An exercise in reform of the Australian federation is underway. Issues papers have been published. A draft discussion paper has been released. The heads of government are scheduled to meet to discuss it later this month.
This initiative follows years of mounting concern about the operation of federalism in Australia. These concerns should not be overstated: it is meaningless, for example, to describe the federation as “broken”. There is no doubt, however, that it is underperforming.
The present initiative offers an opportunity for reform that should be seized in a way that makes a difference.
What are the problems?
The problems with which federalism reform must deal include:
the complexity, duplication and serious accountability deficit caused by the labyrinth of intergovernmental arrangements;
the over-concentration of power in the executive branch, at both levels of government, to which federalism as it presently operates makes a major contribution;
the wild policy swings in areas of state as well as Commonwealth responsibility, caused by changes of federal government; and
the waste of potential, in terms of diversity, policy innovation, responsive government and public engagement, which is the cost of underperforming federalism.
Many attempts have been made over the years to tackle some of these problems. Most have involved not much more than a tweak here and there. It is telling that the Federal Financial Relations Agreement and the creation of the Council of Australian Governments (COAG) Reform Council were held out as major steps forward. Neither had any significant effects; neither proved lasting.
Answers lie in coming to grips with federal democracy
The common thread that would enable us to deal with these problems collectively and coherently is democracy.
In a democratic state, we necessarily accept that democracy is the key to good government, in the sense of government that improves the lives of its people through policies that suit the circumstances on the ground. In a state in which democracy primarily takes effect through representation in parliament, the lines of accountability for efficient and effective government run through those parliaments to the people.
Parliaments have the additional democratic advantage of providing a public forum in which dissenting voices can be heard, even if they do not prevail. Their decisions are matters of public record.
If the state also is a federal state, as in Australia, that makes a difference. But the difference is not to make democracy irrelevant or to justify by-passing parliaments. On the contrary, it makes it necessary to come to grips with what democracy involves in a federation or, in other words, with federal democracy.
In a sense, this is democracy plus, insofar as it offers representative and accountable government at two levels. When each level of government is exercising its own responsibilities it must do so through the usual democratic forms.
But when governments pool their authority, horizontally or vertically, as in federations they sometimes need to do, the additional challenge of federal democracy is to find ways of ensuring that co-operation achieves its goals without eroding democratic principle and practice.
Constitution provides a solid framework
The Australian Constitution sets up the framework for federal democracy surprisingly well, at the level of principle.
It divides responsibility by reference to what it has become fashionable to describe as the principle of subsidiarity. Commonwealth powers, as now broadly interpreted, for the most part are suitable for a national sphere of government. Powers not assigned to the Commonwealth, including education, hospitals, housing, urban infrastructure, windfarms and school chaplains, are by and large suitable for exercise by the states, the problem of the fiscal imbalance aside.
The Constitution provides mechanisms for co-operation that involve the parliaments and are broadly compatible with democratic principle. These include the reference power, the grants power and the power to make agreements in relation to borrowing.
The Constitution assumes that each level of government will raise taxes for its own purposes. But it also recognises the possibility of a fiscal imbalance, leaving the Commonwealth with tax sources that exceed its own proportionate expenditure needs. It describes this as a “surplus” to which the states are entitled on such basis as is deemed “fair”.
This provision quickly became a dead letter, through political practice and judicial interpretation. What is relevant for present purposes, however, is that it provides a principle that has considerable contemporary relevance to the problem of the fiscal imbalance.
Let democratic accountability guide reform
If we used federal democracy, thus understood, as the framework for federalism reform, it would have the following implications.
As a starting point, each level of government would take primary responsibility for the exercise of its own constitutional powers, through the usual democratic forms.
When collaboration is said to be needed, the need should be identified and the collaboration structured so that it is fit for the purpose. It should also be designed to minimise the impact on democratic accountability, thus also maximising the chances of effective outcomes.
Collaboration should take effect through transparent intergovernmental machinery, capable of supporting it as a shared enterprise. A successor to COAG should be serviced by an independent secretariat, on which all participating governments can rely.
Proceedings, including both inputs and outcomes, should be publicly available. Participants should be accountable to their cabinets, their parliaments and their people for the stance that they, respectively, take. Parliaments should be involved in major decisions, at a formative stage.
The fiscal imbalance should be managed so as to remove its distorting effects. This might be done by giving the states access to additional tax sources, for which the Commonwealth should make room.
If that is considered a bridge too far, we should acknowledge that the current imbalance is merely a matter of convenience and that the states are entitled to a share of revenue raised by the Commonwealth by reference to the concept of surplus, determined by a transparent means. Either of these solutions requires each government to be responsible to its own people for the expenditure on its own responsibilities.
The spirit, as opposed to the letter, of federal democracy has other implications as well. It demands respect between levels of government, as representatives of the Australian people. Respect and trust in turn should carry consequences for the quality and shelf-life of key agreements.
Federal democracy also should be understood as a repudiation of centralisation for its own sake, not only at the Commonwealth level but in state capitals as well. It imports a commitment to extending the principles of subsidiarity and democratic accountability further to more local levels, including Indigenous communities, which also are entitled to respect, for the same reasons.
Only principled democratic reform will work
Federalism reform along these lines would require commitment to pursue. The current problems are of long standing. Habits, attitudes and interests have become entrenched.
There is no other effective solution, however. Any other approach will deliver more of the same. If we do not deal with these problems now, we will be talking about them again in another five or ten (wasted) years.
The draft discussion paper released towards the end of June identifies many of the problems that federalism reform should tackle. But it offers almost no real guidance about what to do and why.
The discussion paper’s reasoning is inconsistent. It does not lead to clear conclusions, or even to clear choices, leaving outcomes to horse-trading at best. It is too opaque to encourage the public comment that it purports to seek.
Nor does it pay any regard at all to the relevance of functioning federalism to Australian democracy, and vice versa. Accountability is conceived in purely bureaucratic terms. COAG and all its accoutrements are described as “back office” arrangements, of no interest to the Australian public, despite their centrality to the Australian system of government.
That is the way in which federalism has been treated in the past. But the past has not served us well in this regard. If we have the necessary vision and fortitude, federalism reform through the lens of democracy has the potential to strengthen both.
Cheryl Saunders and Jonathan Green will discuss the principles that should underpin reform of Australian federalism in the 2015 John Button Oration on July 14 at 6.30pm.