By Geoff Gallop
Dealing with commonwealth-state relations is one of the most challenging aspects of leading a state government.
There are moments of great achievement when the values and interests of all the governments line up. But more often than one would wish, however, there are moments of great frustration and disappointment when the states are divided and the commonwealth plays the game of divide and rule.
I always felt that Western Australia had a greater understanding of, and respect for, federalism that its counterparts. Distance, history and interests have all contributed to this state of affairs.
For example, I felt very strongly that the Howard government didn't appreciate the seriousness of and distinctiveness of the water crisis in WA.There was a lot in the National Water Agreement I agreed with, but not enough to convince me to sign.The Liberal opposition supported John Howard, Canberra-based commentators couldn't get it and we went ahead with our own strategy including the Kwinana desalination plant, a partnership with Harvey irrigators and support for conservation. It proved to be a good decision for the state and the investments we made played a not insignificant role in the government's re-election in 2005.
I was opposition leader when the deal to establish the GST was agreed. It was clear then that there was a risk to the states when they gave up a range of taxes for a share of the GST. The issue was simple - the GST is a Commonealth tax and what the Commonwealth gives, the Commonwealth can take away. In fact the very introduction of the GST increased the vertical fiscal imbalance between the Commonwealth (more money than responsibilities) and the states (more responsibilities than money).
This takes me to the present-day question of health reform. The National Hospitals and Health Commission - to which I was appointed - recommended more clarity in the various roles and responsibilities of the Commonwealth and the states and a dominant role for the Commonwealth in primary healthcare, basic dental care, and aged care.
In relation to hospitals we made the case for the Commonwealth to fund on the basis of the efficient cost of every public patient admission, starting at 40 per cent but with the opportunity to move to 100 per cent over time. The aim of this proposed reform was not to have the Commonwealth manage public hospitals but to promote efficiency in service delivery and ensure that the states become fully accountable for how their hospitals performed.
As it turned out the Commonwealth went down the path of activity-based funding (set at 60 per cent of the efficient cost) but added to that a model for how the states should organise their system by way of hospital networks, each with a board supervising between one and four hospitals. NSW, for example, is moving to establish 17 such networks.
This may or may not prove to be an excellent reform but it would have been better to ensure that the states have flexibility in the way they run the system. After all it is very rarely the case that one size fits all.
However, it would appear that WA's decision not to sign - supported in this case by the Labor Opposition - has more to do with the Commonwealth clawing back 30 per cent of the GST to fund its commitments.
This comes on top of WA only keeping 68 per cent of every dollar raised in the state. This is the price WA is paying for being a state linked to the China boom and flush with revenue-raising capacity. The problem of course is that the demands on the state to provide infrastructure and manage the pressures of growth have expanded at the same time.
So it is that WA is not part of the new system of health funding and management. Nor, it would seem, are the Commonwealth's incentives to join by way of extra dollars for hospitals and some infrastructure going to make any difference. We are left with a dual system - WA and the rest.
The Commonwealth needs a way forward. It could do nothing and allow WA to operate on a different basis than the other states. It could revisit the health agreement and accept the proposal for a commonwealth-state joint funding arrangement, a position that was supported by WA. However, to re-open anything is always risky and questions of credibility and competence would inevitably emerge.
The Commonwealth could also initiate a new discussion about tax reform, the GST allocations and federal-state finance generally. By so doing it could seek a new settlement that satisfies all and brings WA back into the fold.
Ultimately this is going to have to happen but is an enormous can of worms in today's political environment. Are our leaders in the mood to agree fundamental reform of this type? I'm not so sure.
Still, such an approach would also provide a platform to thrash out the issues associated with the still-to-be-born mining tax. Note as well that the do-nothing-and-renegotiate strategies also carry political risks for the Commonwealth.
Whichever way they turn it's going to be tough. These are indeed most challenging times.