Federalism, in the long run

George Williams

It is widely acknowledged that Australia's federal system is broken. What we did not know is how much this is costing us. The price tag has now been estimated at $9 billion each year in wasted taxes. This amounts to $1,100 per family.

This is the conservative estimate of the Business Council of Australia. It is how much the community pays for the duplication of services and inefficiency that bedevils the relationship between our federal and state governments.

Even this understates the true cost. It is only the amount of extra tax we pay and does not include the money lost to businesses in having to comply with unnecessary red tape or the cost of sub-standard health and education services.

Taking these into account, it has been estimated that the duplication and extra co-ordination costs in the Australian federation are an astonishing $20 billion a year. This amounts to 9 per cent of all general government expenses or 3 per cent of GDP.

Duplication and waste are rife across government. Control is shared, or more often fought over, in all of the most important policy areas like health, education and water scarcity.

An example is our high schools. State power is being challenged by federal intervention in everything from standardised testing to school report cards and in the future perhaps the teaching of specific subjects like history. The result is a regulatory mess.

In other areas we have the opposite problem where instead of battling for control governments seek to avoid responsibly. Mental health has been an example. Dental health is another.

A recent report found that one in five people are foregoing dental treatment because they cannot afford it. Politicians agreed quickly that we have major problem. However, the States said it should be fixed by extra Commonwealth funding, while the Commonwealth said it was a State issue. The result? No action.

We face a choice.

"The international experience shows that what we lack is not new models and ideas, but the vision and leadership to bring them about."

The first option is to continue to pay extra tax and accept second rate government services. This is the path we are on now. We have been led here by generations of politicians who have found it easier to leave the system as it is.

A reason for this is that the system benefits those in power. Without clear lines of responsibility federal and state leaders can seek credit for successes, but shift blame to someone else for inaction or failure.

The alterative is to do the hard work over the longer term to fix our system of government. This might seem impossible given our poor record of achieving change. In fact, the international experience shows otherwise. It suggests that what we lack is not new models and ideas, but the vision and leadership to bring them about.

The best way to start the reform process is to highlight the problem at as specially convened constitutional convention. This was how our federal system was drafted in the 1890s and is a way that all interests can come together to debate the issues and propose reform. The convention would underscore the importance of the topic and create space for new ideas.

In pursuing reform, the system cannot be changed all at once. Attempting to do so has led to failure in other like areas. Instead, we should view federal reform as a decade-long task involving deliberate, well-informed steps built upon community understanding and wide support for change.

With one exception, reform should initially focus on areas that do not need a referendum to change the Constitution. These include recasting bodies like the Commonwealth Grants Commission and the Council for Australian Governments. This could build momentum for greater successes.

The one constitutional change we should make now is to fix a problem that undermines Commonwealth-State co-operation. In a series of cases since 1999, the High Court has found that the Constitution does not permit some of the most important national co-operative laws. Even where every government agrees, like on family law changes or a more efficient judicial system, outcomes in the national interest may be impossible.

What is needed is an amendment to allow the states to (1) consent to federal courts determining matters arising under their law; and (2) consent to federal agencies administering their law. This is a clear flaw in the Constitution. All sides of politics and both federal and State governments have recognised it needs to be fixed. No-one has opposed this. Late last year, it was the unanimous recommendation of the House of Representatives Legal and Constitutional Affairs Committee.

The area is of vital importance. The ability to bring about consistent rather than conflicting laws across Australia has a big impact on business and the efficient delivery of community services. We should muster political and popular support for a referendum to change the Constitution so that co-operation is again possible. If successful, it would be the first constitutional amendment since 1977 and could open up further possibilities for reform.

Australia's federal system has passed its used by date. It was created in 1901, the age of the horse and buggy, and has not been modernised since. This does not mean we should remove our federal system entirely. Instead, we just need a much better system than what we now have.

Reform has been left for too long. Until this is recognised and people begin to act, Australians will pay through the hip-pocket and our future prosperity will be undermined. This is the price of having a bloated and inefficient system of government based upon a dysfunctional federal model.


George Williams is the Anthony Mason Professor and Director of the Gilbert + Tobin Centre of Public Law at the University of New South Wales