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Does a system of government drawn up at the end of the nineteenth century and activated at the dawn of the twentieth century still have currency in the twenty-first century?
In a word: yes. Federalism does work. It is a robust and flexible system that has stood the test of time and made us one of the world’s most stable democracies. It is an efficient system that, according to analysis done for the Withers and Twomey report Australia’s Federal Future, boosts our per capita GDP by 10.5 per cent—or $11 402 per household—through the greater efficiencies of political and fiscal decentralisation.
But, it needs to be said, there is room for improvement. Given the size and scope of challenges Australia faces—such as climate change, the rise of the BRIC economies (Brazil, Russia, India and China) and our ageing and growing population—we need to make federalism work better.
Federalism needs to change to adapt to our changing circumstances and benefit the community. For instance, Withers and Twomey found that if Australia went further with fiscal decentralisation—in line with the best federal practice of Canada, Germany and Switzerland—average annual incomes would increase by $4188.
However, in changing, we must resist the temptation to go back to the future—and re-litigate the old arguments of state versus Commonwealth. For instance, the question of who holds the financial levers is well and truly settled.
As our second Prime Minister, Alfred Deakin, accurately predicted in 1902, ‘The rights of self-government of the states have been fondly supposed to be safeguarded by the Constitution. It has left them legally free, but financially chained to the chariot wheels of the Commonwealth.’
Equally, it would be a mistake to confuse the Commonwealth’s fiscal power with constitutional power. As Sir Henry Winneke, the former Governor and Chief Justice of the Supreme Court of Victoria, said in 1965:
As a consequence of our federal way of life, based as it is upon a division of powers between Commonwealth and state, there is no absolute sovereignty in Australia. Citizens who value their individual liberties may see in this an effective safeguard against the development of…a new despotism.
In other words, no Australian government operates in isolation. Every Australian government—be they state or territory or Commonwealth—has an equal share in our federation. And that egalitarian and quintessentially Australian approach to federalism is the best way to deliver the policies and investments we need to meet the challenges of our time, secure Australia’s productivity, sustainability and liveability and deliver the Australian people the opportunities they deserve.
[1] This essay was originally presented as a keynote address at the ANZSOG Annual Conference on 11 September 2008.