The argy bargy over dam funding between the federal and state government reported by the Courier-Mail (State accuses feds of holding out on dam money) earlier this week is yet another illustration of a big problem in our federation: vertical fiscal imbalance, which blurs accountabilities. In chapter 8 of my book Beautiful One Day, Broke the Next I wrote:

The mismatch between expenses of state and territory governments and their expenditure responsibilities is referred to as vertical fiscal imbalance (VFI). For decades, VFI has been blamed for blurring accountabilities and creating a situation of learned helplessness and an unedifying blame game. The states and territories blame the Commonwealth for not providing sufficient funding to deliver quality services, while the Commonwealth blames the states and territories for poor service delivery. The VFI sets up a patron-supplicant relationship between the Commonwealth and the states and territories. Premier Wayne Goss once compared the relationship to “a dialogue between a begging bowl and a baseball bat”, with the Commonwealth obviously the one holding the baseball bat.

On the issue of dam funding, Federal Water Resources Minister David Littleproud told the Courier-Mail:

“The Queensland Government is going down the path of becoming a dependent state.

“We are reaching the point where the state cannot and will not provide for its own people.

“Queensland can’t just depend on siphoning New South Wales dry.”

Yes, Queensland is highly dependent on Commonwealth transfers (see the grants share of total revenue in the chart below), as are other state governments, and we are not that much more dependent on Commonwealth transfers than other states. For instance, regarding the $70 billion GST revenue pool, Queensland has received 3% more on average than what we’d get under an equal per capita distribution since the GST was introduced in 2000-01, and arguably we deserve it due to NSW and Victoria having wealthier populations and Queensland having high-cost remote communities to service (see my posts Upcoming AiP event on the golden handcuffs of federation and Qld has gained $7bn from GST revenue redistribution since 2000-01).

The dependency of all states and territories, not just Queensland, on the federal government should be lessened. Unfortunately, in 2016, state and territory governments rejected what I thought was a very good proposal from our former PM Malcolm Turnbull, that states and territories could piggyback on the national income tax (with a cut to the rates before the states piled on).

We’ve known about the vertical fiscal imbalance problem for decades, but alas we haven’t fixed it and the blame game continues.

You can read all about vertical fiscal imbalance in my book Beautiful One Day, Broke the Next, published by Connor Court.