There is a deep structural problem underlying the current hospital funding fight between the Queensland Premier and the PM, the vertical fiscal imbalance (VFI) between the state’s spending responsibilities and the Commonwealth’s revenue raising powers. The states receive around half of their revenues from the Commonwealth (see the chart below based on Queensland Budget data) and naturally will blame the Commonwealth for their own failings in service delivery and planning. There is a blurring of accountability. Economists have been saying this for decades.
While he was PM, Malcolm Turnbull tried to revive an idea from the Fraser Government which would have gone some way to resolving the VFI, handing part of the income tax power back to the states, a power which the Commonwealth seized during WWII and never relinquished. Unfortunately, PM Turnbull gave up on this proposal when faced with resistance from the states, a resistance which was led by Queensland Premier Palaszczuk (see Premier’s 2016 Lodge dinner remark to Turnbull highlighted Vertical Fiscal Imbalance problem).
The Queensland Premier should remember her own role in failing to resolve the VFI. She could have reduced the state’s dependence on the Commonwealth, which would have enhanced her flexibility to increase hospital funding if she chose to, but, of course, with more power comes more responsibility. The current VFI allows her to conveniently blame the Commonwealth for any problem which occurs on her watch. In her view, it’s the Commonwealth’s fault for not providing enough funding, rather than her Government’s failure to plan for COVID cases or its failure to redirect funding from other parts of the budget to Queensland Health.
Other posts of mine on VFI include:
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