On behalf of the Panel, it is with great pleasure that the NSW Review of Federal Financial Relations releases its Draft Report, setting out a clear blueprint for refreshing Australia’s 119-year-old federation.
When the Review commenced, the State’s finances were in a healthy shape, supported by a period of solid economic growth and a record pipeline of infrastructure investment. We started a national conversation about how state governments, in a time of major demographic, economic and technological changes and slowing reform progress, could sustainably fund and deliver the frontline services and infrastructure that people value.
Since then, the two catastrophic events of the past six months – the devastating summer of bushfires and the COVID-19 pandemic – have cost lives, disrupted global markets, compromised government finances and left our national economy fragile. It has brought forward an economic, financial and social shock that has upended our nation and the world. The fiscal gap we feared would confront states in decades to come is firmly on our doorstep today.
It is clear that a business-as-usual approach by governments is not an option. The economy and state finances cannot recover by relying on the set of complex, misaligned and unpredictable system of funding that we have today. Without reform, governments face a significant decline in their tax revenues and an era of higher debt, challenging their ability to fund the essential services and infrastructure their citizens expect and deserve. Failure to reform will create a legacy of undesirable choices for future governments and a lower quality of life for our citizens.
Following months of extensive consultation and research, the Panel found that while the federation has served the nation, it needs to be properly calibrated to work well; it requires strong intergovernmental cooperation, clear lines of responsibility and proper accountability.
Given this, we fully support the creation of the National Federation Reform Council with the leadership of our National Cabinet. We also support the proposed reform of national funding agreements as a step in the right direction.
On the issue of tax, we found consensus that it’s time for state and Commonwealth governments to agree options for reforming our 20-year-old GST and scaling back inefficient and misaligned taxes.
We recommend the NSW Government prioritise the following key reform areas:
- phasing out many of the nation’s most unfair and damaging taxes, including transfer duties and taxes on insurance;
- working with other states to address the hollowing out and complexity of payroll tax;
- increasing the use of the State’s best tax lever – land; and
- working with other states to modernise the way we use our roads.
Any reform will need to be done in a way that provides more secure and reliable funding to the states and allows them to gradually rebuild their balance sheets for the benefit of future generations.
The Panel’s 15 recommendations form an essential component of the nation’s pathway to recovery - a blueprint. They will help Australia emerge a stronger nation with deeper resilience.
Before the Panel delivers its Final Report to government, views on the draft recommendations are welcome. If you’d like to get in touch, please do so before the end of July by contacting the Review Secretariat at [email protected]