Bugger the bush: the pauperisation of generations of people

May 31, 2024
Goods and Services Tax GST is shown using a text

It has always seemed to me that the Northern Territory, and especially its Indigenous peoples, have been Australia’s ‘poor relation.’ Out of sight, inaccessible, incomprehensible, hostile, threatening.

From the birth of what became a Nation, the vast expanses of the Northern Territory, and its unfamiliar peoples, were unwanted, bumped from one State to another, then dumped on the Commonwealth. Eventually, in 1978, the Commonwealth granted the Northern Territory a limited form of Self -Government. But not Statehood. Oh no!

The newly created Northern Territory Government inherited a massive infrastructure deficit in 1978 (roads, bridges, airstrips, schools of every kind, health clinics, housing etc. etc.).

And well-intentioned policies, like the Aboriginal Land Rights (Northern Territory) Act 1976, and an over-generous welfare system, have backfired to disincentivize employment, school attendance, business migration and economic independence. Instead, we have created intergenerational welfare dependency, with all the attendant social problems. Just read the newspaper headlines, or police reports, any day of the week.

In February, a major Productivity Commission review found Federal, State and Territory Governments were failing in their commitments under the National Agreement on Closing the Gap.

In May, The Coalition of Peaks, in a post-budget interview with The Weekend Australian, said eyes on The Voice Referendum meant that Closing the Gap measures has stalled.

There are (at least) four structural reasons for the unequal treatment of the Northern Territory and its Peoples:

  1. The Goods and Services Tax Debacle (The entire pool used to be distributed on a needs adjusted basis, now only 25% – Horizontal Fiscal Equalisation [HFE] in the language of economists)
  2. The States allocate these funds (meaning there is no requirement to follow the needs [HFE] adjusted principles behind their share)
  3. Local Government Financial Assistance Grants (the pool is shared to the States on a per capita basis, and as a condition States must apply ‘needs’ principles in their allocations to Local Government Councils)
  4. The Rorting of Public Money Reported by the Australian National Audit Office (grants of many kinds favouring urban electorates of government members)

The future of the Northern Territory is in the balance

The Territory will not reach its potential until the First Australians are sharing equally in its fruits. I search in vain for the great Australian fair go. For the morality.

I will develop my thoughts in a sequence of four parts.

The Goods and Services tax debacle

The National Press Club hosted an event on 8 May 2024 titled The GST Debacle. Speakers were a prominent economist and a former Premier of Western Australia. The economist described recent changes to the way the GST is shared to the States as “the worst public policy decision of the 21st century”.

I agree. I have been repetitive in my condemnation. I have bored people year after year at Garma.

This event prompted me to again collect my thoughts.

To assist readers in their comprehension I want to first deal with a few concepts.

Federalism is a form of government that combines federal government with state governments in a single political system, dividing the powers between the two.

Horizontal Fiscal Equalisation (HFE). I know it sounds like a surgical procedure, so let us continue with that theme. It simply means funding States and Territories according to need and it has recently been castrated.

Commonwealth Grants Commission has been advising the Australian Government on how federal funding should be distributed to the states and territories according to need since 1933.

To cut a long and complex story short, the States conceded taxing powers to the Commonwealth in World War 2.

This necessitated the creation of a body, at arm’s length from the Australian Government (and political intervention – how else would States be appeased?) to advise on revenue sharing.

The Commonwealth Grants Commission (CGC) was tasked with the job of assessing a State’s revenue raising capacity on the one hand, and the cost of delivering an average level of services across their scattered populations and regions on the other. Quite obviously compact States with a comparatively dense population could achieve an economy of scale not possible with a thin population spread over a vast geographical area. The big State with the thin population spread received a greater per capita share of available funds.

The CGC’s carefully honed methodology became the envy of other countries with a federal system of government, and staff regularly travelled the world to give advice.

In this way, the entire pool of funds collected by the Goods and Services Tax was apportioned between the States and Territories on a needs adjusted basis – or Horizontal Fiscal Equalisation principles. In theory, each jurisdiction should be able to deliver an average level of services.

These funds are delivered to the States on an ‘untied’ basis, meaning that the States are under no obligation to follow the direction of the CGC’s theoretical increases because of relative disadvantage and are free to allocate funds as they see fit.

This has led to an ongoing argument in the NT as to whether a fair share of the allocations has gone to the bush. Political parties of both stripes have been in the glare of the headlights from time to time. More of this later.

Our immediate, and immense, problem is with the political interference with the age-old purity of the CGC methodology. Remember – the methodology that was the envy of the world.

The largest expenditure item in the budget by far has been fiddled.

The castration of the CGC methodology

For around seventy years Western Australia had drawn more from the Revenue pool than it had contributed – presumably because of the loading (cost adjusters) at work in relation to a small population spread over a vast area.

Around the turn of the century rapid change occurred primarily because of China’s voracious appetite for our minerals. Iron ore was the key, helped by gas, gold, copper, and lithium. In two decades, royalties grew from $1 billion to $20 billion. So did the CGC’s assessment of the State’s revenue raising capacity. With the State awash with mineral royalty revenue, its need for funds from the GST pool dropped.

Was it now time for WA to now draw less from the pool than it contributed? Not at all. WA complained bitterly about the dip in their share.

Elections were looming, and like-minded State and Australian Governments decided it was time to castrate the GST methodology. To abandon the principles of Horizontal Fiscal Equalisation. To take money off the other States to give to WA. And to take money from elsewhere in General Purpose Revenue to appease the States who lost out.

Up until the present it had been estimated that $40 billion has been used to top up the States (likely to grow to $50m billion). The Australian Financial Review reported on 15 May 2024 that the Budget Papers reveal the figure to be $52.9 billion over ten years. You do not need to be an economist to figure that is $52.9 billion that has been given to WA. So, it is no surprise that WA, alone amongst the States, has delivered a budget surplus year after year.

I thought that the incoming Labor Government would reverse these arrangements immediately on taking office. It did not. By then a Labor Government was in office in WA, and it suited both levels of government to shore up the Members of Parliament already held. In fact, the current Prime Minister recently EXTENDED the ’no State worse off’ principle.

Remember? The entire pool of funds was distributed according to need. For the next few years after the political intervention only thirty per cent of the pool would be distributed under HFE, and from next year only twenty-five per cent. The Northern Territory, unsurprisingly, with our unique population mix, and our small population spread from the harshest deserts to the cyclonic tropical coasts, benefitted the most from HFE. It follows that we have suffered most from this political interference with it.

I must emphasise that the loading the NT received only enabled it to deliver an average level of services. Many people wrongly believe that the extra money was to assist the NT to address the infrastructure backlog inherited from the Commonwealth Government in1978.

For me, this manipulation is up there with the industrial scale rorting so scathingly reported by the Australian National Audit Office.

The Yothu Yindi Foundation said to the Productivity Commission in its (pathetic) review of the CGC HFE methodology “It’s like taking Foreign Aid money of South Sudan and giving it to Donald Trump.”

The NSW Treasurer invoked the memory of Mahatma Gandhi, who taught him that “struggle takes time, and justice isn’t delivered overnight,” and blasted current arrangements as “absurd “ The Treasurer said further:

“In simple terms, whenever Western Australia has an iron ore boom, they get to keep the majority of it. When NSW and Queensland get coal, we obviously distribute it through the GST. That’s the inequity.”

That about completes the uniform and shrill condemnation from all the jurisdictions except WA of course.

In a way I am beginning to feel a little sorry for the Federal Treasurer. He has been touring Australia to ‘sell’ his recently delivered Budget – so important to his professional role it has been compared to delivering a child. Yet his sales pitch is constantly interrupted by difficult questions about the mushrooming nightmare of the GST Debacle. He is then forced into a position of grinding his teeth whilst grinning and defending the indefensible. Defending the undefendable. Or, as it is more clearly put in political circles, ‘eating a S**T sandwich.’

The States allocate these funds

These funds are ‘untied,’ meaning the States are free to allocate them as they see fit.

Can We Trust the States to Follow HFE Principles implicit in their share? Or put another way, should GST sharing be untied?

I am on record of saying that no matter how bad, a democratically elected Northern Territory Government, would be infinitely better than having programs administered from Canberra. By whom? The administrators of the Sports Grants Program for example? Or by the public servants who dreamt up the GST Debacle?

Over the last forty-five years Northern Territory Governments of both stripes have had to defend their budget allocations as being fair to the bush. They have even tried to implicate the NT Auditor General by having that Office assess outlays.

It is easy to deceive when you have many thimbles, and many peas. Governments of both stripes have valiantly tried to make the case that around 53% of budget outlays has been allocated to Indigenous expenditure when that group make up 30% of the population. If 95 % of the prisoners are Indigenous, does it follow that 95% of the total cost of the Department of Correctional Services can be attributed to Indigenous expenditure? Including the cost of high-rise offices with harbour views, executive salary packages including vehicles and superannuation? That expenditure is inescapable, but it does not reach the bush.

An example of this problem was revealed in the Northern Territory News on 17 May 2024 with this article:

“Remote schools miss out

Even though 71 per cent of the NT’s public schools are in the bush, only 10 per cent of an infrastructure repair fund has been allocated to remote schools.

Territory teachers say the Education Department is failing 44 per cent of the NT’s student population by failing to improve remote and very remote school infrastructure.”

In another newspaper article on 20 May 2024, the NT Independent reported that the Auditor General revealed that the Northern Territory Government has failed to effectively implement federal Closing the Gap measures aimed at addressing Aboriginal disadvantage, and cannot explain how decisions are made, what the costs are, if targets are being met, or how many Aboriginal organisations have been awarded taxpayers cash to provide outcomes for Indigenous Territorians.

The eyes of commentators are drawn to the disparity between facilities in Darwin, and those in the bush. Like the lovely redevelopment of the old Darwin Port. And they ask whether they it was funded by the Territory’s share of GST that was boosted by the Commonwealth Grants Commission formula before it was politically castrated.

And the funds for the bloated Northern Territory Public Service had to come from somewhere. Not only are the total employment numbers disproportionately high, but the Senior Executive Service numbers are out of the ballpark. About five years ago it was reported that the Tasmania Public Service had 164 senior executives, the Australian Capital Territory had 265, and the Northern Territory an astonishing 643 senior executives.

Turning back to the question: NO, the grants should not be tied. And NO, they should not be administered from Canberra. But I certainly feel there must be SOME attempt to make the States, and the NT, more accountable for their decisions. More transparent!

A suggestion – and I hope others will be forthcoming with more suggestions. Given the huge sums of money involved, should the Australian Government require the State and Territory Governments to publish Reports, in coherent language, on their allocations? It is not much use relying on accountability through the ballot box. There is widespread disenchantment with our politicians, as can be judged by diminishing voter turnouts, the difficulty in recruiting candidates, and the rise of independents.

Local government financial assistance grants

The Australian Government also makes a bulk grant to the States under this banner. In a strange reversal of policy approach, the Australian Government divides the pool on a per capita basis. And then, perhaps in an admission of the error of their ways, attaches a condition of grant the requirement that States distribute the funds to their local government councils on a Horizontal Fiscal Equalisation basis.

Each jurisdiction must create a Local Government Grants Commission, which must make recommendations through their Minister, to the Australian Government Minister, demonstrating compliance with those principles. (Disclosure: I was Chair of the Northern Territory Grants Commission for fourteen years from 2002.)

The outcomes from this convoluted procedure again worked to the disadvantage of the most remote and neediest Councils.

The way the per capita national cut, and the Australian Government modified HFE State principles, interact means that the entire allocation to the Northern Territory used to be less than the grant to Geelong.

Another illustration of the glaringly anomalous outcomes from this convoluted mix of policies was pointed to by the Grattan Institute late last year:

“Remote councils in New South Wales receive over six times more federal government financial assistance grants per person than remote NT councils. .”

To add to this insult, both the Australian and Northern Territory Governments then provide grants to those Remote councils in the Northern Territory for them to provide agency services on behalf of the two senior tiers of government.

Let me repeat this another way. Because of the unpreparedness of the Australian and Northern Territory Governments to relocate staff to the remotest areas, they use the most challenged councils as agents.

The least able Councils have taken on wider responsibilities than any city based municipal council! A study some years ago indicated that often 70% of a remote council’s funding was to do some other government’s work. Let us say 150 grants each. That is six hundred quarterly financial returns . . .. and no provision for administrative support, or housing for the jobs generated by the grants.

Robin Hood in reverse. Just as non-wage/salary income is taxed at a lower rate, government financial arrangements favour the rich.

The rorting of public money reported by the Australian National Audit Office

One is then sickened by the regular Reports of the Australian National Auditor General of the industrial scale rorting of public money by the Australian Government on concocted ‘programs’ like Sports Grants, Park and Ride, Community Development . . .the list goes on and on. Research the subject yourself and ask why the media showed no interest (where they worried about their seats on VIP aircraft and travel with the Minister?). Ask why the Opposition of the day showed no interest (where they in a glass house?).

I have a cynical feeling as to why Governments, Oppositions and the media have buttoned their lips and pushed aside these Reports.

That money has been taken from General Purpose Revenue, which would otherwise have been available to the States (if the Federal Government did not first gobble it up with more ‘own purpose’ outlays that further encroach on activities that are the Constitutional responsibility of the States.) Many $billions are involved.

We could have put those funds to effective use in the NT!

A plea

Community Independents, and others on the cross benches, are diligently reviving hope in the democratic process. They are unconstrained by party whips from asking embarrassing questions and have been fearless in identifying illogical and unfair policies and practices.

Well, here is a fresh basket of issues for you to tackle. Given the apparent disinterest of the majors, our hope lies with you. Don’t we Australian’s pride ourselves on giving everybody a ‘fair go’?

The National Anti-Corruption Commission

I’m only a retired bush lawyer, so I haven’t devoted the time to research whether the NACC will have the power to investigate the Australian National Audit Committee Reports on the misuse of public money, and if so, charge those responsible with abuse of Office, and/or recover at least some of the $ billions. I hope so.

The presence of the Commission will deter such abuses in the future, and free up money needed to address the many wrongs I have identified in this paper. I hope so.

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