Article Index

The Case for Federalism

The arguments against federalism dominate the media and politics. The High Court only gives nominal respect to federalism, while whittling away the powers of the States.

A frequent argument is thta the States should be abolished and replaced by smaller regions. The problem with that is that even if this could be achieved, the regions would be even more dependent on the Federal government.

Professor Walker observes that for "a framework of government that has created a new nation and given it external security, internal peace, stability, progress and prosperity throughout the most violent, turbulent century in human history", our constitution has been subjected to an "inordinate" amount of negative comment.

He says the chief obstacle to a balanced appraisal today is the failure of the critics to consider the advantages of federalism. He lists 10: the right in the citizen of choice and exit, the possibility of experiment, the accommodation of regional preferences and diversity, participation in government and the countering of elitism, the better protection of liberty, the closer supervision of government, stability, fail-safe design, competition and efficiency, and the resulting competitive edge for the nation[i].  

Dr Anne Twomey
[Dr Anne Twomey ]

Professor Walker writes that the debate has hitherto focused exclusively on its disadvantages. More recently, there has been an increasing acceptance of the advantages of federalism. Those advantages were noted in a major Business Council report [ii].   They were stressed in a major report in 2007 by Dr Anne Twomey and Professor Glenn Withers [iii]   to the newly formed Council for the Australian Federation, which brings together all of the Australian governments with the exception of the federal government.

They argue that by focusing too much on the problems in the operation of the federal system, we forget about the benefits of federation, including checks on power, choice and diversity, customisation of policies, competition (although they do not mention it, unilateral action by the Queensland Government led to the abolition of that inequitable tax, death duties, in all states and at the federal level), creativity and co-operation.

The CFAF report drew attention to widespread media coverage of the BCA report which suggested that the cost of inefficiencies in the federal system, or perhaps the federal system itself, cost $9 billion for 2004-2005, or $450 per Australian, a conclusion which was highly qualified in the report itself. The authors of the CFAF report preferred to measure the benefits of federation from a comparative OECD study which found that, for the last half century, federations had a 15.1 per cent advantage over unitary states. In addition they measured the benefit of fiscal decentralisation, which ranges between an average of 6.79 per cent, to "federal best-practice", exemplified by Canada, Germany and Switzerland, of 9.72 per cent.

Australia, they conclude, is the most fiscally centralised of the OECD federations, demonstrated by the fact that the states and territories raise only 19 per cent of taxes but are responsible for 40 per cent of public spending. As long ago as at the time of the creation of the United States, it had been realised that such vertical fiscal imbalance is inimical to good government. As a principle, governments should be responsible to the people who elect them for the money they spend. The CFAF report argues that the benefit to Australia from being a federation is already 10 per cent; and that this could be raised significantly by further decentralising our taxation system. The result would be to raise average incomes by $4,188 per annum.

To read more about these issues, go to “The Future of Our Federation: in safe hands?” 

[i] "Ten Advantages of a Federal Constitution", Proceedings of the Tenth Conference of The Samuel Griffith Society, Brisbane, 7-9 August 1998, vol. 10, chapter 11; see also Greg Craven, "Federalism and the states of reality", Policy (Centre for Independent Studies), vol. 21, no. 2 (Winter 2005), pp. 3-9.
[ii] Business Council of Australia, Reshaping Australia's Federation: A New Contract for Federal-State Relations (2006).
[iii] Anne Twomey and Glenn Withers, Federalist Paper I: Australia's Federal Future, a report for the Council for the Australian Federation (April 2007).

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