Urgent reform needed to stop federal flaws

Reform of the federal system is the missing link in the reform agenda.

The system has deep, systemic flaws that are getting worse.

It is undermining our ability to address some of the key challenges facing the nation, including in areas of health and education.  It is undermining the quality of government and wasting scarce funds.

While every political leader at federal and state level over the past 30 years has recognised the flaws of the system and the need for reform, very little real progress has been made.

Bob Hawke gave it the best shot, with his New Federalism Initiative in 1990.  Hawke attempted to directly tackle the main flaws of the existing system which is the excessive overlap and duplication between the states and federal government and the excessive dependence of the states on federal funding.

However, this initiative was shot down by Paul Keating in his successful push for the Lodge.

Keating subsequently introduced his own reforms through the National Competition Policy.

While the NCP process generated substantial benefits early on, it did not address the fundamental flaws in the federal system.

John Howard and Peter Costello contributed to the states via the GST.  While this gave the states access to a large growth tax and a lot more money, it made the flaws of the system -- in particular rising state dependence on federal revenue -- even greater.

Apart from Nick Greiner of NSW and Wayne Goss of Queensland, no state political leader has to date taken up the cudgel of reform in a coherent and thorough manner.

Enter the latest debate about federal reform and yesterday's Council of Australian Governments meeting.

Mr Bracks, to his credit, carried the banner of reform to COAG and he received support from other state leaders and the Prime Minister.

While Bracks' program has many positive aspects, it falls far short of systemic reform.  Stripped of its rhetoric, it is largely about getting more federal money to do more of what the states are already or should be doing.

The Bracks agenda makes no attempt to eliminate systemic flaws.  Instead of attempting to eliminate overlap and duplication it tries to manage it better with a new set of committees.  Instead of pushing for greater responsibility for revenue-raising, it seeks more federal money.

Bracks' advisers have rationalised this as trying to make the best of a poor system and to work within the constraints on them by the Federal Government.  It is a second-best approach, but better than nothing.

Bracks, with the exception for confirmed access to more money, got what he wanted.

COAG has largely adopted his agenda including the renewed focus on human capital formation and co-operative planning and delivery of service.

The challenge now is to make the agenda work and it will not be easy.  The flaws in the system remain and they will work against co-operation and good policy delivery.

One thing is clear, reform of the federal system remains very much on the top of the agenda.

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