Australia in 2007 not only faces what looks like a very tight election; it also faces a once in a generation opportunity to transform our federation.

The recognition that reform of federal/state relations is the key to the new round of economic and social reform we need over the next decade is spreading.

After all, how often do you see a common viewpoint on such an important issue from the Business Council of Australia, Steve Bracks, a Liberal dominated parliamentary committee; Professor Ross Garnaut, the Productivity Commission, Nick Greiner and the Leader of the Opposition.

It's not surprising that all these individuals and groups have come to that recognition.  The need is more obvious every week, every month, every year.

The real surprise is that John Howard can't see it.  How could he say at the end of last year that this is as good as it gets?   It really is a case of everyone being out of step except Johnny.

And those of who can see it, recognize that this could be a once in a generation opportunity to get it right, if we miss it now it won't be here in three years' time. And meanwhile some opportunities will have been missed or botched, others will have fallen even further behind and for some it will be too late.

The reasons this is a special opportunity are essentially:

• A Leader of the Opposition with the experience and the will to
• act;
• Eight State and Territory governments with a rare degree of willingness to respond to reasonable proposals;
• No state election due for 18 months after NSW on 24 March;
• A government that is vulnerable during a time of global economic growth;
• Advocacy from leaders of the business community for change;
• The impact of the High Court decision on Workchoices;
• A contrast with a centralising conservative government;
• A growing body of domestic and international academic and bureaucratic reports
• on the strengths and weaknesses of federalism;
• Enhanced recognition among Australians that the quality of the services they receive from government is affected by the 'blame game';

The case for reform on the economic front has been made by the BCA amongst many others.   For example, their major report made clear that "There is growing evidence that the way Australia's federal system currently operates is becoming a major barrier to future prosperity"

And the BCA Chairman, Michael Chaney, argues that federal/state relations provide the next big opportunity for a wave of productivity to secure Australia's future economic prosperity.

They have also set "an important goal with reference to a common market in Australia, by removing the barriers to employees moving interstate or businesses operating across

borders."

The case for reform on the social front has been made extensively on many occasions, including by the House of Representatives Committee on Health and Ageing which did so in the following terms:

Addressing the blame game will involve a national approach to developing and funding health care. This will require leadership from the Australian Government

And,

The Australian Government should supplement state and territory funding for public dental services so that reasonable access standards for appropriate services are maintained, particularly for disadvantaged groups.

And,

Numerous examples of alleged cost shifting were provided to the committee, including:

• States shifting costs to consumers and the Commonwealth through public hospitals

• 'Encouraging' patients to elect to be private patients,

• Cost shifting to the states by diverting after-hours patients from general practice to emergency departments;

• Cost shifting to the states when nursing home type patients occupy public hospital beds rather than being accommodated in a residential aged care setting; and

• States shifting costs to the Commonwealth and patients when public hospital patients are sent to have pathology and radiology undertaken either in private practice clinics at the public hospital or sent to general practitioners (GPs) to have the request ordered privately by the GP.

And,

Where cost shifting is not driven by appropriate clinical practice, it imposes significant system-wide effects that can result in:

• Waste and duplication ;
• Reduction in the overall efficiency of the health system ;
• Distorted market signals to private sector providers that result in inappropriate investment ; and
• Over-servicing.

And,

The 'blame game' between different levels of government over the level of funding and responsibilities can undermine the functioning of political accountability for government actions.

And finally,

The community has made it clear that it expects the Commonwealth and states to stop blaming each other for shortcomings in the health system. The committee agrees and recommends accordingly.

In setting the direction of federal/state relations system Kevin Rudd has outlined the following hierarchy.

• Health , 
• Education,
• Water and Climate Change,
• Business Infrastructure 
• Transport Regulation

There is more to do than any government can hope to do in one term.   But there is no time to lose.

Warnings on the economic and social impact if we fail to address these reform opportunities are too great to ignore, or even to defer for three years. The economic implications of a failure to get our education performance up to international best practice are already being felt, only disguised by the resources boom.

The economic cost of the ineffectiveness, distortions and duplications arising from the failure to restructure, the architecture of our federation have been independently assessed at $9 billion - and we can't allow this to go on year after year.

It may already be too late to stop the impact of climate change.   We have wasted 10 years.  We can't afford to waste 3 more.

The planets are aligned like never before to bring about reform of our federation - and they may not be so in 3 years or 6 years or any other time in the foreseeable future.

Clashes of wills over the distribution of power and responsibility between the federal government and the states are as old as the nation itself and are common to all comparable federations. And the reasons are not hard to find. They have always had at their core the competing ambitions and priorities of governments at different levels; evolving judicial interpretations of constitutional provisions; fiscal imbalances and conflicting political agendas.

In recent years these root causes have been reinforced by globalisation and technological change. Issues that were once local are now national and often international. Global competitiveness often requires co-ordinated, if not uniform, national responses. The current high profile conflict concerning industrial relations is just the most recent example.

The absurd proposition to drop a small set of Commonwealth funded technical colleges into the centre of a very large state managed and jointly funded vocational education and training sector merely represents an extreme indication of the inefficiency, waste and duplication which can arise when electoral agendas are free to roam untrammelled over previously understood boundaries.

None of this is new or unique to Australia. A major analysis of this issue in the New England Economic Review found a similar history of ad hoc arrangements, inefficiency and conflict. And it is certainly true that in Australia successive federal governments have managed the relationship in different ways depending on the issues and political context of the time. What has been notable is that the situation is much more complex than Labor = Centralist and Liberal = States Rights, or vice versa.

After all, many of John Gorton's political problems inside the Liberal Party flowed from clashes with powerful Liberal premiers. And, of course, innovative use of the constitution to extend the reach of federal policy was a hallmark of the Whitlam era. Gough was seen as a zealous centralist but he was much more than that as he had major commitments to regionalism and local government.

The Fraser government's reaction to the Whitlam era sounded radical, e.g. income tax powers for the states, but in fact changed very little of a positive nature. In the Hawke years the decisive shift in the balance of power within the federation arose from the Franklin Dam's case judgement by the High Court which confirmed the Commonwealth's capacity to use the external affairs power to pursue its policy goals. Under Keating, the highlight was the evolution of the incentive and agreement based model to implement National Competition Policy.

Howard has changed the financial equation with the flow of GST funds to the states (effectively as untied grants) but has been extremely centralist in areas such as education and now industrial relations.

So, what is to be done?

The most realistic prospect of progress lies with agreeing a set of 'framework principles' which could be applied across a range of policy areas and over a lengthy period even when the political complexion of governments changes. No set of principles will remove argument over specific controversial examples, but such an agreement would provide a basis for going forward on most occasions.

Arising from a New England Economic Review forum conducted during the Clinton administration, six broad principles were proposed which could be summarised as follows: Efficient production of public services; Alignment of costs and benefits; Response to spatial differentiation; Innovation in the public sector; Responsiveness

to citizen preferences; and Accountability.

These constitute a useful starting point but, particularly in the Australian context, other issues need to be considered. Prominent among these is the risk of a race to the bottom in

welfare programs and environmental protection in the event of devolution. There is also general agreement that redistribution and issues of spatial inequality require national rather than local solutions and a real concern that the nature of state revenues and budget constraints might combine to lead to pressure on the states to cut services during economic downturns, which is when they are most needed.

On this basis, a seven-point plan for a proposed framework of principles might look something like this: firstly, the primary responsibility for economic management must remain with the Commonwealth; secondly, the national government must retain the capacity to implement its international obligations and respond to global challenges; thirdly, the central government must have the resources and responsibility to

redistribute resources to meet socio-economic and spatial inequalities within and between

states; fourthly, beyond these areas as far as possible we should establish national goals and accountability mechanisms and allow flexibility in their implementation between different state and territory jurisdictions; fifthly, the best mechanism for delivering these principles might be some form of 'Performance Partnership' by which the goals and accountability mechanisms are negotiated and states carry the responsibility for delivering the agreed outcomes; sixthly, there must be enhanced recognition of local governments as delivery agencies for programs; and finally, there would probably be a need to agree on enhanced cross-jurisdictional assessment of outcomes whether by the Productivity Commission or a revived Inter-State commission, probably incorporating the role of the Grants Commission.

Such a framework of principles might allow us to advance down the road towards a scheme based on the principle of 'fund nationally, act locally'.

Even if I didn't have that view, which I expressed in a New Matilda article long before I had this job it would be central to the Labor agenda.   Because Kevin Rudd has had a long-term commitment to co-operative federalism, which he outlined in a major speech on 15 July last year in the following terms:

"I have long been a committed Federalistscommitted to using the Federal compact on a cooperative basis to deliver national outcomes that are politically sustainable well beyond a change in the political complexion of the government of the day."

And,

"[A]rguments in favour of a Federal structure include the classical idea of 'subsidiarity' - that is, devolving decision-making to the lowest level of government as possible so that decisions are as sensitive as possible to local circumstances and those responsible for these decisions are readily accountable to local communities.

Other arguments advanced in support of Federal arrangement include 'competitive Federalism' (whereby efficiency is enhanced by the Federation competing against one another, best practice in public administration); diversity (in Australia's case hinging on the argument of geography, distance and isolation) as well as the more traditional conservative argument of checks and balances against any unnecessary concentration of power.'

Beyond these classical Federalist arguments, there is a contemporary phenomenon at stake whereby Federalism is increasingly identified across the international community containing within it the most appropriate system for handling the complexities of emerging states."

And,

"The challenge for a future Labor government will be to rebuild the Federation.   And it is my argument that the federation can be rebuilt based on the principles of co-operative (rather than coercive) Federalism.   If Federal Labor succeeds in this enterprise, it will create a sustainable political and constitutional mechanism to deliver lasting reform to the nation; to implement a progressive policy agenda that is likely to endure beyond subsequent changes in the political cycle at either a Commonwealth or State level."

You can find powerful critiques of the current state of the federation from Nick Greiner, or even Peter Costello, but never from John Howard.

So if the essential task of federation reform is going to be done it will have to be done by us.

Conclusion

We have the opportunity to act,

We have the responsibility to act,

The nation needs us to act,

There is no time to waste, such an opportunity may not come our way again.