A Flawed Federation

Various folk from across Australia's political and policy world met last week at a grandly titled ‘Making Federalism Work’ conference organised by ANZOG (the Australian and New Zealand School of Government).

This was one of the most high profile of a raft of constitutional debates going on at the moment, all of which have been highly amusing to watch as an outsider. Everyone pretty much acknowledges there’s a major problem, but tred softly in suggesting how to solve it. What’s making it increasingly unsustainable though is having an active and progressive Labor administration in the form of Kevin Rudd in Canberra, where the previous Howard government stumbled through with the status quo because they had few ambitions.

What exactly is the problem?

• Vast duplication of roles: there are nine parliaments in Australia, each with their own entire government bureaucracy. (Note: under which there a further 673 local governments). So that’s nine police ministers and nine separate departments filled with bureaucrats each working on their own policing policy. In a country of 21 million people there just isn’t the talent to spread around either the political or bureaucratic arms – which is why you end up with dodgy politicians and poor performing public servants.
  


• Lack of policy coordination: different states often create radically different policy frameworks. That does give rise to some innovation, but is a major drag on productivity. For example, many states pursue highly protectionist policy – so qualifying in a trade in Victoria doesn’t necessarily mean you can practice that trade in New South Wales, which will have different qualification levels, professional associations and accrediting bodies. One estimate has put the various costs to the economy at $9bn a year.
  


• A political ‘weakest link’ game: even where is genuine desire to coordinate policy, in practice it requires the will of all the nine political governments to implement. This is a major barrier to progress, for it only requires one government to veto a policy for it to be held up (which happens all too often with governments of different political stripes).
  


• Funding not aligned with accountability: this is unnecessarily jargonised as ‘vertical fiscal imbalance’ but basically means the Commonwealth government control a lot of the funding but the States do most of the delivery of public services. So in the end neither level of government is properly accountability to the electorate – with an inevitably resulting political ‘blame game’ between the two.

The defenders of the Federation

A number of mostly bizarre arguments are made in the defence of the status quo. Though dressed up in different forms the basic argumentation goes:

• “Australia is such a varied and geographically huge country you need different governments to address the different needs.” This is odd, because the main point should not be size but rather diversity. In fact variations in service delivery challenges in Australia seem to me to be predominately within rather than between states. So Sydney (in New South Wales) and Brisbane (in Queensland) have much more common than the very rural and remote towns in each of their respective states. Australian states are much more homogenous than many regions of other countries.
  
  
• “It’s not inefficient as stands because we spend less of our national income on government services than other countries.” This is even odder, for efficiency is not generally about how much you spend but how good you are at spending it. Australia does spend less per head on public services than say France with its unitary government, but that’s mostly a function of the social preferences for a greater role of government than efficiency per se.
  


• “If we raise more money locally we can solve the accountability problem”. Sounds simple but raises another problem which is that tax and revenue transfers at the Commonwealth level help address some of the different rates of disadvantage and poverty between regions. Or horizontal fiscal imbalance if you will.
  
  
• “Can’t we just devolve everything?” This is known as subsidiarity, and is an argument commonly employed by the States. It’s a slightly odd argument to use for two reasons. First, in its derivation from the EU Maastricht Treaty it should properly be discussed as the subsidiarity principle. It’s a principle because one is supposed to apply some tests to when and where it should be applied. Applying them correctly won’t always lead one to conclude everything should be devolved. Second, the States seem to forget there are 673 local governments beneath them – if it’s so great to devolve power down then why stop at state level?