COAG, Health Reform, the Henry Tax Review and why this is not really about health.

It's really about money and power, of course.

The trick is in the two promises sitting side by side, to wit, that:

1. The Feds will kick in 2/3^rd of the cost of Hospitals and some Health related activities, and
   
2. The States will give up 1/3^rd of GST revenue in return.
   

The problem is one of these numbers is going up and the other is not. Say you're a Premier. Say you get $10 a year from GST to run the State, which really means Hospitals, Schools and Cops. So now the feds are saying that for Health they will take about $3 of that, and you will put in about $2, which leaves you with $5 for Schools and Cops.

But the cost of Health is rising by about 3% per annum, while tax revenue will remain steady or fall, or will do something we don't yet know about (Henry Tax Review comment coming below). So in a few years' time the PM rocks up and says that Health is now going to cost $5, which means you're going to have to put in about $2.50. Where's the extra 50c to come from? It's got to come out of Schools or Cops. Now as Premier you are in a very pretty position. You can go to the electorate saying you won't put in more money for Hospitals, or you can go to the electorate saying you're going to cut funding to Schools and Cops. Your choice. But oh wait, there's a third option, that is, you can give Schools or Cops to the Feds! That this would happen if the Rudd model went through is an absolute certainty.

Make no mistake, this is what this debate is about. Lurking behind it like a pale kid who's just spewed behind the couch and is hoping no one will smell the vapours rising, is the Henry Tax Review.

We paid our most trusted employees, ie Kevin Rudd and Cabinet, to conduct a review of the Australian Taxation system with an eye to the long term. They then spent our money hiring some very smart people to do this review. The review has come back and now our employees are refusing to show it to us. Instead, they have come back asking us to entirely reorganise the whole shop. Why? Because they say we have to. Where's the Report? Someplace, they say. They'll show it to us later. Don't worry, they say.

Were these people actually employees they would be sacked, and quite possibly we would bring in the police to try to get access to the report we paid them to produce and which they now refuse to give us.

But like most reports we already know the gist of what it's going to say. That is, that the ageing population is going to mean rising costs and stable or falling tax revenues. This will happen across the spectrum of spending, but most acutely in Health. Most of the rising costs in health are about old people living longer. And these people are the baby boomers, a generation that has never been shy about funding its own lifestyles at the cost of other generations, and that still holds the key to political power.

We have to keep in mind the Normal Moronic Notion at the base of our votes. That is, that people would most like to pay less tax and also have better Hospitals and Schools and more Cops. These contradictory wishes segue nicely in our Federation in that the Feds raise income tax (which we want low), while the States provide Hospitals, Schools, and Cops (which we want lots of, and which cost heaps). The introduction of the GST was a neat way of side-stepping this issue when it was dedicated in its entirety to the States. It was in effect a way of raising taxes without seeming to do so, and at the same time chucking more money at Hospitals, Schools and Cops.

If the Feds now want to take control of Health they have a simple way of raising the money to do so at hand, ie raise income taxes. But as that would contradict the first tenet of our Normal Moronic Notion it just can't be done. Option 2 is therefore raid the GST money. But once the States allow the Feds to play the number trick they will be doomed to the inevitable and electorally unacceptable policy positions mentioned above which contradict the second tenet of the Normal Moronic Notion.

As an aside, if this were actually about Health Reform and not about a grab for power the Feds would agree to a pool funding model as suggested by Brumby, one that would protect the real money numbers and prevent the Feds from capturing the States in this policy pincer.

Who will win?
Obviously not us, whatever happens. But in a political sense the States can win this. Firstly, they have the original agreement on the GST, which means if they can force nothing to happen they will win. Secondly, Rudd's threat to take it to a referendum is just stupid. It won't win. The States would simply run against it by showing the people the number trick the Feds are trying to pull. If the States get traction on that we have a situation where a Fed Labor gov't is going against all Labor States and at the same time trying to win a Federal election as a Labor gov't. This would be a disaster for Labor. In the minds of the electorate it would mean that if the Feds are right, then State Labor is bad, and if the States are right, then Fed Labor is bad. Either way, it transforms into 'Labor is bad'. This is why Abbott has been smilingly quiet lately. He's giggling so hard his bike must be wobbling.

At COAG everyone knows this, and it is merely a matter of who blinks first. But overall the States have both the whip hand, and the absolute need to prevent falling into the trap the Feds have set. In the end we will probably get some new bank account. It will be called a 'pool' or something, and they will then fight over control of it.

Lastly, they seem to have forgotten that it is eminently possibly for a State to individually cede power to the Commonwealth, as VIC did with its industrial relations powers under Kennett. If South Australia loves this new model so much why not just independently cede the powers? Or do so in partnership with Queensland? The Commonwealth has not shown that cost savings are to be found in economies of scale that necessarily require all the States to cede at once. So why aren't they ceding these powers individually? Perhaps these States believe they would be relatively better off if they could access money raised in VIC/NSW? No, they can already do that. The real reason is they understand the political implications.