A reformed federation to match the needs of modern Australia

Since the first Commonwealth parliament, commemorated in a special 2001 sitting in the Victorian Legislative Assembly, government has grown in unanticipated ways. AAP/Julian Smith

The federal budget reignited debate over federal-state relations with a decision to cut some $80 billion in funding for the state responsibilities of schools and hospitals over the coming years. So how can federal-state co-operation – in governance arrangements – make Australia a better country?


Given the challenges, real and imagined, of making Australia’s existing federal system work, it is appropriate to ask whether we should have federalism at all. Or more generally, if we were designing a constitutional system for modern Australia, how should we structure it?

For such an exercise, we need to do two things: agree upon some basic principles and make a reasonable case for their implementation. For any plausible redesign exercise, both are necessary.

Alternatively, designing an ideal system might have some merit as a liberating thought exercise. For example, in Plato’s Republic private property and private families are abolished to ensure citizens are totally dedicated to the public good. But such exercises are of limited value for embedding institutional design in political practice. They may even be dangerous if taken literally by tyrants.

Australia is a liberal democracy and Australians committed liberal democrats, albeit with a certain commitment to egalitarianism and fairness. Their fundamental principles are liberty and equality. These two principles need to be blended in ways that maximise freedom while ensuring equality.

Democracy entails the people ruling, and this has to be done for a large population occupying a vast continent. People enter political societies and constitute its government to ensure and advance their preservation and well-being. Governments need to be structured accordingly, with appropriate powers but also safeguards against abuse of power.

To operate effectively, governments need revenue to fund their operation and policies. This has to be done in ways that are both democratically accountable and operationally effective.

How many tiers of government?

From the vast literatures of public policy and finance, two principles stand out: policies should as far as possible be governed at a level appropriate to their character and “natural” domain; and their financing be matched – that is, governed at the same level. The principle of subsidiarity is prominent in European political discourse and was recently endorsed by the Commission of Audit. Its report affirms that:

Policy and service delivery should, as far as practicable, be devolved to the level of government closest to the people receiving the services.

How many levels or tiers of government should Australia have? The obvious answer is many rather than one, for maximising democratic and policy effectiveness. Having multiple levels better approximates matching policy governance with policy domains. Multiple levels expand democratic access, while also checking the potential abuse of power by oppressive majorities and unitary government.

Four levels seem appropriate: local, regional or state, national and international. Advanced liberal democracies including Germany, Canada and the United States have the first three and incomplete aspects of the fourth.

This fourth level has regional as well as multinational dimensions. For example, the European Union for Germany and the American Free Trade association for the United States and Canada. Developing international governance in an increasingly globalised world is a major current challenge.

We’d be better off without states, John Howard mused, but abolition was ‘unrealistic’. AAP

In particular, should Australia have states? The answer is yes in light of the political principles and comparative practice cited above.

Then why have prominent Australians, including a number of prime ministers, periodically called for their abolition? There are two main reasons: Commonwealth hubris – prime ministers think they know best and would prefer to exercise all the power; and a desire for uniformity – treating all Australians everywhere in the same way.

Who should do what?

What should states do? They should be responsible for all the middle-order policies: infrastructure and regional development, including overseeing metropolitan cities; health; education; and aspects of welfare that are neither national nor primarily local.

Obviously, states should not be responsible for such patently national matters as defence, citizenship, immigration, currency, marriage and major redistribution via welfare provision and taxation. Nor should the national government be precluded from contributing to certain national aspects of state policy through concurrency or sharing of powers.

As far as possible, revenue-raising or taxation powers should match expenditure responsibilities, allowing for redistribution to needy regions and individuals by the national government.

The unitary option of centralised national government with administrative devolution is an inferior option, more appropriate for 20th century nation-building. The 21st century demands are for enhanced local democracy and greater global governance to deal with such issues as atmospheric carbon reduction.

Power is moving down and up from the national level. National governments that do not adapt are like Gulliver, too big to do the small things in the diminutive land of Lilliput and too small to do the big things in the land of giants, as Canadian political economist Tom Courchene has pointed out.

Of course, multiple-level governance requires a sophisticated and discerning people. It also requires flexibility in constitutional design to allow development and accommodate changing democratic and technological needs and demands.

In a long-established system such as Australia’s, starting completely afresh is not practicable. Improving the existing federal system is feasible: that requires attention to the principles sketched above and political will on the part of the people and their leaders.


Further reading: The Reforming the Federation series