Australian states react angrily to cost cutting

A major exercise by the Australian government in reducing federal spending has turned sour because of a political miscalculation by Prime Minister Malcolm Fraser and Treasurer John Howard.

For more than five months the Cabinet's Review of Commonwealth Functions Committee, more generally known as "the razor gang," has been looking at ways for the federal government to cut spending.

The committee reported to Parliament earlier this month on 350 government functions it thought could be cut back.

However, two-thirds of the projected savings of over $500 million a year were to come from just three sources -- reducing the size of the federal public service by 2 percent, reducing public service administration costs by 3 percent, and cutting support for exports.

This compares with total federal government spending of $36 billion in the current year, and as a result has been referred to generally by commentators as "cheese-paring" rather than the fundamental review the government had proclaimed.

Soon after these decisions were announced, the federal government met with the six state premiers to tell them of changes in federal financial support for the states.

Essentially these amounted to a change in the present formula whereby almost 40 percent of the federal income tax collections are turned to the states. With the razor gang cuts, the states are to receive about 3 percent less next year than they would have received under the previous setup.

Once the premiers had left Canberra, Prime Minister Fraser and Treasurer Howard briefed the press that the states had not fought hard enough, and that they could have got an extra $70 million, or 1 percent, from the federal government.

Western Australian Premier Sir Charles Court, a member of Prime Minister Fraser's Liberal Party, called on the prime minister to reconvene the premiers' conference and hand over the additional money.

A meeting of state and federal health ministers, called to consider the federal government's decision to hand back much responsibility for funding hospitals to the states, broke up when the state ministers demanded that the $70 million be applied by the Commonwealth to health spending.

Liberal Party and rural-oriented National Country Party backbenchers supporting the government were lobbied by state premiers trying to persuade them to reject the federal legislation on the new system of grants to the states and changes in health funding.

Politically the most dangerous development for the prime minister was that his use of the press to explain his "success" in combatting the state premiers is a reminder of allegations by Andrew Peacock, former industrial relations minister, that the prime minister had used the news media against him and other ministers.

Peacock now has an increasing number of members of the Liberal Party in Parliament prepared to support him when he makes a move to unseat Fraser as prim e minister. No action is likely, however, until August.