Page 519 - Week 02 - Thursday, 14 May 1992
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SUMMARY
The Financial Position
It had been acknowledged by all Governments that there is a need for substantial reform of Commonwealth-State financial arrangements as part of the wider program of micro-economic reform.
Substantial progress has in fact been achieved in the area of micro-economic reform, with the States taking a leading and responsible role. However, there has been very little progress on Commonwealth-State financial relations. A crisis in State finances has resulted from:
the collapse of asset-based revenue due to the ending of the land property and share market booms and a . contraction of credit growth;
cuts in commonwealth general current and capital revenue payments which cannot be accommodated (from 1982-83 to
- 1991-92 the real reduction in general revenue funds (excluding identified health grants) and-general purpose capital payments has been $3 . 4 billion); and
the reduction in States financial flexibility due to the increasing proportion of Commonwealth grants paid in the form of tied payments. (Specific purpose payments have increased from 30.4 per cent of total Commonwalth payments to the States in 1982-83 to 41.1 per cent in 1991-92.)
The negative impact of the reduction in Commonwealth payments to the States cannot be overemphasised. Since 1982-83,
Commonwealth own purpose outlays have increased by 35.5 per cent in real terms, compared with a reduction of 1.7 per cent for Commonwealth payments to the States. Until 1989-90 the effect of this-finaacial squeeze on State budgets was cushioned by revenue growth resulting from the one-off speculative boom in asset prices. Only.since this speculative bubble has burst has the underlying financial position of the States been exposed.
Projections based on the "One Nation" Statement economic assumptions indicate that the States will accumulate $28 billion in additional debt by 1995-96. This is $10 billion more than the accumulation of Commonwealth debt over the same period and is equivalent to a doubling of State general government debt. If States are to contain their structural deficit without increasing taxes or charges, massive ongoing cutbacks in essential State services will be required - by 1995-96 State deficits will be equivalent to almost 50 per cent of the States health budgets.
The alternative of drastically increasing State taxes, charges ,, and debt levels would involve job losses and a loss in
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