ESSAY 6: FEDERATION REFORM # 1 – AGREE TO FIX IT !
Essay 1 included the following comments on Australia’s Federal system of government:
“The biggest reform Australia needs is fixing government. We are unlikely to depart federalism, but we can change it from being irresponsible to competitive. Federalism can only function if states are responsible for funding their own spending.…“
Common Sense for Australia Inc believes that each level of government must be responsible for raising the money which it spends (Responsibility). Our reasons include: “Only such government accountability, can impose due responsibility upon voters, for the quality of governments we choose.”
This essay elaborates on the basics, of getting our malfunctioning-commonwealth-wide governments, back on the road.
Federalism means not just one single government deciding everything. So that means less risk of a single-commonwealth-wide-government, selecting and implementing the worst (not the best) practices, across our entire nation. In federal systems, each state can learn from others, how to do things best.
While this is often called ‘competitive federalism’ (states competing against each other) it might more aptly be described as ‘educative federalism’ (states learning from each other). Students are all state and territory governments. They are also the teachers (whether showing how, or how not, to do something).
It is common-sense that any federal system of government needs to adhere (so far as practicable) to two principles.
First: Government services are best delivered via principles of localised decision making (Subsidiarity).
Second: Each level of government must be accountable to its voters, for raising the money it spends (Responsibility).
“From 1929 until the beginning of World War II, the Commonwealth provided around 14 per cent of total State and local revenues. It would be fair to say, therefore, that just prior to the War, the financial resources raised by the States themselves were basically sufficient for them to meet their own expenditures.” (Denis James, 1997, Note 1).
Unfortunately since the Federal Government’s takeover of income tax during World War II, our state governments have to one degree or another been increasingly dependent on grants from Canberra, simply to govern (so-called ‘Vertical Fiscal Imbalance’). This results not only in less accountability for governments at all levels; but also encroachment, interference and duplication by Canberra in services which are the states’ responsibility to deliver.
For so long as our federal government continues to be responsible for raising monies, for the services which are delivered by our state governments, our federal government will continue to be distracted from its unique and exclusive areas of responsibility:
Consider Australia’s long list of disasters in defence procurement and preparedness.
For so long as our state governments remain not responsible for raising the monies they spend on services, state governments will never be properly accountable to us voters, for the quality and efficiency of the government services which they deliver:
Consider Australia’s increasing failings in our school education, and ongoing hospital wait-times.
Federation reform has been left lingering by many Australian governments. Why? Because it requires important determinations on who must be responsible for raising revenue. Which level of government (federal, state or local) should be responsible for what functions, is the far easier part of federation reform.
Until both sides of politics (at both federal and state level) ‘agree to agree’ that the states must be responsible for setting the taxes each one spends, our federal system of government will continue to fall short of its potential. Without recognition of that goal (whether or not with allowance for ‘resource-poor’ states), good tax reform across our Commonwealth will be impossible.
Recognition of that goal will put Australia on a path, to where all our governments, become more accountable to us; and importantly, where we voters are once again ourselves similarly accountable, for our choices of politicians and governments.
Proposals (as emboldened below)
“The solutions to [Vertical Fiscal Imbalance] are relatively straight forward. The Commonwealth retreats to its national purposes and leaves the states to manage their policy domains—in effect honouring the federal constitution. The Commonwealth uses section 96 tied grants sparingly for genuine purposes of assisting smaller states and for addressing genuine issues of national interest. The states are given appropriate revenue capacity and made responsible for raising most of their own revenue.”
(Brian Gallaghan of Melbourne University, 2014, Note 2)
The first step, is bipartisan agreement for the reformation of our federation, along the simple lines stated above back in 2014 by Professor Gallaghan.
Proposed changes are not intended ‘in isolation’. They are proposed as part of – huge – corresponding reforms.
A possible challenge to implementation, is the simple question of the willingness of both major political parties to ‘vacate the federal political field’ in areas which, whilst clearly the primary responsibilities of our states, are of important every-day interest to voters throughout Australia (in health and schools).
For an excellent academic report on both the merits and issues bedevilling our federal system of government, see Australia’s Federal Future by Professors Twomey and Withers (2007, Note 3). Persuasive rationales, against replacing states with regional governments, can be found in Section 6.1 (pages 44 to 45).
Proposed changes are not intended as ideological. They are proposed as a compact of potential bipartisan political reform.
For and on behalf of Common Sense for Australia Inc
Authorised for publication, 25 November 2021