COVID-19 may bring back competition between the states

But with rare exceptions, Australians to date have never been keen on full-blooded federalism, although there have been exceptions.

One was in the 1970s and 1980s when Queensland and Tasmania vehemently argued against federal intervention in how they managed their environmental resources which included the Great Barrier Reef and Fraser Island in Queensland, and the Gordon-below-Franklin River in Tasmania.

Queensland also led the way in reducing state tax to attract interstate migration when it abolished estate or death duties.

At the same time, it spurred whole new industries like coal mining and aluminium smelting and moved Queensland from hillbilly status to Australia's fastest-growing state.

Western Australia has always been partial to states' rights and was only a reluctant member of the original federation. This is partly explained by its isolation from the rest of the continent-Perth is closer to Singapore and Jakarta than to any other Australian capital city.

There have also been attempts by the Commonwealth government to return some of the taxing power to the states.

Both of our Malcolm prime ministers- Fraser and Turnbull - offered to return some proportion of income tax to the states. The premiers declined, preferring to have the option of blaming Canberra when budgets wouldn't stretch to meet unrealistic electoral expectations.

Change How GST Is Distributed for Long Term Prosperity

But now there has been a COVID-induced paradigm switch and with fortunes diverging, it is time for the states to revert to a functioning federalism.

This should be encouraged by the federal treasurer because it is part of the puzzle to improving productivity.

While premiers are unlikely to take back income-taxing powers there is one simple measure that would encourage competitive federalism-abolish the way the Commonwealth Grants Commission allocates the proceeds of the 10 percent GST charged on Australian goods and services (circa 25 percent of state budgets).

Now the Commission acts like a handicapper, giving less to the most economically successful states so it can give more to the less successful-a perverse reflection of Aussie mateship, or maybe just the fact Australians are equalitarians (which might explain why two premier sporting events, the Melbourne Cup and the Stawell Gift, are also handicapped).

A simple change such as distributing the GST on a per capita basis would be a carrot for the better-run states, such as Western Australia, Queensland, and New South Wales, and a stick for South Australia, Victoria, and Tasmania.

And if it leads to an exodus of the best citizens from the worst-run state, Victoria, to the rest of the country, that would be a net benefit to everyone.

COVID's changed the mindset. Release economic responsibility and the federation to do the rest.