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When will we really fix federalism? A talk at the John Curtin School of Public Policy 16/11/12

My starting point is the 2020 Summit of April 2008. I attended with the view of speaking about the need to de-centralise federalism. Frankly I thought I would be completely out on a limb, with nobody else wanting to talk much about the unsexy topic of federalism. Yet to my amazement “fixing Federalism” was the single biggest outcome of that forum of 1000 Australians. Certainly it had a different ring in the different discussion streams; the Economics Stream theme was “a seamless national economy” whilst the Environment/Sustainability group wanted whole of government collaboration, to the Rural and Regional Stream that in effect wanted to abolish State Governments.

The next day the editorial of the Sydney Morning Herald read, "The 2020 Summit has set the Prime Minister, Kevin Rudd, a monumental challenge: nothing less than the wholesale reform of the Australian Federation. That was the inescapable message from the host of recommendations offered by the ten streams of discussion." (21/4/08)

I was in the Governance stream. Although the written reports put the top idea there as a republic, in fact that issue was scarcely discussed until the last plenary, where a quick show of hands showed overwhelming support. It was actually federalism that was the topic which dominated all the sessions. The Governance stream called for a three stage process to review the Federation’s roles, responsibilities, functions, structures and financial arrangements. That three stage process of deliberative democracy was to be the establishment of a Federation Commission that would hold a series of conventions across the country, and then intergovernmental cooperation to design a referendum based on the findings of the survey of Australia’s thinking as mediated by the Federation Commission.

Well of course all this came to nothing. Rudd instead chose to designate making a bionic eye as the most significant task set by the Summit, and responded on federalism that it would be sorted out under his new “co-operative federalism approach”. And thus COAG got an administrative unit called the Council for the Australian Federation. And all the rest is forgotten.

However the dysfunctions of our Federation have not gone away. At this time when we await the Gillard Government’s response to the review of the GST sharing arrangements, and despite a favourable High Court judgement earlier this 2 year in Williams and the Commonwealth about a challenge to the School Chaplaincy programme, that determined that the Commonwealth cannot provide grants willy nilly to the community but only on the basis of its legislative powers under s. 51 of the Constitution ~ a rare win for the States, of course we still have one of the most inefficient and over centralised federations in the world.

In a nutshell the Constitution says the Commonwealth shall run the external affairs of the country whilst the States run the country itself. But the States have only half the money or much less than they need for their job, the Northern Territory gets 80% of its expenditure from the Commonwealth. About 75% of all taxes raised go to Canberra, compared with about 20% going to the central government in other large Federations such as Canada and Germany. This mismatch between constitutional powers and political control through financial power is at the heart of the problem. Despite the Constitution there are very few areas of public policy in which the Federal Government is not involved.

Meantime of course local government is not recognised under the Constitution, and receives funding equivalent of only 2% of GDP, compared to eight percent in the USA and 12% of the UK’s GDP going to local government. (1) In addition it is estimated that each year local government bears a cost shifting of responsibilities by State Governments of between $.5 to 1.1 billion. (2) Since the 2009 Pape V Commissioner for Taxation High Court ruling, until there is constitutional change to recognise local government, all Commonwealth funding of Local Government is potentially unconstitutional, although it continues without challenge to date.

The Federal Government’s profligacy and the blurred responsibilities and duplication are expensive ~ this situation costs the Aussie taxpayers between $9- 20 billion per year in inefficiencies. (3) Meanwhile poor accountability, blame shifting and poorly sustained service levels are rife.

Examples of the effects on every day life abound. Just today I found out that my local government has to build a weir before the end of the year, although the creek it straddles still flows until Christmas. They cannot postpone it because the Commonwealth funding will cut out. So they must work out how to pour concrete into water! Instead of involving the national government in the construction of a small weir, they should have a stable income stream for general purposes from which to meet their responsibilities.

Another simple example came up on a recent holiday where a viewpoint on a lovely coastline boasted a great map and interesting panel about the early European explorers that sailed off that shore. However to reach the panel you need to descend some dangerous steps because the State funded national parks service cannot afford timely basic maintenance.

Have you noticed the profligacy of marvellous pergolas and shelters around the country, thanks to Canberra’s largesse? In Balingup where I live we have a splendid one, funded under the Centenary of Federation programme. It tells you about Balingup. Next to it a modest sign board funded by the State, in completely different style, colour and materials, tells you about the Bibbulman Track that runs adjacent. Walk fifty meters further along and you come to a handsome pergola with a gas BBQ. It is next to the War Memorial and was funded by Disability Services but it is still nearly one hundred meters from the local picnic site and toilets. Meantime the path connecting all this is in poor repair or nonexistent due to the local Shire’s penury.

I mention these human scale examples because I think it brings home the extent of the problem of how we run the country. One thing that really annoys me is that some State public servants have to spend perhaps one month each year applying to the Federal Government for the money to do their job. And of course the more that the Commonwealth gets to do on-ground works, the more money is wasted. For instance the school buildings under the National Stimulus Package cost nearly double standard estimates at $3900 instead of $2100 per m2. (4)

Yet things get worse. This over-centralisation is duplicated at State level. The land mass of Western Australia is vast. Only eight nations in the world are larger than WA, yet nearly all government administration is conducted from Perth. That is why Australia has the most centralised federation in the world. (5) For instance look at the neglect of services and infrastructure in the WA Pilbarra, despite it being the engine room of the national economy. Housing is so scarce as to be unaffordable, even doctors fly in and fly out, whilst regional State departments work from their departmental silos, not conferring with one another, but planning through their line staff in Perth. The electoral reform to realise one vote one value in the WA Parliament has further centralised the State Government by having three quarters of Legislative Assembly voters in one city. That is why the Greens insisted on balancing this with a regionally based upper house where vote weighting still occurs.


The Australian constitution is notoriously hard to change. As we know only eight out of forty four constitutional amendments that have been put to the people have gotten the necessary triple majority required i.e. the majority of voters in a majority of States as well as a majority of all voters across the nation. As George Williams and David Hume in their book “People Power” (6) have pointed out those successful referenda have all enjoyed bi-partisan support. At the 2020 Summit there was much discussion about the critical need for popular involvement in constitutional change through a national conversation fostered by a process of deliberative democracy. Popular ownership of change is critical.

Interestingly survey work on popular attitudes towards the Federation has in fact revealed considerable appetite for federal reorganisation. The Federalism Project at Griffith University surveyed extensively in 2010 and found only 21.9% of Australians wanted our system to be unchanged in twenty years time. In WA the figure was 28.5%. However 68.6% of West Aussies wanted structural reform and across Australia generally 74.5% wanted structural reform, with the most popular model being to abolish the States and create regional government.(7)

Whatever the challenges of explicit constitutional change, the Australian Federation has undergone significant implicit change. (8) Of course the most important driver of implicit change to the Federation that has taken place, without changing the constitution itself, has been under the auspices the High Court during numerous cases of judicial review. In effect the High Court has brought about massive centralisation of the Federation starting with the Uniform Tax Ruling in 1942 that saw income tax shifted exclusively to the Commonwealth. In 1997 its Excise ruling also took away from the States another major revenue source, excises on the sale of goods.

In conjunction with this exercise in vertical fiscal unbalancing, the use of s.51 external powers has seen the Commonwealth extend its role enormously using the thousands of international conventions that the national government has entered into, so as the 1983 precedent ruled, no dam could be built on the Franklin River because of the World Heritage Convention. More recently the Corporations power ruling on the “Work Choices” challenge by State Governments in 2006 spelt out more federal intrusion into former State activities because so much regulation involves business corporations. Moreover the ‘Cable Doctrine’ enunciated by the Court in 1996 enables the Federal Government to strike out any State legislation which constrains the judiciary, if it chooses.

However the point I really want to make to you today is that this process of implicit change to our federal system that has taken place since the Second World War has not only been about centralising power on Canberra. There has also been another implicit trend changing our system, but one that is not so much commented upon. This is the ubiquitous emergence of regional governance structures. It is a remarkable fact of Australian governance that despite having three levels of government we are busily setting up a fourth, at regional level.

This trend is occurring across local, State and Federal levels of government. The Commonwealth conducts natural resource management and regional development on a regional basis. Local governments across Australia are either being amalgamated into regional entities or are establishing regional resource sharing. Even State Governments are working under regional structures like our Regional Development Commissions which the current WA Government has committed to strengthening.

Moreover these regional structures are converging into nine well recognised regions of governance in WA; the Kimberley, Pilbarra, the Gascoyne, Mid-West, Goldfields-Esperance, the Wheatbelt, Great Southern, South-West and the Peel, plus Perth. So the regional structure used by the Commonwealth is the same as the Regional Development Commissions (RDC) of the State (except that the Federal Government uses only one region for the Gascoyne, mid-West and northern Wheatbelt). Meantime the RDC’s and the Regional Development Australia committees (RDA) work increasingly collaboratively and the WA Local Government Association recognises the exact same regional structure in WA. The State Government is considering standardising government agency boundaries on the same structure. So slowly but surely governance in WA is regionalising itself.


Why are we doing this? The answer is a practical one, governance works well at that scale. Regions are large enough to plan strategically but still maintain a community of interest. They facilitate a growing trend in governance world-wide towards place management. Regions are real places, recognised by us all. The fundamental geography of their geology and climate define their extent and determine their natural resources and thus their economy. The resulting way of life has its particular needs which are meaningful at all levels of life, human and non-human. So instead of organising government exclusively around a function regardless of place, those functions are coordinated around an area or region which has a natural community of interest.

The significance of the community of interest really came to me when I was involved three years ago with a movement to amalgamate four shires into a single Blackwood Valley Shire. When Minister Castrilli first announced local government restructuring, Balingup was immediately interested because it is the junior partner in the Shire of Donnybrook-Balingup and has a low level of community of interest with Donnybrook. Donnybrook’s economy is still dominated by horticulture as well as its growing dormitory role being close to Bunbury. In Balingup horticulture and other intensive agriculture is now limited because, like other parts of the Blackwood Valley, that steep country in the Blackwood River’s middle catchment, the parent rock exudes salt and the region therefore has limited the water quality for irrigation. Instead nowadays the Blackwood Valley features tourism and small-scale speciality industries. Once you get south of Bridgetown towards Manjimup there’s less salt and horticulture
predominates again.

So feeling much misunderstood in Balingup, we decided to promote a new entity to be known as the Blackwood Valley Shire. Of course this move failed when the Barnett Government backed off the local government reforms. But the reason for recounting the story is the amazing popularity of our proposal amongst all the surrounding angst about forced amalgamations. Leaving Donnybrook was backed almost unanimously in Balingup, it was also enthusiastically accepted by a large public meeting in Bridgetown and its Council, and was the preferred option of the Nannup community at another major public meeting, if it had to amalgamate. The simple reason why our proposal enjoyed this support was that it had tapped into a strong community of interest. People felt their sense of identity was being expressed and even amplified under this particular amalgamation rather than diminished, as any random joining of two or three communities can be if it does not respect the natural boundaries that create communities of interest.


Having given a rather local story, it needs to be said that we are looking at Australian examples of a global phenomenon. In a rapidly globalising economy governments around the world are being challenged to work at the optimal scale when their administrative boundaries were set historically under a very different era. In a sense the joint challenges of economic globalisation and trans-national environmental issues are marking the end of the era of the nation state, that entity which has defined the trend of governance structure since the enlightenment. It is what Camilleri and Falk call the,
“The Modern epoch reaching its limits.” (9)
We see intensifying limits to national identity, spurred by information technology, along with limits being met in the growth in the use of resources and pollution. These global patterns are affecting governance world wide and see changes taking place in both unitary and federal systems. The evolution of regionalism under the European Union is a fascinating example. If the EU is a de facto federation it is bringing about new effort towards governance at regional level too, under its influential Committee of the Regions.

After the unification of Europe into the continental scale European Union we have seen the transfer of previously nation state roles centrally to the EU, but also other roles into regional (i.e. sub-national) boundaries. So governance in the EU is reorganising into smaller and bigger units as the appropriate scale allows greater functional efficiency of governance. In particular large metropolis are struggling under the yoke of multiple local government units ~ just as we too are debating the same question in Perth at the moment ~ and there is much talk of metropolitan agglomerations functioning like an ecosystem and each needing its unitary regional government.

So too, natural geographic regions such as the Ile de France or the Surrey Hills and SE England, South Moravia and Zealand Denmark are now self-organising. This is under the rubric of the EU with the blessing of their respective national governments. Meantime the centrist UK itself is devolving, having already given Parliaments to Wales and Northern Ireland, and talk of a possible referendum on Scottish independence next year. Then less than a year ago the Localism Act came into force in the UK, giving back more power to the local level by assigning a general power of competency upon local government, i.e. the power to do anything they want provided it is lawful.

A recent publication from the Forum of Federations by the former Director of the World Bank’s Governance Program, Anwar Shah calls this the “Hourglass Model of Federalism”, the hourglass shape defining the diminution of the State or Province level, with governance both centralising and decentralising.(10) Shah is Distinguished Visiting Professor of Economics at Chengdu in China. His thesis is that the unshackling of local government and city governance is a vital element of China’s economic growth. Local Government in China employs 89% of the country’s publis service and enjoys 51% of total government expenditure. That proportional expenditure figure in Australia is just 6%, Canada 19%, USA 25%, Japan 40%. (11)

So what do the shifting sands of international governance infer for our Federation? There seem to be two messages: the right scale of government is vital for its effectiveness and efficiency, if the government unit is too big or too small for its function, there will be pressure to change. Secondly this pressure for change is moving in two directions ~ both getting bigger and smaller.

Paul Kelly, journalist from The Australian, was a participant in the 2020 Summit Governance Stream, described that conversation on federalism as, "Two principles of power, moving in opposite directions…power has to be centralised and devolved." (pers. com.)

This is not inconsistent with what we have seen already in the implicit changes to the Australian Federation over the past sixty years. The Commonwealth has become much more involved in all levels of service and regulation across the country. Meanwhile there are moves to make local government more effective, by regional cooperation or amalgamation, and by constitutional recognition. During this period too we have seen the significant growth in the use of regional structures of governance across the three tiers for greater efficiencies. We have also seen the steady diminution of the power of the States. However the pull to the centre has had the might of the High Court behind it, whereas the push to decentralise has less institutional backing. Yet surely the people of Australia would only accept constitutional change if it followed the principle of subsidiarty by bringing more say to back to the community.

It is my conviction that because of the environmental integrity of its basis, we will continue to see regional governance expand its role. It is that environmental integrity that provides its efficiency because it corresponds to a genuine community of interest economically, socially and environmentally, and can be responsive to that. There will always be a need for very local structures too, so if local government regionalises, it will still need its local forum, although these need not be statutory. Meanwhile the need for a continental scale central government is more important than ever. However the States will continue to loose environmental, economic and social relevance, despite their constitutional importance.

Is it time to make these evolutionary trends more explicit? Do we need the three pronged process put up by the 2020 Summit for a Federation Commission which mediates at forum across the country for deliberating on change, and then a bipartisan approach to working on a constitutional referendum once there has been an exhaustive process of deliberative democracy? Certainly our inefficiency as a federation would say so. So would the Aboriginal people of Australia. Surveys would suggest there is more appetite for a significant reorganisation of our arrangements than the just tinkering reforms. Perhaps when we inevitably become a republic, our collective sense of refreshed nationhood will make us ready to invest in some serious national reorganisation. If the Summit was prescient that should make it in about 2020.

1) Government News, Nov 2012, p.12
2) House of Representatives Standing Committee on Economics, Finance and Public Administration, Rates and Taxes: A Fair Share for Local Government, Oct 2003
3) Access Economics for the Business Council of Australia, Reshaping Australia’s Federation, 2006; House of Reps op.cit., pvii & Mark Drummond, Costing Constitutional Change, Australian Journal of Public Administration, 61 (4), pp43-56, Dec 2002
4) In NSW, Weekend Australian editorial 7/8/10
5) George Williams, Anthony Mason Professor and Director of the Gilbert and Tolbin Centre of Public Law, The Australian, 8/12/06
6) UNSW Press, 2010
7) Australian Constitutional Values Survey, Griffiths Uni, 2011
8) Arthur Benz & Felix Knupling, Changing Federal Constitutions: Lessons from International Comparisons, ( Barbara Budrich, Toronto, 2012.)
9) Joseph Camilleri and Jim Falk, “Worlds in Transition, Evolving Governance across a Stressed Planet”, Edward Elgar, Cheltenham, 2009, p.538
10) “Whither Provinces and States? The case for the Hourglass Model of Federalism” Forum of Federations
Occasional Paper 9, 2012
11) WA Local Government Association,” Systematic Sustainability Study”, 2006

Chrissy.   16 November 2012


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