To fix the Federation we must harness the digital revolution

| March 4, 2014

There are longstanding structural conflicts between the federal and state governments. James Horne, visiting Fellow in public policy/water at Australian National University, argues that we need to fundamentally rethink the allocation of roles and responsibilities.

December’s Council of Australian Governments (COAG) meeting passed with barely a murmur. But structural conflicts between the federal and state governments are a constant, making government dysfunctional and preventing Australia from realising its potential. Problems appear intractable because there is little will to resolve them.

Sadly, the recent COAG meeting appeared yet again to support this view. Productivity Commission and COAG reports, and Prime Minister Tony Abbott’s 2009 book Battlelines, provide countless depressing examples of straightforward reforms that would benefit Australians, but which have been stymied or taken decades to introduce. A national education curriculum has been under development for nearly 30 years – more than a generation!

Conflicts between federal and state governments about who should do what have undermined, in part or whole, all recent reform efforts in health, education, water and transport, to list some prominent examples.

The struggle to establish a sensible framework for the Murray-Darling Basin, a natural system that knows no state borders and should be managed as a single entity, has been a very long one. Implementation of the Basin Plan is still fraught, with two states yet to sign the Intergovernmental Agreement, more than a year after the Commonwealth Parliament approved the plan.

Digital drivers of change

The Abbott government’s white paper on reform of the Federation should be a central vehicle to conduct a health check of key policy areas and institutions from a viewpoint of good government.

A defining perspective for a white paper should be to take account of and capture the impact and benefits of the extraordinary developments in the digital economy. The digital economy provides the opportunity for increasingly low-cost and equitable access to a range of services in unprecedented ways. The national broadband network (NBN) and the plethora of other delivery systems will obviously be a critical element to achieving these benefits.

Among many other things, the digital economy has the potential to alter fundamentally access to educational opportunities and much health-care advice. It is able to provide a powerful water market information capability to all farmers in the Murray-Darling Basin.

These features of the digital revolution should have a profound impact on the allocation of roles and responsibilities between governments. This is because it largely removes the need for a physical presence for delivery of many services.

Increasingly, access to services need no longer be location-specific. What’s more, the marginal cost of providing services is much lower than it is for the physical delivery of services.

COAG must lift its game

The structure and practice of Commonwealth-state relations will not be remade overnight. But a starting point should have been action at December’s COAG meeting on reducing business costs. All items on COAG’s national economy agenda were worthy of progressing, so business and individuals could get on with creating economic activity and the wealth it brings.

Instead, there was agreement not to pursue long-overdue national occupational licensing scheme reform. That was remarkable in the context of the forthcoming closures of Holden and Ford. Australia needs to promote labour mobility to help our workforce take advantage of new opportunities as they arise. This decision needs to be rethought.

Resolving differences between states in occupational health and safety should also be at the top of the agenda. Each day this results in costs to business significantly higher than they should be and no additional benefit to employees. Unbelievably, this has proved a difficult issue to resolve.

The second endeavour should be to tackle long-standing issues of red and green tape. These go to the heart of underlying issues of overlap or unclear division of responsibilities between federal and state governments.

The Commonwealth is hard at work cutting $1 billion off cost structures. The states should be matching this. This work should provide practical recommendations within clearly specified time-frames.

In the case of green tape, as the Coalition’s policy platform clearly sets out, it should seek to lower costs while protecting benchmark environmental outcomes.

A fresh look at who does what

A third longer-term stream central to the white paper would be to review fundamental tenets of Commonwealth–state relations. The results of the review should reflect the needs and opportunities of the global economy and the digital age.

The e-health story is a small but illustrative part of this. This revolution should enable governments to rethink, for example, front house and back house in many areas of service delivery. There are opportunities to reduce transaction costs and deadweight costs, and improve competitiveness.

To that end, some fundamental rethinking will be required around allocation of roles and responsibilities.


This article was co-authored by Dr Chris Guest, who is a former senior NSW public servant and is writing a history of Murray Darling Basin institutional arrangements. The article first appeared in The Conversation and is republished with the permission of Dr Horne.