Every government dreams of reforming the federation, but dreams usually end in disappointment. Malcolm Turnbull should know this.
Consider his predecessor. Tony Abbott always had a love-hate relationship with federalism. His attitude to the states in Battlelines ranges from ambivalent to hostile. As Howard government health minister he helped orchestrate the “local” takeover of Devonport’s Mersey Hospital from the Tasmanian state government – a takeover underwritten by the Commonwealth government, of course.
But in his 2013 budget reply speech as opposition leader, Abbott suddenly declared that under a Coalition government the states would be “sovereign in their own sphere”.
It was an important moment. That phrase had been used by the Australian founders. During the 1897 federation conference Edmund Barton said the goal was “to create a system of government under which, as to over all the powers they retain, the States will be supreme and sovereign in their own sphere.”
The technical structure of our constitution says that everything not expressly given to the Commonwealth government is to be left to the states. But to say that the states are sovereign is to go further than legalities – it is to assert that the states have fields of control which cannot legitimately be usurped by the Commonwealth.
Of course, in the 21st century the states are anything but sovereign. There is no area of state constitutional responsibility that does not have the federal government slobbering all over it. These days health, education and infrastructure are all, in practice, joint Commonwealth-state endeavours. The Commonwealth dominates the collection of taxation and distributes funds for the states to spend. But funding tends to come with conditions, and the Commonwealth uses the leverage it gains from its revenue to pursue its own goals in the areas of health and education.
It is hard to imagine a system of governance worse for accountability, for transparency, even for democracy than to have one level of government raise funds and the other level spend it.
Abbott commissioned a taskforce in his own department to produce a white paper into federal reform. The taskforce produced a discussion paper and four issues papers but then quietly disappeared – the promised green paper (to be “released in the first half of 2015”) and white paper (“by the end of 2015”) never materialised.
One explanation for the quiet death of Abbott’s federation agenda was the general drift that characterised his last year in office. But part of it was almost certainly because the taskforce had thrown up some very radical solutions to the problems of Australian federalism – like removing the Commonwealth from schooling altogether, or the Commonwealth directly spending more of the money that it raises, or encouraging the states to raise more money themselves – that were a bit too bold for the Government’s taste.
There are fundamental structural problems with Australia’s federal system. Almost any solution is radical. Turnbull is not the first prime minister to propose returning income tax powers to the states, and he’s not the first to abandon it on political grounds.
Political strategists often point out that voters don’t care about which level of government is responsible for what policy area. If a road has a pothole, they just want it fixed. They don’t want to be told by a politician that it is a state or local responsibility. Newbies to federal politics quickly find themselves discussing local traffic lights with constituents rather than foreign policy.
Yes, vertical fiscal imbalance – the term which describes the disjuncture between the Commonwealth’s taxing and the state government’s spending – is an esoteric problem. But then again, the federation is an esoteric topic. Constitutional limitations on government are esoteric. Just because a problem is esoteric does not mean it is unimportant.
Unfortunately no government has successfully made these esoteric issues relevant – outlined the relationship between fixing the federation and practical policy consequences. “Stop the blame game” is a great catchphrase but it’s not quite great enough to justify major reform.
So Turnbull’s failure to win the state income tax argument against a group of self-interested premiers last week should not have been a surprise.
If, as some commentators have argued, Turnbull is playing a long game – by showing that the state governments would rather complain about being underfunded than to take financial responsibility for their own public services – then more power to him. The question is whether the goal of that long game is simply to justify reducing the amount the Commonwealth gives to the states for health and education in the 2016 budget, or to lay the foundation for a deeper reform of the federation itself.
Turnbull has a lawyer’s understanding of how Australia’s federation today looks nothing like the constitution originally prescribed, and he has a politician’s understanding of how to deal with the states. But the federation question is about more than just politics and law. It’s about how we conceive the Australian nation. It’s about whether power should be divided between states and the Commonwealth or whether we should accept the centralisation of power as inevitable. Are states sovereign? Or are they just subservient?