The Australian

By Michael Chaney
President
Business Council of Australia

We don't need radical change to improve the Federation, just better co-operation, warns Michael Chaney

Federal Treasurer Peter Costello certainly succeeded in placing federalism front and centre last week when he called for a radical realignment of the responsibilities of commonwealth and state governments. Yet simply dismissing his intervention as politically motivated misses the key questions raised: will our federal system help Australia advance as a nation and economy in the 21st century? Or will federalism, as has become increasingly apparent in recent times, continue to be a barrier to sustaining prosperity?

Those questions will be answered in part by the Council of Australian Governments meeting on Friday. There can be no doubt the Federation is under strain. The long-term trend towards greater commonwealth power and control continues unabated. Increasingly, it is the commonwealth that raises government revenue and, not surprisingly, wants an ever greater say over how those funds are spent.

On important issues such as health, education, business regulation and infrastructure, we no longer have a clear idea of which layer of government is ultimately responsible. When we don't know who is responsible, we don't know who to make accountable.

Instead, when we see poorly performing hospitals, strained transport systems and declining natural resources, the commonwealth tells us state mismanagement is to blame, while the states retort that it is due to a lack of commonwealth funding. The arguments go around and around.

But in the meantime no one has fixed systemic problems with our hospitals, transport systems or water resources. For its part, the Business Council of Australia has focused on fixing federal-state relations as a key priority for the nation and economy to become as resilient and adaptive to change as possible. Last month the BCA released its views on potential reform of federalism in its discussion paper Modernising the Australian Federation. The paper outlines how the challenges Australia faces, such as an ageing population, burgeoning healthcare costs and increasing competition from global markets, cannot be solved by any one government acting alone.

For Australia to continue to grow and prosper, strong collaboration between our governments is not optional but imperative, yet we see very little of this co-operation. The argy-bargy and blame shifting of the past week between the commonwealth and the states over (ironically) how to improve federal–state workings typifies their relationship. Yet Australia does not need radical change to make the Federation work better. Stronger federal institutions, a clarification of the roles of the commonwealth and states and rationalisation of their activities will deliver a more effective and efficient Federation.

Despite some claims to the contrary, state or regional governments have an important role to play. In Britain, the present debate is about increased devolution of power and decision-making down to regional levels to allow policies and services to be tailored better to local needs.

In the past COAG has been, and needs to be once more, the key vehicle for Canberra and the states to come together, to agree on a forward agenda for reform. In recent years it has been allowed to languish. Co-operative reform and agenda setting through COAG has been replaced more often than not by political point scoring as parochial concerns are elevated above the national interest.

During the past 12 months there has been a welcome re-engagement by our political leaders in the COAG process as they work together to untangle the duplication and the lack of accountability on infrastructure, education and regulation, and to advance national reform in each of these areas.

Although the signs for further advances at COAG's meeting on Friday are encouraging, there will always be a danger that – in the absence of clarifying roles and responsibilities and building more accountability around COAG – our political leaders will sacrifice co-operation and a long-term reform program and return to short-term political point scoring.

That is why the success or failure of this week's meeting will be an important barometer of whether the states and the commonwealth can work together to deliver the national reform agenda Australia needs to lock in our future prosperity.

There is only a narrow window of opportunity for COAG to succeed and for federal and state leaders to embark on a serious examination of the underlying issue of how to make federalism work better. By next year, the east coast states and the commonwealth will have faced a series of elections and the co-operation we saw between Prime Minister John Howard and the premiers at their February meeting may be lost as campaigning takes centre stage.

One of the questions facing us is whether, in the 21st century, Australia will flourish under a federal system of nine co-operative partners or whether we abandon that vision and continue down the road of conflictual federalism, paved with wasted opportunity.