Fix federation to yield results

Voters dodged a bullet in May by denying a tax-and-spend Labor the Treasury benches in Canberra. The Coalition’s spending restraint, relatively speaking, has been impressive. But the Morrison government’s extreme caution on policy — be it tax or workplace relations reform — won’t arrest our flagging productivity and economic growth. Left unchecked, that drift will see Australia slip down the global league table of living standards. That’s why the NSW government’s push for a national reform agenda, as Adam Creighton reported on Monday, is welcome. A first step, the Review of Federal Financial Relations, chaired by former Telstra chief David Thodey and including New Zealand’s former leader Bill English, has rightly identified tax and the federation as shackles on the economy’s performance.

In the past decade the number of federal-state agreements that attempt to micromanage state government expenditures has blown out from 22 to more than 300, a coup only for bureaucracy. Remarkably, around 30 of these pertain to spending of less than $10m. Meanwhile, states continue to rely on the most damaging of taxes — stamp duty on property transfers — which throttle worker mobility and stifle the transfer of assets, the lifeblood of a free market. A grand bargain among states and the commonwealth that shifts the tax burden towards a broader-based GST or land tax would boost economic growth. Increasing state and territory governments’ incentives to manage funds efficiently and take responsibility for their own policies is a more realistic goal than abolishing them.

Reducing their dependence on Canberra would go a long way to this end, helping clarify in the public’s mind which level of government is responsible for what. It’s only natural that Canberra wants to monitor how its funds are spent. The states, however, are unusually constrained. States in Switzerland and Canada, for instance, have more freedom, and only those in Austria and Belgium are more dependent for funds on their national government. In 2022 governments in Melbourne, Sydney and Canberra will likely be preparing for elections. As NSW Treasurer Dominic Perrottet astutely pointed out, now is therefore the time for the nation’s three biggest governments to begin thrashing out a reform plan.

The Abbott government promised separate white papers on tax and federation reform, only to see them dumped by Malcolm Turnbull when the political challenges began to crystallise. A plan backed by both Victorian Labor and NSW Coalition governments would make the political sell so much easier.