What is the point of federation reform?


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Why reform the Australian federation?

It was a pertinent question to consider early on in the Institute for Public Administration Australia’s national conference, which spent a lot of the past two days on how the interrelationships between states, territories, local government and the Commonwealth could be improved.

John Bannon
John Bannon

Former South Australian premier turned political historian John Bannon took on the task on Wednesday morning, starting from the premise that a high quality public service is “absolutely essential to any modern state and economy”.

“And of course in delivering those services we need to be constantly reviewing what we’re doing, looking at their effectiveness and making changes as and when necessary, as society, technology and everything else changes around us,” he added.

“There are easy points to be made in answer to this question,” Bannon told delegates, pointing out the recent white paper process was just the latest episode in a discussion that had gone on since 1901. As other speakers would go on to suggest, perhaps the project of tweaking the federation should be seen as an ongoing process with no easily defined end point.

But why now?

“In brief, because it’s not delivering results it should. In key areas of public service, despite a number of changes in processes and the creation of partnerships and programs, it’s still driven by bureaucratic demands rather than client needs,” said Bannon.

“There’s an immediate need for more targeted and efficient spending, there’s a looming funding crisis that states are not able to handle from their own resources, and assistance from the Commonwealth in those areas for which they have responsibility is needed.

“The lines of responsibility have become increasingly blurred. The principle of subsidiarity has been lost in many cases, and this has resulted in inefficiency and buck-passing between jurisdictions.”

Later, Bannon explored more specific issues such as the rise of net debt among all governments and problems with the tax system.

“The deterioration in national debt has been largely driven by the Commonwealth’s fiscal position, but it’s rising in all cases,” he said. “The situation is not being arrested, changed, or throttled back since the fiscal crisis of the GFC.”

He also looked at state and territory revenue, much of which comes from payroll tax, described by Bannon as a “regressive … tax on employment”. Almost a quarter comes from the much-maligned stamp duty, conveyances and insurance levies that Bannon (and many other commentators) consider “inefficient barriers to economic activity”.

“The limitations of what the states can do, particularly under the impact of some of the rulings of the High Court in the late 1980s and early 1990s, has been quite profound,” he said. “They really just don’t have the means and ability to do anything seriously of their own right, which is not to say they can’t, and land tax has been pointed out as one that they possibly can.”

“The lines of responsibility have become increasingly blurred. The principle of subsidiarity has been lost in many cases, and this has resulted in inefficiency and buck-passing between jurisdictions.”

The advent of the GST as a tax raised on behalf of the states was another major milestone in federal-state relations but, Bannon said, the tax has not met expectations that takings would grow at about the same rate as the economy. It was no “magic bullet” to the fiscal problems of the states.

Problems with inequity and increasing spending with decreasing results in the school education sector formed a key example. “What’s happened to all this money? Where’s it gone and what’s it done? Well, it’s obviously been, anyone would argue in dissecting it, misapplied in many ways,” he contended.

“There’s been a focus on class sizes and things of that nature [whose] education value has not been fully tested and approved, when an outstanding value, replicated through studies throughout the world, is that the quality of teaching is the absolute critical mark, and that’s where funds should be going, and that’s what we should be concentrating on.”

He identified similar issues in other areas like early childhood and vocational education, healthcare, social housing and homelessness.

A century of change

The Flinders University researcher also gave his potted history of the Commonwealth, and the “constantly-changing relationships” between its constituent parts and federal authorities. Despite the Constitution being “envisaged as a minimalist document”, its interpretation has changed over the course of a century. This was “hastened” by High Court rulings — made by judges appointed by the Commonwealth government — and the need to manage national crisis events like the world wars and the depression, Bannon explained.

“This almost invariably increased Commonwealth power,” he said.

National crises justified centralisation of various forms of authority which were generally never returned to the states, and the feds have incrementally taken control over revenue streams, and gained increasing control via the “terms and conditions” of specific purpose payments.

“The increasing vertical fiscal imbalance put more constraints on state autonomy as the federal government raised much more of the funds. And with the SPPs, and the reliance on the [Commonwealth] Grants Commission to fairly distribute the general allocation from the Commonwealth, more tension and difficulty was created,” Bannon explained.

He also noted early in his own career with the Labor Party, he saw Commonwealth-state relations during the Whitlam years. “When the Commonwealth government seized the whole agenda and attempted to bypass the recalcitrant states, with very mixed results, it was exicting, stimulating; but in the end it didn’t work.”

As SA premier in the Hawke-Keating years, he said it had become “very apparent” by the late 1980s that the old system of annual Premiers’ Conferences that preceded the Council of Australian Governments was inadequate.

“A routine pattern, a ritual, had developed … the premiers would give exit conferences in their states outlining their demands of the Commonwealth, most of which incidentally were not given time to debate at the conference, although one didn’t like to admit that,” he said.

By that point, the Commonwealth’s financial support was being “offered on a take-it-or-leave-it basis” through notes slipped under hotel room doors early on the first day of the meetings, he said.

“The limitations of what the states can do, particularly under the impact of some of the rulings of the High Court in the late 1980s and early 1990s, has been quite profound.”

The ritual then involved premiers complaining to the prime minister, who would play the states against each other in private bilateral deals. “Angry words were exchanged” as a public spectacle before the final deals were made behind closed doors.

“This procedure became entrenched. It was chaotic, and eventually could no longer be worked and finally, I’d suggest, broke down in 1990,” he said, when the increasingly acrimonious federal-state relations bolied over, bringing Bannon — who was then also the Labor Party national president — in conflict with then-treasurer Paul Keating. Bob Hawke reportedly told the premiers they could take his offer or “bugger off” and called their counter-offer “chicken shit”, but later serenely described the conference as “pleasant and constructive”.

Keating went on to use the allegation that Hawke was “surrendering control of the economy to the states” in the Labor caucus as part of his campaign to unseat the party leader, according to Bannon.

COAG has made things a lot better, he said, but there remained overlaps, duplication and buck-passing, while “general political competition between levels of government” increased. States found they didn’t have the means to deliver the services they were responsible for.

“Lack of respect and trust between the three tiers of government” is still an issue today, in Bannon’s view.

Will the stars align?

The terms of the federation reform white paper process kicked off by Tony Abbott contained “a number of refreshing elements” including a willingness to consider a reallocation of functions, and emphasis on making the federal system more easily understood by and therefore more accountable to its citizens, said the former SA premier.

The emphasis on consensus and collaboration between the three tiers in the process was also a positive, he said, as was the idea to treat the financial  and taxation issues separately.

In key areas of public service, despite a number of changes in processes and the creation of partnerships and programs, it’s still driven by bureaucratic demands rather than client needs.”

Bannon acknowledged a lot of cynicism about the process, particularly among academics, but said arguing negatively was easy, while carrying through such major reforms was hard. Speaking to the heads of Australian governments in private at the COAG Leaders Retreat in July — “without advisers” — added to his optimism:

“It was extraordinary, their willingness to apply themselves to the particular policies, the lack of partisan argument and so on that went on at that retreat. A real consensus is being developed among those who are taking part in this exercise, which is very important.”

With a rare pause in election campaigning for a reasonable period ahead and a balance between Labor and Liberal governments, large and small, across the country, there is hope that meaningful reform is achievable.

Malcolm Turnbull is yet to put his own stamp on the process and in many ways, the next move on federation reform is his.

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