Australia’s federal structure is no longer appropriate

A 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.

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.

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.