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Mar 14, 2014

Wall-to-wall blue gives Abbott the chance of real COAG reform

Tomorrow's Tasmanian and South Australian elections represent a huge opportunity for Tony Abbott to drive real reform via COAG. But Kevin Rudd had a similar opportunity and wasn't able to exploit it.

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There’s one certainty about the impact of political alignments on Commonwealth-state relations: having a Prime Minister of one political persuasion and state and territory leaders all of the other is a recipe for complete dysfunction. The Council of Australian Governments process virtually ground to a halt in the last Howard government term because co-operation was impossible between John Howard, especially as he became more and more concerned about the threat of Kevin Rudd, and Labor leaders desperate to ensure a Labor win.

It was assumed at the time that the Rudd ascension would usher in an unprecedented period of Commonwealth-state co-operation. Similar assumptions are being made now in anticipation of Liberal victories in Tasmania and South Australia tomorrow (although the Liberals haven’t won outright in South Australia since 1993, so wait until Jay Weatherill concedes before adding it to the blue map). They would leave just the ACT’s Katy Gallagher as the lone Labor representative and, while we shouldn’t forget then-chief minister Jon Stanhope’s gutsy stand on national security laws in 2005, that is almost as good as a political bluewash.

But in reality, Rudd found it difficult reaching consensus with his state colleagues, and he resorted to buying off their agreement to even relatively minor reforms, back when he had the fiscal flexibility to do so. And reforms that were agreed in areas such as regulatory harmonisation ended up being piecemeal, as states dragged their heels on necessary reforms after the event. A COAG Reform Council review at the end of 2012 showed that nearly half of COAG’s agreed regulatory reforms, including some agreed by Julia Gillard and the states, were delayed or simply hadn’t been done — something those who think a blue political map will usher in a new era of deregulation ought to consider.

It’s thus possible that Prime Minister Tony Abbott might oversee exactly the kind of COAG cycle that Rudd did — starting off with a COAG entirely composed of like-minded leaders but failing to overcome parochialism and heel-dragging to achieve anything major, until Liberal leaders start getting replaced with Labor leaders again (potentially in Victoria at the end of the year) and the system resets to its dysfunctional norm.

This has implications for potentially the most exciting, indeed revolutionary, addition to the COAG agenda under Abbott — a serious effort to resolve bureaucratic duplication between states and the Commonwealth. Ending duplication is a great idea but is more complicated than simply cleaning out the Department of Health at Woden in Canberra and letting the states run the health system. It has implications for funding, which is complicated enough given financially fragile states won’t want to have more functions to perform without the money to fund them, and for responsibility for politically sensitive services. Achieving genuine reform in how education and health, in particular, are overseen and how policy is delivered in the mixed funding environment of a federation will be a huge challenge even with every COAG leader wearing a blue tie.

Hopefully Abbott will be more aggressive than Rudd, who seemed unwilling to use the full power of the prime ministership until John Brumby began placing serious obstacles in the way of his proposed health reforms in 2010. As national leader, Abbott has the responsibility and the right to demand the subordination of state interests to the national interest. He’s also previously indicated, via his thinking on federalism in his book Battlelines, a willingness to contemplate ways of overriding states that refuse to co-operate with the Commonwealth.

Abbott could, potentially, exploit his COAG opportunity in a way Rudd was unable to. That’s likely the only way we’ll avoid a repeat of the Rudd years.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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10 thoughts on “Wall-to-wall blue gives Abbott the chance of real COAG reform

  1. R. Ambrose Raven

    Commonwealth-State Financial Relations has been in need of its own summit for a decade. Rather than promoting good government and enabling change, it is often a barrier to good performance due to the strong financial position of the Commonwealth as funder versus the limited and dependent financial position of the states as provider.

    For example, the federal 2012/13 budget did not provide for any growth in funding to the states, despite stagnant GST revenue (Johnny forgot to mention that the GST was a growth-sensitive tax). Increasingly, states have responsibilities they cannot afford.

    Vertical fiscal imbalance has created increasingly obvious and increasingly severe problems in the truly important areas of government such as health and education. Instead of each tier exercising the powers most appropriate to it, governments are prone to administrative duplication and buck-passing.

    A spectacular example is the appalling spectacle of “Education” Minister Christopher Pyne seeking to destroy the government school system not just by giving all Commonwealth money to rent-seeking private schools, but also by absolving the States of any Commonwealth requirement to fund State schools.

    It is increasingly the reverse of “dual” federalism, in which states have specific policy areas, with the revenue to fund them. Naturally that would mean the States sharing the Commonwealth revenue base. Another option – broadening or increasing the GST – would increase rather than reallocate existing taxes, but is popular with the filthy rich because it effectively transfers tax-raising onto the less rich.

    GST is distributed according to the policy of “equalisation” whereby most of the GST is intentionally sent to the States that are poorest, requiring that some states are “subsidised” by others (usually NSW and Victoria) in an attempt to allow all states equivalent capacity to deliver services. It is inherently controversial as well as being complex. Even the Commonwealth Grants Commission admits there are flaws in the system. Distortions have the potential to exacerbate regional downturns and damage the national economy.

    Considering that the GST is a regressive tax, it is poetic justice that it is causing regressive behaviour by State politicians.

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