Most of the National Commission of Audit’s proposals are unsurprising from a review team run by the Business Council of Australia: low-income earners, foreign aid recipients, students, carers, Newstart recipients, public servants and, eventually, future generations of pensioners, are all targeted. Challenged by The Australian’s David Crowe at his press conference on why the burden of his recommendations fell on low- and middle-income earners, commission chairman Tony Shepherd struggled to identify recommendations that would harm high-income earners.

And in a sort of grace note of malice, homelessness is proposed to be abandoned entirely as an issue of Commonwealth interest, while the review carefully proposes that savings from the paid parental leave levy be directed to funding nannies.

But what is surprising is the very back-to-the-future tone of the commission’s take on federalism. This isn’t your father’s “competitive federalism”, but your great-grandfather’s, harking back to a time before World War II when the states had income tax powers and much greater sovereignty. It’s an attempt to address the basic flaw of competitive federalism in Australia, that voters simply won’t let the Commonwealth withdraw from service provision politics while it has ultimate control of the purse strings — there will always be an imperative for a federal politician to intervene to fix a problem in health or education if they have a funding role. The instinct to Do Something runs deep in both voters and politicians.

The commission proposes to short-circuit that instinct by stripping the Commonwealth of a large block of its revenue, handing the states their own source of personal income tax, dramatically reducing Commonwealth grants and strictly limiting those that remain. The result would be a significantly curtailed capacity for the Commonwealth to Do Anything. In areas like education, the states would have a free hand to spend as little or as much as they wanted and run their education systems as they saw fit; in health, they would have to report much less on their existing funding.

Indeed, one of the minor themes of the report is an abandonment of reporting requirements — doubtless seen as irksome red tape by the business mind — in keys areas like health and education. This runs contrary to the centralising impulse of both sides of federal politics of recent decades, but in particular the focus of the Gillard government on constantly lifting reporting requirements on the states so that “customers” of state government services could see the quality of the services they were being provided via their local schools or hospitals, and respond accordingly.

Under the commission’s preferred model, there’d be no need for, say, parents to know how their local hospital was performing because competition between the states and political pressure would constantly pressure the states to provide the best possible services. At least, that’s the theory. Tony Shepherd wants to see a “level of competition” between states on income tax, presumably with the idea that more efficient states would prove more attractive to taxpayers.

The political reality is that it will never happen, not merely because federal politicians won’t want to lose that power, but states might not necessarily want that power either, although the revenue would be enormously attractive. But it’s an honest effort from one point of view to solve what is perceived as a major problem. Shepherd appears to have been motivated by serious concerns about the sustainability of current federal arrangements. “I see this as a very serious issue,” he said. “It’s a restriction on growth.”

Without that attempt to rebalance the federation, the overall report is much as one might have expected.

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