Time to reform ‘discretionary’ grant system

Parliament house in Canberra
Australia's Federal Future goes under scrutiny on Wednesday at the Sir Samuel Griffith Forum.

Australian taxpayers could be better off if the States and Commonwealth carved up grants differently, a leading economic researcher has argued ahead of next Wednesday’s Sir Samuel Griffith Forum on Australia’s Federal Future.

Jonathan Pincus, Visiting Professor of Economics at University of Adelaide, has called for a substantial reduction in large and conditional grants made by the Commonwealth to the States and Territories.

Jonathan Pincus and Henry Ergas, University of Wollongong, this week published a paper proposing three fundamental reforms to the system of grants, in the build up to the inaugural forum at Parliament House in Brisbane.

“Given that the Commonwealth faces the prospect of a long series of sizeable budget deficits, with the attendant imperative of future surpluses, this may be an opportune time for a reduction in the drain on Commonwealth general revenues caused by grants to the states and territories,” Professor Pincus said.

“These are grants that are directed at specific states for specific purposes or under specific conditions, and which lead to overlap and duplication and to a blurring of political responsibilities.”

The Sir Samuel Griffith Series, involving next week’s forum and an earlier symposium, aims to promote discussion and debate about Australia’s Federal Future.

In July more than 30 participants with expertise in government, federalism and constitutional took part in a Brisbane symposium, resulting in the publication of a summary paper identifying key drivers for reform.

The summary paper will inform a broader discussion of federalism at the Sir Samuel Griffith Forum hosted by Griffith’s Centre for Governance and Public Policy and ANZSOG.

Griffith University Vice Chancellor Professor Ian O’Connor will deliver the forum’s official welcome, with Queensland Premier Campbell Newman delivering the opening address.

In their paper Jonathan Pincus and Henry Ergas describe an “efficiency dividend” that could offset the political attractions of the current system of grants.

“We recognise the political difficulties around the implementation of this type of reform, however we argue it would do much to delay or avert the hollowing out of Australian federalism.

“The objective of reform is to ensure that, as far as possible, when a state decides to spend more on any activity, there would be no possibility of eliciting extra monies from the Commonwealth.

“The key reform objective is to eliminate discretionary Commonwealth grants while providing the States with a sufficient, predictable and efficient revenue source.”

READ the full paper on Reforming Fiscal Federalism by Henry Ergas and Jonathan Pincus here.