Indeed it is interesting to reflect on what happened 50 years ago in 1964 on Federal-State relations, income tax and vertical fiscal imbalance. The Bolte Liberal Victorian Government proposed introducing a marginal income tax to be payable by individuals living in Victoria but to be collected by the Commonwealth. The Menzies Liberal-Country Federal Government refused to collect it, although they put the proposition to the other states at the 1965 Premiers Conference. None of the other states supported it. Queensland, Western Australia and South Australia had conservative governments. NSW and Tasmania were controlled by Labor.
Addressing vertical fiscal imbalance wasn’t easy in 1964 and it won’t be easy in 2014. The Commission of Audit is due to release the first phase of its report dealing with Federal-State relations by the end of this month. This will inform a more detailed White Paper on the topic.
There is significant opportunity for reform, be it in harmonisation, undoing Federal-State duplication or adopting more efficient models of funding allocation and state tax collection. While one can but hope that the political stars line up for Federal-State reform, maybe as Shakespeare would have Cassius say “'the fault, dear Brutus, is not in our stars, but in ourselves.”