Looking for consensus: Prime Minister Tony Abbott with state premiers and chief ministers at COAG on Friday.

Consensus? Prime Minister Tony Abbott with state premiers and chief ministers at COAG in May. Photo: Andrew Meares

There are few issues more important to Australia's future, and to the public sector, than how we manage our federal structure of government. Late in June, the government announced the terms of reference for its proposed white paper on reform of the federation. It quoted an Australian Constitutional Values Survey 2012 finding that while most Australians support the federal structure, two-thirds of us do not believe Australia's governments work well together and believe the federation needs reform. It would be a sentiment shared by almost all officials who have wandered into the minefields of Commonwealth-state relations.

There is a real chance now to move away from federal public servants thinking they know better than those in the states and territories. 

This is perhaps a plus for the white paper process. The public is already well aware that the complexities and inflexibilities of our federation hold back national well-being in countless ways. They impose direct and indirect costs, regulatory hassles, administrative annoyances and confused messages for individuals, households and businesses. Among the areas of concern are health, education, housing, transport and indigenous affairs.

Although the problems are widely recognised, solutions are harder. Federal reform is a classic case where the saying ''for every difficult problem there is an obvious and easy solution - which is wrong'' applies. Reform will require large amounts of consultation and innovative thinking. Good process is needed to ensure this, and fortunately that is what has been proposed: release of issues papers on particular topics and a green paper (a consultative document for wider discussion) before finalising the policies in the white paper.

The white paper objectives include: reduction of waste, duplication and second-guessing between different levels of government; a more efficient and effective federation; and making interaction with government simpler for citizens. Among the many issues it will cover are: values and goals to underpin the federation; equity, efficiency and effectiveness of service delivery; accountability without imposing unnecessary reporting burdens; and fiscal sustainability at both Commonwealth and state levels.

These are only some of the lengthy terms of reference. Any one of them would be a difficult task alone; taking them all together might, on the face of it, seem to make reform harder. In fact, the reverse is true. The interlocking parts rely on each other. When public servants or ministers have sought to fix parts of the system in isolation in the past - for example, to reduce reporting, improve performance measures or better allocate roles and responsibilities - the gravitational pull of other institutions of federation has forced them back to the ground. Indeed, most federalism reforms (with the notable exception of national competition policy in the mid-1990s) have fallen well short of their objectives. The federal status quo has a huge pulling power. Unless presented with a compelling case for change, ministers and officials revert to the way things have always been done.

A further constraint is the Australian constitution. The white paper has not been asked to recommend constitutional change; that is notoriously difficult in Australia, where most referendums have failed. It will, though, consider limiting the Commonwealth to ''core national-interest matters, as typified … in section 51 of the constitution''. The federal government can only do things specifically covered by that section: defence, quarantine, bankruptcy, foreign affairs and so on. States are responsible for anything else: their ''residual'' powers. Section 51 was appropriate for the times in which it was drafted. It includes federal functions such as ''bounties on production or export of goods'' (iii), ''lighthouses, lightships, beacons and buoys'' (vii), and ''the control of railways with respect to transport for the naval and military purposes of the Commonwealth'' (xxxii). The Commonwealth has long since sold its lighthouses and lightships, and our military is unlikely to need to catch a train to the warfront any time soon. Major areas of federal activity, such as health and education, that have emerged in recent years are not mentioned other than via allowances and benefits. In an ideal world, section 51 would have been updated but constitutional change is hard - so ways have been found around it. These are not always the best way to tackle national problems. Every now and then, the High Court exposes the limits. Its recent decision on school chaplains (Williams v Commonwealth, June 2014) showed the Commonwealth cannot just spend money on things it wishes to: it needs to have a specific head of power. This further emphasises the need to sort out roles and responsibilities between the jurisdictions to provide greater certainty in future.

Unsurprisingly, many past attempts at reform failed to achieve their objectives (national competition policy in the 1990s was an exception). There is some reason, though, to believe it might succeed this time. The problem is clearer, the process more open and consultative, and the potential benefits more obvious.

In the press conference following the May meeting of the Council of Australian Governments, Prime Minister Tony Abbott said ''we can make changes that will allow each level of government to be more sovereign in its own sphere ... changes that will make transparency greater will make accountability greater ... to ensure that the people who spend the money raise the money''. He was supported by all the premiers and chief ministers, Coalition and Labor alike - though South Australia's Jay Weatherill did qualify his comments by saying ''before we embark on this journey of discussing what's wrong with our federalism, we also need to have proper regard to what is right about it''. Few would disagree: the positives in the federal system include a willingness to work together on national priorities, often seen at its best in times of disaster or crisis. What matters is that the heads of each government are over the first hurdle: agreeing to the process.

The next steps are where it gets tricky. For the public service at both federal and state/territory level, mindsets will need to change. There is a real chance now to move away from federal public servants thinking they know better than those in the states and territories; and the ''learned helplessness'' of many state public servants who believe the same. The opportunity is to sort out where there are national, strategic priorities and where the states have an advantage in both policy and service delivery.

Similarly, ministers' mindsets must change: an even bigger challenge. The Commonwealth has few if any constitutional powers in fields such as health, education and housing - but try telling that to a federal minister for any of these portfolios. It is in the nature of ministers to think they should run things. It is rare to find a federal minister who does not believe he or she is far more smart and capable than most of their state counterparts. This belief is almost always misguided: federal ministers are further away from practical problems on the ground. They may know about broad policy objectives and sometimes have in-depth knowledge of practices in whichever state they come from, but cannot realistically appreciate practicalities in all of the diverse jurisdictions. Recent signs are promising, with some ministers appearing prepared to let go of responsibilities in favour of better national outcomes - though this still needs to be tested when specific policy proposals are put on the table.

The principle that should in theory apply is called subsidiarity - that is, devolving responsibility to the lowest level of government capable of effectively implementing a policy. In practice, ministers face various pressures to abandon this principle. Lobby groups often prefer federal to state or territory laws because it means they only need to lobby one rather than seven ministers. Sometimes, pressure groups will call for federal laws after they have tried and failed to influence the state level: an admission of defeat in democratic processes. Academics are prone to calling for action from the national government because that attracts publicity, and plays into central-planning notions. Departments are inclined to recommend policy or actions rather than advising that the minister would be better off leaving responsibility to the states. Such pressures must be resisted.

These are by no means trivial challenges, but the benefits are great if they can be overcome. This process offers a once in a generation chance at fundamental changes to the structure of the federation. It will be hard for the political players to rise above the minutiae that deliver daily media stories, the stuff that passes for political debate today. If they can, this reform process has the potential to improve not only services to citizens but also trust in our democracy. Worryingly, a recent Lowy Institute poll found only 42 per cent of Australians aged 18 to 29 say ''democracy is preferable to any other kind of government''. Mainly, they are disillusioned with the political process. The prospect of ending, or at least diminishing, the all too frequent and often pointless spats between the Commonwealth and states over roles and responsibilities that helps give rise to these perceptions is surely worth pursuing.

Stephen Bartos is executive director, Canberra, at ACIL Allen Consulting and a former senior public servant. s.bartos@acilallen.com.au

A taskforce in the Department of the Prime Minister and Cabinet has been established to develop the white paper. The process will be overseen by a steering committee of officials from the Commonwealth, states, territories and the Australian Local Government Association.

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