Showing posts with label federal-state relations. Show all posts
Showing posts with label federal-state relations. Show all posts

Sunday, March 13, 2022

Blaming the states for national policy failures won't wash

It seems everywhere you look you see governments failing to lead, failing to take charge, failing to be prepared for problems they should have seen coming.

Last week it was the flooding, before that, the distribution of rapid COVID testing kits and vaccines, before that, the Black Summer bushfires, and before that, soaring prices in the National Electricity Market along with the federal Coalition’s inability to agree on action to reduce greenhouse gas emissions.

The items on this seemingly disparate list have a few things in common. Most arise from the effects of climate change. All of them involve shared responsibility by the federal and state governments, with the all too familiar squabbling, duck-shoving and cost-shifting.

We’re learning hard lessons about what’s needed to get a better-functioning federation. One is that when ordinary Australians are facing dire emergencies of flood or fire or cyclone, they demand that both levels of government be on-the-job doing what needs doing.

Another lesson is that when you’ve got one federal, two territory and six state governments, one of them has to take the lead, and the one that should do so is obvious: the feds.

On climate change, it’s not just that the Morrison government has failed to do anything much to “mitigate” (reduce) our greenhouse gas emissions beyond belatedly accepting the target of somehow achieving net zero emissions by 2050.

It’s also that it has failed to lead the states in adapting to the climate change we already have and, even if we do make it to net zero on time, will get more of: worse and more frequent extreme weather events.

Why does Scott Morrison seem so bad at working on problems we can see coming, until they’ve actually arrived, and we’re in crisis? Then, when we are in crisis, he makes the excuse that it’s a “state responsibility”, which so infuriates the people left stranded by fire or flood.

I think part of the reason is his deliberate downgrading of public service advice on policy. Until recent years, it’s been a prime responsibility of department heads and their senior people to advise the minister of looming problems in their area of responsibility and to develop detailed options on how the feds – often in partnership with the states – could go about fixing the problem.

But when you tell the public servants that you want their diligent obedience, not their advice – as Morrison did – all you’re left with is advice from the growing number of ambitious young Liberal apparatchiks that populate ministers’ offices.

Plus, of course, the occasional expensive report from one of the big four accounting-turned-consulting firms, whose business model is to produce lovely reports with lots of glossy pictures, that tell the paying customer what you think they want to hear.

What they don’t want to be told is that they should get started on a response to this potential problem or that one, just in case they come to a head some time in the future. “That’s the boring stuff public servants are always banging on about, and it’s a real pain.”

“Do you know they’ve been harping on for years about being prepared for some possible pandemic? Yeah, sure. What other long-shot bet do you want me to waste money on? Talk about useless.”

The beauty of getting your advice from the young would-be-pollies in your office is that, like their masters, they’re always focused on the politics of the now. “How can we draw attention away from the latest stuff-up? How can we look like we’re responding decisively? Why don’t we rush through a law making illegal something that already is? The punters would love it.”

As soon as the election is called officially, the public service goes into “caretaker mode” and begins preparing extensive policy recommendations for the incoming government. They prepare a Blue Book to give the Coalition should it win, and a Red Book should Labor win.

The Grattan Institute, our leading independent think tank, has a tradition of preparing its own Orange Book, proposing policy priorities for whichever side wins. It includes a section on energy and climate change, one of the most important areas of shared, federal and state responsibility.

Grattan’s Tony Wood says that, one of the three things that should be done to ensure electricity plays its major role in achieving “net zero” is to “better co-ordinate state and federal government objectives in the National Electricity Market.

“Frustrated at a decade of federal ‘climate wars’, state governments are increasingly going their own way on electricity and gas [and electric vehicles],” Wood says.

That’s another lesson we need to learn: whenever the feds leave a policy vacuum, the states fill it – badly. Only leadership by the Federal government can make our ramshackle federation work.

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Wednesday, March 9, 2022

Why prime ministers do have to hold a hose (and much else)

If we don’t have another setback on the COVID front between now and May, it seems likely Scott Morrison will escape having his various fumbles in handling the pandemic loom large in the federal election campaign. Even so, the coronavirus was a stark reminder of how much the running of this nation is down to the premiers, not the Prime Minister.

The premiers took full advantage of this opportunity to raise their political profiles. And they’re likely to stay more assertive for years to come.

We’ve all lived all our lives with Australia’s federal system of government. We all know it doesn’t work so well. We long ago tired of the eternal bickering, buck-passing, duck-shoving and cost-shifting between the two levels of government. But just as we’re “learning to live with COVID”, so we long ago got used to living with a dysfunctional federation.

Does a nation of 25 million people really need one federal, six state and two territory governments? Well, if you were starting with a clean sheet of paper, you wouldn’t design it that way.

But we’ve never had a clean sheet. Back in the 1890s, we began with six self-governing colonies. They would never have agreed to dissolve themselves in to one national government. And, today, it’s not just that all those premiers and state parliamentarians wouldn’t want to give up their well-paid jobs.

The Australian mainland is such a big island, and its people are so widely spread around its coastal edge, I doubt if voters in any state would choose to be ruled henceforth solely from distant Canberra.

But the states being immovable, efforts by various prime ministers to make the system work better have had little success.

The pandemic has reminded us that our constitution grants to the states, not the feds, ultimate responsibility for most of the things we expect governments to do for us: healthcare, education, transport, law and order, housing, community services and the environment. Only the states and territories had the constitutional power to order lockdowns or close state borders.

But the problem isn’t just constitutional. It’s also economic. It’s what economists call “vertical fiscal imbalance”. Over the years – and with much help from rulings of the High Court – the feds have accreted to themselves most of the power to levy taxes.

See the problem? The feds raise most of the tax revenue, whereas the states have most of the responsibility for spending it.

Economists think the federation would work better if there was a closer alignment between each level’s spending responsibilities and its tax-raising capacity. But prime ministers haven’t been keen to hand over their taxing powers.

The bigger problem with VFI, as the aficionados call it, isn’t economic, it’s political: the feds cop the blame for levying nasty taxes; the states get the credit for lots of lovely spending. The states love it, the feds hate it.

Related to this is a truth that seems to come as a shock to prime ministers. The feds run defence and foreign affairs and customs and trade. Apart from that, they raise taxes and write cheques – to the premiers, universities, chemists and bulk-billing doctors, pensioners and people on unemployment benefits.

What the feds don’t do much of is deliver programs on the ground, whereas that’s the main thing the states do. Run hospitals and schools, build highways, fight bushfires and clean up after floods.

Turns out that when the feds do try to deliver programs on the ground – put pink batts in ceilings; roll out vaccines across the land – they stuff it up.

In all this you have the hidden explanation for some of Morrison’s coronafumbles.

Despite him setting up the national cabinet – and doing most of the on-camera talking after each meeting – it turned out that most of the credit for our success in handling the pandemic went to the premiers, not him. “What? Even though the feds were picking up almost all the tab?”

Apart from the feds’ failure to order enough vaccines early enough, it seems clear Morrison decided to deliver them through an essentially federal distribution chain of GPs and pharmacists, in the hope this would yield him more of the credit.

That’s how the rollout became a stroll out. It was slow and unfamiliar. Only when the feds admitted defeat and started distributing vaccines through the experts – the states’ public hospitals and mass-vaccination hubs – did things speed up.

I suspect other hold-ups – in replacing JobKeeper; in distributing rapid antigen test kits – came because the feds and states fell to arguing over how the bill should be divvied up. “Why am I paying when you’ll be getting all the credit?”

Morrison said what he did about hoses because bushfires are a state responsibility. Constitutionally, correct; politically, incorrect. He’s had to learn the hard way that if a state problem affects more than one state – or just gets too big for the state to cope with – it becomes a federal problem in the minds of voters.

If you can’t hold a hose, just bring your chequebook.

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Monday, September 12, 2016

Our youth jobs report card: what's up with you people?

It's surprising how many of our politicians, economists and business people fail to see that our preference for looking after high-achieving young people and not worrying too much about the stragglers is a recipe for much more than social injustice and unfulfilled lives.

The earlier we identify and help kids at risk of doing poorly in education, training and employment, the more we help the community as well as the kids.

It's a social and economic investment. Neglect it and we lose much more later, as people spend more of their life on benefits and add little to the productivity of our workforce.

On the face of it, a report card on our performance, Investing in Youth: Australia – to be released by the Organisation for Economic Co-operation and Development at a forum hosted by the Brotherhood of St Laurence in Melbourne on Monday – gives us a pass.

Our education system "performs well overall, and school completion rates have been rising in recent years".

The labour market situation of youth in Australia is "quite favourable by international standards". Our youth unemployment rate is [a bit] "below the OECD average".

But this is not so terrific when you remember that "Australia was hit much less heavily by the Great Recession than most other countries".

"After continuous decline in youth unemployment rates since the early 1990s, rates have started rising again, while youth employment has fallen."

But the report focuses not on youth unemployment, but on NEETs – the share of youth (people aged 15 to 29) who are "not in employment, education or training". And, at 11.8 per cent, the share of NEETs was higher in 2015 than it was before the global financial crisis in 2008.

That's well over half a million young Australians out of education and work. About a third of those are looking for work, but the other two-thirds aren't.

The first factor driving the high proportion of NEETs is low educational attainment. Quelle surprise.

Youth with, at best, a year 10 certificate, account for more than a third of the NEETs. And their risk of being in that state is three times as high as for those with tertiary education.

Worse, "many NEETs lack foundational skills (numeracy and literacy) and non-cognitive skills, which are important prerequisites for labour market success," the report finds.

But there's hope if we bother helping. "Recent research demonstrates, however, that non-cognitive skills, like cognitive skills, remain malleable for young people through special interventions."

Get this: the risk of being NEET is 50 per cent higher for women, and women account for 60 per cent of all NEETs.

So the biggest single explanation of why so many NEETs aren't looking for work is that many of them are young mothers with a child below the age of four. And don't assume they're all sole parents on welfare.

The report adds that NEET rates are substantially higher among Indigenous youth, who represent 3 per cent of the youth population, but 10 per cent of all NEETs.

And the likelihood of being NEET is substantially higher for youth with disabilities.

In case you're tempted by visions of all those lazy loafers out surfing, or with their feet up watching daytime television, the report says NEETs "tend to exhibit higher rates of psychological stress and lower levels of life satisfaction" than other youth.

In its own ever-so-polite way, the report notes our less-than-stellar performance. The completion rate for vocational and educational training certificates and apprenticeships "remains low by international standards".

That's one way to acknowledge the awful stuff-up we've made of VET.

Australia has a wonderful, very flexible, market-based network of employment service providers that "cover, however, only about 60 per cent of NEETs, leaving around 200,000 youth unserviced". Oh.

"Young jobseekers' participation in training programs increased over the last years, but this trend came to a halt with the recent expansion of Work for the Dole", we're told.

"Given strong evidence on positive employment effects of training, including for disadvantaged jobseekers, Australia should continue promoting training program participation as an effective way of moving young jobseekers into stable employment."

Translation: what's up with you people?

The report praises our Youth Connections program and its effectiveness in improving educational attainment for youth at risk of dropping out of school – before noting it was phased out in 2014.

"The recent tightening of eligibility criteria for unemployment benefits may create additional incentives to actively look for work, but it also bears the risk of pushing the most disadvantaged youth into inactivity and possibly poverty," we're told.

Translation: you mean Aussie bastards.
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Monday, June 29, 2015

Debt-and-deficit brigade may bring us down

If the economy runs out of steam in the next year or two – and maybe even falls backwards – with unemployment climbing rapidly, there'll be plenty to share the blame: federal and state governments, federal and state Treasuries, and the utterly discredited credit-rating agencies.

The one outfit that will deserve little blame – but will get plenty – is the Reserve Bank. It shouldn't be criticised because it's had its monetary accelerator close to the floor for ages.

The official interest rate has been at or below 2.5 per cent for almost two years, but growth in real gross domestic product has remained stubbornly below trend.

If the economy does run out of puff it will be for a reason macro-economists have known was a significant risk for several years: the mining construction boom – which at its height accounted for about 8 per cent of GDP – is now rapidly coming to an end, with little likelihood that non-mining business investment (or anything else) will be strong enough to fill the vacuum it's leaving.

It's possible the Abbott government's surprisingly poor management of the economy is damaging business confidence, but the more powerful reason business isn't investing is simply that it has plenty of spare production capacity and doesn't see that expanding its capacity would be profitable.

So what can we do to reduce the risk of the economy losing momentum? It ought to be obvious. The Reserve has been dropping hints for months and earlier this month governor Glenn Stevens came right out and said it.

Fiscal policy – broadly defined to include state as well as federal budgets – needs to be pushing in the same direction as monetary policy (interest rates), not pulling against it. As Stevens pointedly noted, "public investment spending fell by 8 per cent over the past year".

Breaking down that contraction, it was caused by the states, not the Feds, with NSW by far the greatest offender. I suspect its poles-and-wires businesses have slashed their investment spending (no bad thing), with general government failing to take up the slack for fear of losing its precious AAA credit rating. So much for all last week's boasting about record infrastructure spending.

All this may have escaped the notice of Joe Hockey and his state counterparts – not to mention their federal and state Treasuries – but last week's statement by the International Monetary Fund's review team gave it top billing.

"The planned pace of [budgetary] consolidation nationally (Commonwealth and states combined) ... is somewhat more frontloaded than desirable, given the weakness of the economy, the size and uncertainty around the resource boom transition and the possible limits to monetary policy," the statement says.

"Increasing public investment (financed by more borrowing rather than offsetting measures) would support aggregate demand [GDP] and ensure against downside risks." Hint, hint.

"It would also employ [construction] resources released by the mining sector, catalyse private investment, boost productivity, take advantage of record-low borrowing rates, and maintain the government's net worth." Oh, that's all.

"Indeed, IMF research suggests that economies like Australia – with an output gap [spare production capacity], accommodative monetary policy and fiscal space – benefit most from debt-financed infrastructure investment, with the growth boost largely containing the impact on the (low) debt-to-GDP ratio."

The statement says the Feds should broaden the scope of investments they support – which may be, and certainly ought to be, a hint that they should be supporting urban public transport projects, not just yet more expressways.

And as well as direct funding, the statement says, the Feds could consider guaranteeing states' borrowing for additional investment, which "would keep accountability with the states but reduce their concerns about credit ratings".

That's one way to overcome the state governments' obsession with the credit ratings set by outfits that contributed greatly to the global financial crisis by granting AAA ratings to securities ultimately written off as "toxic debt".

State governments are letting these operators decide what's responsible and what's not? It's time state Treasuries stopped paying these characters to set arbitrary limits on borrowing for infrastructure spending, and state governments stopped putting retention or restoration of their AAA-rating status symbol ahead of their duty to provide their states with adequate infrastructure.

As for the Feds, Treasury should make it easier for its political masters to walk away from all their debt-and-deficit nonsense by abandoning its age-old objection to distinguishing between capital and recurrent spending.

These two artificial Treasury disciplinary devices – bulldust credit ratings and pretending all federal spending is recurrent – threaten to cause us to slip into an eminently avoidable recession. If that happens, we'll know who to blame.
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Wednesday, June 24, 2015

A flush budget staying tight for bad times ahead

Something tells me that when Mike Baird went to Sunday school he studied fully the story of Joseph (he of the lairy sportscoat) and Pharaoh's dream about seven fat years being followed by seven lean years.

Joseph's advice to Pharaoh was to save like mad in the fat years and use the proceeds to tide the Egyptians over the lean years.

It seems Baird and his Treasurer have taken that advice to heart.

With property booming, the government's revenue from conveyancing duty has doubled in the past three years to more than $7 billion a year, with Treasury predicting further growth of 12 per cent in the new financial year, a forecast that could easily prove too cautious.

So Gladys Berejiklian's "barns" are full to overflowing, with operating surpluses stretching as far as the eye can see.

And yet she is maintaining a tight rein on government spending (for which read public sector wage rises).

Though it's possible to point to some wasteful spending – subsidies to the thoroughbred racing industry, grants for real estate development by church-owned schools, and an excessive share of infrastructure spending going to rural areas to buy off the Liberals' country partners – the government's case for hanging tight is persuasive.

For a start, remember that all the operating surplus is used to help fund infrastructure spending without adding to borrowing and jeopardising the state's AAA credit rating. (Whether we should worry so much about ratings is another question.)

But, urged on by Treasury, the government is full of forebodings about revenue threats looming on the horizon, a good reason to save rather than consume in the good years.

For a start, the property boom won't go on forever, and the longer it lasts, the bigger the ultimate budgetary hangover.

For another thing, while it was nice to get our cut of Western Australia's mining royalties windfall from the resources boom, in the form of a higher share of national collections of the goods and services tax, now it's WA's turn to get a cut of our property boom windfall via the same mechanism.

Once the state's poles-and-wires businesses have been partially sold off, Treasury will be getting a smaller flow of dividend income, but that would have happened anyway now the national electricity price regulator has belatedly stopped those businesses from overcharging us (while their state government owners looked the other way).

Perhaps the greatest threat of lean years to come is Tony Abbott's plan, announced in last year's budget from hell, to cut federal grants to public schools and hospitals by $80 billion over 10 years from 2017.

NSW would cop about 30 per cent of the cuts. Berejiklian says they would be "unsustainable" and she's right, meaning they're a bigger problem for the Feds than for her. They're just the last bit of 2014 political stupidity remaining on Abbott's backdown to-do list.

Berejiklian claims the credit for NSW growing faster than the rest of Australia, after lagging in the years before the Coalition returned to office.

But it's a swings-and-roundabouts thing. Does she really want us to believe it was she who brought the mining construction boom to a halt? Or she who cut interest rates to record lows?

At least she'll be ready for the next downswing in our fortunes.
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Wednesday, October 29, 2014

Why federal-state relations are so hard to reform

There's been nothing like the death of Gough Whitlam to make me feel old. Was I on the job in the early 1970s watching the amazing scenes and taking note? Sure. Where was I when the Great Man was dismissed? In the building, where else? Later that night I was in a Canberra restaurant where Tom Uren wept from table to table.

But there's nothing to make me feel more disillusioned and cynical than the latest prime minister popping up to tell us his grand plans to revitalise federal-state relations. Really? That's what they all try. What makes Tony Abbott likely to succeed where his many predecessors - going right back to Whitlam - failed so dismally?

Since Abbott's plan raises the possibility of tax reforms - "including changes to the indirect tax base" - he'll be lucky if the "mature debate" and "rational discussion about who does what" he seeks doesn't erupt immediately into an Abbott-strength scare campaign about increasing the goods and services tax, led by a Labor Party with a long record of hypocrisy on the topic and a thirst for revenge.

In such a climate, the various premiers facing re-election in coming months are likely to swear total opposition to any change in the GST. These days our politicians excel in the Mexican standoff.

Whitlam was seen as the great centraliser, drawing furious attack from the premiers and a Coalition sworn to uphold "states' rights". But subsequent thought has been kind to his notion that the ideal model would be a strong central government dealing with many regional governments, closer to the ground than the present state governments and given flexibility to modify national rules to suit local conditions.

Forty years later it's obvious that ain't going to happen. However anachronistic, the state governments - within their own borders, just as centralist as any federal government - won't ever give up their rights and privileges.

Malcolm Fraser's "new federalism" involved making the states more self-sufficient by giving each the right to impose their own surcharge or discount on federal income tax. The premiers, always full of complaints about the inadequate money they're given, weren't the least bit attracted to new taxing powers.

The Hawke-Keating government continued the process of ever-increasing federal involvement in areas of state responsibility. It pioneered the practice of bribing the premiers to undertake desired reforms.

John Howard did little to conceal his centralist tendencies, dropping any pretence of favouring states' rights. More and more "specific-purpose payments" to the states came with detailed rules about how the money was to be spent.

Part of his reason for introducing a GST was the need to replace the revenue from various state taxes the High Court had ruled unconstitutional. His decision to give all the proceeds from the new tax to the states (and cut back other grants to fit) was an inspired move to neutralise the premiers' opposition to it.

His greatest act of centralisation came with Work Choices, which ended a century of (highly inefficient) shared federal-state responsibility for industrial relations.

Kevin Rudd tried to improve federal-state relations by greatly rationalising the thousands of conditions attached to federal grants. His efforts to reach federal-state agreement on removing regulatory inconsistencies ground to a halt as states dragged their heels. He lacked the resolve to carry out his threat of a full federal takeover of state public hospitals.

Now Abbott says he wants to reverse the creeping centralisation, reaching a rational division of roles that would make each level of government "sovereign in its own sphere". As part of this, he'd support a joint plan to increase collections from the (withering) GST and give all the proceeds to the states, taking it to the next federal election for voters' approval.

Trouble is, there's no suggestion this would leave the premiers with more money overall and, if this year's budget is any indication, no guarantee the feds wouldn't try to solve their own budget problems at the states' expense.

It's unlikely federal and state governments could ever reach a lasting division of responsibilities that would end the duplication, cost-shifting and blame-shifting. That's for a host of reasons.

Most of the economic arguments favour nationally uniform regulations. If the feds are to retain ultimate responsibility for the health of the economy, they need the ability to influence the building blocks of economic performance, such as schools and TAFE.

Federal Medicare and pharmaceutical benefits, and state public hospitals, are each parts of the same system, which must be co-ordinated.

The underlying problem of "vertical fiscal imbalance" - most tax revenue (including the GST) is raised by the feds, whereas most government spending is done by the states - is intractable, the product of history and constitutional law.

When the feds cop most of the opprobrium for extracting taxation, it's only human for them to want a say in how it's spent.

But when the premiers get used to spending lots of money without having to raise it, to demanding more from the miserly feds on behalf of their deserving constituents and to blaming any and all problems on those terrible incompetents in Canberra, it's only human for them to want to continue evading responsibility.

The premiers' "revealed preference", as economists say, is that they prefer the federal system as it is, including their right to complain bitterly about it and demand another handout.
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