Are we up to the challenge of reforming the Australian Federation?

We are a much governed country, but there are good reasons to ask also: “Are we a well governed country?”

And if federation is the essential framework of our government, can it be made stronger, more relevant, more efficient and more effective? The answer plainly is no to the first question and yes to the second.

Last week in Sydney the Committee for the Economic Development of Australia launched its major research report on federalism in Australia entitled “A Federation for the 21st Century”.  The report is downloadable here.   Today in Brisbane several of the report authors including me spoke at a luncheon gathering to mark the launch of the report in Queensland.  Below are the remarks I prepared for that event – most of which were delivered.



Photo: Courtesy CEDA 2014

CEDA 6 Nov 2014 Federation talk

In the closing decades of the nineteenth century a visionary minority of British subjects in the then Australian colonies of the British Empire worked together to secure a federation of their six separate, essentially sovereign, states – so that together they could achieve a more secure and prosperous future, than would have been the case had they remained separate.

This was the rationale for the Australian federation – a compact between six states that has shaped our national and state system of government since 1 January 1901.

Overall, the Federation has delivered on its promise.  Australia has been a safer, more capable, more prosperous country than would have been the case had we remained six separate essentially “foreign” states.

In the global context Professor Ken Wiltshire has captured the advantages of a federal system over a unitary one as being “diversity, responsiveness, encouragement of innovation and experimentation, and competition”.

“A federal system”, he says, “also helps preserve national unity in culturally diverse societies”.

This assessment echoes the findings of a 2007 report for the Council of the Australian Federation by Professors Anne Twomey and Glenn Withers who listed the benefits of an effective federation under the six Cs:

  1.  Checks on power: An effective federation disperses power among levels of government ensuring greater public scrutiny and political contest.
  2. Choice in voting options – as when people vote for one party at the national level and another at the state level as happened here in the Beattie-Howard years, to walking the talk by moving between states – as Victorians did back in the 1980s when they moved to Qld.
  3. Customisation of policies – to take account of the needs of people in very socio-economic, regional and cultural contexts.
  4. Cooperation: when it works, better outcomes through more measured approaches involving different levels of government.
  5. Competition: Federations create incentives between states and territories to improve performance, increase efficiency and prevent complacency – and to innovate to outpace rivals.
  6. Creativity: Successful innovations in one state can be picked up by other states and savings made by avoiding policy failures. Casemix funding, for example, began in Victoria and went on to transform the hospital funding model across Australia.

That said, as the Prime Minister Tony Abbott told an audience in Tenterfield just over a week ago, we can do better: “It’s not entirely dysfunctional….but it’s plainly not optimal either which is why reform is worth striving for”.

The Prime Minister is right.

A much governed country

We are a much governed country, but there are good reasons to ask also: “Are we a well governed country?”

And if federation is the essential framework of our government, can it be made stronger, more relevant, more efficient and more effective?

The answer plainly is no to the first question and yes to the second.

Deloitte reported the other day that more than one million workers in Australia are employed ensuring compliance with regulations – and it’s not all the fault of government.

At a time when national productivity is front and centre among issues we must address to maintain competitiveness in the global economy, we have become a nation of data driven process administrators in the private as well as public sectors.

A quarter of all workers in the public sector are involved in administering, enforcing and complying with rules – often their own rules.

As the Australian economy undergoes a challenging transition in the broader context of global change, one of our fastest growing industries is the development of regulation and putting constraints on enterprise and individual initiative.

One in every 13 private sector workers is employed in compliance – often driven by the corporate growth in compliance reporting.

Deloittes say that the annual cost of administering all this red tape is about $48 billion and the cost to the community of complying with regulation is about $200 billion.

Taken all together it adds up to about 16% of Australia’s GDP.

These sobering statistics remind us that the practice and processes of government are in need of reform if we are to engage efficiently the resources needed for the future.

They beg a response in the form of a coherent broadly supported reform process.

Australia has already had several ages of reform – our first and greatest was the political reforms achieved in the 1890s to bring about Federation.

The 1970s and the Whitlam government delivered a round of social and cultural reforms that define modern Australia, while it was left to the Hawke-Keating-Howard Governments to modernize the economy and release it from the protectionist trap it had been in for much of the 20th century.

Now the next Age of Reform is pressing upon us and there are real reasons to doubt that we are up to it.

The Australian’s Paul Kelly validly cautioned last week  that “Australia risks heading to a new status as a stupid country – a nation unable to solve its public policy problems and, even worse, a nation incapable of evening conducting a public debate about them.”

Kelly was commenting on the political nonsense that followed Prime Minister Tony Abbot’s speech at Tenterfield marking the 125th anniversary of Sir Henry Parkes oration on the need for Federation

Within a day the PM’s call for a bipartisan approach to reforming the federation had descended into duck shoving on the GST and infantile points scoring about who was telling the truth about election promises.

The Federation is arguably Australia’s most important civic achievement and it is in need of reform to keep it at the centre of our national progress.

While the High Court and the executive fiat of Commonwealth Prime Minister’s has tended more to change the Federation than anything else, real reform will need the people’s support.

The people are slow to change the Constitution – of 44 referendums submitted only 8 have passed.

Reform needs bipartisan address and sustained inspired leadership.

Something, in short, will have to change in our national approach to politics if this generation is not to fall short of the challenges it faces

Former Secretary of the Department of Prime Minister and Cabinet,Terry Moran,  is right in saying that “Despite being conceived in the 19th Century, federation was a child of the 20th Century, and the challenge for us now is to think of the next stage in its development and the opportunities that a new wave of reforms could create”.

Right now we have a business model for government in this country which is lacking a sustainable funding model and which is becoming increasingly asymmetric in resourcing and capacity – in the process confusing and alienating its people, especially the young.

The States have long lost any semblance of sovereignty and operate as service runners for the Commonwealth – and they are partly to blame preferring often to take the easy part of holding out a supplicant hand to Canberra rather than making the tough decisions themselves.

For a centralist like former Prime Minister Paul Keating,  who controls the purse strings plays the pipers tune.

He said back in October 1991: “[t]he national perspective dominates Australian political life because the national government dominates revenue-raising and only because the national government dominates revenue-raising”.

Even further back the founders plainly failed in believing that the Senate would perform effectively as a States house, a protector of the federal balance between States and Commonwealth.

But with the electoral gaming of obscure issue minor parties in recent elections, the Senate truly has become the “unrepresentative swill” so infamously described by Paul Keating a generation ago.

The Senate today is identified by 90% of the members of the Australian Institute of Company Directors as a major contributor to the loss of business and investor confidence in this country.

In their world where total taxation amounted to no more than 5% of GDP, the founders also left the finalisation of the federal funding model to the future –  and the result has been a vertical fiscal imbalance which sees the Commonwealth collect more than 83% of all revenues (23% of GDP) and the States (4% of GDP) and Local Government (1% GDP) the rest.

In a broad regionally dispersed country like Australia so much is expected of the third tier of government, but as Professor Percy Allan shows in the CEDA Report, our local government is amongst the poorest in the OECD accounting for only 6% of government outlays and 3-4% of total taxes.  It is essentially technically insolvent.

But before we get to the argy-bargy on funding we should return to first principles and ask ourselves as a nation what it is it that we expect of ourselves, our public processes and our governments at all three levels.

Is the present configuration of states and territories optimally consistent for example with the notions of representative democracy and self determination?

I ask this because the founders also failed to emulate the example of their American and Canadian cousins and actively promote the extension of the number of states – in the process as Professor Geoffrey Blainey has said, missing one of the great opportunities for nation building presented by federation.

The vested interests of existing states means that a spatial reform of the Federation is most unlikely which means regional and northern Australia particularly will head off into the future with decisions affecting them being made largely in south eastern Australia – far from their people live.

Importantly, it is also useful to remember that local government is a creature of the states and its future requires viable sovereign states first to sponsor what is to be expected of local government.

Local government trying to remedy its funding malaise through Constitutional recognition  is a Quixotic tilting at constitutional windmills unlikely to be realised or deliver tangible benefit.

Getting reform when people turned off politics

The real challenge for the nation, as the Prime Minister acknowledged in his Tenterfield speech, will be to get beyond the partisanship of day to day politics and engineer a real national conversation and consensus on a way forward.

This will be difficult to achieve and our modern political practitioners and their colleagues in the media are largely responsible.

Possibly the vitriol and points scoring that counts for national politics might explain why 40 per cent of Australians, many of them young, think our democratic forms of government are a bit of a yawn and no more preferable to other.

If for no other reason than provided by this alarmingly insouciant attitude toward our core freedoms and quality of life, there is an undeniable case for invigorating public understanding and esteem for our national institutions.

And let’s be clear – its not the country that’s getting the bad wrap, it’s the politicians and the public processes.  Because while so many Australians are critical of our democracy, more than nine in ten Australians are also proud of their country (92%).

There is so much that is right about Australia and so much that could be better if we step back, achieve some perspective and embrace the innovation or reforms that will equip our country for the dynamic times ahead.

People are confused about their system of government

Few Australians outside of the parliamentary and legal precincts of our capital cities know much about Australia’s constitutional character – but most of them believe our system of government could work better.

When asked about their preferences for our system of government, Professor A J Brown’s Federalism Project at GU reminds us that close to three quarters of Australians (71%) want to reform the system.

Many (41.2%) see the good sense in regional governments with a quarter of Australians happy to abolish state governments and even more (36%) disposed to also shunt local governments.  Interestingly, only pone in eight Australians sees the good sense in creating more states.

Australians also have clear views on which level of government they see as being best equipped to perform different roles; for example, most see health and environmental protection as a Federal responsibility, roads and housing affordability as a state responsibility.

Public expectations on school education are split with 35% wanting the Feds to have the lead while a further 32.2% see schools a principal responsibility of State Government.

Where is the Federation?

It’s all a far cry from what the Founders of Federation thought they were launching on 1 January 1901.

The perverse anti-federal outcomes are now so obvious as to arouse a broad spectrum of complaint preparatory to proving the case for reform.

The  Federation has become for Ross Garnaut “the worst of all possible worlds” where the “states do not have the fiscal freedom…to deliver the potential benefits of Federation… and the Commonwealth does not have the capacities for effective central exercise of the powers of government.”

Veteran political commentator Laurie Oakes damns the federal compact as a “mess” and points to Prime Minister Tony Abbott complaining of the “dog’s breakfast of [overlapping] responsibilities” between Federal and State governments.

Treasurer Joe Hockey anticipates the Commonwealth withdrawing from service delivery: “We’ve got to sort out the Federation….Canberra is a long way from the services – we are not good at it”.

Former NSW Premier Nick Greiner is more embracing of broad reform declaring that the “present, multifaceted, wasteful, ineffective shambles that passes for federalism should [not] be the Australian way for the 21st century and beyond”.

Leading sections of the media are calling for “a vigorous national debate on the role of federal and state governments.”  It all sounds reminiscent of a Constitutional Convention back in 1898 including the quiet profile of the Labor Party on the issue.

An effective federation is more than funding formula

Too much has been expected of the goods and services tax remit in restoring the sovereignty of the states – which it was never meant to do.    The GST is a Federal tax and the States were used to justify its introduction – by the Howard Government.

Let me say it clearly, the GST is not a Federation tax or reform.

Today the asymmetric fiscal basis to government is still growing leaving the nation with little option but to reform the Federation.

Ross Garnaut sees such a step as an essential prerequisite to future development: “the problems are so large that without change they will remain a major barrier to the effective delivery of a range of services that are essential to both good economic performance and to equity in Australia”.

He advises that “ending ambiguity” in the roles of the different levels of government is “more important than how the division of responsibility falls.”

Audit and White Paper

A springboard for national debate on the topic has been provided by the Abbott Government’s National Commission of Audit of the Commonwealth Government with its focus on eliminating waste, removing unnecessary duplication, and withdrawing from functions in which sovereignty is unclear.

Improving the overall efficiency and effectiveness” of government service delivery was a corollary charter of the Commission.

Finding unsurprisingly that “the current operation of Australia’s Federation poses particular challenges to the delivery of good, responsible government”, the Audit Commission has proposed a shake-up of the management of the Federation among its key reforms.

For the Commission, Australians will better realise the benefits of Federation by demanding a return to the federal arrangements envisaged similarly by the original framers of the Constitution.

In a ‘back-to-the future’ proposed approach to Federation, the Commission of Audit echoed those of a Convention more than a century ago that the “Commonwealth’s activities should be guided by the Constitution” and that the States and Territories “should be free to compete amongst themselves, respecting the regional differences of a big continent”.

Finding “significant overlap” between Commonwealth and State activities, the Commission recommended that “a comprehensive review of the roles and responsibilities” of the two levels of government be undertaken, focussing on:

  • “the principle of ‘subsidiarity’ so that policy and service delivery is as far as is practicable delivered by the level of government closest to the people receiving those services;
  • ensuring that each level of government is sovereign in its own sphere; and
  • ensuring minimal duplication between the Commonwealth and the States and, where overlap cannot be avoided, ensuring appropriate cooperation occurs at all times”.

These principles are being picked up in a Commonwealth Government White Paper on Federation which is proposed for release before the end of 2015.

More recently, in the wake of his Tenterfield speech the PM has again invoked “Team Australia”.

Tony Abbot has said that “As a conservative, I’m not inclined to force reforms on an unwilling people – rather I’m inviting our people to discuss how we can grow and be our best selves”.

Again the focus in the White Paper will be on the practice of federalism, identifying the core roles of each level of government, eliminating overlap and duplication, achieving agreement about the distinct sovereign responsibilities and funding of the Commonwealth and the States and achieving and an equitable approach in fields that involve more than one level of government.

Nothing about the current national leadership on either side of politics indicates that they will be willing to attempt to rewind Australia’s constitutional history.

Whatever flows from the White Paper is likely to be incremental, process-focused and affirming of the current hybrid model of unitary-centralised federation.

Premier Campbell Newman has already taken the PM to task for bureaucratising the reform process.

Campbell Newman has told Abbott that the federation reform process should be led by politicians like it was a century ago.

This is a reform process that must involve the people and be led by its elected representatives – and to that end the Premier has history on his side.

“Call me a bit starry eyed”, he said, “but I told the PM that federation was created by the political leaders – it was a political negotiation and it took a lot of time….. We now have got to lead; we’ve go to start the ball rolling, and have that political negotiation”

Queensland’s Premier Campbell Newman has also focused on the underpinning principles, framework and clarification of roles before going near funding.

The Premier has suggested something indicative like a state proportion of income tax which would be applied by State Governments.

The CEDA Report “A Federation for the 21st Century” recognises the dynamic evolving nature of the Australian constitutional framework.

The reports authors argue for federation reforms that promote subsidiarity,  emphasise the importance of securing clarity of role between levels of government, elimination of duplication of function and the false dichotomy that the Feds set policy and the States deliver services, respect between governments for the roles they perform, more robust cooperative arrangements, invigoration of the COAG processes and performance benchmarking and reporting, innovation in policy development and diffusion, and greater transparency in the manner revenue is raised and spent.

Importantly, CEDA calls for the creation of a Federation Reform Council to monitor and evaluate the effectiveness of reforms to our Federation.   As a federal process, the reform agenda should stand well away from the PM’s office.

Audits of government functions and White Papers are one thing, an effective reform strategy that will engage the interest and support of the Australian people is another.

Reform does not necessarily require plebiscites and referenda – about which Australians are inherently conservative having last approved a Constitutional amendment in 1977.

This is unlikely to change much with a media fascinated by matters facile, instead of substance, unable to provide the public education essential, as Maurice Newman has written, for the “informed analysis and… mature balanced judgements” that delivers national interest outcomes.

A return to as much bi-partisanship as is possible on the big issues is essential.

Reform conducted coercively is inefficient.  Its democratic expression is much more compelling when drawn on voluntarily as happened in 1893-1900.

Electoral reform necessary to achieve federal reform

Historical precedent suggests that electoral reform should also be added to the mix of measures under consideration.

Federation was achieved in 1900 because voting was not compulsory.

Pollsters and political strategists point to the distortionary impacts of compulsory voting on achieving “decent leadership and majority choice” as cornerstones of our democracy.

In the scramble to seduce unengaged swing voters in marginal seats the politicians’ stocks in trade are pork-barrelling, spin and partisanship – all of which poison the public well of constructive debate.

None of these will be helpful in negotiating and building anew a national consensus on what our Federation should be for the coming century.

Public complacency, entitlement and inertia are the main enemies to redressing the malaise evident in our public processes and the declining productivity and competitiveness that threatens our living standards.

It is in this rather incongruous context that Australia’s leaders are presented with the challenge of artfully restoring the nation’s lost “culture of reform” and aptitude for innovation.

Author: Professor John Cole OAM

Professor Emeritus and founder of the Institute for Resilient Regions at the University of Southern Queensland and Honorary Professor, UQ Business School, The University of Queensland.

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