Government | Regulation

Federation reform needed, but don’t hold your breath: ACT Chief Minister

Australia’s Federation is broken and needs repairing, but the political environment is not hospitable for reform, ACT Chief Minister, Andrew Barr has told CEDA’s Economic and Political Overview in Canberra.

“The Federation is fundamentally broken. There is a desperate need for reform,” he said.

“Unfortunately, I’m not sure the political system is in a state at the moment to be able to respond.”

Tax reform and GST distribution

On GST reform, Mr Barr said the ACT Government will fight a per capita GST distribution.

“Horizontal Fiscal Equalisation is an important core principle for smaller jurisdictions, and so we will resist very strongly any attempts to move to a per capita distribution of the GST,” he said.

“That would mean a loss of around $200 million annually from the Territory’s $4.8 billion budget.

“We are also keen to engage with the Commonwealth on their white paper on tax reform because we have already led the nation, and we are leading this debate, and we think we can provide a working example of how a jurisdiction can seriously engage in tax reform.

"The ACT… is the only jurisdiction seriously engaging and enacting the taxation reforms that were recommended by Ken Henry (Henry Review) nearly five years ago.

“Tax reform, renewable energy projects and of course the light rail project are headline priorities for my government.”

Mr Barr said tax reform is at the core of the ACT Government’s economic reform agenda, and reform will be undertaken over a 20 year period to allow the Territory to avoid a hard landing as future revenue streams inevitably change.

“We are phasing out our most inefficient taxes, looking to facilitate new investment and move to the fairest, least distorted and most efficient tax base we can,” he said.

“We are undertaking tax reform over a 20 year period and the reason we are doing that is that by the mid-2030s we will have largely released all of the remaining Greenfield development land within the Territory.

“So if we have not adjusted our Territory’s taxation based by that period, then it will be a sharp and savage impact on the Territory’s budget.”

Canberra light rail

Speaking the day after the ACT signed up to the Federal Government's Asset Recycling Initiative – the first jurisdiction to do so – Mr Barr said the agreement means the Territory receives $60 million more than it would otherwise have had.

"This is a good down payment on the light rail, which some have said the Territory could not afford,” he said.

Mr Barr said he was so far delighted with the level of engagement with Capital Metro – the company involved in the Public Private Partnership (PPP) to deliver Canberra’s light rail.
“PPPs will be considered for future infrastructure projects in the Territory and we will have a pipeline of further opportunities,” he said.

Capital Metro Project Director, Emma Thomas said people's ability to move easily around a city is important for attracting and keeping a talented workforce.

As more people continue to move to cities, we must consider how we keep attracting talent to Canberra, Ms Thomas said.

“It's not just about transport.  It really is about moving the people of the city and the more we connect the better we can enjoy our lives and our spaces," she said.

US cities like LA and San Francisco are increasing spend on light rail, not just to move people from point A to point B but to bring back “the flavour of their cities,” she said.

“We want to stand out from the crowd, we want to be able to attract the talent of the future that we need for our intelligent business community.”

Economic Outlook – US and China

“We certainly do expect the global outlook to get a little bit better over the next couple of years, but it is only a little bit better,” said ANZ Banking Group Senior Economist, Cherelle Murphy.

“The US is standing out from the crowd and starting to pick up a bit,” she said.

“We’re at the point where the economy has recovered in the US to the extent that the US Federal Reserve will be thinking about when it’s going to start normalising interest rates.”

On China’s economic growth slowing, Ms Murphy said growth rates of around seven per cent are still pretty robust for a large economy like China.

“What’s important for Australia though is the changing composition of growth within China,” she said.

“What we’ve seen over the last couple of years is the secondary industries in China start to come off faster than the rest of the economy.

“It’s the secondary industries that buy the goods that we sell…bulk commodities particularly  iron ore and coal.”

Ticking clock for Abbott

The clock is ticking on Abbott’s leadership, according to ABC 7.30 Report Political Reporter, Chris Uhlmann.
Budget surprises and Prince Phillip’s knighthood has left the Prime Minister with a trust deficit in the community and the impression of being “a creature of the past,” Mr Ulhmann said.

Prime Minister Abbott’s own election declarations of a government with no surprises and no excuses, as well as no new taxes and no cuts to education and health,  were measures by which he would later fail, he said.

“Tony Abbott left himself almost no room to move in Government simply by the things he said,” Mr Ulhman said.

“The budget has been catastrophic for both the Government and the economy in Australia.

“The Government had not done any of the spade work in preparing people for what were quite significant changes.

“So is it any surprise that the community actually reacts rationally to that which is: you haven’t told us anything about this, you told us there’d be no surprises.

“The two central problems that Tony Abbott had out of the budget were trust and fairness, and he hasn’t been able to repair that ever since.
“Then we had this event which crystallises in the mind of the community everything that they have worried about with Tony Abbott.”

Prince Phillip’s knighthood left the community with the impression “Tony Abbott is a creature of the past (and) that he has nothing to say about Australia’s future,” he said.

“Having set himself  like that in people’s minds, the Coalition now believes there is no way that they can win an election campaign under Tony Abbott,” he said.

"Nothing is inevitable, but if the Prime Minister is still in his seat by September-November this year, I would be a little surprised.”

CEDA's Economic and Political Overview

CEDA's Economic and Political Overview (EPO) is Australia's premier publication and series of briefings on the Australian economy and politics for the year ahead. Running for more than 30 years, the EPO brings together political, economic and business leaders and provides CEDA members with business intelligence on the environment they will be operating in over the next 12 months.

CEDA's 2015 EPO will provide economic and political forecasts and also examine funding options from the finance sector and some proposed market-based reforms and equity issues in Australia.

Download 2015 EPO publication (pdf)