Territories and democracy inaction

I’ve always been a little confused about the difference between a state and territory (or provinces and territories in Canada). I guess they are mostly quirks of history: with the more powerful regions of countries getting the more autonomous state and province title at point of federation, and the weaker or newly emerging ones being left with some inferior 'territory' status.

For the most part it seems to make little difference. For example, the Northern Territory here in Australia have their own legislative assembly under delegated powers from the Commonwealth. And, although they only get to send two senators to the Commonwealth Parliament (unlike the founding States which get to send twelve each) this is pretty fair in terms of per capita share. They did also get a chance to become a state in 1998 but turned it down (mostly because they didn’t want to give the then Chief Minister more power and platform, but also because existing states determine the conditions you join on and it was perceived they weren’t getting a fair offer).

But in other ways it does create two quite distinct classes of citizen. One notable example is the Northern Territory intervention, where the Federal Government used its legislative powers to bring radical change in welfare, law enforcement and land tenure rights that it couldn’t do in the States.

A second example I discovered today is a peculiar discrimination in voting rights. Australia has a constitution, and it can only be changed by referendum. Since 1977 Northern Territorians (as well as people from the Australian Capital Territory) have been allowed to vote in referendums. But for a bill to pass it must achieve what’s called a ‘double majority’: in other words get a majority of both the national vote, and a majority of the States. (There’s actually a more bizarre ‘triple majority’ rule that can apply, where anything that affects a particular state has to receive a majority in that state).

Because they aren’t states, votes in the two territories only count for the national vote. So if say three states plus the two territories formed a majority to pass a bill, and it won the national vote, it would still fail because it needs four states to say yes. A version of this last happened in a 1984 referendum on terms for senators: it had the popular majority of Australians, plus two states and two territories but was blocked by the other (smaller) states. Indeed, this double majority rule is one reason why only 8 out of 44 referendums have ever been passed along with Australian’s relative conservative tendency to limit the role of government. More to the point it’s a very disingenuous way to have been given voting rights back in ’77 and, if perhaps not a daily bind for residents of the territories, does maintain a unjust second-class of citizenship.

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?

Federalism

One thing I hadn’t quite anticipated before coming to Queensland is the depth of wrangling between State and Commonwealth governments. I perhaps also thought that even if things have been tense at other times, it’d be much smoother with Labor governments now in power at all levels. Not so.

The heart of the issue is at which level should sit various policy responsibilities. For example, on health policy the Commonwealth pay for GPs and primary care, the States for community care and public health with consequential challenges particularly around coorindation, funding, and accountability. In the debate about what sits where I find myself increasingly siding with the Commonwealth.

It’s again a hot topic following an impassioned speech by Queensland’s Premier Anna Bligh billed as a ‘spirited defence of federalism’. It’s definitely worth a read, even though it contained some bad along with the good.

The Bad

• A good use of the ‘subsidiarity principle’ (i.e. that power should sit at the most local level possible) but needs more detail on the underlying rationale. I also believe in subsidiarity though could equally use it to construct an argument for aggregation e.g. with the various tests I previously posted. And, perhaps ironically, other advocates of subsidiarity might note it’s a strong argument for devolving power to local agencies and bypass states altogether.
  
  
• A number of dodgy factual claims. The worst offender of which is the statement that ‘Federated structures like Australia … have higher rates of per capita GDP’. (Note this isn’t a claim that one causes the other, but it’s certainly intended to imply that.) I read the research report on which this was based on and what the analysis used is a simple comparison of average per capita GDP in federal countries (i.e. US, Switzerland, Australia) compared to unitary systems (i.e. UK, France etc). Pretty ridiculous really.
  
  
• Some select interpretations on global trends. For example, Bligh says ‘let’s acknowledge the global trend towards federalism’. No, let’s not. What seems to be happening is a slow but steady trend for more complex, multi-faceted and tiered governance arrangements but not really in what could be called federalist in the sense of multiple layers within the same political system. For example, aggregating some functions up to higher levels like the EU and major international institutions, devolving others down.
  
  

The Good

• The concept of exchange of responsibilities. A bargaining between State and Commonwealth levels about which responsibilities should sit where will help ensure the process is thoughtful rather than a simple power-grab.
  
  
• Application to education, health, and climate change. It makes the debate real and has put some issues on the table for debate.
  
  
• Excellent timing and thoughtful contribution to the debate that’s put Queensland in a lead position in negotiations over the next 6 months or so.

The blame game

An interesting feature of Australia is its constitutional and political federalism. The Commonwealth Government, based in Canberra, receives the lion’s share of tax receipts, coordinating the spending of this as well as financial allocations to States. Meanwhile, State governments, such as Queensland’s, lever some resource through local sales tax, though an insufficient amount to fully deliver on the responsibilities to which they are locally accountable, not least of which is health care. This, of course, results in an elaborate and fragile structure of negotiations between state and federal agencies about exactly how public services will be funded and delivered.

The key, and evident, problems with this are:

• Perverse incentives in arrangements to shift costs onto the other side, particularly in health and social security;


• A lack of delivery clarity among businesses and the community about who actually has responsibility for what;


• Weak accountability between Commonwealth and State governments with opportunities for one to blame the other whenever things go wrong; and


• Distortions, duplications, and double-running costs in the administering of public policy.

An unfortunate manifestation of this is something called Specific Purpose Payments (SPPs) whereby the Commonwealth bypasses the States with ring-fenced conditionality in the pursuit of particular policy objectives. Effectively, States are required to fulfill specific conditions in order to receive these SPPs. Since the 1960s these have represented a major source of State funding, to the extent that they now total around two-fifths of all payments from the Australian Government to States.

What to be done?
The incoming Rudd Government identified the situation as a priority for reform, and it’s a central issue coming up in the range of policy overhauls underway. Clearly, reform needs to be guided by some set of subsidiarity principles about which government functions to, and which not to, aggregate up. These principles should include:

• Where there are spillovers or economies of scale in more centrally delivering something;
  Where there are significant concerns about the equity of outcomes within or between regions;


• Where there are coordinating or complementarity efficiencies in policy – such as education and training policy;


• Where there is a compelling need for uniformity in the given service, or where diversity of rules would create inefficiency; and


• Where the funding, delivery or monitoring of the service is aligned at a similar level.

For example, there is a strong a priori case for aggregating functions like defence, international development, trade, and most aspects of law to a national, or even supranational level (e.g. to the EU in the case of the UK). On the other hand there’s probably little sense in aggregating services like the delivery of community services for the elderly to a higher level merely for the sake of doing so. Indeed, one of positive features of current arrangements is that State governments are much closer and more locally responsive to the needs of their citizens than the equivalent in the UK.

So… where next?
It seems there may be a number of potential options for reform, several of which are within the boundaries of achievability. These include:

• A process of horse trading whereby the different governments swap areas of shared responsibility so only one government retains responsibility for a given service;


• A clearer split between funder and provider to separate responsibilities between Commonwealth and State, so that Commonwealth government either becomes the sole funder of a service, or a purchaser of discrete components from the State;


• A new performance management role for the Commonwealth, where it monitors States performance on functions of national priority with the right to intervene as a measure of last resort; or


• A competitive bid process, whereby States bid for Commonwealth funding for the delivery of certain functions, with performance criteria negotiated as part of the partnership.

Practically, some mix of these different approaches could suit different service areas – for example the alignment of responsibility for provision of roads is likely to be more amenable to the horse trading model than the performance management approach (and equally vice versa for health). And, indeed, the relative attractiveness of these different approaches to constitutional reform depends on the extent to which the Rudd Government is prepared to expend hard earned political capital in the pursuit of any gains from a more enlarged and empowered federal administration.