Lifeblood coagulated by feckless federalism

TODAY'S Council of Australian Governments meeting in Canberra is aptly abbreviated to COAG, short for coagulate.

TODAY'S Council of Australian Governments meeting in Canberra is aptly abbreviated to COAG, short for coagulate, which is what the wasteful gabfest among premiers and prime minister does to the lifeblood of Australia's federation.

The biggest, most insidious problem in Australia is not how to boost productivity. It is not falling standards in schools or deficient care for the disabled. It is our feckless federalism that underpins huge bureaucratic waste, confuses voters and undermines states' incentive to innovate, undermining the quality of all public policy.

COAG meetings are emblematic of the damaging trend towards ever greater centralisation in this vast and diverse country. What once were ad hoc "premiers' conferences" to discuss matters of national importance with the commonwealth have effloresced egregiously under both Labor and Coalition governments into 13 standing councils, seven select committees and five "fora", all meeting up to four times a year.

The rot set in in 1923, when the conservative Bruce government used section 96 of the Constitution, which gives the commonwealth the power to make grants to the states "on such conditions as the parliament thinks fit" to help states build roads.

Exploited mercilessly since, now almost half the $90 billion in taxes the commonwealth gives the states each year are "specific purpose payments" that stipulate the goals, standards and mechanics of policy for public hospitals, housing, schools, transport, urban development and the environment, all areas the Constitution leaves to the states.

The federal government's interference forces taxpayers to maintain hugely expensive commonwealth bureaucracies that spend their time watching over neutered, hapless state bureaucracies, which in turn fill out paperwork for Canberra rather than concentrate on improving policy to fit the states' circumstances.

The fetish for "harmonisation" and "co-operative federalism" also completely misunderstands the point of federalism, which fosters healthy competition among governments for people and business and allows comparison between different policies to everyone's ultimate benefit.

Other states are looking to adopt Victoria's more efficient hospital funding mechanism. Western Australia's laudable experiment with "independent public schools" may catch on.

Federalism may mean bad policy in some states, but at least any flaws become clear. Canberra can unwittingly put the whole country in a straitjacket of poor policy for good.

In any case, the share of businesses and families that operate across state borders is tiny. Helping huge firms to obtain quicker environmental approvals or making it easier for university applicants to apply interstate are far from good enough reasons to junk the benefits of federalism.

Australian federalism has been in a vicious cycle of decay for decades and prospects of a revival look grim. Labor has long resented the states' existence, while the federal Liberal Opposition Leader's book Battlelines recommended a referendum to give the federal government even more power over state prerogatives.

But the premiers of Queensland and Western Australia, whose states are increasing in power, are advocating for change. And the enormous fiscal challenge facing all state and federal governments may require it. Only by returning policy responsibility to the states, culling programs and sacking thousands of superfluous federal public servants can the commonwealth make the sort of savings it will need to.

Ideally, tied "special payments" to the states would end and federal income taxes would fall by the same amount. States, now clearly accountable to their voters, would specify the income tax surcharge the tax office would levy on their behalf.

This glib idea that the states should be abolished is hopelessly naive. Even if desirable in theory, Australia must maximise the benefits from the constitutional hand it has been dealt, which means giving proper responsibilities to the state parliaments and their bureaucracies.

The Oxford historian Edward Freeman wrote that federalism "is the most finished and the most artificial production of political ingenuity (attained only in) a highly refined age, and among a people whose political education has already stretched over many generations".

Australia's constitutional heritage is a strength.