Liberal premiers Barry O'Farrell and Ted Baillieu flex their collective muscle

IN an understated manner, typical of both leaders, the premiers of our two largest states have orchestrated a dramatic demonstration of their frustration with an interventionist commonwealth government and the slow pace of economic reform.

NSW's Barry O'Farrell and Victoria's Ted Baillieu are flexing their collective muscle, and have invited other premiers to join them. It is gentle and it is polite, but it is a clear mustering of state authority against Canberra.

The Interstate Reform Partnership they formalised yesterday is a modest but important start in a state-driven economic reform process that will be seen as a rival to the Council of Australian Governments.

Both premiers believe the commonwealth wields the power in COAG and that the agenda often falls victim to politics. So they have committed to searching for practical reforms to tackle what Mr O'Farrell labels the "dysfunctionality of the federation".

Their initial partnership will focus on energy-efficiency schemes and skills and apprenticeships. But they are keen to proceed on areas they believe have been stymied in COAG, including taxation reform, federal-state financial relations, occupational health and safety, and cost impediments in the construction industry.

Reminding everyone, particularly those in Canberra, that their states account for 57 per cent of the national population and 54 per cent of the Australian economy, the Liberal premiers are intent on showing that, in our federation, the power of the states can also shape national reform.

In an exclusive interview with The Australian after their joint announcement, both leaders stayed true to their reputations for caution and moderation. Yet they made it clear they were unhappy with the federal government riding roughshod over the states on the mining tax, poker machine reform, health funding, coal-seam gas concerns and a range of other issues.

Mr Baillieu cites the Building the Education Revolution and home insulation schemes as examples of the national government stepping outside its sphere of competency, and says the states need to reassert themselves.

"My view is the states do have great capacity if they work together," Mr Baillieu said. "I guess the interpretation of the Constitution by the High Court over the years has encouraged the commonwealth to keep driving into state areas, and sometimes the rhetoric of reform takes the place of practicality."

Mr O'Farrell said the increasing overlap made it difficult for voters to hold governments to account.

"The people who are losing from the dysfunctionality of the federation currently are citizens of this country," Mr O'Farrell said. "Because how on earth does a citizen work out at a federal or state election, who is precisely responsible, for instance, for the state of our hospital system or the state of our school system."

The premiers are at pains to claim they are not competing with COAG, or playing partisan politics. They stress Liberal and Labor state governments share similar views, at least in private, on some of the key reform issues. And they don't presume that a change of government in Canberra will provide, of itself, an automatic salve to federal tensions. Rather they simply expect, and believe they deserve, a greater role in the process of national reform. Either way, this pair isn't waiting.

"If we can drive reform and lead practical reform, then that's a good thing, that's a positive," Mr Baillieu said. "We could go round and round in circles arguing about the Constitution, but the reality is that it's not going to change easily; we could spend a lot of time doing that, or we could just get on with some practical reform."

Mr O'Farrell agrees, delcaring that, because COAG is supposed to drive reform, their efforts can only help.

"If we can collectively work on issues that effect more than half the population and national economy, that has to be consistent with the efforts of COAG, which is meant to be reformist," Mr O'Farrrell said. "But it might be uncomfortable, absolutely it might be uncomfortable. Because if we are able to shine light into areas where a federal government without a majority in parliament is unable to go, or doesn't want to go, that's got to be a good thing for our respective communities."

If West Australian Liberal Premier Colin Barnett makes this a troika on some issues, and the LNP's Campbell Newman wins, as expected, in Queensland early next year, the federal power balance will have changed greatly.

Just four years ago, Labor led every government, state and federal. So if Julia Gillard and Labor confronts a COAG with four conservative premiers representing about 80 per cent of the national population and even more of its wealth, someone's bound to reference four horsemen and the apocalypse.