OPEN LETTER, "The Tax Reform Bill and the Constitutional Problem"

by David Keane, November 1998



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  This open letter is being distributed to all Commonwealth Parliamentary Senators who are entitled to vote prior to July 1999, and to all Party Leaders of all State Parliaments.

  In essence this letter wishes to draw the attention of Australian politicians, Commonwealth and State, to a serious Constitutional problem in the national Coalition Government's Tax Reform agenda.  It is to be hoped that this problem be vigorously debated when the Tax Reform Bill passes for consideration in the Senate.  If the issues raised in this open letter are not debated in the Senate, Australia may find itself in such serious economic difficulty that the debate will inevitably re-emerge in State Governments within a further 1 or 2 years.

  It is proposed that those to whom this letter is addressed take the matter most seriously.  The Open Letter is presented in 6 parts:

Part 1: The Tax Reform Bill and the Constitutional Problem

Part 2: Suggested Commonwealth Parliamentary Resolutions

Part 3: The Constitutional Basis for Commonwealth/State Economic Equity

Part 4: An Agenda for a Solution to Australia's Long-Term Economic Problems

Part 5: Setting Up a People's Economic Council

Part 6: Massive Tax Evasion by Multinationals

Yours sincerely,

David Keane

(PO Box 582, Gosnells 6110, W.A.)

PART 1 of  "The Tax Reform Bill and the Constitutional Problem"
by David Keane, November 1998
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Whereas the issues of GST [Goods and Services Tax] on food and general GST review are the immediate concerns presently facing Parliament with respect to the Tax Reform Bill, the issue of taxation relations of Commonwealth with States is the hidden yet more volatile and dangerous element in the Tax Reform Bill.  For it is only when in a year or two the States have themselves made full and independent assessment of the economic impact of the GST and Tax Reform Bill, making informed long-term economic predictions, and have seriously considered the Constitutional alternatives before them, that the most serious dissent will come against the Commonwealth Tax Reform Bill.  That greater dissent (which if ignored to begin with, will place the entire Australian economy in jeopardy), will come not from the Senate but from the States.  The danger arises from the Commonwealth trying to patronisingly impose a national economic agenda upon the States without first working through the Constitutional implications.

The proposal in a nutshell.

The Issue of Constitutionality.  There is no question that the Coalition Tax Reform Bill would be Constitutionally valid in the High Court. The point is that the Bill has no legal teeth.  There is no legal Constitutional basis for enforcing the States to align and comply with the proposed Tax Reform Bill with respect to State tax ceilings and State tax prohibitions.  The Bill's tax ceilings and prohibitions can be imposed upon the States only through a test of political will between the Commonwealth and the States.  As we have seen with the recent hospitals financing fiasco, at times of crisis and when the States are really hurting, such tests of will do not always go the way of the Commonwealth.

The Point of Breakdown. The States are hurting. There are profound problems with the State economies forcing them to sell off and privatise State assets to balance budgets, being forced into revenue earning fields linked with gambling and speculation, having to let infrastructure run down, and having to cut budgets for schools and hospitals.  For the moment the States may be appeased by the promises being made by the Commonwealth Coalition Government, but in a year or two the real errors in the GST package will become apparent, causing especially the States to reconsider their long-term commitment to this agenda.  A superficial solution of tax ceilings and tax prohibitions legislated by Commonwealth serves only to conceal the real problems.  Within three years acute crisis in State finances will again emerge, and on this occasion there will be little doubt that the States will demand a setting aside of the Coalition Tax Reform Agenda, as well as the setting aside of the idea of Commonwealth economic patronage.  They will demand comprehensive national debate on the real issues behind Australia's failing economy.  They will demand that such debate starts with a recognition of federal economic equity between the Commonwealth and the States.  Such equity is inherently guaranteed in the Australian Constitution.

The Electoral Mandate. At the recent national elections, there was a single outstanding issue upon which the electorate was agreed and so gave an overwhelming electoral mandate.  That issue was the need for national tax reform, reaching to the most fundamental levels.  The most fundamental starting point for national tax reform is a recognition of federal economic equity between the Commonwealth and the States.  No real solution to the nation's economy can emerge until we start at the starting point, and invite States into the national debate on economy as equitable partners.  Yet this fundamental question of finding a meaningful long term economic solution for Australia, given such a clear electoral mandate, the Coalition chooses to oppose by their attitude of enhanced economic patronage of the States.

The idea of continued economic patronage from Canberra, obliging the States to acquiesce to a submissive economic role and excluding them from national economic planning, must be cast aside forever!

In Part 2, several suggested resolutions are presented for Parliamentary debate.  Most important of all, it is vital that the parts of the Tax Reform Bill dealing with the GST be separated from those parts of that Bill dealing with the States.  There is no reason at all why the GST section, if approved by Parliament cannot be implemented in the short term by distributing revenues to the States through the financial assistance to the States provision of the Australian Constitution (Section 96). To pass a Bill in Commonwealth Parliament outlining the manner by which States are required to raise taxation revenue, is too momentous an issue to be decided without prior State participation on the most fundamental level of long term economic planning.  For Commonwealth Parliament to patronisingly make laws on how the States should raise their taxation, without inviting them at the planning stage, invites the States to an inevitable rejection of such laws.

In Part 3, the legal questions concerning Commonwealth/State economic equity are discussed from the perspective of Constitutional Law.

In Part 4, an alternative economic agenda is explored.  There is little question that there are deep economic problems facing Australia, and there is substantial need for national tax reform.  It is one question whether or not converting to a GST will in any way help things --- many are the economic forecasters who believe that a GST will simply exacerbate Australia's economic imbalances, while doing nothing to touch the really fundamental economic questions.  But it is quite another question of how to involve the States in creative involvement in national economic planning.  Increased patronage from Canberra is short-sighted and clearly not the answer.  There are however positive alternatives, and in Part 4 some of these alternatives are explored.  NEXT

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Document 7:  Internet address =
Electoral Authorisation: David Keane, PO Box 582, Gosnells, W.A., 6110, Australia.