Federalism does not get good press in Australia. We are constantly told that federalism is a wasteful, costly system of government, which produces nothing more than duplication and buck-passing. Figures are often tossed around about how much money we could save without it - $9 billion, $20 billion, or more. Australians have been brought up to regard federalism as an archaic, inefficient and uncompetitive encumbrance that is holding us back economically and socially. Yet in other parts of the world, federalism is seen as a modern flexible system of government, which is efficient, highly competitive and best suited to deal with the pressures of globalisation. This must give us pause to think. Is there something to federalism that we are missing? Perhaps it is not the system itself that is at fault, but rather the way that we operate it. It is time that we put our prejudices to one side and took a more balanced look at federalism - the benefits it gives us, the costs, and the future possibilities.

First, some myths must be dispelled. Federalism is not an old-fashioned and impractical system of government that we would not choose today. At least 40 per cent of the world’s population is governed by federations, generating 50 per cent of global gross domestic produce and federalism is increasing in its popularity. One of the reasons for this is that its flexible nature allows local needs to be satisfied while simultaneously responding to the international pressures of globalisation. It is also the system of government almost invariably chosen in geographically large countries, as any other system of government cannot adequately satisfy the different needs of citizens who live in vastly different circumstances (be they differences in climate, demography, geography, resources, industry or culture). The only nation larger than Australia that is not a federation is China, and even it is regarded as a quasi-federation, having devolved significant powers to its regions in recent years. Given Australia’s size, it would be extraordinary if we were not a federation.

Secondly, contrary to the popular perception in Australia, federal systems are not costly, inefficient and uncompetitive. Indeed, comparisons between federal and unitary systems show that federations tend to have smaller and less costly public sectors than unitary countries. This is because the internal competition within federal systems ensures that bloated complacent bureaucracies do not develop to the same extent as in unitary states. Many of the most competitive economies belong to federations. Half the countries in the G8 are federations and the others have all proposed or taken steps in recent years to decentralize functions to their regions in order to obtain some of the competitive advantages of federalism. A study by Professor Glenn Withers of ANU, published in Australia's Federal Future, which compared federal and unitary OECD countries over a period of 50 years, showed that the federal countries economically out-performed unitary countries, and that the greater the level of decentralization within the federation, the better it performed.

Federalism in Australia is based upon a mixture of competition and cooperation. Each brings benefits to Australia. The element of competition not only results in greater efficiency and better economic performance, but gives rise to innovation. States are constantly compared and are forced to come up with better and more cost-effective ways of achieving policy outcomes. Their smaller scale of government is also more conducive to experimentation. Successes are picked up by other states or nationally and failures can be quarantined so that the whole country is not affected. States have been the leading innovators in electoral law (lowering the voting age to 18, changing to four year terms and opting for fixed term parliaments) as well as environmental and human rights law (the first environment protection authority and anti-discrimination legislation). The states often lead the way on national reform, such as proposals for a carbon emissions trading system.

The requirement for cooperation is also important. It ensures that controversial proposals are given greater scrutiny and legitimacy by drawing all parts of the nation together to face and resolve problems. The need for co-operation means that policies tend to be more moderate in their nature and governments are forced to put their case in the public domain, improving accountability. A good example is the debate on anti-terrorism laws. The fact that state cooperation was required meant that the laws could not be rushed through the Commonwealth parliament. The Commonwealth had to explain its proposal publicly, there was a public debate, and amendments were made to include greater safeguards and moderate the application of the proposed laws. Without the need for state cooperation, the laws would most likely have been far more extreme and any public debate very limited.

From a social point of view, there are many other advantages to a federal system. First, it offers voters choice. They can choose to vote for different parties at the state and national level, depending on their policies, or choose to move to another state if its policies are preferred. The fact that people and businesses do “vote with their feet” is one of the reasons that states are forced to reform and improve. Secondly, policies and services are better tailored to meet the needs of the communities they directly affect. They are put in place by people who live in those communities and understand their different needs. Thirdly, federalism functions as a check on power. It ensures that there is no all-powerful central government. Without federal limitations on Commonwealth power, a Commonwealth government with control of both houses of parliament could enact laws on almost any subject, no matter how extreme, with scarcely any scrutiny.

Given that there are so many economic and social advantages to federalism, why are we constantly complaining about it? It is not the system itself that is at fault, but how we operate it. Complaints mostly concern unnecessary duplication and buck-passing. These problems tend to arise because our system of federal financing is inadequate. It gives 85 per cent of revenue to the Commonwealth while the bulk of spending responsibility is conferred on the states. The consequence is that the Commonwealth gives grants to the states that are subject to detailed policy requirements. This means that the Commonwealth starts trying to run state policy, causing duplication (see, for example, Commonwealth Departments of Health and Education) and lack of accountability because any failing is blamed by one government upon the other. If we reallocated responsibilities and finance so that each government was clearly responsible for particular functions and had adequate sources of funding to fulfill those responsibilities, the problems of duplication and buck-passing would be significantly reduced, if not eliminated. This has got nothing to do with the GST or raising taxes of any kind. Quite clearly, given Commonwealth surpluses and proposals for tax cuts, there is enough revenue to go around. It is a question of distributing it sensibly throughout the federation and ensuring that responsibilities match the capacity to fulfill them.

It is in the interests of all of us to make federalism work better. Much could be achieved without the need for a constitutional amendment. All that is required is will and commitment. Recognising the problems is one thing, but now we need to do something to fix them.