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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

fiscal federalism « Previous | |Next »
May 31, 2012

The effects of the so-called patchwork economy can be seen in the recent budgets of the Tasmanian and South Australian budgets---the rising public debt highlights the fiscal stress in these two states. South Australia is increasingly becoming stranded between its past – particularly manufacturing – and its future embodied in the BHP's $US20 billion expansion of the Olympic Dam mine project that keeps on being postponed because of falling commodity prices.

PopeDSwanbook.jpg

Even though Australia is a federation the wealthy mining states--ie., WA and Queensland---want to let the less wealthy states which have a lower capacity to raise revenue to swim on their own or siink. WA in particular is very hostile to horizontal fiscal equalization---its revenue being used to help Tasmania and South Australia through difficult times; even though historically WA has been the recipient of intergovernmental fiscal adjustment from NSW and Victoria in the industrial past.

Australian federalism is characterized by both the high imbalance between state expenditure responsibilities and taxation powers and the states’ own-source revenues account for only 40 per cent of their own-purpose outlays. Hence the poorer states are very dependent on fiscal transfers from the Commonwealth.

Just like the Big Miners who are deeply opposed to 'spreading the benefits of the boom', WA wants to keep its mining wealth for itself in opposition to fiscal equalization. WA has a history of antagonism to federalism.

Update
WA's current antagonism to horizontal fiscal equalization takes the current form of requiring the poorer and more depressed states like Tasmania cutting back on the public services in order to deal with reduced revenue from Canberra. Behind this proposal sits the neo-liberal small state rhetoric that means rolling back the welfare state.

Presumably as the welfare state shrinks the welfare responsibilities of the public sector are shifted to the underfunded community sector. Many of the core functions of government are outsourced to volunteers, community-based groups and not-for-profit organisations.

This logic is applied to the widest conceivable range of services including parks, libraries, post offices, hospitals, welfare-to-work employment programs, prisons, court and tribunal administration, payment processing, fraud, debt and identity-related services, police information and communication technology and training, ‘infrastructure and back-office functions’, health services, housing, planning and schools.

| Posted by Gary Sauer-Thompson at 10:02 AM | | Comments (12)
Comments

Comments

No one else has commented. Very well, I will.
From the read, you will discern my appreciation of understatement and restrained treatment of the issue from GST and be not surprised to find that I applaud him on the above piece.
Partly because it represents the unpacking of a new political Pandora's box from trouble making mega business and partly because it reminds me never to overestimate the character of people in general, which is a relief in a way.

It's interesting to see Prof. Krugman talking about basically the same point in his comparison between Florida (which is part of a Federal system) and Spain (which isn't).

http://krugman.blogs.nytimes.com/2012/06/02/florida-versus-spain/

I wonder if Adelaide could develop a sister city relationship with Madrid? Or Hobart a sister city relationship with Athens?

In the Spain post on his Conscience of a Liberal blog Krugman says re currency areas:

They’re much more likely to be workable if you have fiscal federalism, so that there are large automatic transfers to depressed regions.

Tasmania, like Florida in the US, receives an annual transfer from Canberra because the state is a depressed region. It is a transfer from the wealthier parts of Australia (currently the mining states) to the poorer areas.

There in lies one advantage of a federal system.

Paul Krugman points out that the politics of austerity in Europe, where they are reducing investment and eliminating hundreds of thousands of public-sector jobs, is an attempt to dismantle social programs and to roll back the welfare state.

That is what lies behind the calls of deficit reduction during a recession. The drive for austerity is about using the economic crisis for right wing politics not solving it.

Economics is seen by some of those on the right as as a morality play. Debt is a sin, and as we have all sinned --by living on credit---so now we must all pay the price by tightening our belts together. So its sack cloth and ashes

West Australian premier Colin Barnett’s recent jibe is that Tasmania is a mendicant, anti-development state that’s become “Australia’s national park” . His Liberal federal colleague Don Randall has described Tasmania as a “leech on the teat” of the national economy.

Tasmania is in transition away from its traditional industries such as forestry and pulp mills.

A new way of presenting the longstanding neoliberal preference for shrinking government through budget cuts, privatisation and outsourcing is that citizens and community groups can reduce their dependence on the state by exercising responsibility and self-direction.

This is wrapped up in pro-community rhetoric of fostering volunteerism and mutualism. Citizens have a “moral obligation to undertake voluntary activity in the community and to take responsibility for their own individual welfare needs.

So the contraction of the state (or public sector) and corresponding expansion of the size, scope and resourcing of the private (or corporate) and community sector. The idea is that the community sector should take over at least as many of the former functions of government as the private sector.

Of course the community sector funding is cut to the bone by the neo-liberal state--eg., cash strapped charities.

"The idea is that the community sector should take over at least as many of the former functions of government as the private sector."

The lack of funding in the politics of austerity means that those with the most complex needs, who are more reliant than most on public services –eg.,women, young people, the disabled and the elderly --- would bear the brunt of the public sector cuts.This would be quite marked in deprived areas.

"Just like the Big Miners who are deeply opposed to 'spreading the benefits of the boom', WA wants to keep its mining wealth for itself in opposition to fiscal equalization."

The Big miners complain bitterly about rising cost of doing business---skills shortages, the high exchange rate, infrastructure bottle necks. These have been caused by the mining boom, yet the Big Miners demand that the Government fix all their problems!

They think that government is there to look after them.

"Economics is seen by some of those on the right as as a morality play. Debt is a sin, and as we have all sinned --by living on credit---so now we must all pay the price by tightening our belts together."

According to them the state must balance its books because living within one's means rather than "maxing" out on debt is good. "Maxing" out on debt is moral degradation --it's being a spendthrift.

We had the good years. Now we must take our harsh medicine of public austerity. Free markets will do the rest. Free markets don't make mistakes – only clumsy bureaucratic states make economic mistakes.

People continue to believe this stuff even after the global financial crisis when the state had to rescue the free market banks to prevent the financial system from collapsing.

"Debt is a sin, and as we have all sinned --by living on credit..."

But isn't massive debt precisely WHY the economy had those "good years"? Notice that I used the word "economy". It seems that "society" on longer matters.

ah... er... NO longer matters...