Federation foibles: 'game playing' in policy, says Sturgess

By David Donaldson

August 15, 2014

Perverse incentives and blurred lines of responsibility create problems in the running of the federation, says Gary Sturgess, former director-general of the NSW Cabinet Office under then-premier Nick Greiner — but the solution should focus on greater co-ordination, rather than just transferring power to the states.

The problem, he says, is that the current federal boundary lines “encourage game playing” in social policy. In particular, the way health systems are divided between the Commonwealth and states is “bizarre to the point of gross irresponsibility”.

“The federal government has the money, and federal politicians want to announce nice things for the electorate,” he said in conversation with The Mandarin. “Kevin Rudd said to me the issue on which he had the most frequent representations from his electorate were pavements, which is a local issue.”

The funding of the states is a problem. Sturgess argues that because the states lack access to reliable sources of funding “they mess around with pricing for services and you end up with bizarre incentives.” Part of the solution would be to weaken the vertical fiscal imbalance by giving states access to broad-based taxes, he says.

More effective co-ordination would help address some of the shortcomings of the current health system, he believes. “The answer lies in some kind of institution that allows states, the Commonwealth and the private health funds to work together in more productive ways,” he said.

He argues the federation would work better with a “cleverer set of institutions”, emphasising that “we need to focus on those boundaries and develop a set of norms and institutions to deliver good public services and more rational incentives”.

But he is sceptical about calls for significant powers to be transferred to the states to the extent that many in the government are championing. “I don’t think the answer lies in handing responsibility holus-bolus to the states. The federal government’s involvement in health insurance means it is going to continue to have considerable responsibility in that area, for example.

“I can’t see a circumstance where moving more responsibility to the states would hold. In some areas you could hand over responsibility for some things, but if you were to hand over all responsibility to the states it would fall apart. Bureaucrats in Canberra and federal politicians need to prove their reason to exist,” he said.

“It is evident that we must address the perverse incentives of current boundaries, but the answer does not lie in handing over responsibility wholesale. We have to arrive at something that is rational and sustainable.”

Sturgess played a leading role behind the scenes in the Special Premiers’ Conferences under Bob Hawke, which he says “led to a series of innovative institutions”. He was instrumental in the creation of the NSW Independent Commission Against Corruption.

He is also critical of the government’s decision to cut Medicare Locals, where “we were starting to see interesting things”. “The future of health policy”, adds Sturgess, “is in home-based and community care”.

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