Imagine the reaction if anyone were to suggest in the debate about fiscal autonomy that all the tax revenues from house sales in Scotland should be handed to Holyrood. Then imagine the further row if (say)Wendy Alexander ? who keeps hinting about more powers but never seems to come up with any ? were to suggest that, in addition, Scotland should get the receipts from indirect taxation in Scotland ? for VAT. It would no doubt be condemned in Westminster as nationalism blue in teeth and claw. An attempt to create a degree of fiscal autonomy incompatible with the maintenance of the UK.
But what if someone were then to take leave of their senses and suggest that, on top of all this, there should further be a version of the Barnett Formula to provide further funding from the central government in addition to locally-raised revenue. Shock, Horror. Fiscal madness?How could anything so ridiculously complex and fraught possibly work?
Well, in the Australian state government of Victoria they don?t seem particularly mad. Indeed, in the sober, dark wood-lined state parliament chamber in Melbourne, political life seems to go on pretty normally despite the fact that, on top of sales taxes and stamp duty, there is a needs-based equalization formula of such complexity no one could explain it to me. But this is just the way things are in Australia. And it seems to work ? or it has up until now. The state government has, in one way or another, been raising its taxes for most of the last century, but no one would suggest that this made it a separate country from Australia. No worries, mate.
Following Kevin Rudd?s landslide election victory in Australia, the country is now bracing itself for the expected battle over their version of the West Lothian Question. It is an upside down version of our own. Not so much a question of regional politicians ?interfering? in the affairs of the central state as the centre running roughshod over the rights of the provincial parliaments.
Defenders of devolution in Australia ? who unlike here tend to be conservatives ? argue that the federal government in Canberra already has quite enough power and that Rudd has no right to challenge the autonomy of the state parliaments like Victoria. For his part, Rudd is adamant that standards in schools need to be improved across Australia, and if there is to be more federal funds to do this, the federal government is going to want to have a greater say.
It?s the mirror image of the debate taking place in the UK about the future powers of the devolved parliaments. Here, politicians in London complain about Scottish MPs having too much power in the UK parliament; down in Australia they are asking why politicians in Canberra should feel they have any right to tell the state what to do in areas where the provincial parliament has sole legislative authority. In the end ? as in Britain ? it all comes down to money, and who gets to tell the piper what tune to play.
And we really could learn a lot from looking at the debate in Australia, where I have been traveling for the last few weeks. Viewed from the southern hemisphere, our endless, inconclusive debates about tax raising seems pretty juvenile, unhistorical and ill-informed. We talk in hushed terms about fiscal autonomy as if it were a matter of constitutional life and death. It isn?t. It is a practical problem addressed by countless devolved constitutions around the world.
Indeed, across Australia, politicians and journalists I spoke to were surprised to find anyone should be interested in the mechanics of tax raising and the separation of powers, which are ? to them – the stuff of school text books; dry constitutionalism, not living and breathing politics. They were astonished that anyone in Britain could seriously propose that a parliament could be expected to rely on handouts from the central government, which is what happens under our beloved Barnett Formula. ?But why would anyone bother trying to govern responsibly if they don?t raise their own revenue?, was the response whenever I described our own constitutional arrangements. But what really caused their jaws to drop was that anyone would seriously suggest that handing fiscal powers to a provincial parliament would amount to separation, to independence.
The Australian state of Victoria is comparable in size to Scotland with just over five million people and a GDP of some 34 bn. The state government in Melbourne has extensive tax raising and legislative powers but remains very much a part of the Australian federation. Victoria has responsibility for all legislative functions excluding defence, foreign affairs, macro-economic policy and immigration, which are handled by the federal government in Canberra. This is in line with federal constitutions across the world.
Victoria also has a wide array of tax raising powers. The main revenue raisers for the Labor-led administration in Melbourne are stamp duties and VAT, all of which goes to the state coffers. It can also raise its own revenue through bond issues and loans, and can run a current account deficit if it needs to, but these are expected to be kept to under three percent of the state budget.
Now, as I say, this is all largely non-controversial,but it doesn?tmean there isn?t controversy ? far from it. Things can get very tense indeed between the various levels of government, especially when the states are running large deficits, as they have been in Australia in recent years. Finance is a complex business and involves endless haggling between the centre and the periphery. But this is simply how politics works in any decentralized political arrangement, whether asymettrical devolution or full frontal federalism.
My perambulations across this vast country confirmed that no constitution which involves devolution can be conflict free ? indeed, the conflict must be seen as a vital part of the process of decentralization of power. Rows between London and Edinburgh show that the system is working, not that it is failing, for this is the process by which regions express their interests in the face of centralized power.
It has also confirmed that a formal federation would not be appropriate for Scotland. In the UK we do not have a collection of states of roughly equivalent size, but one very big state ? England ? and three very little ones. You could not design a federation in which the states could be properly balanced, and Britain is condemned to ?asymettrical devolution?, unless or until the English regions decide they want a measure of autonomy themselves.
But this doesn?t mean we are condemned to dependency. The debate about fiscal powers in Scotland is ridiculous ? it is silly. It must end; and we must grow up. Of course, the Scottish parliament should have a wide array of tax powers and the sooner the better. It doesn?t mean Scotland becoming independent, but it would make Holyrood make sense.