Up against the GST brick wall

July 7, 2005

Cutting NSW some tax slack

Ever get the feeling that you are in a bike race with a buckled wheel but the race marshal refuses to hear your call for help, cajoling you instead to finish the course according to a pre-race schedule? The people of NSW should be experiencing similar frustration - nay, appropriately directed anger - at the unwillingness of the Federal Government to take seriously this state's complaints about the skewed sharing of the GST pie. Instead of the evenness implied in a commitment to govern for all Australians, the Federal Government responds as would a taunting smart alec, recommending changes it knows to be unachievable under current arrangements and deriding the protester for shortcomings that are direct consequences of the financial imbalance.

Latest in this role is the federal Assistant Treasurer, Mal Brough. When NSW this week put to Canberra a plan that would have seen the state recover $1 billion a year from its $3 billion annual shortfall in GST, Mr Brough demonstrated that his rise up the rungs of Government is not necessarily accompanied by a firm grasp of the brief. "Look, what I'd say about this is it's just a stunt; it's a diversion, and what Bob Carr should do is remove the state taxes that he agreed to remove when we said we'd introduce the tax in 2000," he said.

Well, we'll let through his dismissive reference to a stunt. The annual GST pool in NSW is $13 billion, of which the state gets back $10 billion. That NSW and Victoria cross-subsidise the smaller and weaker states and territories is a function of federalism. That they top up the coffers of Queensland, which has just revised up its budget surplus to $3 billion, and Western Australia is perverse and obnoxious. But a lot of politics, federal included, is stuntwork. Perhaps those who practise it are best equipped to identify it.

But NSW should take exception to the glibness of Mr Brough's inference that the state might painlessly erode what is left of its own tax base without due recompense from the GST purse. "Every state is better off as a result of the GST," says Mr Brough. Better off, perhaps, but not on the same timetable and not to equal extent. The extra did not arrive for NSW until this, the fifth year of the GST agreement, while Queensland was benefiting two years ago and other states a year later. NSW gets the equivalent of $33 in extra GST revenue for each of its residents - a quarter of that for Victoria and one-14th of Queensland's extras.

"They [the states] have an agreement to honour - that is, to cut - these states taxes," Mr Brough said. Well, the agreement was to review the taxes, not cut them, necessarily. But who is going to quibble over a word? As for NSW, he said, "they should look closely at why they are in fact the highest taxing state". Mr Brough is right again. NSW is the highest taxer. But he needs to ask himself that question. When one stream of revenue is hemorrhaging across state lines, might it seem a little more difficult to surrender other income?

Leftover business in Afghanistan

Australian troops must return

Australia's present contribution to the Afghanistan theatre of the war against terrorism is just one pair of boots on the ground; they belong to a mine clearance officer. That is quite a retreat from the 1500-plus service personnel Australia committed in 2001 to the US-led assault on al-Qaeda and the Taliban regime. Allowing our forces to dwindle to just one soldier makes a mockery of Australia's commitment to help drive terrorism out of Afghanistan and to rebuild the nation so that the terrorists might never return.

Other countries - notably the United States and its NATO allies - have maintained substantial forces in Afghanistan, while Australia has made excuses. Our forces are small and our capacity to sustain them in the field limited; and already we are spread thin. Perhaps the army should be substantially increased, as General Peter Cosgrove suggested before his retirement as armed forces chief last week. In the meantime, we have disappointed our obligations. Now, with the winding down of other commitments - particularly in East Timor and the Solomon Islands - our neglect of Afghanistan is to be reconsidered, and rightly so.

Divided by ethnic and tribal differences, no country could be more difficult than Afghanistan to weld into something like a cohesive, representative democracy, unless of course it is Iraq.

Unsurprisingly, progress has been modest, but progress there has been. A country which had never known democracy now has an elected president, and in just a few months is due to elect a parliament. Afghanistan's schools, clinics and other services and infrastructure have been significantly expanded, while dangerous militia are being disarmed and a new Afghan army being trained. For all that, however, Afghanistan remains a wild place; just how wild is clear in the Foreign Affairs Department's advice to travellers: "The security situation ... remains extremely dangerous", and "the risk of terrorist attacks is high". Don't go, it advises, and if you are there, leave.

Afghanistan cannot be reconstructed until terrorism is largely banished and the power of local warlords curbed. Until then, the only thing likely to flourish beyond the well-protected perimeter of Kabul is the opium poppy, already worryingly resurgent after being earlier rooted out by the Taliban. Regime change can be swift, as in Afghanistan and Iraq; nation building, however, is a long, slow slog. Australia's clear obligation is to finish what it began; that means not only recommitting forces to Afghanistan, but doing so for the long term.