Federal–State Relations at a Crossroads Says BCA

New Contract Needed for Federal–State Relations

BCA President Michael Chaney has urged a new approach to fix endemic problems in federal–state relations that are costing Australia billions in wasted government spending and lost economic opportunity.

This comes as the BCA today launched Reshaping Australia’s Federation: A New Contract for Federal–State Relations that proposes a 12-point plan, including a federal convention to help map out a new way forward for the future.

“Australia’s system of federal–state relations is at a crossroads. The effectiveness of our current system of federalism will be determined by which road it takes in the next few months,” Mr Chaney said.

“The BCA is calling for a new contract for federal–state relations to overcome blockages in our current system and tackle overdue reforms to keep our economy on track,” Mr Chaney said.

“The BCA wants to see cooperative federalism work, but if major reform continues to stall – and there are growing signs it is – the BCA will call for the Commonwealth to step in on issues of national economic importance,” Mr Chaney said.

BCA research reveals federal–state inefficiencies are already a major economic issue costing taxpayers at least $9 billion a year. Put another way, these inefficiencies require an additional tax burden of $1100 a year to be imposed on every Australian household.

“The costs to the economy as a whole in terms of business costs and future opportunity costs are likely to be significantly higher. This is a problem that will only get worse if do not act now to fix it,” Mr Chaney said.

Reshaping Australia’s Federation identifies costs to the economy caused by overlap, duplication and cost shifting between the Commonwealth and the states, unnecessary state taxes and overspending on programs because of lack of oversight or accountability.

It highlights that education, health, infrastructure and taxation are among the key areas where dysfunctional federalism is causing inefficiencies that are holding the economy back.

A priority of Reshaping Australia’s Federation is the creation of a ‘common market’ that allows the free flow of people, goods and services around the country.

It proposes giving the Council of Australian Governments (COAG) a year to make significant progress with harmonising key business regulation. If COAG fails, the Commonwealth will need to step in and provide leadership to create a common market.

“Our current federalism arrangements were established in the days of the horse and buggy, but to compete in a global economy we need a new, efficient contract between the Commonwealth and states to drive us into the future,” Mr Chaney said.

The BCA’s 12-point plan outlines a process that can be used to agree on a new approach to federal–state relations. Key points include:

  • a federal convention to be held to develop a framework for re-assessing the respective roles of the Commonwealth and the states;
  • the convention to examine the pros and cons of the Commonwealth taking over the management and regulation of key national markets;
  • COAG agreeing to set a deadline of the end of 2007 for significant progress in achieving a common market through harmonisation of those regulatory ‘hot spots’ already agreed by COAG;
  • if significant progress in achieving outcomes is not made, the Commonwealth developing national business schemes for core areas of business regulation, allowing corporations to elect to opt into those schemes and out of state-based schemes;
  • the Commonwealth and the states agreeing on constitutional amendments allowing the states and the Commonwealth to set up effective cooperative arrangements;
  • establishing a federal commission to identify issues requiring a collective response from governments, advise on response options and report to COAG on progress in implementing COAG agreed reform agendas; and,
  • reforming the fiscal arrangements between the Commonwealth and the states to close the gap between which government raises revenue and which it spends it, to increase accountability and reduce blame shifting.

Reshaping Australia’s Federation shows that while there has been a greater spirit of cooperation between the Commonwealth and the states in recent years, any achievement will be overshadowed and hindered by vast inefficiencies in our federal arrangements.

“History shows the present system rarely achieves the meaningful results needed to meet Australia’s current and future challenges. Since COAG was established in 1992 it has met on average only once a year and for a few hours each time. This is not enough to achieve the reforms Australia needs to meet domestic requirements, let alone to be competitive in the global economy,” Mr Chaney said.

“Much of the progress of the past year has come from the leadership and energy of individual political leaders. But as some of these leaders face elections over the next year it is likely politics will take priority over reform progress unless we act now to reinvigorate and reshape the way our governments work together.

“There is also a real need to set clearer timelines for governments to improve service delivery or reform key areas of the economy so that rhetoric is backed up by timely action. This is why the BCA is urging governments and others to put in place a process that will achieve real outcomes,” he said.

The Costs of Federalism (Appendix 2)

Reshaping Australia's Federation (action plan)

Intergovernmental Relations in Federal Systems (Appendix 1)