The federal public service in Australia employs a staggering 198,000 individuals, encompassing 35,200 in Services Australia, 21,400 at the Australian Taxation Office, and 16,000 in Home Affairs. The Department of Defence adds another 20,500 public servants alongside nearly 58,000 uniformed personnel, who are not included in the public service headcount. This extensive workforce is overseen by a multitude of politicians from Canberra to local councils, all managing an intricate web of laws and regulations that often differ between states, leading to costly duplication and confusion.
Businesses operating nationwide face up to 36 different versions of payroll tax.
“Complying with these different payroll rates and thresholds across the country strikes me as more difficult than the moon landings,”
says Business Council of Australia chief executive Bran Black. He argues that the convoluted system of governance is detrimental to both businesses and ordinary citizens, emphasizing the necessity for federation reform to improve quality of life.
Economic Impacts of Federation Inefficiencies
NSW Premier Chris Minns candidly acknowledges the economic strain caused by the federation’s current state.
“I think the short answer is yes,”
he says, reflecting on the gridlock and systemic issues that persist despite changes in political leadership. His counterpart in Queensland, David Crisafulli, advocates for “competitive federalism,” where states serve as economic experiments. However, he concedes that the federation’s structure imposes significant economic costs.
Rail transport exemplifies these inefficiencies. Despite the historic unification of NSW and Victoria by a single rail gauge in 1962, rail operators still grapple with state-specific approvals for rolling stock and signaling systems.
“Hundreds of millions of dollars, if not billions, could be saved if we did things better,”
says Natalie Currey of the Australasian Railway Association.
Regulatory Challenges in Transportation
Beyond rail, the e-bike sector illustrates regulatory discord. A 2021 federal change in e-bike definitions has led to safety concerns and market isolation, particularly in NSW. Bicycle Industries Australia general manager Peter Bourke highlights the inconsistent standards causing legal and market challenges, with major international brands exiting the NSW market.
Similarly, bike helmet standards have seen a shift, with the ACCC approving international standards to replace the Australian/New Zealand requirement. Yet, Tasmania’s adherence to the old standard could result in helmet shortages.
Healthcare and Housing: The Federation’s Strain
Healthcare represents a critical area of duplication, with South Australian Premier Peter Malinauskas likening it to a game of passing the buck. The division of responsibilities between federal and state governments leads to inefficiencies and increased costs, particularly as the population ages.
Housing, involving federal, state, and local governance, is another area of contention. Despite federal initiatives to boost housing supply, states often find themselves financially strained to match federal funding promises. Former Treasury secretary Ken Henry has called for comprehensive environmental law reforms to support housing and infrastructure development.
Fiscal Imbalances and Historical Context
The financial dynamics between federal and state governments have evolved significantly since 1901, with Canberra now controlling income tax and the GST. This has led to a “vertical fiscal imbalance,” where states rely heavily on federal transfers to meet their spending obligations.
“To cut a long story short, we do all the work and they collect all the money,”
says Minns, highlighting the states’ financial challenges.
The GST, initially touted as a growth tax, has failed to meet expectations due to exemptions and changing economic conditions. Analysis suggests that if GST revenues had grown with nominal GDP, states would have significantly more funding for infrastructure projects.
Energy Policy and Federation Reform Prospects
Energy policy further illustrates the complexities of federal-state relations. Despite federal leadership, legal control over energy infrastructure remains with the states. Former South Australian premier Jay Weatherill points to the lack of a carbon pricing mechanism as a barrier to long-term investment and stability in the energy sector.
As living standards stagnate and government debt grows, experts like University of Queensland’s Flavio Menezes and Curtin University’s Alan Fenna argue for urgent federation reform. Federal Treasurer Jim Chalmers acknowledges the need for change, noting ongoing efforts to address these systemic issues.
Australia’s federation, while historically resilient, faces mounting pressures that demand coordinated reform to ensure economic efficiency and improved quality of life for its citizens.
