Federation balance of power – things have changed, part 2

By Stephen Bartos

Friday April 30, 2021

The accountabilities and expectations on the different levels of government are different (Image: Adobe/peterschreiber.media)

If the pandemic were the only factor involved, this shift in the balance of power in the Australian federation would be short-lived. But it is not the only thing going on, writes Stephen Bartos.

The first article of this series looked at how COVID-19 has propelled the states and territories into the driver’s seat for policy and action, leaving the commonwealth to follow.

If the pandemic were the only factor involved, this shift in the balance of power in the Australian federation would be short-lived. The commonwealth would take back the leadership role once the world has COVID-19 under control – even if, as events in India demonstrate, it might still be some years in the future.

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But it is not the only thing going on. Other fundamental shifts look set to keep the states and territories at the top of the tree for the foreseeable future.

One of the important drivers is the nature of the problems that we expect government to solve today. What governments are good at doing is a function of the amount of practice they have had at doing it. Where the commonwealth excels is making payments (think Centrelink pensions and benefits or Medicare, and s.96 payments to the states), collecting taxes, and international relations.

Where the states and territories have a comparative advantage is delivery of tangible services:  schools, roads, trains, hospitals.

The accountabilities and expectations on the different levels of government are different as a result.

The commonwealth can get away with announcing a new program that involves payments to third parties (often other governments) where the delivery of the service is still some way off. More often than not, by the time the impact of whatever payment program is evaluated, the government that introduced it has been replaced or moved on.

Moreover, in some important areas of commonwealth power measures of success or failure don’t exist.

A key commonwealth responsibility is defence. It is hard to hold ministers, the military or the defence department accountable for performance. Australia has never been invaded – that’s no measure. We don’t have a counter-factual: that is, what would have happened if we did not have a defence force: it is possible we face no external threats of significance, despite the defence establishment continually trying to beat up the prospect of hostilities. We have sent military forces overseas, with limited lasting results – does that mean they are a failure? Again, we can’t tell because there is no way of knowing what might have happened otherwise.

Similarly, in foreign affairs there are multiple words and countless international agreements, and little way of knowing whether these represent good performance or not.

By contrast, state and territory governments are more immediately accountable. If they promise to build a road, it soon becomes pretty obvious whether the road has been built or not. If they promise a new school on a vacant lot in a new suburb and that school is not built, the local residents get upset. The level of accountability is more immediate.

For this reason, the commonwealth can get away with policy by announcement – and indeed, commonwealth ministers constantly pester their departments to come up with new ideas for ‘announceables’. Whereas state and territory governments – although still, being run by politicians, prone to the announceables syndrome – are more about deliverables.

In this century, the key issues facing Australia require tangible delivery to resolve. Productivity will be key to improving living standards in future. We will not improve productivity without investment in skills and training, especially trades and vocational education. The other element required to improve productivity is better infrastructure – mostly a responsibility of states and territories. Housing, especially the lack of affordable housing, is a major source of intergenerational inequity and needs to be solved.

This is illustrated starkly in relation to climate change: where the national government might have been expected to take a lead. But the ongoing policy paralysis in the commonwealth on the issue has led to the states and territories taking over the running. On sustainable energy and reduction of greenhouse gas emissions, the states are way ahead of the commonwealth. This is, on one reading, due to the policy failure of the national level of government. While that may be accurate, the action taken by states and territories also reflects their comparative advantage in tangible deliverables – there are things they can do on the ground to reduce emissions, so they are doing so.

Finally, there is the impact of the GST. Although the goods and services tax is collected by the commonwealth but handed automatically and unconditionally to the states and territories under a formula determined by the independent grants commission. The shares decided by the grants commission could, in theory, change, but only with great difficulty – it is a cumbersome and conservative mechanism that locks in the status quo. It has been a slow burn – but the GST and the sharing of it between states and territories is now the status quo. That gives them a baseline of guaranteed revenue. As the economy grows post-COVID, their tax share will also grow, turning GST into the grown tax John Howard, the prime minister who introduced it, predicted.

What all this means is that coming decades are likely to see an ongoing rebalance of power in the federation away from the commonwealth and towards states and territories. The next and last article in this series looks at how this trend is reinforced by the commonwealth’s loss of the moral high ground.


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