11/03/2010 - 00:00

Finding a federal-state balance

11/03/2010 - 00:00


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Kevin Rudd’s ambit reform plans and Colin Barnett’s defence of WA’s rights have taken federal-state relations to an uncomfortably low ebb.

TENSION between Canberra and the states has long been a feature of Australia’s federation, but it hasn’t always been this way.

When the federation was established in 1901, most power was held by the states, including power to levy income tax.

That was a product of the colonial bargaining that preceded formation of the Australian federation.

The states gave up a large part of their influence during World War II when they agreed to hand over their income tax powers to the national government as an emergency measure.

Contrary to expectations, Canberra did not give income tax powers back to the states. Ever since, national governments have used their control of the purse strings to wield more and more influence.

The Fraser government legislated so that the states could introduce a tax surcharge, supposedly to give them more fiscal autonomy, but not surprisingly none has taken up this politically unpalatable option. The states also have the right to put in place a tax rebate, but nor has any taken up this option.

One of the biggest shifts toward centralised power came in the mid 1970s when Gough Whitlam pursued his ambitious reform plans.

The Whitlam government showed how much influence Canberra can wield through the increased use of tied grants, which are notionally state money but in practice are controlled by the national government.

The political complexion of Australia’s national governments has varied widely since the 1970s, but one thing has not changed – the seemingly inexorable trend towards increased centralisation of power.

There is no reason to expect this will change. Power and influence naturally gravitate towards money, and politics naturally attracts individuals who want to foster change, and believe they can achieve an improved policy outcome.

When state governments settle on a new policy, the direct influence is confined to their own state borders. But when national governments settle on a new policy, they have the means to impose that across all states.

That process is under way now as prime minister Kevin Rudd pursues his reform plans. Across a broad sweep of policy areas, his government is looking to impose its will on the states.

In this week’s cover feature, editor-at-large Mark Pownall provides a detailed analysis of the issue, which has been ratcheted up to a new level following the recent launch of Mr Rudd’s ambitious hospital reform plan.

That follows the announcement of a national schools curriculum, the pursuit of a national occupational health policy, the leaking of Henry Review tax reform proposals that would mean the states give up mining royalties, and the release of a new break-up of the goods and services tax (GST) that substantially reduces Western Australia’s share.

Not all of this can be attributed to Mr Rudd, however the prime minister clearly is driving change across a wide policy spectrum, drawing on what he sees as a logical, evidence-based policy-making process.

The premise that seems to underlie many of Mr Rudd’s plans is the fact that overlapping responsibilities between multiple layers of government is inherently inefficient.

It leads to duplication, blame shifting and cost shifting.

If that is the agreed problem, what is the best solution?

Before we ask that question, should we first ask whether there is there a single ‘best’ solution?

When Canberra seeks to impose its plans on the nation, it is implicitly saying that it has the single best solution, in hospitals, in education, in all policy areas.

Adding a new administrative layer in the form of local hospital committees, as Mr Rudd has proposed, does not change this. The real power still lies with the money in Canberra.

The contrary view is that the nation can benefit from competition and variability between the states; not across all policy areas, but in most, so that well-run states gain a competitive advantage over their laggards.

Cooperative federalism still has a big role to play, that is the modern reality, but let’s not take away the opportunity for competitive federalism.



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