August 19

The benefits of federation

Professor Geoffrey Walker observed in a paper to the Samuel Griffith Society  that for “a framework of government that has created a new nation and given it external security, internal peace, stability, progress and prosperity throughout the most violent, turbulent century in human history,” our constitution has been subjected to an “inordinate” amount of negative comment. He says the chief obstacle to a balanced appraisal today is the failure of the critics to consider the advantages of federalism. He lists ten:  the right in the citizen of choice and exit, the possibility of experiment, the accommodation of regional preferences and diversity, participation in government and the countering of elitism, the better protection of liberty, the closer supervision of government, stability, fail-safe design, competition and efficiency, and the resulting competitive edge for the nation.  Professor Walker writes that the debate has hitherto focused exclusively on its disadvantages.  
More recently, there has been an increasing acceptance of the advantages of federalism. Those advantages were noted in the BCA report[i].  They were stressed in a major report in 2007 by Dr. Anne Twomey and Professor Glenn Withers to the newly formed Council for the Australian Federation, which brings together all of the Australian governments with the exception of the federal government. (Dr. Anne Twomey is the author of the acclaimed book on the patriation of the Australian Constitution, The Chameleon Crown.) Dr. Twomey and Professor Withers  argue  that by focusing too much on the problems in the operation of the federal system, we forget about the benefits of federation, including checks on power, choice and diversity, customisation of policies, competition ( although they do not mention it , unilateral action by the Queensland government led to the abolition of that inequitable tax, death duties, in all states and at the federal level), creativity and co-operation. 
The CFAF report drew attention to widespread media reports of the BCA report which suggested that cost of inefficiencies in the federal system, or perhaps the federal system itself cost $9 billion for 2004-2005 or $450 per Australian, a conclusion which was highly qualified in the report itself.  The authors of the CFAF report preferred to measure the benefits of federation from a comparative OECD study which found that for the last half century federations had a 15.1% advantage over unitary states. In addition they measured the benefit of fiscal decentralisation, which ranges between an average of 6.79% , to ‘federal best-practice’, exemplified by Canada, Germany and Switzerland, of 9.72% .   Australia, they conclude, is the most fiscally centralised of the OECD federations, demonstrated by the fact that the states and territories raise only 19% of taxes but are responsible for 40% of public spending. As long ago as at the time of the creation of the United States, it had been realised that such vertical fiscal imbalance is inimical to good government.   As a principle, governments should be responsible to the people who elect them for the money they spend. The CFAF report argues that the benefit to Australia from being a federation is already 10%; and that this could be raised significantly by further decentralising our taxation system.  The result would be to raise average incomes by $4,188 per annum.


 [ This is an extract from an article by David Flint,” The High Court’s Workplaces Decision: Implications for our Federal System,” the National Observer,  No. 72, Autumn 2007, pp33-43]  


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