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July 23rd 2010 print

David Flint

Federalism returns

Predictions of a Labor victory on 21 August do not take sufficient account of one factor. Through their mismanagement and impropriety, the Rudd Gillard governments have achieved something worthy – the revival of federalism as a political force.

Sleeping giant awakens: thanks to Rudd and Gillard

Most pollsters and bookmakers are predicting a Labor victory on 21 August. But these are national predictions, and they may not take into sufficient account one factor which could make a crucial difference. The Rudd–Gillard governments have unleashed something dormant in the Australian psyche, something which those from the Melbourne-Sydney-Canberra power triangle have long assumed was well and truly dead and buried.

Federalism, expressed in the code that the states are sovereign, has been given a new lease of life. And it could propel the Coalition into government.

The extraordinary process by which the four person cabal – including the PM and her deputy – produced the super profits tax was flawed in many respects. One was the claim that the minerals belong to the people of Australia. But just about any land grant shows that the minerals are in the jurisdiction of the states, and not the Commonwealth. To many in the outlying states, this was seen as no more than an attempt by a profligate federal government to commandeer their resources.

As a result, the federation genie is out of the bottle, challenging the current centralist fashion. Our power elites are however reluctant to abandon their preferred fashions and ideologies.  Two examples will suffice. The 1999 referendum defeat ought to have encouraged an honest revaluation of the claimed virtues of our crowned republic, but it didn’t. The rejection of the ETS or a carbon tax ought to have encouraged a decent respect for those sceptical about the theory of anthropogenic global warming, but it hasn’t.  

And although this has just brought down a Prime Minister, the elites still cling to the view that Canberra knows better. This dominates Labor thinking, with some Coalition politicians ready to join them.

Indeed, the Howard government’s most serious error was not the principle of the greater deregulation of the labor market. It was in not heeding the federalist counsel not to effect this through the draconian Work Choices model, based as it was on a centralist interpretation of the constitutional corporations power. Rather than an unmanageable “big bang”, reform should have involved an evolutionary case by case approach. But the federalists were condescendingly dismissed as if they were  old fashioned dinosaurs.

Not that the LCP government was heartlessly centralist. John Howard risked all on the 1998 GST election, which he passed on to the State Labor governments. In the face of this unprecedented generosity, they have remained outrageously ungrateful – as they pocketed the money.  But when Kevin Rudd sought to take back a good slice, he exposed the fact that, constitutionally, the GST remains a federal tax.

In any event there is a widespread belief in elite circles that the best solution to just about every second problem is a uniform national policy. This involves the silly conclusion that no centralist approach could ever be wrong. This foolishness is not something limited to the Australian intelligentsia. French education ministers were once want to boast that at say, 3:00 pm every child in the nation aged ten was studying Latin.

This centralism has gone a step further with the formation of the European Union, with its trade distorting standards.  The story that Brussels had decreed the degree to which a banana might curve, if not true, illustrates the widespread perception of excessive EU interference in the market.

There is a simplistic attraction in the declaration of national standards. This has its limits. While wheelie bins look much the same, is there any advantage in declaring a national Australian wheelie bin standard? (For all I know such a standard may well exist or be on the drawing board.)  National standards in everything have all the failings of socialism. We saw this starkly in the attempt to deliver pink batts nationally. The politicians and bureaucrats are not omniscient. They cannot foresee all of the problems.

If different states have different policies, there can be a competition among them to see what is best. This can be effective, doing what is impossible outside of a federation. We would still have that detested tax, death duties, were it not for the brilliant initiative of the Bjelke Petersen government in abolishing them.

A crucial question in the coming election will be whether the Gillard government has sufficiently neutralised federalism through the son of the super profits tax, the MRRT. The Coalition will remind the electors of some aspects of the tax which will make the voters wary.

First the government has been caught out fiddling the figures on the financial impact of changing the model.

Moreover the process was flawed. There was no national debate, no consultation with other parts of the industry. And once again, Parliament was treated with contempt.

Worse, it is difficult to conceive of a more blatantly corrupt way to levy a tax – a deal behind closed doors with the three biggest foreign miners. This is corrupting of the body politic, the sort of process you would associate with some appalling banana republic and not with one of the world’s oldest and most stable democracies. It is shameful behaviour and the press ought to be up in arms.

Then to apply this to iron ore and coal merely because they have proved to be profitable will not only distort investment decisions nationally and internationally. It sends the very clear signal that this is only the beginning. Other state resources may well be taxed when the insatiable appetite of a Rudd or Gillard government demands this.

And while some sort of credit for state royalties will be allowed, are they to be frozen or are they at some later stage to be taken over as was originally proposed?

This suspicion will be reinforced by the extension of the PRRT to onshore oil and gas, clearly the property of the States. Indeed, this   extension may well encourage the States to try to reopen the 1975 ruling that offshore oil and gas are not theirs. That decision was based on nineteenth century British legislation, which it took the personal support  of The Queen and combined British and Australian legislation to repeal in 1986. The jurisdiction of the states now extends beyond the old three mile limit; perhaps the offshore resources are theirs.

In the meantime the Coalition will be reminding the voters, especially in WA and Queensland that had the government exercised some reasonable restraint and had Ms. Gillard imposed some reasonable safeguards on such matters as the five billion dollar BER rort, there would be no need to raise new taxes on state assets.

Federalism has been revived in a way undreamed of, and by the actions of one of the most centralist governments in our history.

Benefits can flow from this. At the time of Work Choices many leading Coalition politicians argued it was too late to go back to basics. At Federation it was assumed that the States would continue to rely on taxes they raised and to face the electors and account to them how they had spent their money. Our Founders were well aware of the fundamental point made by the American Founders, that:

In a federation, the individual States should possess an independent and uncontrollable authority to raise their own revenues for the supply of their own wants. (The Federalist Papers)

If our Federation is to work well, this principle that the States have their own income and answer to the electorate as to how they spend it is fundamental.

If this can be restored, it may well be Kevin Rudd’s and Julia Gillard’s’ greatest contribution to the nation, even if they never intended it.