Abbott’s July 2015 COAG: cooperative or coercive federalism?

The Council of Australian Governments (COAG) is the peak intergovernmental forum in Australia whose membership comprises the prime minister, state premiers, territory chief ministers and the president of the Australian Local Government Association.  The extent to which the prime minister utilises COAG as a policy forum has depended on the relationship between a federal government and member state governments.  For example, Coalition prime minister John Howard had to deal with a COAG where all state and territory governments were Labor thus making it more difficult to achieve consensus on his policy preferences (Singleton, G. et al 2013, Australian Political Institutions 10e, Pearson Australia, ‘Council of Australian Governments (COAG) and cooperative federalism’, case study, pp 130-132).

At a special meeting of COAG held on 23 July 2015, the membership comprised a Coalition prime minister (Liberal Tony Abbott), 3 Liberal premiers (NSW, WA and Tas) plus the Country Liberal Chief Minister for the Northern Territory and 3 Labor premiers (Vic. Qld and SA) plus the Labor Chief Minister for the Australian Capital Territory.  An historic first Leaders’ Retreat for all COAG members without the presence of supporting bureaucrats was held in Sydney on 22 July.  With this mix of party representation it could have been expected that prime minister Abbott would have had difficulty gaining the agreement of all COAG members to his preferred policy agenda.

COAG outcomes

Signs of COAG working as a forum for cooperative federalism were evident in agreements reached to a coordinated approach to counter-terrorism (Australia’s Counter-Terrorism Strategy), continuation of a national campaign to reduce violence against women and their children jointly funded by all jurisdictions, and agreement by all governments to work with the National Ice Taskforce to develop a National Ice Action Strategy (COAG, ‘Communique-COAG Special Meeting, https://coag.gov.au/node/24). Consensus was achievable on these issues because they did not cut across party lines or threaten the interests of individual states.  There was also agreement to reform of the vocational education and training sector, including consideration of a federal takeover, unanimous support for the Northern Territory’s proposal to gain statehood by 1 July 2008, and ‘recognition of the need to consider working towards extending Medicare to cover treatments in hospitals based on efficient pricing’ (www.pm.gov.au/media/2015-07-23/australian-leaders-retreat-communique).

The fact that consensus is fractured when federal-state financial relations come into play was brought into focus in my April 2015 blog: ‘COAG April 2015: Australian federalism business as usual’.  A catalyst for the disagreement between the states and the Commonwealth government at that meeting was the Abbott government’s May 2014 budget decision to cut $80 billion from the states’ funding for schools and hospitals.  There was also disagreement between the states over the GST with Western Australia’s premier pushing for a revision of the GST distribution to assist his state’s financial problems which was not supported by other states.

Federal-state financial issues, not surprisingly, were front and centre at the July 2015 meeting with the Abbott government looking for the means to increase its revenue base and the states and territories seeking additional revenue to fund the short-falls in their own budgets, including the federal government’s projected cuts to their funding.  Tax reform, or more aptly, ways of increasing the tax take, was on the agenda.

All COAG members understood the need for additional revenue but there were differences between them as to how it should be achieved.

Prime Minister Abbott had previously expressed an interest in looking at the GST to raise revenue (Singleton, G. Blog, 30 March 2015 ‘Will the Abbott Government increase the GST?).  The GST came on to the agenda for the July 2015 COAG meeting when NSW Liberal premier Mike Baird proposed an increase from 10 to 15 per cent to meet the costs of health care.  He also flagged the need to provide compensation to lower income earners who would be most disadvantaged by any GST increase.

Labor premiers Daniel Andrews (Victoria) and Annastacia Palaszczuk (Queensland) opposed any increase to the GST preferring an increase to the Medicare levy to fund health services. The Queensland premier commented: ‘If Tony Abbott wants to go and put that to the Australian public that is his option’. ACT Chief Minister Andrew Barr reportedly did not reject Baird’s proposal but preferred the idea of an increase to the Medicare levy (www.skynews.com.au/news/top-stories/2015/07/22/coag-leaders-look-to-shape-australia-s-future.html).

Consensus was reached by COAG members to extend the GST to include all online sale transactions from overseas valued at less than AUD $1,000 which previously had been exempt.  It was also reported that ‘taken in parallel with the Tax White Paper, leaders agreed there is an opportunity to consider more durable revenue arrangements to address growing financial pressures facing all governments.  Any revenue arrangements need to be fair, efficient and lasting’ said the prime minister  (www.pm.gov.au/media/2015-07-23/australian-leaders-retreat-communique).

This is not going to be an easy task.  Consensus was not achievable at the COAG meeting on a general increase to the GST or an alternative increase to the Medicare levy.  It was reported that Abbott ‘sent a clear signal that he preferred an increase in the GST to a higher Medicare levy, saying a change in the consumption tax could lead to simpler taxes and would rate as a genuine reform’ (Crowe, D. 23 July 2015 http://www.theaustralian.com.au/national-affairs/treasury/coag-2015-path-cleared-for-tax-hike/story-fn59nsif-12274540273889). The Labor premiers of Victoria and Queensland, however, remained resolutely opposed as did Tasmanian Liberal premier Will Hodgman who said after the meeting that his state’s position in supporting the current GST arrangements had not changed, nor did they ‘support increasing income tax via a higher Medicare levy’ (www.premier.tas.gov.au/releases/coag2).

The debate on tax reform will not doubt be fuelled further with the publication of the Commonwealth White Paper due at the end of 2015.

Cooperative or coercive federalism?

Cooperative federalism involves mutual agreement and collaborative joint action.  The July 2015 COAG meeting met those criteria on the basis of the consensus reached on a number of issues and the collaborative action to be taken to achieve those strategies and objectives.  However, it fell short on the substantive tax reform issues on which the participants failed to agree. It could be argued that the agreement by COAG to consider ‘more durable revenue arrangements’ and not to take the GST or the Medicare levy off the table, is more a function of coercive federalism.

Coercive federalism occurs when ‘a federal government pressures the states to change their policies by using regulation, mandates and conditions (often involving threats to withdraw federal funding)’.  U.S. federalism has been ‘described as “coercive” on the basis of ‘major political, fiscal, statutory, regulatory and judicial practices’ imposed by the federal government on the states (Kincaid, J. 2008, ‘Contemporary U.S. Federalism: Coercive Change with Cooperative Continuity’, Revista D’Estudis Autonomics i Federals, No. 6 April 2008).  This process can be seen with the Abbott government’s $80 billion cuts to state funding for schools and hospitals, forcing the states to secure an increase in tax receipts and ways of achieving it, hence their agreement at the COAG meeting to keep Commonwealth and State tax changes on the table, including the GST and the Medicare levy for the Commonwealth’s White Paper on Tax Reform (www.pm.gov.au/media/2015-007-23/australian-leaders-retreat-communique).

It must be asked how strong is the Commonwealth government’s commitment to addressing tax reform on a cooperative basis with the states when Abbott apparently has his own agenda on how it should be carried out?  The capacity of COAG to resolve this issue in a cooperative way may be unlikely considering some premiers expressed their strong opposition to any increase in the GST as soon as the COAG meeting was over.  The success of COAG to function as a cooperative forum to achieve tax reform in that context may not be possible.  What we might see instead is what has been considered to be the Commonwealth repeatedly demonstrating  ‘that whatever it cannot do cooperatively it intends to do by legal and financial force’ where ‘the veil of cooperativeness that overlays this shift to “coercive federalism” is increasingly thin and regularly disappears altogether’ (Brown, A.J. 2007, ‘Federalism in Australia – new life or old tricks?’, 26 March. http://www.abc.net.au/news/2007-02-09/federalism-in-australia-new-life-or-old-tricks/2190816). The question raised in my 30 March 2015 blog remains – will the Abbott government risk going to an election having increased the GST by 50 per cent without the consent of all states and territories or with a policy to do so? Pragmatic electoralism may be the determinant of how this issue plays out rather than any deliberations of COAG.

Dr Gwynneth Singleton

4 August 2015

 

 

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