Renewing Australian Federalism: What you think are the challenges

Our federation is in need of some fixing. Bildagentur Zoonar GmbH/Shutterstock

The Renewing Federalism series, in partnership with Australian National University’s Tax and Transfer Policy Institute at the Crawford School of Public Policy and with the University of Melbourne School of Government, attracted more than 200 comments and culminated in a live event held at the ANU’s Crawford School on Thursday, 2 October.

You can watch and listen to the event:

Or read the official Issues Paper for Reform of the Federation and all subsequent consultation documents here.

Miranda Stewart summarises a few of the key problems, challenges and solutions you proposed, together with some of the key points picked up in the live forum.


There is broad agreement among contributors and punters of the Renewing Federalism Forum that the federation does need some fixing. Some proposed big picture reforms: changing the number of states, or the constitutional framework; a few, but not so many, argued for abolition of states altogether. There is widespread scepticism about the potential for success of any reform. As John Hewson noted in the live forum, we need to find ways to get past short-term vested interests and party politics.

Cheryl Saunders observed that we need to revitalise democratic participation and address growing cynicism, a view widely shared by readers and attendees at the live forum.

Gregory Melleuish points to a trend to monarchical government by the Commonwealth executive and courtier behaviour by States. As Professor Saunders said, we should see a positive relationship between federalism and democracy: but most of us see a negative relationship. A democratic deficit was acknowledged as important by First Assistant Secretary of the white paper Taskforce at Department of Prime Minister and Cabinet, David De Carvalho.

There is increased recognition of the principle of subsidiarity in service delivery: the Federalism Issues Paper, released in September, defines this as a key principle, “whereby responsibility lies with the lowest level of government possible”. Its not a concept which has been widely used in Australia but it is a key principle in the European Union where, ideally, it emphasises accountability of governments to member state representative Parliaments.

A subsidiarity approach was suggested by contributor Bronwyn Hinz on schools being delivered and regulated by State governments. But such an approach could still take very different forms depending on how it is carried out: for example, Kevin Donnelly agrees on subsidiarity but wants to eliminate government provision of education altogether (though funding would continue).

It’s less clear what should happen with tertiary education but the current system treats people in vocational and technical training less generously than university students - and that is even taking into account potential large fee increases. That points to the bigger challenge: fiscal sustainability of state and Commonwealth budgets, and the crowding out of education expenditure by increases on health and infrastructure.

Our contributors agree that even if roles are more clearly defined and allocated to states, intergovernmental decision-making processes must be put on a secure footing underpinned by law. John Phillimore and Linda Botterill correctly identify that our current COAG system, in which the Commonwealth executive controls meetings and agendas in a way that is completely non-transparent, and a new government can renege on major previous intergovernmental agreements and commitments, is not acceptable.

Most agree that vertical fiscal imbalance - where State governments raise less revenue than the Commonwealth relative to their expenditure and governing responsibilities - is a problem, indeed a pathology. As Alan Fenna observed, the “low hanging fruit” might be increasing the revenues from the GST and giving that to the States. But this is a regressive tax as pointed out by Scott Brenton and we did not solve how it could be raised fairly in this forum.

Even a larger GST would probably not deliver enough money for the future pressures on government services. There is considerable support for reforming income tax and eliminating perverse incentives by sharing Commonwealth income tax revenues with the states. Views vary as to whether state governments should levy income taxes or should just be entitled to a share of the revenue. Many tax policy people such as John Freebairn (and me) prefer income tax collection at a central level, conscious of issues of national fairness and prosperity.

We focused less in this series on horizontal fiscal equalisation between states, but as Eva Cox says, addressing regional inequalities and individual citizen wellbeing are critical goals of national policy. Many readers commented on these issues especially if you don’t live in a capital city. Can we have a fair national policy in key areas, without Commonwealth responsibility?

The government will release Issues Papers on education, health, housing and federal financial relations, and a Green Paper outlining specific reform options for public consultation by mid-2015. As the White Paper process proceeds into 2015, we hope to invite further contributions and debate on these important issues.