Rafael Epstein: The Prime Minister wants to give the states more responsibility for raising the money that they spend. It would mean a state-based income tax. It could mean the Federal Government no longer funds public schools in Victoria. That’s something the Prime Minister’s speaking about. Would you be happy with the Federal Government handing over both the raising of the taxes and the spending of the money that funds public schooling? 1300222774.
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The Education Minister in Malcolm Turnbull’s Government is Simon Birmingham. How would it work? We will ask him. Minister, good afternoon.
Simon Birmingham: Good afternoon Raf. Great to be with you.
Rafael Epstein: Quick explanation: what difference would it make to my tax bill if the states raised an income tax?
Simon Birmingham: Well Raf, it would make zero difference to your tax bill under the proposal that Malcolm Turnbull is discussing with the Premiers and Chief Ministers. The proposal is that we would reduce, by a couple of percentage points in perhaps one or two different tax brackets or the like, the rate of the income tax, and at the same time, reapply that rate to collect it on behalf of the states and territories, giving them a guaranteed share, if you like, of income tax, which would then grow over time with the income tax base, and ideally would reduce the farcical situation we have where every year, usually more than once a year, the states and territories are coming cap in hand to Canberra asking for more money across a whole different range of portfolio areas.
Rafael Epstein: It sounds a bit magic pudding though, doesn’t it? You’re not going to raise any extra tax, so why do it?
Simon Birmingham: Because what it does is it says to the states and territories you can have a share of the tax and it’s guaranteed to grow at the same rate that that growth- tax base grows at. So that means that no longer do they have to argue each time a National Partnership Agreement or the like expires every three or four years about what the growth rate will be for the next three or four years. They know that they get a growth rate based on the real growth in the level of income tax in their jurisdiction, so that is actually- gives them certainty, not just for a couple of years, but over the real long term, and gives them the capacity then to manage their finances within that certain base and without having multiple layers of bureaucracy, because what happens with these National Partnership Agreements is that we end up with a situation where the Commonwealth says we’ll share- we’ll pay for this much of something, we’ll pay for x amount, if you pay for y amount of the same thing.
We have two lots of bureaucracies looking at how the money is spent. We have thousands upon thousands of pages of these agreements that public servants spend their time drafting and then measuring against and so forth, rather than actually saying if we’re going to work as a federation where the states have the primary responsibility for certain areas, we should give them the responsibility to deliver in those areas, and the funding through which they can deliver in those areas.
Rafael Epstein: But isn’t the problem is that it sounds good in principle but in practice it’s difficult? Your own Government document – I’m sure you’ve seen this – the Reform of the Federation Green Paper – which sounds quite opaque, however this is a Government document released last year – it said it wouldn’t work and leads to inequality between the states. So if your own papers are saying last year it wouldn’t work, what’s changed?
Simon Birmingham: Well, we have measures already in the federation that deal with some of the inequality factors between the states. So the awfully-titled Horizontal Fiscal Equalisation – basically the work of the Commonwealth Grants-
Rafael Epstein: [Talks over] Doesn’t sound like a winning elections [indistinct].
Simon Birmingham: [Laughs] No, no, it’s been around for a very long time, and it’s basically the work of the Commonwealth Grants Commission that looks at the fact that yes, it costs more to deliver services in the Northern Territory, and therefore the Northern Territory gets a much greater share of the GST than say, New South Wales gets. So, we have…
Rafael Epstein: [Talks over] But again, it’s more complicated than that, isn’t it?
Simon Birmingham: [Talks over] We have that equalisation factor at play already.
Rafael Epstein: [Talks over] The equalisation happens for a variety of reasons. So this is what I don’t understand: if you want to encourage states to have a little bit of competition, yet at the same time, you’re compensating states if they’re out of pocket. They seem completely contradictory. You want to encourage competition, but if anyone’s disadvantaged, you’re going to give them extra money. You can’t do both, can you?
Simon Birmingham: Well, let’s understand there are a couple of factors at play here. One is whether we can end this cycle of the states having to come to Canberra to ask for money and the duplication of bureaucracy and so on that comes with that. So I think that is probably the foremost reform that actually we get out of the idea that is being discussed.
Rafael Epstein: [Talks over] Which every government since the war has tried to address and failed, for some reason.
Simon Birmingham: Oh, does that mean we should give up and never try again, Raf? I think it is- it is important that we actually try to get to a point, because it’s becoming, it seems, more acute, that across more areas of government we are seeing the states ask for more and more from the Commonwealth. And of course, the Commonwealth, though, has essentially across all the jurisdictions of Australia, the biggest budget and deficit problem compared with most of the states and territories.
Now we’ve seen, over a period of time in my portfolio, the contribution of the Commonwealth going into schools funding go up and the share of contributions from us go up, yet we still provide less than 20 per cent of the total schools funding. Now one of the things that I’ve found since September last year most frustrating as a minister is to say- when I say to the officials and other experts, why is it that the Federal Government pays around 13 per cent of per student cost of a student in a Government school? What’s so magical about 13 per cent? And of course, nobody can give me an answer aside from saying it’s based on the history of a whole bunch of agreements…
Rafael Epstein: [Talks over] Well sure, the system isn’t perfect.
Simon Birmingham: …that were stitched together over time, and that’s just where we’re at. There’s no rationale to it, nor logic.
Rafael Epstein: Look, everyone would design things differently if we were starting from the beginning, but we’re not. Isn’t there a very real danger that you look like a Government that floats thought bubbles? You had the idea of the GST, and you may disagree, but every other political watcher outside of Government thought Scott Morrison, the Treasurer, was pushing for changes to the GST. Then you had exactly the same words about income tax cuts, then you had the Treasurer talking about the excesses of negative gearing. Each of those ideas has then been killed off. This idea’s the boldest and it’s the most likely to not succeed. Don’t you look like a Government that’s just throwing out ideas without a strategy?
Simon Birmingham: No, Raf. I think- firstly, I wouldn’t say that income tax cuts and a change in terms of Commonwealth tax arrangements is off the table. That’s a matter that will be dealt with in the lead-up to the Budget.
Rafael Epstein: [Talks over] So income tax cuts are still possible?
Simon Birmingham: And we will see- of course that’s a possibility. The Treasurer is absolutely still working on other measures related to tax reform. This is really about addressing Commonwealth-State financial relations and coming up with a long term, durable, and simpler model than what we currently have, a model that stops the cap in hand begging by the Premiers coming to Canberra, that eliminates the buck-passing and blame going around who is putting enough into our school system or the like. Really, when people drive past a police station, they look it at and they know the state government funds that police station. If I have a gripe with the police station, I should ring the state police minister. Yet increasingly over recent years, we’ve got into a situation where if you go past your local primary school and you have a complaint about funding or the arrangements for it, increasingly people don’t know whether to ring me to complain or the state minister to complain. Really…
Rafael Epstein: [Talks over] But does that mean you’re really going to hand over all responsibility to- it sounds like what you’re proposing is to stop funding state schools but to continue funding private schools. Is that what you’re doing?
Simon Birmingham: Well, they’re two separate discussions, because of course there’s a different partner involved in the funding of non-government schools, and that is obviously the non-government school sector…
Rafael Epstein: [Interrupts] Yeah, but from the perspective of a parent sending their child to school, it’s the same. You’re the Federal Government. It sounds like you’re saying we’re going to keep funding private schools and not fund state schools.
Simon Birmingham: Well, the only way we will not fund state schools is if we give the state government a guaranteed income stream that will grow over time and grow probably faster than what the current budget projections are and therefore what the budget projections of funding to non-government schools would be. So there is actually a very good deal here, potentially, for the states. It would give them that growth stream in terms of income tax, and I think that is something that they, I hope and trust, will sensibly discuss. I know that there are arguments which have been played out in public about some of the details around this proposal, but it is only December last year when your own Premier in Victoria, Daniel Andrews, said that this was an idea worth looking at very closely. Well, that’s why we’ve brought it to the table, and it’s why we want to look at it very closely…
Rafael Epstein: [Interrupts] You’ll have to guarantee the Gonski funding, though, won’t you? Mike Baird, Liberal Premier, New South Wales, says you’ve got to- if you’re serious about this, you’ve got to say you’re funding Gonski and then we can talk.
Simon Birmingham: The whole point of this the states could then fund Gonski. That is the point, Raf: that the states would have a guaranteed income stream out of income tax, and they would choose how to fund their schools, as in fact frankly they already do. There is a great big myth that surrounds Gonski funding, that it is a magic nationally-applied formula that guarantees a certain amount of dollars end up in an individual school. That is a myth, because what actually happens is we run an abstract formula in Canberra; we then pay some money into the state government. They recalibrate it and pay it out to their schools as they see fit. There is not actually a guarantee that the states apply Gonski funding formulas. Even New South Wales, even Mike Baird, runs a different formula and a different approach, and just the other week I was visiting a school in New South Wales where we had increased our notional allocation of funding to it in one year, and yet the state had reduced the amount of funding to it in that same year.
So this is, I guess, one of the frustrations as the Federal Education Minister that you confront, that I’m not responsible for what happens in the schools. The states determine how much money actually goes into the schools, yet politically, you get held on the hook for many of these factors. Really, the buck needs to stop in one place, with one level of government, and one minister, and what we are seeking to do is give that level of government the guaranteed funding streams that allow them to fund schools, allow them to fund Gonski over time if they so wish to do so, allow them to put more money into preschools over time if they so wish to do so, but actually ensure that they are empowered with the money to make those decisions themselves.
Rafael Epstein: Thank you for your time.
Simon Birmingham: A pleasure, Raf. Any time.
Rafael Epstein: Simon Birmingham is the Minister for Education in Malcolm Turnbull’s Government.