Opinion article

Leaders must start fixing our fractured federation now

CEDA Chief Economist Jarrod Ball says that we need to maintain a strong and effective federation if we are to make the reforms we need to drive economic recovery.

Prime Minister Scott Morrison’s recent signal that he won’t be racing to the polls next year gives Australia the potential for some much-needed clear air to get the Federation back on track. The prospect of a mostly poll-free zone from next month until March 2022 – with the exception of Western Australia’s poll early next year – could not be better timed.

It is now critical to regain some of the Commonwealth-state goodwill that seems to have been lost since the height of the pandemic. “We’re all in this together” was resigned to the political dustbin months ago. Recent arguments between Commonwealth ministers and some state premiers have been unedifying – whether about the implementation of the travel bubble with New Zealand, or the Victorian Government’s approach to re-opening after its second lockdown.

The real test of Australia’s Federation and the new National Cabinet model is not whether arguments occur: they are inevitable. In many cases, civil and constructive arguments can be beneficial to our democracy and lead to better decisions. Instead, the real test is whether our political leaders can move past recent disagreements and keep Australia’s fight against COVID-19, and the recession it has induced, on track.

There is no time to waste if Australia wants to be COVID-safe and accelerate the economic recovery next year.

National Cabinet should start on a seemingly tedious but crucial point raised in CEDA’s recent report Australia’s Federation: post-pandemic playbook – it needs more transparency around the outcomes of its deliberations. This does not mean a return to detailed and highly engineered communiques. A list of agreed outcomes published online would suffice. This would make everyone accountable and prevent the kind of verbal slanging matches we have seen over the New Zealand travel bubble in the last week.

As Victoria emerges from its second wave, COVID complacency will be public enemy number one. If we are to open borders, cities and workplaces while avoiding large-scale outbreaks and further lockdowns, leaders need a detailed strategy to stay COVID-safe in 2021. This cannot begin and end with the hope of a vaccine or a COVIDSafe app that has had disappointing take-up and limited application.

Guarding against the virus spreading silently in the community requires rapid screening, detection and tracing. Governments should be looking at options for more regular and rapid testing, batch testing and mass screening at workplaces. The mask swabbing undertaken by Acciona Geotech on Melbourne’s level crossing removal project is one local example, with numerous international examples of new testing innovations and improvements emerging every week. Governments must also keep upgrading their clunky contact tracing systems.

Just as containing the virus is key to ensuring community and business confidence, government stimulus is crucial to fill the economic void left by COVID in the short-term. The Commonwealth Government has previously voiced concerns that the states are not doing enough to complement its considerable stimulus. To be fair to the states, they have been held back by their limited fiscal powers and levers for stimulating the economy. The Commonwealth Government could look to help broaden out the state stimulus already in the pipeline by using matched funding to incentivise state investment in other areas, such as social housing, which give a short-term boost with long-term social benefits.

Beyond immediate stimulus efforts, some states and territories, including the ACT and NSW, have signalled their appetite for cooperative Commonwealth-state reforms, including in tax. Their reform appetite should be applauded, but any efforts at bigger bang reform should be planned and executed very deliberately. Big adjustments in areas like tax, however beneficial to the supply side of the economy in the long run, risk dampening confidence and the recovery in the short-term. We saw this at the end of 2019, when Japan increased its sales tax, bringing about a negative quarter of GDP growth.

An economy in recession with fragile confidence is less able to absorb the immediate transitional costs of many reforms. Treasurers should start by understanding what the goal of tax reform is – beginning with an upgraded whole-of-federation intergenerational report in 2021. We need to map out the intertwined budget challenges of the Commonwealth and the states, and match our tax base to the fiscal, demographic and economic challenges looming over the coming decades. The 2021 Intergenerational Report must be our best yet.

Our leaders must start fixing our fractured federation now if they want to be match-fit for the challenges facing the nation next year.
About the authors

Jarrod Ball

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Jarrod Ball joined CEDA as Chief Economist in 2017 with over 15 years of experience as an economist across the public and private sectors. He has held senior roles at the Business Council of Australia, in EY’s advisory services practice and more recently at BHP. Jarrod also worked in the Federal Government and was a lead adviser on microeconomic reform for the Victorian Departments of Premier and Cabinet and Treasury and Finance. He is a member of CEDA’s Council on Economic Policy and the Melbourne Economic Forum. Jarrod holds a Masters degree in Economics from Monash University and undergraduate degrees in Business (Economics) and Arts from the University of Southern Queensland.

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