonwealth or state – has to fill the gap with tax increases or expenditure reductions.”

Although this imposes a heavy burden on the states, he will say the federation works better when the states raise more of the revenue they spend, and will outline a stiff menu of revenue and spending measures for both levels of government.

The adviser to the Gillard, Rudd and Hawke Labor governments reckons the fiscal challenges facing the nation are steeper than official budget estimates suggest, and neither the states nor the federal government are taking it seriously.

Tobacco and alcohol excise, land tax and payroll tax could raise more revenue for the states, but Professor Garnaut will say there’s “an especially attractive opportunity now with petroleum products after the collapse of global prices”.


Prime Minister Malcolm Turnbull tried to force the states to raise more of their own revenue two weeks ago but the talks collapsed in acrimony.

Professor Garnaut will say the states can do more than the federal government to raise revenue and improve the efficiency of the national economy by raising and streamlining their own taxes rather than leaving all the heavy lifting to Canberra.

The states should swap their lumpy stamp duties on property sales for a broad annual land tax, and raise more from payroll tax by streamlining rates and broadening the base, Professor Garnaut will say.

Land tax, especially, can generate large efficiency and revenue gains “with much less distortion than almost any other tax”, he will say.

“States could generate large national economic efficiency gains and also raise additional revenues at lower costs than many Commonwealth taxes (including the GST) by reforming and raising the rates of payroll and land taxes.”

Professor Garnaut, who designed the former Rudd government’s carbon trading scheme, will also challenge the states to ask the federal Clean Energy Regulator to levy a carbon tax in their territories and rebate it to them.

They could ask the federal government to levy and rebate income tax and GST surcharges, although these have been all but ruled out in the lead-up to the federal election as Labor states seek to isolate the Turnbull government.


The federal government, for its part, should raise more revenue by cracking down on multinational tax avoidance and work-related deductions, and clawing back tax breaks granted by the former Howard government, including the halving of the capital gains tax rate and generous superannuation concessions, he will say.

Canberra should also save money by getting out of some areas – such as transport – where overlapping federal and state jurisdiction has “been a blight on our federal democracy in recent years”.

But states should be able to use the Commonwealth’s AAA-rated balance sheet to borrow up to half the cost of transport projects that pass Infrastructure Australia’s cost-benefit scrutiny, and receive a share of increased Commonwealth revenue over time from “value uplift” along new transport routes.

The Melbourne Economic Forum is a partnership of Melbourne and Victoria universities and The Australian Financial Review.

Professor Garnaut will say that even after four years of downward revisions in budget estimates, they are still over-optimistic about economic growth, coal and iron ore prices, business investment and revenues, and will have to be pared back further.

He will also say the Western Australian budget is in deep trouble “to an extent that has no near precedent”, while the NSW and Victorian budgets are flattered by temporarily high stamp duties from real estate.

Extracted in full from the Australian Financial Review.