The Premiers and the Prime Minister are pretending to talk about health reform for the cameras this week, but they are actually talking about John Howard’s reckless decision in 1998 to give the states all of the GST.

We probably won’t know until the former PM writes his memoirs whether it was an ideological decision to entrench Australian federalism or just a desperate wheeze to get the GST through, but either way it was a big mistake.

Kevin Rudd’s health reform plan is a Trojan Horse to reverse it. He could have simply exposed the way in which the states have wasted the GST and gone straight to a referendum, but obviously he felt that was too risky. Better to talk about hospitals and try to pressure the Premiers politically.

This morning the politics are finely balanced. Unable to publically resist health reform, the key premiers (Victoria, NSW and WA) have fallen back on the idea of pooling 30 per cent of the GST so they can control it. Anything but letting the Feds keep it.

The states, meanwhile, are in breach of contract. They have ignored the bargain struck in 1998 to cut small state taxes like payroll tax and stamp duty, and have instead used the money to grow fat.

Specifically, they have blown the GST on employing public servants. A recent study of state budgets by the Institute of Public Affairs reveals that expenditure on employment and remuneration of state government employees has gone from $43 billion in 2000, when the GST introduced to $78 billion in 2009, an increase of 78 per cent or 8 per cent a year.

Between 1990 and 1997, the number of state public servants declined from 1.08 million to 941,500. Now it is back to 1.2 million. The largest percentage increase has been in Victoria – up 36.8 per cent. Under Jeff Kennett in the early 90s Victoria had the largest reduction in public servants, but they have since been mostly re-employed.

According to ABS data, the greatest increase has been in “government administration” – the proportion of non-operational administrative staff (otherwise known as state bureaucrats) has gone from 9.5 per cent to 13 per cent.

This financial year, the states are expected to incur deficits totalling $2.9 billion and they are in debt to the tune of $13.9 billion. This is despite John Howard’s gift of the GST and the disgusting harvesting of gambling taxes from the poor.

Kevin Rudd must not give up on his push to hypothecate the GST, at least in part, to fund health, and he is right that the states can’t be trusted with the money – it should be controlled by the federal government.

Alan Kohler’s commentary with full links, HERE