Prime Minister Keating has rejected the idea of a State income tax on the ground that this could lead to the States "tearing away with their own-purpose spending". However, this is exactly what the Commonwealth Government has been doing. Commonwealth Budget own-purpose outlays are estimated in 1995-96 to be 18.6 per cent of GDP, more than 1.5 per cent of GDP higher than when Labor assumed office in 1982-83. That is equivalent to an increase in such spending of about $7.3 billion in 1995-96 prices.
Moreover, the 1982-83 level of own-purpose outlays was clearly excessive, as Mr Keating himself has previously acknowledged. If Commonwealth own-purpose outlays were pruned back to more reasonable 1977-78 levels, they would now be $14 million to $15 billion lower.
In short, the PM's argument might be more convincing if he could show that the Commonwealth had exercised restraint with its own outlays, and with its deficits. The latter have, of course, been a major contributor to Australia's external debt problem.
Mr Keating's suggestion that the Commonwealth needs complete control over income tax to operate national economic policy is equally misleading. In fact, as he would well know from advice from his own Treasury, the Commonwealth could operate national economic policy with access to only a proportion of income tax. This is supported by the fact that, over the past 15 years, the proportion of Commonwealth income tax to GDP has fluctuated only between 11.8 per cent and 14.4 per cent of GDP even though this has been a period of exceptional changes in fiscal and taxation policy. If the Commonwealth had access to say, 50 per cent of present income tax collections that would be more than adequate for economic management purposes, even assuming (which I do not) that tax changes should be used to manipulate short-term changes in demand.
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