The Henry Review and the Australian Federation - Defining the Debate

The previous two articles illustrate the two different ways one can view how Australia, as a federation, should function.

As we said in an earlier article:

Many will say …. Australia is an integrated common market, with people and companies commonly undertaking activities across state borders.

Moreover, Australia exists in a globalised world, with the complication of different rules in different states a reason not to come to Australia.

Regulatory difference is nothing more than a mere compliance costs that distort allocative efficiency with no public benefit.

In this case, there to be only one set of rules (usually encapsulated in legislation), preferably made by one legislative body – in our case, the Australian Parliament.

The states would have the role of (effectively) an English county council, concentrating on service provision based on national standards. However, there are alternative arguments.

The (few) supporters of a federal system argue that citizens benefit where there is genuine "competitive federalism" –the idea that different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is "best practice" or face the loss of people and investment.

A similar argument is one holding that States are "incubators of innovation" –a place where different ideas can be tried, with the good ones taken up in the bad ones discarded - and if an idea is really bad, the entire nation doesn’t have to face the consequences.

The contents of the Henry Review means the time is now right for a full political discussion of whether the nation should be viewed as a federation or a single market.

However, the decisions should not be made through the Governor’s Club of COAG.

Whilst a bureaucrat like Henry may see some advantages in going down this route, these massive reforms should be discussed by the elected representatives reflecting the interests of all political interests represented in Australian parliaments – and not just the representatives of the executives that have been drawn from them.

Ideally, early in 2010 there should be a full constitutional convention, drawn from the Australian legislatures in a manner similar to the conventions convened in the 1980’s by the Hawke Government, to fully discuss the issue of what is the role of state government of the 21st century, to flesh out the issues of the structure of the Australian federation.

From there, each of the major political parties should then set out policies that set out the appropriate role of a state in a 21st century federation (including the role of a state parliament) and the role of COAG within the Australian federation.

The winner of the 2010 election should then put their preferred view to another constitutional convention, from which appropriate constitutional amendments (that may not go as far as Tony Abbott is advocating) could be prepared for the consideration of the Australian people.

The Henry Review will be an important reference document as this debate proceeds. It will be interesting to see how the argument will pan out.