Vertical Fiscal Imbalance: The Redundancy of State Taxing Power
Although the text of the Australian Constitution allows both States and the Commonwealth to raise revenue, subsequent constitutional interpretation and political developments have limited state taxing powers and led to a vertical fiscal imbalance. Vertical fiscal imbalance means that the revenue-raising abilities of the governments do not coincide with their spending responsibilities. As Section 51 and other provisions of the constitution (such as s52 and s90) prescribe only limited legislative powers to the Commonwealth, Australian states have considerable obligations. For example, primarily, Australian states fund schools and hospitals. The result of the limitations on state taxing power is that the Commonwealth collects the money through taxes, and distributes that money to states. The power to distribute funds to states, on conditions, is contained in Section 96 of the Australian Constitution. As a result, the sphere of Commonwealth power has expanded through dictating policy through conditional grants. This limits the autonomy and power of the states in controlling policy.
Read more about this topic: Constitutional Basis Of Taxation In Australia
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