Productive Reform in Australia’s Federal System

Australia’s capacity to build a more productive economy and sustain rising living standards increasingly depends on how well our federal system of government operates, says the Productivity Commission in its annual report for 2004-05, released today.

‘Globalisation, environmental sustainability and an ageing population all pose big challenges for Australia in the years ahead. Lifting the performance of the Australian economy raises policy issues that go beyond the responsibility of any single level of government’, said Gary Banks, Productivity Commission Chairman. ‘This is why the performance of Australia’s federal system has itself come under increased scrutiny in recent years.’

A distinctive feature of Australia’s federation is the high degree of shared government responsibility for vital services such as health, education, transport and housing. Other policy areas involving significant interaction among governments include environmental management, industrial relations, workers’ compensation, and indigenous affairs.

This makes it essential for governments to collaborate and cooperate in a wide range of areas to secure effective policy outcomes. Australia’s federal system also creates opportunities to harness competition between jurisdictions to drive reform. Such competition may take a variety of forms, including direct competition between the Australian Government and the States, as well as beneficial competition among the States based on such ‘economic fundamentals’ as service delivery and regulation.

The involvement of more than one level of government in a policy area is typically portrayed as ‘wasteful’ overlap and duplication. However, the Commission argues that some overlap can be beneficial overall, if it expands choices for citizens and promotes improvements to services over time.

Australia’s federal system will continue to provide competitive incentives for each government to improve its services and regulatory frameworks. But as Australia’s experience with national competition policy shows, effective cooperation among jurisdictions is needed to yield further significant dividends in key areas of economic and social infrastructure. Securing these dividends is accordingly a priority for COAG.