Western Australia is claiming that they are being ripped off by the federal government collecting taxes for them and then redistributing it with a loss of four billion to Western Australians. Australia's other big exporting state, New South Wales, has found itself in a similar position. The vertical tax imbalance is the most insidious form of anti-federalism and must be stopped if Australia is to have a federalist political system.

We had the absurd situation last month where the NSW government ran an ad campaign against the federal government in order to secure more GST funding. That is just bizarre.

A government entity is supposed to have complete autonomy over its tax collection, tax distribution and the policies those tax funds support. This is not the case in Australia, and has not been since WWII when federal income tax was implemented as an emergency response.

That emergency is over sixty years old. The exception became permanent.

The current form of anti-federalism that is being practised was started by John Gorton who believed that the federal government was for making policy and the states were points of disbursement to implement those policies.

When the parties at the federal level talk of abolishing the states, they mean that there will be a unitary policy regime in Canberra - and councils will become the local means, funded federally, to implement those policies.

This gives little to no chance for local based politics, or local responses to local challenges.

In our current economy the states serve as sufficient differentiators to economic challenges. Western Australia and NSW are our two biggest exporters, but their economies are radically different.

Western Australia is commodity based and exports raw materials out of the country at a prodigious, and currently highly profitable rate. NSW is a service economy, exporting services and consuming at a prodigious rate in return.

The commodity and service based economies require different local responses to infrastructure, industrial relations, capital investment, education policy and even town planning.

Canberra does not understand these subtleties, being isolated from local needs, whereas Sydney and Perth are much, much closer to the local pressures and challenges.

Queensland is another powerful state that has adopted a differing economic model to both Western Australia and NSW. It uses the development-state model which is popular with nations such as Japan, China and South Korea.

Queensland faces different policy pressures and growth pressures to WA and NSW that are best met locally. A good example is Queensland subsidising petrol at the pump. They have to do so, by buying back the subsidy from the federal government. Which is absurd and a good example of how unitary federal policy in Canberra is an imposition and unable to react to local circumstances and needs.

Western Australian Treasurer, Eric Ripper, hoped that the federal government would invest Western Australia's missing four billion in WA's infrastructure. The Bwahahaha's from Canberra can be heard all way across the Nullarbor in Perth.

Western Australia, NSW and Queensland can take back their autonomy on tax collection, and consequently policy, by refusing to agree to allow the federal government to tax income in their states.

They could allow the federal government to continueto collect GST, but institute their own income tax system that is more equitable, and takes less from taxpayers.

This would not be hard. The federal government's income tax policy has been creep, creep and more bracket creep; along with tax them early and tax them hard as Australians cop high tax rates starting at 21K.

For federalism to continue to work the vertical tax imbalance is going to have to be solved. A federalist system is more politically stable and locally responsive than a unitary one. It is an important component of the Australian political structure.

It is imperative that the states become autonomous in the leveraging of tax.

More Reading on Gst

• GST
• Vertical Tax Imbalance
• Western Australia
• Tax
• The Anti-Federalist
• Sidestepping Accountability: The Grant Did It
• Dipping in the Western Australian Purse
• GST: The Windfall From Overtaxation
• National-State Relations