 So this event is called Renewing Australian Federalism Starting the Conversation. I have to say that one of the comments on my post in the conversation website was, there's just far too much talk and not enough action. So I said, well maybe people are talking and not listening. In response, the response was no, people are neither, they're talking and they're not listening, but then it's not getting anywhere. I'm not sure I agree. I think a serious conversation where we talk and listen is a good thing. This event was put together as an attempt to be a generating debate in the context of the white paper on reforming the Federation. We were very pleased here at the Tax and Transfer Policy Institute at the Crawford School to work with theconversation.com, the website, we've got the banner up there, and also with a research project at the University of Melbourne funded by the School of Government on Renewing Australian Federalism. So it was really fantastic to be able to bring those groups together. And we've got a really high quality set of people in the room who have a lot of experience and also new ideas and thoughts about this problem. So I hope we can take advantage of these two hours to really have that discussion. So I'd like to start before we start the proper debate to sort of acknowledge and celebrate the Indigenous peoples of First Australians, the Ngunnawal people on whose land, and it is about this land that we are talking when we talk about government and making decisions about how we govern and fund ourselves, acknowledge the people, pay our respects to their elders past and present. My position here is director of this newly established Tax and Transfer Policy Institute. We have a very broad brief, hence we like to talk about federalism as well. That's partly because taxing and assignment of taxing rights and how we fund government is of course critically entwined with the challenge of federalism. So previously I was a professor at Melbourne University Law School and I still retain an affiliation there. So it's really exciting to have brought everyone together. What we've done and I'm sure many of you know is that there has been a series of short pieces run in the conversation on the conversation website. Of course it's all available online but there are some printouts of all of those pieces available here if you wanted to pick that up and this is sort of the combination of that. So the DPMC has of course also their federation, reforming the federation website. That white paper that they have produced reform of the federation, white paper is actually a very good read. I recommend it, it's not super short, 70 pages but I think they've done a very good job of setting out the issues and asking some of the important questions. Reforming I think tax systems or federal systems might be particularly difficult in times of fiscal constraint and that is a situation that we've seen here both at state, government level and federally. It's also a reason why we need to think about that reform and think about in the tax context about how we can generate in ways that will support prosperity how we can generate adequate revenues for our governments. So what we did in that series of questions in the conversation was we saw views on fiscal issues. So issues of taxation, assignment of taxing powers across the federation, issues of redistribution or sharing of the revenues or allocation of the revenues raised from taxes, local, state and federal. We also wanted to shine a spotlight on broader issues of democracy and accountability and the way in which decisions are made about policy and about service delivery in the federation and accountability and evaluating those services for our citizens. So we asked those questions and then also how should we address horizontal and regional inequalities. We do have an equalization system we currently use. Do we need to somehow link taxes directly to governments that are spending in order to achieve democratic accountability? To what extent does it matter that we have vertical fiscal imbalance of a fairly high level where we have more taxes raised centrally and more spending done at the state level? When we did the call for that series we had some particular issues come out so we have pieces there about the overarching framework and about the tax and fiscal side and in particular there are a few pieces there about the area of education, the policy area of education. It's really ended up being in a way one case study of how decision making gets made and of course one very big and important part of government spending and government public provision and how that should be funded. So what I'm going to do is I'm going to introduce a panel here. So our panellists are going to speak for 10 minutes each and I'm also going to introduce a few other people around the room who contributed to that series. The format I'm going to do is I'm going to have my first three panellists each speak and then I'm going to open it out and then we're going to come back to John and John. You'll see who I'll introduce in a minute to again bring us back to some of the fiscal and political issues and then open it out again. So next to me, David Decavalio, First Assistant Secretary of the Department of Prime Minister and Cabinet leading the white paper process. We're really pleased that David is able to be here to tell us, I think, something about that process or raise the questions that are being considered. So David, of course, is known I think to at least some of you in the audience brings long experience in the public service to the role. Most recently in leadership roles in finance and higher education, formerly also in treasury and health so more or less he's covered all the bases and he seems imminently suited to the task. Next to David, we have Laureate Professor Cheryl Saunders, AO from the University of Melbourne. Cheryl really is one of Australia's leading experts in constitutional law with a special focus on intergovernmental relations and federalism and also on constitutional design and change, institutional design, both of which I think are particularly important here. Whether we're talking about constitutional reform in Australia in sort of a textual sense or whether we're talking about changing these, if you like, organic or basic law institutions that we have here. So Cheryl's had numerous leadership positions in the areas of constitutional and public law over the years and been actively engaged in public debate on these issues. Next to Cheryl, Professor Alan Fener from Curtin Business School, John Curtin Institute of Public Policy. Recently authored Comparative Federalism and Australian Public Policy and currently researching in these areas, as well as his long expertise in research and political science area. Alan does bring to the table, I suppose, perhaps a Canadian perspective for having spent some time there I'm not sure, but also I think crucially a West Australian perspective and that's potentially going to be of importance. He can deny that if he's not, you know, not appearing as a West Australian, I'm not sure if that's a category or not. John Freevin next to Alan is a professor of economics at the University of Melbourne and really Australia's leading public finance economist has written for very many years in policy debates and academic scholarship about taxation law and reform, budgets, forced taxation, carbon pricing and the issue of taxation and assignment of taxation in federal systems. Currently we're doing some work on state taxes. And at the end, Professor John Euston AM is a professor here at TTPI. Crawford School is somewhat of a well-known economic and financial expert, of course with experience in politics as well known academic business government and media. And what people may not know is that John was actually professor of economics for many years at the University of New South Wales of San Tango. So in addition to our five eminent panellists, I just am very pleased that we've got represented here also a number of contributors to the conversation series. So I just want to identify who they are and we might come to them. So Anne-Marie Elijah is here at ANU. Next to Anne-Marie Bronwyn-Heinz is a policy fellow at the Mitchell Institute of Victoria University and also with Melbourne University. Peter Noonan next to Anne-Marie Mitchell Professorial Fellow at Victoria University focus on education policy I believe. I am going to introduce you, because you're sitting there. We have Graham Davis from Treasury here as well, engaged in the tax white paper. Kevin Donnelly Senior Research Fellow at the School of Education at the Australian Catholic University. And then over this side we have Gregory Mellewish History and Politics at the University of Wollongong. Brian Galligan here, Professor Brian Galligan Political Science at Melbourne University and sorry, Linda Bottle from Cambridge University Professor of Public Policy. So that's my introductions. As I said, we're going to have each panel speak for about 10 minutes and then we'll break open for discussion and debate. So I'll hand over to David. Thank you. Thank you very much, Miranda. It's a pleasure to be here. I notice that the panel is very imminent, with the exception of myself perhaps, but we are four P's and another P, four professors and a public servant. Which is quite appropriate because I've structured my talk under the heading of five P's and an O. The five P's which I'll go through, problem, prophecy, pathology, principles, process and the O is for opportunity. So they're somewhat linked but I'm not going to strive to make connections between them. I'll just go through them and as a way of opening up the conversation and the issues. So problem first. This is a very important issue for the current government. It's in fact a very important issue for all past governments as well but this government has taken this issue extremely seriously and along with the tax white paper represents a really important opportunity for serious reform to take place in the Federation. Since Federation, the Commonwealth has taken on as we all know a much greater role in most areas of policy, getting involved in more and more areas that have traditionally been regarded as those of state responsibility. Many of those interventions have been very important and very beneficial and we wouldn't want to take them back in response to the changes in our economy and society over the last 100 years. But the government takes the view that the degree of Commonwealth encroachment on state responsibilities has reached a point some time ago where we began experiencing diminishing returns and perhaps even negative returns on increasing centralisation. And so those negative returns are being experienced in two ways. Firstly in straight economic terms or financial terms through a degree of public sector inefficiency. There's a Commonwealth and the state devote resources to delivering programs in the same areas of policy and program responsibility and at the same time attempt not always very successfully and often at great expense to coordinate the activities and also to watch one another and to ensure that the other party to the arrangement isn't gaming the situation. Secondly and arguably more importantly the diminishing returns are being experienced in what we might refer to as a democratic deficit whereby the legitimate role of states and territories is being hollowed out and citizens are becoming increasingly disillusioned with the political process. So with that democratic deficit in mind you can see why the government has emphasised the issue of state sovereignty in the terms of reference. The white paper it says very clearly there that we'll clarify roles and responsibilities to ensure that as far as possible states and territories are sovereign in their own sphere. And just to keep quoting from the terms of reference the objective will be to reduce an end as far as possible the duplication and second guessing between different levels of government achieve a more efficient and effective federation and in doing so improve national productivity making directing with government simpler for citizens and ensure our federal system is better understood has clear allocation of roles and responsibilities enhances government's autonomy, flexibility and political accountability and supports Australia's economic growth and international competitiveness. So you can see there that there is a strong focus particularly on getting clear lines of responsibility and accountability. When I come to talk about principles, accountability is the top of the list. Okay, that was problem. Prophecy. So I'll have two readings here. One from the Old Testament and one from the New Testament. The two readings are about 100 years apart, maybe a little bit more. The first reading, some of you should recognise this. As the power of the purse in Great Britain established by degrees the authority of the commons it will ultimately establish in Australia the authority of the Commonwealth. The rights of self-government of the states have been fondly supposed to be safeguarded by the constitution. It left them legally free but financially bound to the chariot wheels of the central government. Their need will be its opportunity. The less populace will first succumb. Those smitten by drought and similar misfortune will follow and finally even the greatest and most prosperous will however reluctantly be brought to heel. Our constitution may remain unaltered but a vital change will have taken place in the relations between the states and the Commonwealth. The Commonwealth will have acquired a general control over the states while every extension of political power will be made by its means and go to increase its relative superiority. Well, you should be able to quote that chapter in verse. The second reading is from the New Testament and it is someone next to me on this table will recognise it in writing about the last few years of federation before the last few years of federation played out that this person had a rather optimistic view of where Commonwealth state relations will go and nevertheless prophesied. There is of course a hitch, well at least three of them actually. One is the rigorous focus on the achievement of outcomes with the states being required to sign up to a mutually agreed statement of objectives and outcomes for each of the new broadband and special purpose payments and co-operate in the corresponding system of performance reporting. In a relatively benign version this would be a form of centrally facilitated yardstick competition. In a less benign form the Commonwealth would assume responsibility for awarding and punishing states for their performances. The second hitch is that the old SPPs do not disappear. Rather they are reduced to an estimated 30% of the total Tide Grant funding and are restyled national performance payments. The third hitch is that even if fully implemented these reforms impose little constraint on the future use of the Commonwealth's spending power. Tide grants may be pruned back but there is little to stop them sprouting up afresh and little to arrest a return to the old ways. The American experience suggests that block grants offer no guarantees and are vulnerable to recentralisation, recategorisation and retrenchment and there are strong centralising elements in the current federal reform agenda. So that was a reading from the Gospel according to Fenner. So I make no comment, I simply report those readings. Third P, pathology. Clearly I think what is being pointed to in those readings is pathology at both the Commonwealth level and the state level around the trend that has emerged particularly over the last 50 years where well-intentioned at the Commonwealth level moves are made to improve outcomes for citizens which involve exerting more and more influence over what states do using what was referred to in the Old Testament reading the power of the purse. So there's a pathology at the Commonwealth level. On the other side there is pathology at the state level where states and territories are willing to take the money and the conditions. There is a third element to this pathology in that the public has got used to this. There is a need for a cultural shift if there's to be substantial reform. You can't just do this, these reforms necessarily through structural changes. There has to be some changes in mindset across the board. So this is a really serious challenge. So that was my third P. The fourth P is principles and I'll just quickly go through the principles that are listed in the terms of reference which are to guide our consideration of who does what. It's very well to say what states should be sovereign in their own sphere but who's to say what their own sphere is. There needs to be some way of thinking through that. The principles that we've put together in the terms of reference attempt to do that. The first one of those is accountability. Again that's the fundamental principle that citizens should be clear about who is responsible for what. An equally important principle that we should all be relatively familiar with is that of subsidiarity. Essentially the notion that social organisation should be ordered in such a way that the lowest level of a unit of social organisation if it is competent to carry out a particular task should do that. It starts with the family, it starts with other non-government organisations and then you get into government organisations and essentially the lowest level of government that is competent to carry out the function should do so. That's often contrasted with the idea of national interest but in fact national interest and subsidiarity are two sides of the same coin. The default position is subsidiarity and national interest or moving things up I guess is the exception to the rule. If you can establish that it is more competent to carry out a function it's more competent to carry out at a high level of government will and should be done so. The fourth set of principles is we've captured in one dot point three principles, equity, efficiency and effective missing service delivery. We're going to be pointing to our focus on outcomes for citizens. The next two are very important. Durability. Whatever new arrangements are arrived at as a result of this process has to stick. They can't be arrangements that are subject to change every time there is a change of government or even frankly a change of leader within the same government and they need to be able to stick for the long term. An important part of durability is fiscal sustainability for both levels of government. So those are the principles that are guiding our consideration of these questions. The fifth P is process. I'll just say something briefly about that. We've released our terms of reference on the 28th of June at COAG on the 2nd of May. All First Ministers agreed to work collaboratively on this project and set up a steering committee of First Ministers and Prime Minister and Prime Minister's Secretaries as part of a steering committee. So it's chaired by Anne Watt and meets regularly to discuss progress on this project. And there's close engagement with our state colleagues. In addition to that we and the task force in the Prime Minister's Department are very open for business. We're happy to talk to anyone at any time and a lot of the people in this room I've already talked to around these issues and there will be plenty more opportunity for us to talk to people and to listen to what they have to say. We are setting out five issues papers. The first is already out. It's a general overarching one which I hope you've had a chance to read. We've had relatively positive feedback on it The other four are one on housing and homelessness issues one on education issues and one on health. And then there is one more final one on COAG and fiscal federal relations. Looking closely at the inter-governmental agreement on fiscal federal relations. Once those papers are out we intend to having a set of targeted roundtables which will be co-chaired by our colleagues in states and territories towards the end of the year. And then the green paper sometime in the first half of next year followed by a public consultation process with written submissions the usual I guess green paper, white paper process. The green paper is not strictly going to be a draft white paper it will be more an options paper. And then the white paper towards the end of next year. So finally O is opportunity. I guess I'm wanting to exhort everybody in the room to think about this as an opportunity that's too good to miss. Several senior people at both Commonwealth and State Government have said that this is a once in a generation opportunity. What's particularly important about it is that the Federation white paper and the tax white paper are being done together. We're working very closely with our Treasury colleagues. The reason that's important is often big changes in terms of roles and responsibilities on the expenditure side have fallen over because of the financial transfers that they involve. And so we are now not only loosening up all the pieces on the expenditure side of the chess board but we're also loosening up all the pieces on the revenue side. So there's a really good opportunity to match expenditure responsibilities with taxing responsibilities. So I think that's the end of what I have to say. Thank you. Thanks Miranda. Can I begin by saying how much I welcome this initiative for Federalism Reform? I agree with David that it is a great opportunity. I think that it's long overdue. And I'm going to pursue the theme which was the subject of my piece in the conversation that it is also necessary for the quality of Australian democracy. So in a sense I'm picking up David's democratic deficit point. Federalism and democracy are very closely intertwined in Australia. Democratic Australia is naturally federal given its history, its geographic size and the diversity of conditions around the country. Every aspect of the Australian Constitution is infused with federalism even the composition of the House of Representatives is predicated on a federated Australia. In principle, federalism and democracy are mutually enhancing providing Australians with institutions that are democratically accountable to them both nationally and sub-nationally. Ideally, each of these spheres of government deals with the questions best suited to it, judged by reference to the now trendy but very convenient notion of subsidiarity which is able to balance such considerations as diversity, responsiveness, effectiveness, equity and the realities of a degree of interdependence. Unfortunately, although not particularly surprisingly through a process of constitutional drift over a period of more than 100 years the positive relationship between democracy and federalism has turned negative. Much Australian government now effectively is conducted through a virtual labyrinth of intergovernmental arrangements. Both the arrangements and their products are highly complex and opaque, understood by relatively few outside government most of whom are gathered together in this room and possibly relatively few inside government as well. One consequence is the duplication of activity between the two spheres of government which David mentioned and another is the erosion of the basic democratic principle of the responsibility of governments through their parliaments. Democratic accountability has been replaced to the extent that it's replaced at all by a raft of technocratic performance measures and under this regime state levels of government in particular have deteriorated wasting opportunities for innovation and offering often poor democratic role models. The irony is that without the discipline the democratic accountability can provide intergovernmental programs also are not as effective as they might be. Now there's a multitude of interrelated causes for this situation. One is that intergovernmental cooperation is barely contemplated by the founding arrangements in the Constitution so our systems tend to have developed in a haphazard way without keeping an eye or an adequate eye on federal democratic principle. A second is that as a result of the extreme and also in many ways accidental vertical fiscal imbalance the states have become dependent on commonwealth grants and the commonwealth has developed a tendency to assume that it must therefore be responsible for much state expenditure. Thirdly we've begun to accept too readily that uniformity is a goal for its own sake, losing sight of the potential that diversity will offer a country like ours. And finally over time of course interests have become entrenched around arrangements of this kind. Governments like it as David mentioned the states simply accept the money and the conditions without a great deal of public accountability for it big lobby groups like it but from the standpoint of we the Australian citizen those considerations should be beside the point. At least three things need to be done. First we need to rationalise and provide a framework for intergovernmental relations. Intergovernmental arrangements should be used only when there's a genuine need for them leaving each level of government otherwise to carry out its own responsibilities. The intergovernmental relations system that remain should be designed to take seriously the very basic Australian values of democratic accountability and the rule of law. And enforcement should rely to a much greater extent on democratic and legal accountability aided by transparency. Secondly we need to tackle the maligned byproducts of the vertical fiscal imbalance. This might be done in either or both of two ways. One is by enhancing state own source revenues including by some redistribution of tax capacity from the Commonwealth and the other is accepting balance in tax raising by the Commonwealth and the states respectively and view of their expenditure responsibilities is simply a public convenience that the proceeds are not close quotes revenues and that states are entitled to a fair share for which they are responsible to the voters. On either basis there should be no need for the Commonwealth to second guess the states in the performance of their policies although I accept there will be need to be paid to whether the Commonwealth should be able to pursue Commonwealth policy goals through the states and how, when and why that should occur. And then finally as part of my three part program for change we will need to revitalize state politics including state parliaments and the operation of states as accountable political communities. There are lots of impediments to this federalism reform there are the entrenched interests that I referred to earlier there's a simple inertia of the status quo and the fact that Australians are not as a people accustomed to deliberately designing their arrangements in particular ways and over the course of this federalism reform process we can expect to hear all sorts of chivalrous endlessly repeated and we need two levels of government this is all about states rights federalism reform involves a return to 1901 I'm sure you've heard it all before and you're going to hear it all again and I won't pause now to dispatch each of these although I'm more than happy to do so later even the deacon quote we hear a lot of Alfred deacon and of course he was very prescient in his chariot wills quote but Alfred deacon speaking to the circumstances of the 19th century and we are now in the 21st century when multi-level government is a benefit enjoyed by much of the rest of the world and Australia should take advantage of it too the truth is that I think we have no responsible choice but to go down this path I don't think it is a real option to maintain the current complex intergovernmental system it's not an option to continue to replicate functions in the way we presently do it's not an option to continue to run down our democratic institutions and it should not be an option to continue to dissipate the opportunities for innovation in democratic forms and responsive public policy on a more positive note there's a great deal to be gained from federalism reform greater transparency greater effectiveness less unnecessary cost and it should be at least an Australian citizenry more engaged with its own democratic institutions at both levels of government and hopefully that would assist with the cultural shift to which David referred thank you well it's very hard to add much value to what David and Cheryl have presented in those excellent surveys Miranda thank you very much for inviting me thank you for organising this event I'm already very successful I cave it before well I was going to get to that I mean not to solve any of the problems but I was going to make a caveate about who I'm here representing I certainly couldn't claim to be here as a western Australian because I'd have my toes cut off when I go back given that I am so obtuse on the question of GSD I can't yet fathom the reasoning for WA keeping the mineral resources that somehow by pure happenstance have landed within its territories so anyway I wouldn't claim to be a western Australian I'd certainly have my residency revoked Miranda you made a very good point about the all talk no action aspect of federalism I didn't use to study federalism but I decided to start when I realised that you could get a trip some interesting place in Australia every six weeks to meet up with very interesting people and talk about an interesting topic if you start as a study federalism because it is an ongoing conversation and it is difficult to say new things about it it's not that the things we say aren't valid or important or good but it is that disjuncture between talk and action and that is genuinely a problem right let me make a few points which will partly work on the principle if it's a good point then we need to hear it three times and partly add a few other things to what Dave and Cheryl have already said clearly at the heart of much of what we're talking about is the disjuncture in Australian federalism between powers on the one hand formally allocated powers under the constitution to the level of governments and the resources available to the respective level of governments to execute their tasks under the constitution the powers assigned to the states are enormous they are infinite and certainly from conception designed to encompass exclusive jurisdiction almost over every major domestic service delivery task in the federation that's clearly not the case today and of course the accretion of central power largely through fiscal authority in the federation has been a very big part of that what we call VFI vertical fiscal imbalance the disjuncture between revenues and responsibilities this VFI is indeed far more acute than in any federation that we would wish to compare ourselves with VFI is an endemic tenancy in federal systems but it's far more acute in Australia than in others that we wish to compare with so it suggests that it's not necessary may not be desirable and I think that's important the fact that in comparative perspectives it shows this is not normal this is in some ways an extreme version you could call it a pathology of Australian federalism in particular there are good reasons why central governments tend to get greater taxing powers in federal systems but they certainly don't necessarily get the kind of taxing powers they have in the Australian system now we could go on a considerable length about how and why that's happened but the real question here today is obviously not how did we get here but where do we go from now and of course the old Irish joke about poverty is the obvious concern but as much as I love the Irish we'll leave that aside in the simplest terms possible perhaps we could say we have fiscally three options in ascending order of ambitiousness and the first one is clearly to tinker with existing arrangements and the existing arrangements that I'm referring to are in fact that the states were given something of a reprieve a fiscal reprieve with the introduction in 2000 of the goods and services tax since the total net proceeds of the goods and services taxes are hypothecated to the states under Commonwealth legislation and into government agreement neither which of course in any way rock solid but that's certainly been the case unquestioned to today so the first step to me seems fairly obvious to maximise what the states can extract out of the GST and that means a concerted demand from the states to increase the rate and the spread of the GST the broad and the base and increase the rate of the GST the nice thing about that for me is that there are good reasons to do both entirely aside from federalism and good reasons that even the Commonwealth could perceive for doing that it's a good tax it's a rational tax it's an underutilised tax in Australia it would allow some pressure to be taken off the income tax system in Australia which would be economically advantageous so that's in a sense the low hanging fruit that's available to be picked and the states would be willfully stupid not to be pushing that as hard as they possibly can jumping at any opportunity that presents itself the second option then is to shift to the most powerful tax base which is of course the income tax which was monopolised by the Commonwealth by force in 1942 and it is not a tax that in other federations is monopolised by the central government and so we are an outlier very much an outlier in that respect it's not as I said it's not normal and that would be the obvious, most obvious area in which reform could proceed not it's the proverbial growth tax it's the largest source of revenue and the states are completely excluded from the income tax now in my proposal that would be some form of what's called revenue sharing that is to say the states wouldn't have income tax of their own they wouldn't have a role in designing the income tax system they would simply have a guaranteed share, a percentage share of the take of the income tax system that would present minimal problems in terms of invidious situations between states of their fiscal capacity for instance and reduce complexity for taxpayers the third step which has been advocated by some states and you can guess which ones in the past has been for the states to possess some control to have some control restored to them over their own income tax base within their state boundaries and this would be moving towards, back towards a classical federal system this has the virtue nice virtue in theory that the states as governments would be accountable for what they raise to their own taxpayers the problem is that may be a good idea I'm largely indifferent on that but there are certainly potential problems with it particularly given differing fiscal capacity and probably the most bedeviling aspect of fiscal federalism in any federation which is always the danger of anti-social competition on the revenue raising side between jurisdictions where you get very unfortunate developments such as the dismantling of inheritance taxes in Australia which fiscally and socially pernicious but an unfortunate consequence of federalism so you do have to guard against those tendencies so this sort of restoration I haven't been watching the time Miranda I'm afraid so you are watching the time the obvious correlate of this would be a restoration of the traditional some of the traditional autonomy in areas of service delivery and policymaking responsibility for the states to go along with that and again the overseas examples do give us considerable encouragement here there is absolutely no need for a federal department of education or a federal education minister these things are simply redundant and wasteful Canada has at least as good in fact a rather better education system being a beneficiary I must say that than Australia and it has no federal education minister it has no problem aligning systems across jurisdictions and there's far greater jurisdictional variety in Canada than there is in Australia Ditto for Switzerland so we could move very quickly to abolish a lot of the genuine silliness in the centralization that has occurred in Australian federalism as a correlate of restoring some more natural and appropriate degree of fiscal autonomy now of course I couldn't end except on bad note and the bad note is the jump from talking about it to doing it and we have to take into account certain realities that in Australia given the great homogeneity of this country across geographically that citizens the media interest groups and political parties have to be loyal to federalism for federalism to work they all have to look first and foremost to their state governments for action and accountability and responsibility if indeed those state governments are going to get and retain those powers and there's a there tends to be a vicious circle or self-fulfilling prophecy whereby the Commonwealth takes on more responsibilities so it is naturally looked to by opportunistic federal politicians on campaign by citizens as the solution to their next problem or and so on and so forth thank God for pink bats because at least it did make people wake up to some of those limitations are they really pink as well is my question but they are and not entirely on the bad news front and coming back to David's oh the opportunity aspect federal reform I think has to count on some adventitious created alignment between what would be good for the federation what is perceived as being in the interests of the Commonwealth at a particular juncture which then has to be of course seized thanks very much okay so for the five P's I wrote them vertically which is a peculiar thing to have done because now I can't read them policy principles really they're quite useful policy, problem, pathology principles process, prophecy that's six I think and opportunity then we have really an emphasis on democratic accountability and I suppose they're an issue of how we do it and this real challenge of how we do it and actually how do we get across that line to actually be doing something what is the deal that would make change so what I'd like to do is invite if anyone does have you know keep them fairly short question or comment either specifically for our three speakers so far or perhaps on those issues who'd like to start put someone here so we do have some mics. Thanks Scott Compoe-Hums from the Australian Chamber of Commerce and Industry I just wanted to ask all of the panellists basically where attempts to give revenue raising powers back to the states or sources of revenue back to the states have fallen over in the past is that at least one or two states have said no we don't want this so what incentive mechanisms are there available to I suppose encourage the states to take back responsibility for their own revenue raising yeah because I think that needs to be a major part of these reforms so I'll take another question or comment before so would someone else like to that's a very interesting question that's part of the kind of getting over the line in the way what about incentives someone out there here My name is Terry Henderson when I first came to Australia 40 years ago I was working in the Whitlam Government and at the social times we'd get a few people with a few drinks and run around saying we're going to abolish the states and some of you probably heard this before it raises the question implicit in what you've been saying is keeping the same structure the same number of states now you've got six in Australia 50 in the United States different environments different inner reactions is the present state the way they're delineated and there's an ability to create new states is this optimal or is this part of the problem interesting comment anything else short or I might we've got one more up the back and then we'll come back to the panel Thanks Patrick Tobin from Catholic Health Australia we've got members from public and private hospitals many of them in a number of different states this is obviously a really really complex subject so we've got different reactions to different parts of it I guess one thing that I do get back to the CEOs that operate across states is the inefficiency in dealing with different regulatory regimes in different states and we're talking about hospital regulation, workers comp a whole lot of employment arrangements and so one of the things I didn't hear from is how much efficiency both for governments and maybe this is an easy way for governments to sort of particularly for Commonwealth to push outsource some of its coordination responsibilities and how much you're actually dumping on operators and particularly in these days of internet rapid technology how much diversity do we want in some areas of regulation Thank you so I might come back to the panel, you three but also because of the other two any responses to any of those three points I might just go to Patrick's question Yes, that's a good example I guess there are numerous examples of regulation at the state level and a level of diversity there which is you struggle to see the value of it in the health system I'm told that different states have different rules about the width of hospital doors and that this has problems for the manufacturers of hospital equipment as well as for the operators of national health companies who operate private hospitals for example across the system I stand to be corrected or enlightened but it strikes me that there's an area of diversity which is not necessarily adding much in terms of the value of diversity that's not necessarily an argument for the Commonwealth to come in and say they'll shut or have doors for this width because what will inevitably happen if that says is that the state will say well that's all very good but it'll cost a lot of money for us to change the doors and we can't be expecting to pay for that and so there are numerous opportunities I think for states to work together without the Commonwealth looking over their shoulder to have sensible approaches to uniformity and that's not in the issue of hospital door is about in a whole range of other areas of business regulation let me say quickly a few words about the first and second questions Scott's question what if the states say no well I mean who are they to say no frankly I mean who are the states the state governments from time to time but if in the end we decide that it's in Australia's public interest to have our governments more accountable at the state level then either they say yes or we get new governments I mean at the end of the day it's not their business and I know that's all very well to say but I do think that we should take a stand and say look at least if you say no let's reason with you and see what are the impediments and put the positive side which is what I'm trying to do there's that old story also as the states sort of withdrew from taxation and the Commonwealth took over of the state premier saying the only good tax is a Commonwealth tax and everybody laughs at that but at the end of the day that's not a good sign either if it says something about the way in which accountability systems run so I just think we need to be a bit more robust about that argument I'm the question of the number of states you know it's a bit of a paradox here isn't it so some of our states are really huge Western Australia and Queensland in particular are enormous and most of the others are reasonably sizable so that you might say that in terms of the democratic argument we should have more states and certainly comparatively many federations do have more states on the other hand this number of states tends to suit us for all sorts of reasons one they do have historical roots for what that's worth secondly they minimise the opportunities for different regulation that the third questioner spoke to so in a sense the configuration of the Australian states enables us to have our cake and eat it too if only we could make it work effectively now it may well be that over time we should think more seriously about whether Western Australia and Queensland should be turned into two or more states but that is an argument that I suspect David does want to pick off at this particular time and I don't think that that's as urgent as some of the other things that we're talking about at the moment Alan did you want to comment on any of those? Yeah three great questions I'd like to make a few comments about each one if I may I'll start off with the easiest one which is the one that Cheryl just addressed and largely agree with Cheryl it is indeed not the optimal number number of jurisdictions studies show the optimal number is 26.5 I made that up but it's it's somewhere around the 10 to 20 to 30 range but the fact is we can't do anything about it we have logical and an optimal number given at our population dispersal and structure in Australia it's inconceivable for instance to create two states out of Western Australia there is only one urban centre you can't have a state that is just a rural hinterland full of iron ore mines so that would be a nonsense the only state that could conceivably be split would be Queensland you could create new states but they would have such as Northern Territory but they have ludicrously low populations even worse than Tasmania so we stuck with what we have we just we can't do anything about that it's not ideal but again as the Irishman said the second point state resistance to revenue I think that's a very serious issue and I wouldn't take quite Cheryl's point of view I think it's a serious issue because it is a disability of federalism and one of the reasons why in all federations the dominant tax raising role is played by the central government you simply have too many issues of externalities and downward pressure on individual jurisdictions to raise taxes optimally particularly for much more economically weak jurisdictions so this is why I don't recommend I think the day has long gone when we could return tax raising responsibility to the states we simply have to return tax raising tax revenue to the states it's not going to work it probably wouldn't improve the federation it wouldn't be practical to go back to a situation a hundred years ago where the states had their own sales tax which they should have been allowed to have but weren't and continued with their own income tax the door has closed on that so we have to work with the reality and the reality is sharing revenue rather than reallocating or restoring the tax base back to the states so sorry to the business minded people that's just not happening it's not a smart idea the last one if I may the inefficiencies of multiple jurisdictions now this is an old chestnut in Australian federalism there's always these stories about how the health requirements you know every bank this banks in every jurisdiction have requirement that their emergency medical kit have tape that's two centimeters wide in New South Wales and threes it's nonsense it's a completely apocryphal these things either didn't exist were trivial or have been done away with and David I'm disappointed that you go peddling these stories just shows you actually are from the Commonwealth but now the story we're simply to say that there is plenty of opportunity to states to do things sensible without the Commonwealth intervening and I was glad you said that and it's absolutely right these things can easily be resolved by the states themselves and in other federations they are resolved by the states themselves but I think it must be kept in mind there's a footnote there that federalism is about diversity and difference to some extent it's just suck it up tough that's the way it is the idea of federalism is to be different from jurisdiction to jurisdiction if it causes some slight inconvenience to business ultimately who cares well actually what I would have said is I thought the market was supposed to be able to solve problems like that if they are contracting with governments so that's another aspect thank you I'm going to actually throw to a couple of other people out here so I wanted to come back to Brian Brian Gallaghan and one of the things you raised in your piece in the conversation Brian was this issue of perverse games between state and federal so I'm not sure whether you've got any thoughts about that or whether there's something else you'd like to say more generally about the issues raised so far I was disappointed that David didn't have perversity as one of his perversity I think we had essentially had an pathology we had pathology perversity is just a slightly more technical, political science I'm sorry you don't have a mic in front of you here we'll just bring it over I wanted to just link up a few points leading to this sort of issue of opportunity and how we sort of break out of it and it just seems to me there is something has happened in the atmosphere I remember when I was leaving Canberra I think soon afterwards because I always thought it was a bit of an embarrassment the good citizens of Canberra I think to take fluoride out of the water for a while and now something has happened they've put something into the water obviously recently because almost for the first time there's this sense coming from senior leaders, political of a sea change where and it was most evident in the budget when the Commonwealth said we're pulling out 80 billion I think it was 80 billion from the Ford Estimates which is a huge number of hospitals and when they were queried starting with the Treasury first the Prime Minister and then surprisingly the Minister for Education their response was we don't run any schools and hospitals so that's the state responsibility now nobody asked Mr Pine well if you don't run any schools and hospitals how can you Alan Singh how can you justify a huge department of education it's sort of a that change reflects and if it follows through a change in sort of attitude, culture subconscious or whatever we could obviously go to reasons why budgetary reasons and so on but a sense of sort of more responsible I guess administration there's best not to do things that you're not doing very well and over extending yourself and so on so it seems to me that the leadership of the Commonwealth in this is going to be absolutely crucial and depending how much they're prepared to systematically work through it and all the signs are good with the senior experts coming on board and white papers and so on the states I think despite well I agree with Cheryl but I just don't see it happening there's a sort of a vicious cycle which I think Alan mentioned that somehow the Commonwealth has been getting into anything and everything from Kevin Rudd we'll take over hospitals every time there's a problem recently the Commonwealth leaders said we're going to come in and do it whether it's the Mersey Valley hospital or Pinkpatch or whatever and so people look to the Commonwealth so that somehow I think the states are going to have to the state governments have to be going to push into this and probably the Commonwealth sort of you know stunned on the 80 billion is the way to go just in a sense to the Commonwealth to retract and let the states you know make some hard decisions I think that might be the tough sort of medicine but as I see I think the Commonwealth is crucial but the opportunity is there something has happened in the water of Canberra and it's a question of whether this would follow through No you hang on to that I'm marked already I did want to have a couple of other comments from our people in the front who had so one thing that Anne Marie you raised in your conversation piece was the issue of globalization or rather the relationship to the outer world the rest of the world we do tend to be very closed in these debates or there's a risk that it becomes very closed and yet all of our other policy you know most of our other policy and in fact education providers health providers are all looking outward so I don't know whether you've got any thoughts or comments to add on that Yes Thank you Actually my comments follow on quite neatly from some of the issues already raised in relation to what I think of it as a system friction really between the different Australian jurisdictions and then how that affects us internationally so my article was a bit of an outlier because it didn't deal so much with domestic issues but I just wanted to draw attention to the fact that there is an international dimension to this and that we need to think that through when we're thinking through the reform of the Federation so I guess if we think through some of the past examples about how the Commonwealth and the states have managed the kind of institutional framework for resolving some of these issues that can be something we revisit in this context and in particular in my article I wanted to draw attention to the fact that the trade policy has changed quite a lot in quite a short time and I think that is going to place some increasing demands on our Federation so we might as well think those issues through now rather than have to deal with them down the track and I mean I've got a list of these apocryphal stories about the differences between the jurisdictions I think some of those actually are an issue for international trade and then we have to make a decision about how much that matters to us. Maybe it doesn't matter how many companies can sort this out but actually with some big players like the EU trying to sort it out among 28 nation states maybe we should think about how we can resolve those issues across our small number of jurisdictions. Thank you. I think that's a really useful thing for us to remember. The third person I thought I might go to quickly now actually is Greg Malewish. Greg you raised the issue in what I thought was a very striking in your piece where you talked about the risk of monarchical government and you raised fear of a monarchical political system in what fits a little I think with what Cheryl has been saying about the anti-democratic tendencies of the where the Federation has got to so I wonder if you might like to just elaborate briefly on what you meant by that. What I meant by that is the tendency for politics today to use what I call a CEO model whereby power is increasingly invested in Prime Minister just like it's in the CEO. We can actually see something similar happening in Australian universities, a similar concentration of power where power is moving upwards all the time and so the threat is that we'll actually move the states become subordinate the states begin to behave in a subordinate so they're a bit like welfare dependents I think and you've got to get them off the drip and how do you get them off the drip and make them act responsibly and this is where the democratic accountability issue comes in. Democratic accountability to me is about responsible government which is what was established in Australia in the 19th century. Responsible government means that when you take people they raise the taxes and they're accountable to you for them and when the federation debates were taking place there was a lot of concern about what would happen to responsible government under a federal system and it strikes me that if you're going to actually have responsible government if you're going to have democratic accountability simply taking the tax from somewhere else psychologically in a whole range of other ways isn't good enough you actually have to have the government raise the taxes that they spend they have to be democratically responsible to the people who elect them and I think that's one way of putting a greater republican element back into the system which I think is absolutely crucial the point is that the Commonwealth government will still have a lot of control over the taxes that they redistribute them and won't allow people to think that they're in control of their system Thank you I think this issue of executive power as opposed to democratic power is something we need also to bear in mind Tony Cole I think that while you've got vertical fiscal imbalance you have got dominance as was said in the first reading by the Commonwealth with the power of the purse and doing something with GST putting the rate up and broadening the base and having the Commonwealth give that money to the states will not remove any of the Commonwealth arrogance it will last and we saw handing over the GST they cut to do that they cut what was called financial assistance grants rather than taking the opportunity to get out of some of the areas where there was overlapping authority or power struggles the best and the brightest in all state departments competing with the best and the brightest in the various departments in Canberra to shift costs to the other it just it doesn't work and I just comment also on the idea of states competing away the tax if you if you if you just look at the USA at the federal level with no intervention by the states the two parties the two major parties have competed away the ability to raise enough tax to cover their spending so I don't think that that that's the right way to go either the and I actually think it's relevant that GST is not a progressive tax income tax having a state income tax the states would unquestionably have the constitutional right to vary the level of the income tax it would clearly be a state tax and the states could be accountable thank you anything else from there might just take another question or comment and then throw to my two further panellists right up the back there of course nation states are operating in a globally competitive tax environment and coordination at that level is starting to become increasingly important on the agenda so just yes Tony Webster policy partners probably a provocation to just get to another what I see as an issue is that how institutions are actually strong and have a lot of checks and balances that are extraordinarily important and are undervalued so we need to be careful not to change tinker with certain institutions for the sake of undermining the whole system can you name one not disputing France commission getting up towards a century of expertise in that organization and does a wonderful job of fixing up a lot of political mistakes we're not going to debate that that's just the example keep going so institutions are strong but our politics is weak and what's happening here is that despite the institutions our political classes are using in particular the strength of Commonwealth revenues to buy influence in areas that they really shouldn't be tinkering with and it doesn't matter what institutional change you put in place you will not stop that political tinkering okay well look I'm sure there's many more comments and questions but what I'd like to do now John and John is to come back to the two of you and have you present your little presentations each and then we will open it up again and come back to some of our other contributors particularly with the example of education as one of our case studies here Professor John Friedman thank you what I'd like to do is focus on the underlying story behind vertical fiscal imbalance I think we've heard so far some fairly cogent arguments that a large share of Australian government expenditure will be done at the state level if you want competition if you want efficiency if you want experimentation if you want democracy then a lot of that stuff has got to be done at the state level rather than centrally you then look at the revenue side and here I'm sort of jumping into what might happen in tax reform the first tax to be got rid of is the state stamp duties on any criterion it's the most inefficient distorting tax unfortunately it's about a third of existing state revenues the states could do a lot, lot better on their land tax the nonsense of exempting owner-occupied residences and primary production but only hitting commercial makes no sense and of course part of a package of getting rid of stamp duty would be to shift it over to land tax again they have a major exemption in payroll tax they throw out about a half of the potential workforce on some fictitious story that small business is the only place that does any productivity or drive in the economy the reality is half the employees are in the untaxed small business so you can broaden the land tax you can broaden the payroll tax and it'll probably we're getting rid of the stamp duty get you to about break even so that then leaves the states still wanting big handouts from the commonwealth if you then start to think about what will reform be on commonwealth taxes then I think if most of us would say a bigger and broader GST but of course quite a lot of that revenue is going to have to be recycled in a lower income tax and higher social securities and nobody's worse off general pressure is to push down income tax and particularly the component that falls on capital which is highly mobile in the international world so the bigger GST would under current arrangements do some of the extra funding for the states but I think as Tony Cole was sort of handing out it's really getting a share of the income tax which is what the commission of order pushed for is the way to go the other side of the story of course is the commonwealth could give totally untied grants instead of tied grants now with a untied grants from the commonwealth coming from anywhere for state responsibilities where it's clear that they're responsible for it they can't buck pass or they get a set share of income tax or whatever I think you can choose in between so then I would want to end up with what I call a hard budget constraint that is if the states want to spend another 500 million more or less on education health or infrastructure then that's got to come from their own tax either they're going to increase the land tax or the payroll tax or their income tax share and then I think we would slowly get our act together but of course this really complicates the story you know we've heard really particular things of what you want to do on the expenditure side there's clearly major structural changes going on the economy health and infrastructure are going to become more and more important the Australian tax system is inefficient and structurally unsound so there are going to be major changes there we've somehow got to put those packages together and convince the lethargic citizenry and then somewhere John we're going to find a bright politician to sell this stuff over a long period he or she may actually do it in a thing called fight back and lose the unloosable but then see his or her ideas come through in the next decade so that's my story so just before because you've been so concise I'm going to draw out a couple of things John. One of the things you talk about is this issue of the income tax share and do you actually we could have revenue sharing arrangements or we could have returning the base self including decisions for example about rates so what are you actually suggesting or are you agnostic about that or what are your views on that question well efficiency and mobility of factors would say you wouldn't want states to have very different income tax rates across the board so that would tend to say either they get a share of the income tax revenue or they have the first 5% or 10% or whatever it is you know I think there are a number of options to be played there I think allowing rates to vary more than a few percentage points is likely to start a race to the bottom and have to potential inefficiency effects and what about administration and collection okay that would be done a straight commonwealth task and in fact arguably a broader based payroll tax would just free load on the commonwealth pay as you go plus superannuation plus fringe benefits so I think the point we're trying to draw out there is that we could potentially think about institutional legal arrangements that involve devolving income tax for example in some way or another that doesn't necessarily mean that suddenly there's a thousand local tax officers collecting from their local town or city so we can potentially separate out issues of administration regulation and collection from issues of entitlement and expenditure responsibility and potentially some political responsibility over things like the design do you want to, I've been jumping in is there anything else you'd like to say or I'm going to move on to jump into this one well maybe the people who did displaced in the commonwealth education department can go to the augmented revenue agency which is definitely going to need more as I recall I'm sure it's the same you just have a common tax thing essentially in the states I think there are a number of options you can play with okay thank you John we'll go to you I must say when I look at this issue tax and federation review I feel a bit like a mosquito in a nudist colony there are so many fleshy issues to bite into I don't know where to start I agree with a whole lot of what's been said today and and I agree with David's original comment about the magnitude of this opportunity and so far we've got a government that's allowed these two reviews to be established and to be run essentially without constraints perhaps not as big and as independent as some of us might have liked but we have the chance for some pretty fearless assessments that the options are and try and drive some sort of change and I think that is a big plus but I'm concerned about the realities under which we are operating today I mean the economic realities are pretty obvious John's just made the point about the unsustainability really of our present tax structures and there has to be change but in the context where both sides are politics federally and you see it at state levels of world they've committed an enormous amount of years for projects like infrastructural national broadband or disability care or school reform or whatever and they're all essentially unfunded and at the same time they're committing to lower personal and corporate tax not to touch superannuation not to touch housing not to touch the GST so I mean the whole situation is completely politically unsustainable yet there's actually a political system that's got even more and more short term more and more opportunistic more and more adversarial more and more negative I mean just say to yourself well it's a great opportunity in that context it's going to be very difficult and it's quite easy I think in that context to lose sight of some of the things we've actually already achieved with our federation I mean as much as we can find weaknesses in the structures of tax side, we've actually got a pretty effective system that works quite well when I think about what's happening in the Euro for example or I think about what's happening in the UK with what they've got to do now to somehow buy Scotland off they're raising these questions and we have the advantage of a common currency our fiscal discipline works pretty well the distribution of the proceeds works okay it achieves the degree of integration of fiscal policy which the Euro is unlikely to achieve in my lifetime and so I think against that background I keep asking myself how are we going to move forward I mean some of the tax changes that John just mentioned I think are fairly obvious directions but when you ask just if you look at something like payroll tax you say well why do the states have separate payroll taxes why don't we just have a national payroll tax and a national land tax and a national GST and then have just a revenue sharing structure behind that to try and make it work but these are all difficult questions and they're all complexities around that when I look at it though I mean I asked myself how are we going to go forward I think there are a number of key elements that will be required to make something of substance out of these reviews I think the reviews themselves can be substantive independent fearless lay out all the options and drive set a scene for the debate but within that context you're going to need somebody to lead it or some group to lead it and as being said I think it's essentially going to be driven at the Commonwealth level you want somebody to lead it in my experience you get anything done in politics you've got to own it and you've got to drive it and you've got to own it at the implementation at the conceptual stage if you like and then you've got to drive its implementation to make sure it happens and so that's the first thing and secondly then you're going to need to build some champions behind that that will make that work not just in government but across the entire Australian community in academia in business in the broader community and unless you can create that environment where we sort of broadly agree there's a problem secondly we look at the options that are available to solve that problem and then we work together to collaboratively achieve select those options and then work collaboratively to achieve the outcome that's desired we aren't going to make too much progress in our current political system the third thing I guess you're going to need is very significant in that process attitudinal shifts I mean the government itself has obviously got to see its leadership role at the federal level and with the support of key state governments in business I mean business is going to have to start sneaking beyond its capital stock to make some of the changes that will need to be made the union movement is going to have to think about how you increase the pie before you ask for a larger slice of it and if you look at the tax industry the accountants and lawyers I mean who make their money out of just walking around the regulations however fast they're produced they've got to start to think about how they might contribute to the national good rather than just seek to profit from complexity and inconsistency and so on in the system and those sort of ingredients are going to be very difficult to achieve and in my ideal world they're the sort of things I want to see happen in order for that to take place now as John quietly mentioned here that fight back was the longest now seen as the longest political suicide note in history it is a very difficult thing to try and do particularly from opposition but I think we are going to in an ideal world have to have those sort of key elements addressed otherwise we won't make the changes that are going to be required in the end if we don't have an ideal world and I think we need to think about some permanent independent structure which might actually drive this process take it out of politics if you like take it beyond government and some sort of permanent federation commission that has the responsibilities for assessing these issues and making and proposing these changes and come up to structures that might be able to implement now there's a lot of dimensions to that and of course you know constitutional change might be one of them but the final point that I want to make is that I used to sit with frustration in the phrase he used in the monetary policy committee of cabinet which use in its wisdom it used to set the exchange rate and the interest rates it was a pretty biased sort of structure because there were seven members four of them were farmers the treasure was one of the remaining threes it didn't matter what he thought because those four farmers determined the outcome and they never saw any merit in putting the exchange rate up or interest rates up and so there was a natural bias in the structure but the frustration of that process I used to dream of something called independent reserve bank that my driver market based determination of interest rates and exchange rates and it seemed inconceivable I must say today when I look at federation I say well it might seem inconceivable to have a permanent independent federation commission but maybe we should in the end have to go to something like that rather than face what's going to be a very very difficult set of economic realities and political realities in the foreseeable future Thanks John so just on that independent commission idea that's not to push reform forward that would be a permanent structural part of the system in some way is that what you mean by that idea? Yes I would like to think that you might have I don't like to think you have to go there but if you did you know it would have to be given some sort of agreed powers to generate change it may need you know a coag process it may need bits and pieces tagged on but at least it could be the driver of the debate it could generate the options it could force a public assessment of those options before and it notionally put governments under pressure to respond So this issue of an institutional change I suppose I wanted to raise that in terms of the longer term as well that is we do have some institutions as the Commonwealth Grants Commission was referred to before as well as of course our Parliament which are non-standing institutions which has operated to do a particular task if you like outside politics to some extent One of the questions that was addressed in Linda Bottle's piece with John Fillimore in the conversation was this issue of institutions and processes of intergovernmental decision making and of course we have coag and there are these many partnership agreements and there is the Commonwealth Grants Commission for that particular aspect of equalisation of untied funding under the GST but I wanted to turn to you and ask you about that issue of how do you have thoughts about how one might want to change or improve those intergovernmental structures Okay I'd like to just start with the first point though and that is we've focused largely on money and one of the issues that seems to me for the Federation is that there are some policy issues that need to be discussed nationally I'm thinking for example of the Murray-Darling Basin and the Floor of Order through the Basin doesn't respect state borders so clearly we need to be thinking in terms of some mechanisms for policy cooperation where issues clearly go beyond particular state boundaries there are also issues which in the past have been negotiated through ministerial councils such as Quarantine which again don't respect state borders it makes sense to be controlling pest and disease incursions on a national basis and working across state boundaries and there's a third issue which is related somewhat to Anne-Marie's work and that is the fact that as a nation we sign on to various treaties and agreements and so on which often relate to areas of state responsibility and making the connection between those agreements that we've signed on to and how they will be implemented at state level and a specific example of that is the role of food standards Australia and New Zealand which to a large extent is implementing the sanitary and phytosanitary agreement of the WTO and but a lot of food regulation is happening at state level so how do we ensure that those connections are being made? So there's clearly a need for some mechanisms of cooperation coordination and I'd like to pick up two points, Cheryl's point about rationalisation, yes these arrangements do need to be rationalised and the point that David was making in a slightly different context which is about durability and I think one of the problems that we've got with COAG and the ministerial councils which have been very fluid over the last 20 years has been the fact that they don't actually have any major institutional structure COAG's powers, Wax and Wayne at the whim of the Prime Minister, he chooses when the meetings are being held, he chooses what's going to be on the agenda ministerial councils, the first one was formed in 1934, the agriculture ministerial council with some very specific purposes but we've seen COAG come in and say there's too many, wind them back, they've grown again they've been wound back again the agriculture ministerial council has disappeared and a lot of these mechanisms for consultation are very uncertain so one of the things that John and I were talking about in the piece we wrote was that perhaps one of the things we need to be thinking about are those sensible institutions with some sort of certainty to them I think a lot of people would be surprised that there isn't any sort of intergovernmental agreement underpinning the operation of COAG we've got a major institution for negotiation and discussion at the policy level and it really doesn't have much of a structure and could disappear tomorrow and we don't have those structures underpinning these mechanisms for consultation and that would help with the rationalisation because these things wouldn't be able to then just grow like topsy and then be wound back again at a whim because you'd have some sort of structure underpinning them I might ask Cheryl if you don't mind if we were to set up do something with the grants commission or do something institutionally do you have thoughts about how that might be done or embedded does that require constitutional reform you could certainly do it with constitutional reform I mean there's a real question about how the cultural change that David was talking about is going to be achieved and if you were to try and provide some sort of system for our intergovernmental governance arrangements the constitution is clearly one option that would assist directly with constitutional change and some other problems around the intergovernmental system including the character of joint bodies and the status of intergovernmental agreements and how you genuinely ensure a bit of democratic accountability for these so constitutional change is an option but it's not the only option I agree with you that to think systematically is a good idea in all sorts of ways I mean one the structure of the system secondly the support for the system to try to deal with the problems of the agenda etc. that you were speaking about and we also need to think to go back to my own theme about how those are sort of plugged into our normal arrangements for government accountability because our country is predicated on the assumption that a parliamentary system operates at both levels and the intergovernmental stuff cuts across that now I'm not saying that the intergovernmental stuff needs to go away we just need to think as hard as we can about how best to accommodate it and one of the problems about the coag system as we've allowed it to develop is that it is a very much government owned I mean I was absolutely struck all those a few years ago when coag just decided to change the names of all the other ministerial councils to coag councils of taking ministers right out as if it had you know nothing to do with the rest of the governance arrangements and you look at that and you say what's going on here so I would support that but I think it's a big story and that we need to flesh out all the bits So what I want to do is give a kind of case study looking at education have you got something quick Anne Marie on that and then we're going to go and have a think about education I think the coag itself and the ministerial councils have an issue with transparency and I say this having once upon a time worked in the coag secretariat I think probably it must have been your division David but since being an academic every time I try and study the ministerial councils I cannot get any stuff and sometimes when you google sometimes when you google but it's very hard to get minutes and it's very hard for anyone else to say anything about the ministerial councils because you can't get the materials links to this issue we've been talking about that relates to the democratic deficit now I know there are all sorts of rules and protocols around how the ministerial councils work some of those have been at times quite effective but they're not set in stone and we have got a bit of an issue about how we communicate what goes on in inter-governmental relations Let me go to the point about durability consistency and so on is that until probably 10-15 years ago the ministerial council with which I've had the most to do which is agriculture released its records and resolutions on a regular basis so I've actually done a lot of research where I've been able to dig into the records and resolutions because you could get them in hard copy you could never really get them online but then they were reduced to communiques so where you could previously see areas where square bracketed where there was no agreement you could so that's where some sort of consistency is needed it has been done well in the past by some ministerial councils on some topics but it's been too fluid Peter Nunez I don't know if you remember but you interviewed me when I was setting up what was in the Australian National Training Authority as a new model of federation a new experiment in federation in 1992 in the national interest so it was actually it was based on the sort of principle that you were talking about John of an independent body with an industry-based board etc etc and of course within 10 years it was abolished by the Commonwealth unilaterally which has left us with a shared funding model for vocational education and training which as my article says hasn't worked because the very reason it was set up was to stop the growing disparity between higher ed and better and that hasn't worked I've tried to think of a different way of coming at this rather than just a crude transfer of functions between the Commonwealth and the states and it basically suggested that we focus on the core areas where the Commonwealth has responsibility in relation to taxation power with income contingent loans in relation to the national economy, the labour market skilled migration and things like that the Commonwealth doesn't have responsibility for higher education funds higher education but if we actually looked at the concept of a tertiary entitlement which was supported by a Commonwealth operated income contingent loan system within which the states could then basically provide subsidies across the diversity of both fed and higher education What does this mean by tertiary entitlement? If you took tertiary education as spanning either just the top end of vocational education and training that is diplomas, advanced diplomas through to undergraduate my definition of tertiary education would also include the apprenticeship system anything that was basically post school education so a lot of vocational education and training and probably up to professional postgraduate qualifications are all badly and perfectly funded at the moment by the Commonwealth and the states with FEDA regulation now proposed in higher education a mess of different funding and regulatory arrangements in the states and a Commonwealth takeover of all of that I just don't think will work and is possibly not desirable but I think if each level of government looked at their core areas of responsibility you could actually find a different way through that problem which is what my article is proposing rather than what we attempted 24 years ago which was a Commonwealth takeover of what was then TAFE and vocational education and training because I just don't think those kind of wholesale transfers are administratively or politically possible and what you end up with probably then another imperfect compromise which is not what the country needs. My interpretation of the recent budget if I understand it correctly is that they took about $2 billion out of training which could be a somewhat hidden agenda to drive the training responsibilities back to the states. If you look at what's happening in the states every state except Victoria is either reducing or holding static funding for the vocational education sector at the same time as the Commonwealth was introducing an earn and learn policy for young people so you get this complete because the Commonwealth has responsibility for socio security and employment policy so it's got responsibility for this and over here the states have got responsibility for funding training and in fact both levels of government are reducing while in higher education or with a different mix between public and private it's going to be turbo charged so from a national economy, national labour market point of view we've got complete incoherence between the states and potentially squeezing vocational training is one of the best practices I gather we'll have a paper on our website soon basically highlighting the way that vocational education is being squeezed which is exactly what we thought would happen 24 years ago so what I wanted to do then as well we did have a couple of contributions about school education as well in the series and Bronwyn was one of those and one of the things you raised as a possibility Bronwyn to talk about this education in states but also this idea of the national authority on curriculum being that idea of the national authority the Australian curriculum and the reporting authority as somehow playing a role so do you want to comment about that? Yes, I've been researching schooling federalism for a number of years now looking at how policymaking occurs in our federal system not only at the federal level which is where most scholarship is based but also at the state level and an intergovernmental context such as the ministerial councils or what used to be known as the ministerial councils. I've come to the conclusion that it's all the evidence seems to suggest that it's definitely best when the states drive the agenda there is a role for tied grants but they should be used absolutely sparingly and be used to further and to consolidate and to support state initiatives that's where you can actually make a positive difference to policymaking and policy outcomes for the commonwealth government to try to go it alone even with the absolute best of intentions well we've seen a bit of a road to hell paved over the last 40, 50 years in that regard so I don't think a complete separation of commonwealth and state responsibilities is possible we know that it cannot be that case in other federations but I think the historical legacy here is such that it would be too difficult to unwind and it would also remove the protective for insurance mechanism provided by our federal system. For example state government has a major budgetary crisis there can be some temporary financial assistance provided through tied grants for that state government to buffer state level budget cuts for instance that's something I found occurred with the Victorian government schools of the future reforms which was these independent public schools were here so much about it as a new idea that actually came to Victoria 20 years ago. Kevin you also were writing about schools in fact I think the experience of the Catholic school system. Right thank you very much for the offer to be here today I mean subsidiarity might be trendy or fatish but it's been an important part of Catholic social policy for many many years and as you said Cheryl it's based on the idea I think it was you that decisions as far as practicable should be made by those closest or maybe David to where the action is so I think and I've been a strong of Catholic and independent schools within education for that very reason that instead of what Brian called will cause a command and control approach where the federal government especially during the Rudd Gillard years imposed a quite significant amount of top down management whether it was national curriculum national testing national teacher registration certification I mean the whole idea seemed to be that if the levers were pulled and the buttons were pushed in Canberra then schools around Australia would suddenly improve no I don't think that is the case there's a lot of research showing that subsidiarity is what I call an inherent good so I believe it's something valuable in itself but there's also a lot of research here and overseas that autonomy, diversity and choice in education which I think is related does actually make for more effective schools in terms of outcomes whether you want to measure that with international testing like TIMS or PISA or NAPLAN there's a lot of research showing that autonomy, diversity and choice also build social capital Coleman in the US started a lot of that so my view is that and I might be different to many in this room to get rid of government state or federal and to actually give schools and their communities greater autonomy and control you didn't mean to cross the board there maybe you did I mean the reality is compared to all the other OECD countries we have the highest enrollments in Catholic and independent schools I think Catholic 20% independent 14% the rest government the reason why I would argue that Catholic schools do well is because they have that autonomy and diversity and choice and I would finish by saying whether it's charter schools in America or free schools in England that we should be moving down that road as New Zealand did late last year earlier this year and I think that's quite what might seem a radical idea but it's happening overseas and I think there is a tipping point there internationally so the money would not go to the Commonwealth or the states they might collect it but the money and I think the Productivity Commission talks about costing $14,000 per student to teach in a school I'd give the $14,000 to every parent who has a kid and the money would follow the child wherever they went which government gives it to the parents? we'd need both because obviously and I might be healthier but the funding funds independent Catholic schools about 70% they're right and states fund most of the government schools so the funding still has to come through government but the regulation potentially so we've got a little bit of time remaining I know that's been quite a full agenda I do want to come back to ask if there are questions or comments from the wider audience and then come back to our panellists for a last Yes, I've been a Spurn Department of Finance Cheryl, what are your views on the role of the Williams 2 case in this reform process? Is it going to help drive the process? Is it something that will drive the process? Williams is obviously part of this story as well in a number of ways the fiscal imbalance I think accounts for the Commonwealth's readiness to get into a whole lot of programs in relation to which it doesn't have power the fact that it doesn't have power has encouraged it to hope that the executive power might sustain these programs and the High Court and that in turn has fueled the role of the executive government in the Australian Systems of Governance to which Miranda just referred and it's now clear from both Williams 1 and 2 that at least some of that expenditure is unconstitutional it's either unconstitutional because it can't be done under the executive power or it's unconstitutional because there's no heads of legislative power either Williams 2 has settled the fact that the executive power is limited and I think the Commonwealth now has a challenge as to what to do as a result if you look at the 420 spending programs that Williams 1 flushed out I mean I had a quick look at those and a lot of them seem to be overlapping and I wondered what an earthquake was doing in some of those areas and I think Williams 2 provides a wonderful opportunity and oh again for the Commonwealth and in particular for the Department of Finance to try and rein this back in because I imagine that some of those programs sort of got out of control at some stage there is obviously a a danger that the knee jerk will be as it was with school chaplains really and that will just proliferate the number of small piddling states grants programs I think it's much more important for the Commonwealth to look at its own house first and to try to rein that back and I would favour the states looking at their house too rather than just accepting these programs that are offered to them on conditions that they may or may not like just because they lack money and any money is okay by us and we also should have processes for properly consulting about which conditions to accept as conditions attached to the use of state authority so I think there's quite a lot to be done on that front and thanks for asking the question what I'm going to do is come back to my panel I might just start at that end and move this way John do you want to have final one or two words it's a great panelist to have John Privet you can't all skype off I think the green paper is a great opportunity to say what's wrong with the current system as well as acknowledging that it has actually performed to sketching out what are some of the real reform options and then I think the real challenge is what John floated to is how do we get politicians and the community involved in their stuff to say this is something that really needs to be done not tomorrow but over a long period and I don't have the answer to that but I think until we do get that we'll just be writing academic papers and feeling good and getting promoted but we won't actually get action Interesting question about feeling good I was asked yesterday in a course on federalism tax reform are the provinces in that other country which was the example I think was Germany are they happy I said well my father used to say that happiness is overrated and I don't know that happiness is the goal actually probably unhappiness is the goal but coming back to Alan as well for your further comments on that note it is worth admitting that federalism by its nature is a difficult system to make work and any federal system you go to if you talk about any federal country you go to and you talk about the system there inevitably you will hear how bad things are here and I wish they were like they were elsewhere federalism requires governments to work together in a way that is not required in any other kind of federal system and this was one of the objections when the Americans were debating theirs in the 1780s was that it was seemed inconceivable that there are two sovereigns coexisting and there is some truth to that so we have to accept that it is always going to have rough edges there is no state of happiness in federalism there is a state of reasonable unhappiness and we want to seek to be reasonably unhappy and in my long life that is what I have just saw to achieve the other point I was going to say the other thing that is a very small point to make here is I think we have focused here the task on fiscal federalism but it is worth reminding ourselves how interconnected many things things are and I am thinking of the paper by Linda and John in particular the approach that I think is the only viable approach to addressing VFI requires institutionalized collaborative federalism so we can't talk about one aspect of this question without talking about the other aspect so I think we have to think about it as a whole in a holistic way as well which in some ways makes it easier but of course in some ways makes it more challenging thank you and now I am going to have David DeGavella have the last word perhaps thank everybody for the contribution today it has been extremely helpful for me here listening with great intent I should say that when we tell people what we are doing around town we are looking at something in the water it is an odd facial expression it is a mixture of envy and pity at the same time but look we are under no illusions as to how complex and difficult this task is but we are also delighted by the number of people who are willing and able to talk to us and help us think through these issues and today has been a good example of it just a couple of comments John you made a sort of a faraway line about the process not perhaps being as independent as some of us would like the important thing about a white paper different from an independent review is that it is a government position an independent review comes in with a whole lot of recommendations and the government can relate to that see you next time but this is a process which the end point is a government position so there is a trade off here and I think at least to date the level of engagement we have had internal to government and with our colleagues in the states and territories has been extremely positive and I am sort of hopeful about the future without being optimistic so I wouldn't mind we heard earlier a reading from Ben's first letter next time you write something on this I will be looking for your prophecy about this process I was glad I got that prophecy right by the way I did want to say I said at the start that we were sort of open for business so I have got a large number of business cards here if people want to grab them and I will be happy to talk to you about any issues or concerns or points that you have to make so thanks very much for today it has been extremely helpful so if you join me in thanking our panel thank you