The Australian Financial Review

By Michael Chaney
President
Business Council of Australia

Michael Chaney argues federalism must be about co-operation, not takeover.

Last week's High Court decision is a dramatic illustration of how our federation is straining to meet Australia's needs.

While business welcomes the certainty given by the commonwealth's workplace reform legislation being upheld, there is a real risk the ruling will compound the weaknesses apparent in our federal system.

The commonwealth now has sufficient legal power to involve itself in almost any area of policy or regulation. It should therefore focus the minds of our political and policy leaders on a very important choice.

On the one hand, we can allow the gradual, arbitrary decay of the federal system to continue, with power concentrated in Canberra.

On the other, we can begin a deliberate, informed discussion on how to a revitalise our federation so that it serves this country well.

The first choice would be costly. Failure to reform federal-state relations means allowing growing confusion over government responsibilities, increased duplication and overlap, a sluggish reform program and endless buck-passing and finger-pointing between governments.

We are already witnessing the fruits of this approach.

In the recent Queensland election, for example, the state government blamed the commonwealth for problems in Queensland hospitals.

The commonwealth, for its part, is involving itself increasingly in the minutiae of state responsibilities, such as through its programs for flagpoles and chaplains in schools.

As the Business Council of Australia (BCA) has shown, inefficiencies in the federal system already cost $9 billion each year.

The High Court decision may well exacerbate this problem.

Despite what politicians say now, successive federal governments will undoubtedly use this newly confirmed power. Increasing incursions into areas of state responsibility will be justified by federal politicians on the grounds that the states are failing to fulfil their obligations.

Political pressure will grow on the commonwealth to be the problem- fixer, regardless of whether the problem is a state or national issue.

The effect on the states will be dramatic. Their ability to set policy and run programs in traditional state areas will be frustrated by increasing demands and constraints from the commonwealth. As the states struggle to manage these issues, they will, ironically, provide new reasons for federal intervention.

Inevitably, the states will decline in importance and Australia will lose the benefits that flow from a federal system.

The alternative and preferred course is for a new public discussion on the appropriate roles Australians want to give their national and state governments. In October, the BCA called for a federal convention to be held not later than 2008, with participants drawn from the community, business and governments. The convention should determine a framework for the appropriate division of responsibilities, one suited to a 21st century Australia. The High Court's decision makes holding that convention all the more important.

A new division of responsibilities is necessary if co-operative federalism is to survive, but it is not enough by itself. For co-operative federalism to work, we actually need co-operation.

For the business community, the litmus test for co-operative federalism is whether it can finally deliver a true common market in Australia.

Despite more than a century of federation, we still have barriers to the free flow of people, goods and services across state borders.

Carpenters, joiners, mechanics, electricians, plumbers and others still cannot move from state to state to meet the demands for skilled labour without facing pointless blockages and bureaucracy.

Nor do we have national consistency in our basic business laws. Multiple occupational health and safety systems, product standards, payroll tax systems and workers' compensation regimes just add unnecessary costs and complications to doing business in Australia.

The past two Council of Australian Governments meetings have indicated that the states and commonwealth are able and prepared to engage in more co-operative federalism.

The most constructive response state governments can make to the High Court's decision is to show that, through co-operation, a true common market can be achieved in Australia. But if there is no progress on this important issue, it is now clear there is no constitutional barrier to the commonwealth simply taking over.