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Unscrambling the federalism omelette: but will the people buy the recipe?

Two issues papers give a recipe to reforming federalism, if we care to follow it. Flickr/Nick Wheeler, CC BY

Australia’s Reform of the Federation taskforce has released two major issues papers on the scrambled roles and responsibilities of governments in the areas of housing and homelessness, and health.

The way the reform taskforce has analysed the funding flows and current roles and responsibilities in these two complex policy areas show the first signs of how meaningful reform might be achieved.

For the first time, these case studies present intelligible pictures of the way responsibility for these areas has come to be so confused in terms of overlapping funding streams, but also in the unplanned way policy, regulatory and service delivery roles have come to be mixed up. In ways that might allow these to now be unscrambled – or, at least, rescrambled in ways that make more sense.

Both papers start with the six principles agreed in June’s terms of reference: accountability for performance in delivering outcomes; subsidiarity; national interest considerations; equity, efficiency and effectiveness in service delivery; durability; and fiscal sustainability.

However, the papers make clear there are problems ahead if we think a better mix of roles can be achieved by the Commonwealth government simply backing out of responsibility in areas where the states have large funding and delivery roles, as implied by Prime Minister Tony Abbott’s objective of making the states “sovereign in their own sphere”.


The funding flows in the housing issues paper show this up clearly.

Figure 1. Housing & homelessness – Commonwealth and State and Territory funding shares, 2012-13. Reform of the Federation Issues Paper 2, December 2014, p.16.

While the states currently have the lion’s share of responsibility for funding social housing, does anyone really expect that the Commonwealth will vacate the field by handing the states its current A$3.6 billion role in Commonwealth Rent Assistance?

The issues paper sets out good reasons for revisiting the relationship between these, including for financial sustainability. But a total “clean lines” division seems impossible, unless we wish to see the states either build, or take over, a parallel national social security system.

Underpinning this reality is one of the key questions asked by the paper: “Is one level of government better placed to address equity issues?”

The results of this year’s fourth Australian Constitutional Values Survey show majority public support for the principle of “subsidiarity”, with 52% agreeing it is “better for decisions to be made at the lowest level of government competent to deal with the decision” than at higher levels of government.

Figure 3. Who should be responsible for what? The citizen view (2014) Griffith University, Australian Constitutional Values Survey, 2014. Conducted by Newspoll of a stratified random sample of 1,204 adults, August-September 2014.

However, when it comes to specific policy areas, relatively few citizens wish to see the federal government back out of some of the key areas where the states have a big role.

In housing, 37% of Australian adults say the states should have sole responsibility, but 28% believe it should be the Commonwealth, while 26% think it should be shared.

It’s clear people believe the national government should involved at some level, especially to support disadvantaged Australians. Even if the Commonwealth backed out of funding, its policy and regulatory roles – helping ensure information is collected, pooled and analysed and triggering state policy responses - might actually increase.

This all means that we’re not likely to see “clean line” divisions in all areas, but ones where policy and regulation continue to be shared between the tiers of government.


The health issues paper has a similar message. The Commonwealth’s funding role is even bigger here than in housing, and the overall funding picture is even more of a scramble.

Figure 2. Funding flows in Australia’s health care arrangements 2012-13. Reform of the Federation Issues Paper 3, December 2014, p.22.

For the same reasons the Commonwealth is unlikely to give up rent assistance, Australians are unlikely to let it back out of responsibility for providing universal Medicare – with or without a co-payment.

However, in addition to unscrambling the funding streams for some of the most costly parts of the system (like public hospitals), major breakthroughs appear to lie in further agreed co-ordinated reforms such as the recent creation of the Australian Health Practitioner Regulation Agency – a joint State-led initiative, supported by the Commonwealth, responsible for regulating 14 health professions nationally.

The issues paper points out clear gains in extending this cooperative approach to other areas of health workforce regulation – and especially, workforce policy and planning, where there is little to no coordination.

But rather than meaning that the Commonwealth either backs out, or takes over, it just means a different, clearer and more strategic role.


There are two issues where the issues papers are weakest, so far: how to make any new mix of roles and funding durable to political challenge, and secondly, how reform will include stronger and better “service deliver to the regions” – an explicit and important part of the terms of reference.

On the first issue, no-one seems to want to put the fundamentals of any new mix to a referendum, and lock it into the Constitution, for a range of pragmatic reasons.

Yet we know from experience that governments will find ways of usurping each others’ spheres of influence – as demonstrated by the vertical fiscal imbalance – unless some new, legally enforceable and robust mechanism is found for locking in policy roles and funding streams.

The second challenge is related – how to strengthen the lower parts of the federal system so that where the states do have clearer responsibility and funding for service delivery, there is real change and improvement on the ground.

This focus on the regions is vital. Why has the Commonwealth previously crept into more and more of these fields? Because it is in actually delivering outcomes at the local and regional level that state governments are most often perceived as falling down – especially in the large, bureaucratic states like NSW and Queensland.

Such a focus can distract from meaningful reform, but only where “regionalism” is assumed to mean replacing federalism altogether – whereas a better strategy for making the system serve the needs of both rural and urban regions can be the key to making federalism work. This is especially so if we want to see real flexibility, community responsiveness and innovation.

Major differences

The question is a major difference between the two issues papers. In housing, there is no direct response to this aspect. The paper points to plenty of reasons why strategies for housing might benefit from stronger regional planning and delivery.

It stands out that while public housing has been reduced in all states and territories since 2004, per capita public housing (and for the most part social housing) is still substantially higher in the smaller, more “regional” jurisdictions (South Australia, Tasmania, the ACT and NT) where the state government is better placed to respond more directly to basic community needs.

However, the paper itself is silent on the regional dimension.

By contrast, the health issues paper engages with how a more coordinated public health system might be delivered, if subsidiarity and devolution are taken seriously.

The paper reminds us that the crucial issue of better on-ground coordination and integration of health care in local communities is already being tackled by Medicare Locals – recently regionalised through the Commonwealth’s 30 Primary Health Networks. And that the national strategy for Local Hospital Networks has already been agreed as key to delivering decentralised and specialised hospital services.

When the paper asks: “would a model of subsidiarity with local/regional bodies organising and delivering health services work?”, the answer is it is inevitable, and already happening. The real question is how to continue to rejig and sustain a stronger role for local and regional governance in ways that face up to the drawbacks, and not just the advantages, of large federal and state bureaucracies.

Like any recipe, our new federal blueprint is still going to have many of the same ingredients and deal with all the same problems. But by giving us a clearer understanding of our present scramble, the issues papers give us a new basis for imagining what kind of recipe might work better, across different portfolios – something for which Australian citizens have plenty of appetite.

Interested in the federalism debate? Read our Renewing Federalism series here.

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