The local government sector sees itself as inherently closer to the people than the other levels of government. It also sees itself as deprived of the necessary powers and resources to undertake a full range of services (see Bell this volume). Local governments, being entirely dependent on state legislation, have a poor revenue base and have also been subjected to ‘cost-shifting’ (i.e. required to undertake tasks for which sufficient funding is not provided). In principle, this latter problem has now been recognised and addressed by an intergovernmental agreement (ALGA 2006). However, the ongoing reality may be a different story, and there are strong claims by local government leaders that the state governments are the oppressive and unnecessary layer in the current federal system. The Federal Government, for its part, has sometimes encouraged this viewpoint, by including local authority representation in inter-governmental forums, providing some funding programs directly to local government, and establishing various local and regional ‘partnership’ arrangements which minimise the role of the States.

For the eight states and territories, the problems of the federal system over the last forty years arise from three inter-related features of federal government power:

Conservative defenders of a federal ‘balance’ (e.g. Gibbs 1993) are generally concerned about an increasing centralisation of power. Market-oriented defenders of federalism are also suspicious of centralisation and seek to encourage flexibility and competition among the constituent governments (e.g. Kasper 1993, Moore 1996). The solutions offered by state leaders (e.g. Goss 1994) have usually centred on reducing the incidence of tied grants, and seeking clearer demarcation between federal and state roles in key policy areas. Recent state leaders have recognised changing political and economic realities, by acknowledging that national economic efficiency requires a national approach (e.g. corporations law, competition law) rather than separate state regulatory frameworks; and even the recent movement towards a single industrial relations system is tacitly accepted.

For the Commonwealth, the problems of the federal system over recent decades arise from the behaviour of the States, including:

Federal politicians have a long history of supporting, in principle, the creation of a two-tier federal system without the current array of states (Hawke 1979, Macphee 1993), while acknowledging that this would be difficult to achieve. However, many commentators have noted that the diminution of state roles can proceed without constitutional change through the assertion of federal fiscal and legal powers (e.g. Craven 2005).

For large business organisations and associations, e.g. the Business Council of Australia (BCA), the federal system creates a higher regulatory burden and business imposts. The multiple layers of government produce unnecessary complexity, higher levels of taxation, a lack of uniformity or consistency in business regulations, complex project-approval processes, and higher compliance costs. Business lobbies – especially those representing larger firms operating across borders – are concerned to have uniform business regulations. They also want to ensure that economic issues affecting competitiveness (including the major areas of micro-economic reform, infrastructure and trade) are able to be addressed rapidly and decisively (Deveson 2006, Chaney 2006). During the debates of the early 1990s the BCA supported, in principle, a shift towards two-tier federalism (BCA 1991). However, the BCA has more recently supported national regulatory reform within a cooperative federal/state model with very strong leadership by central government (BCA 2006a, 2006b).

For the other major national interest groups (e.g. NGOs concerned with family and community services, Indigenous issues, and the environment), there is often an impatience with fragmentation of responsibility for key outcomes and a preference for a national approach to major issues of program design. National approaches can be achieved either through federal imposition or through patient negotiation with the States; but the national NGOs often prefer centralised clarity over pluralist uncertainty. Calls for greater federal powers to over-ride the States on some social and environmental issues have been common over the years.