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Australia’s federal structure is no longer appropriate

By John August and Klaas Woldring - posted Tuesday, 1 May 2007


report by Twomey and Withers, commissioned by the Council for the Australian Federation, argues for a return to the past by putting the badly failing federal Humpty Dumpty back together again. The Council for Federation is a brainchild of the ALP state premiers developed from their trip to Canada in 2006.

Twomey and Withers attempt to make the case for continued federalism. They favour decentralisation, and suggest "improved federalism" would achieve that. But this finding is highly suspect.

They carry out a statistical analysis which compares the economic growth rates of seven federal countries and 14 unitary countries since 1950, and on the basis of this analysis claim that Australia could be $86 billion a year (or about 10 per cent of GDP) better off if it adopted "best practice federalism" as practiced by Germany, Canada and Switzerland. In stark contrast, our own calculations suggest that abolishing the states would yield $30 billion a year - possibly much more.

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The legitimacy of this $86 billion estimate is challenged by our co-founder, PhD candidate Mark Drummond, who states:

The comparison Twomey and Withers rely upon to establish this $86 billion figure is something of a mismatch in which seven wealthy federations (Australia and six of the most locationally advantaged countries in the world: the USA, Canada, Germany, Austria, Belgium and Switzerland) are pitted against 14 diverse unitary countries (Denmark, Finland, France, Greece, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden and the United Kingdom) which include some of the poorest and most remotely located OECD countries, such as Portugal, Greece, Finland and New Zealand.

This $86 billion estimate would probably be very different if unitary China (with its stunning economic growth in recent decades) and federal Russia (with its mixed and generally poor economic performance), for example, were included in the analysis.

Leaving aside the self-interest of the ALP premiers, the report underlines the atrophy in our federal system, the gross fiscal imbalances, political dysfunctions, inflexibility and stagnation.

Just recently, the Business Council of Australia has issued two major reports on the truly enormous federal-state complexities and inefficiencies, for example, the number of taxes impacting on business.

Our "Beyond Federation" umbrella group has examined these problems over many years. We would suggest that federation must go and Australia needs to make a fresh start with a new political structure and constitution. Federation is not only very costly but also entirely inappropriate.

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Current state ALP party political considerations to maintain state rights, for example in respect of industrial legislation reforms and education curriculums, should not stand in the way of major and long overdue reforms.

Nowhere in the report do we find even an attempt at defining or properly understanding what federalism is, why federations are formed and when federation is appropriate.

A leading scholar, Kenneth Wheare (1963), not mentioned in the report, showed that the reasons for federations to form may disappear over time. Examples could be that defence needs have changed or there are improved trade relations between neighbouring states. Clearly this is what has happened in Australia.

American theorist William Riker (1964,1975) has shown that federation has often meant that states have held back worthwhile reform. Both in the US, and in Australia, they have frustrated majority rule on important national issues and social reform. Instead, the Twomey-Withers report highlights numerous benefits, providing "measured progress" and so on.

But there really is another story to tell. Regardless of benefits federalism may have provided for Australia in the past, our group recognises that, on balance, federalism has little or nothing to offer Australia anymore.

The appropriateness of continued federalism, according to William Livingston (1956) requires that the diversities in society should be territorially grouped. If they are not so grouped a society is not federal and if the initial reasons for striking the federal bargain disappear over time, a different arrangement should be negotiated. So in that sense it cannot be argued that the Australian society is federal (see On Line Opinion article) although the Western Australian Law Professor Greg Craven has done his very best, unsuccessfully in our view, to make it appear that way.

The report repeatedly tries to present centralism as the logical consequence of the unitary state. This supposed link is not demonstrated though. In reality, the unitary structure, especially for Australia, would provide a great opportunity for superior and effective decentralisation. It would allow scope to successfully apply the (in the report) much praised European Union principle of subsidiarity at a national level.

In reality most advanced states ARE unitary states with effective decentralisation, often reflected in provincial and local government. The report entirely ignores the serious Australian problem of state level centralisation which, given the massive under funding of the states and the high population concentrations in the capital cities, has short changed the regions and rural Australia for decades.

The various equalisation schemes, since the 1933 Grants Commission, have not overcome the problem. Attempts by the Whitlam Government to directly fund local government were doggedly thwarted and blocked in1975.

It is disturbing that the report grossly exaggerates the positive impact of National Competition Policy as if federation assists that policy. The Productivity Commission Inquiry into Competition Policy (1999) specifically demonstrated that National Competition Policy had damaged rural and regional sectors.

It is incredible that the ALP Premiers resort to some deeply conservative federal theories and implausible comparisons with other federations and unitary states. Australia needs innovative proposals, not self-serving attempts to turn back the clock.

Twomey and Withers briefly consider the alternative, which is abolishing the states and replacing them with a much larger number of regions - as suggested by a number of writers, including one member of our group, the Foundation of National Renewal. But they reject this as impractical and costly.

Here the report is perhaps somewhat more credible but what is not at all considered is the combination of a new national government with stronger local governments, including city governments. The existing Regional Organisation of Councils could play a more significant role in assisting local government, contributing to improved subsidiarity.

The decision of exactly what is to replace the Australian federation, however, while very important, is a second order issue. Australians should first convince themselves that an attempt to repair the original federation is no longer appropriate regardless of a host of vested interests to maintain the status quo.

Also ignored are problems of the electoral system, the resulting archaic two-party system and the extremely rigid and now ossified Constitution.

Is it not high time that the people are given the power of initiative to amend that Constitution? Worthwhile amendments to the Constitution will not come from the major parties who have a vested interest in the status quo. The inefficiency of the federal system is at least in part related to these system deficiencies.

The historical development of federalism in Australia - and its decline - has been predicted correctly by eminent commentators as early as 1902 when Alfred Deakin, the second prime minister said, the “Commonwealth would increase in stature, in financial dominance, and in the determination of national priorities”.

Gordon Greenwood (1942) wrote “Despite its achievements, the evidence points decisively to the conclusion that the federal system has outlived its usefulness, that the conditions which made federation a necessary stage in the evolution of Australian nationhood have largely passed away, and that the retention of the system now operates only as an obstacle to effective government and to a further advance.”

The real value of the report, hopefully, may be in opening up the long overdue debate on how Australia can now move to a two-tier system of Government.

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About the Authors

John August is the convenor of Abolish the States Collective, and of the group Sydney Shove.

Dr Klaas Woldring is a former Associate Professor of Southern Cross University.

Other articles by these Authors

All articles by John August
All articles by Klaas Woldring

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of John AugustJohn AugustPhoto of Klaas WoldringKlaas Woldring
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