The Future for Australian Federalism

By Twomey, Anne | Impact, Spring 2007 | Go to article overview

The Future for Australian Federalism


Twomey, Anne, Impact


After the election, when the political chequebooks are tucked away and there is nothing left to remind us of the battle but bedraggled posters hanging off telephone poles and the orphaned Mersey Hospital, what will happen to our federal system then? Will the pressure to reform the federal system dissipate once the sound and fury of the election is over, or will it intensify? Does it depend upon who wins the election?

First, it seems to me that the pressure for the reform of the federal system is not confined to party politics. It will continue because it has important economic consequences. That is why the Business Council of Australia and Access Economics issued a strong report last year calling for major reforms. The OECD and other international bodies will continue to point to Australia's federal system as an area needing reform, as will economists and others concerned about Australia's future prosperity. The bottom line is that Australia needs to become more productive if it is compete with emerging economies in China and India and if it is to cope with its ageing population. Australia has already made most of the productivity gains possible through competition policy. The 'next big thing' will have to be the reform of our federal system.

So whichever party wins Government at the federal election, the pressure will be on it to deal with federalism reform. Certainly the nature and extent of the reforms may differ depending upon who wins, but the pressure to undertake reform will be there regardless.

If the Coalition wins

If the Coalition is returned to Government, while it may not have a strong ideological commitment to federalism, it is likely to be influenced by the lobbying of business and industry groups and the views of economists about the benefits flowing from a more functional federal system. It must be remembered that while there has been recent conflict between the Commonwealth and the States in the lead up to the election, prior to that there was significant co-operation, with Council of Australian Government (COAG) meetings being described as harmonious and successful.

If the Coalition wins the election, my prediction is that reform will occur, but it will take place through COAG and other inter-governmental processes, mostly out of the public eye. It is unlikely that there will be any formal constitutional amendments to adjust the constitutional allocation of powers. However, it is more likely that there will be action through Ministerial Councils or other inter-governmental bodies to clarify responsibilities and better coordinate programs within particular subject areas.

It is also unlikely that there will be major reforms to Commonwealth-State finances. Where change is most likely to occur is in the way tied grants are made to the States to ensure that:

* grants are conditional upon outcomes rather than inputs;

* the money can be used where it is most needed;

* administration costs and bureaucratic red-tape are reduced;

* there is a fair allocation of both contributions and risk;

* States are given incentives (rather than penalised) for finding more efficient ways of achieving agreed outcomes; and

* the grants build on and are coordinated with existing State policies to avoid overlap and confusion amongst the users of government services.

Such changes would not be highly visible to the public, but could significantly improve government effectiveness in areas such as health and housing.

If the ALP wins

If the ALP wins the election, federalism reforms are likely to be more extensive and more visible. Again, this is not for ideological reasons. There are a number of different factors at play. First, the fact that all States currently have Labor Governments will give a small window of opportunity where there is sufficient goodwill for major reforms to be achieved. …

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