Will Tony Abbott take the risk and seize his opportunity for significant reform? By Rachel Nolan.

Rachel Nolan
Prime Minister Tony Abbott’s legacy moment

Tony Abbott is a man deeply skilled in the dark art of identifying an argument and punching through. It’s ironic, then, that his big opportunity to make a statement of his prime ministership lies in the most delicate of political arts – weaving something from the scattered threads of Australia’s federation.

With Saturday’s state elections in Tasmania and South Australia likely to result in Labor defeats, Prime Minister Abbott will soon face a political opportunist’s nightmare – the arrival of actual responsibility at his feet.  From next week, every jurisdiction in the country barring the ACT is likely to be run by Liberals, and Abbott will unquestionably be in charge.

With his government already drawing criticism for its limited legislative agenda, the question is what on earth is Tony Abbott going to do?

An inkling may come with the government’s commitment to develop a white paper on the federation, with terms of reference expected to be agreed at the Council of Australian Governments meeting in May. 

The one thing about which all Australians agree is that federal-state relations are a mess. Ambiguous lines of responsibility lead to duplication and there’s a chronic culture of blame shifting when the going gets tough.

The central problem of the federation lies in vertical fiscal imbalance, the unsexy term for an essential concept – the fact that the Commonwealth collects nearly all the tax while the states remain responsible for pretty much all the services Australians use from day to day.

While conservatives might nod with glassy eyes to the wisdom of the founding fathers, the Australian federation was never meant to be like this. When it was established, income taxes were levied by the states (they were centralised “temporarily” for the purposes of World War II) and it was only in 1997 that Ha v New South Wales in the High Court disallowed cigarette taxes, effectively ruling out state-based excises forever.

The vertical fiscal imbalance problem was compounded in 2000 when, contrary to the rhetoric of state empowerment, the introduction of the GST was accompanied by the abolition of yet more state-controlled taxes, further limiting the states’ fiscal independence and binding them more closely to Canberra’s poisonous charity.

The current situation then of inexorable growth in state responsibilities, particularly in health and education, accompanied by the states being utterly hamstrung on the revenue side, is a function of political and legal circumstance rather than design. And the unspoken truth is that, for many in the political class, that ability to blame shift when it suits has worked just fine.

Wall-to-wall Liberal governments and a genuine desire to make his mark as prime minister mean, however, that Tony Abbott, for the first time in his political career, cannot now blame someone else. His challenge and his opportunity represent two sides of the same face.

For a leader who’s suitably motivated, there are a million suggestions as to how the impasse might be fixed. In the 1970s the Whitlam government had a grand plan for regional government, a scheme for which Anthony Albanese, as local government minister in the previous Labor government, still carried a torch. Former West Australian premier Geoff Gallop suggests an institutional approach, entrenching COAG to ensure ongoing reform. The Business Council of Australia harks back to the Keating years, calling for Commonwealth bribes to get the states to reform and, with his recent suggestion of tax breaks for states that privatise assets, it’s fair to assume Treasurer Joe Hockey is enamoured of this approach.

If Prime Minister Abbott’s really going to make a difference, though, it won’t be by fiddling around the edges, he’ll need to get stuck in, move money around between the Commonwealth and the states, and clarify the policy responsibilities once and for all.

One suitably grand bargain would be for the prime minister to announce that the Commonwealth plans to take over health and, after a time, education, in exchange for taking back full access to the GST. Such a scheme would allow Mr Abbott to make a leader of himself – to unequivocally say “the buck stops with me”. It would create the grounds over time to raise the rate of GST (which Treasury would favour because it’s one of the few growth taxes available to meet the spiralling cost of public health) and, just as John Howard did with his GST plan, it would give the Liberal Party a serious agenda to pitch to the electorate ahead of a second term.

Such a scheme would be consistent with Mr Abbott’s demonstrated political thinking – as health minister in the Howard government he talked up the possibility of a Commonwealth health takeover and unilaterally (and laughably) purchased Tasmania’s Mersey Hospital as the Howard government was on its last legs. As opposition leader he said the federal government should “stick to its knitting” as he rejected calls for a continuation of Labor’s funding in the traditional state realm of public transport infrastructure.

As a strategy, clarifying the lines of political responsibility means, of course, adopting the political risk. A little-known truth of Australian politics is that, contrary to their bad reputation, all of the actual competence for public administration lies in the states. Canberra types can affect an air of high-mindedness, spending their time talking about the Palestinian question (on the Labor side) or who’s the best fit for which diplomatic post (the Liberals), simply because they are actually responsible for very little at all. 

 The things the Commonwealth actually runs are defence, social security and immigration and with their endemic problems – materiel cost blowouts and bastardisation in defence, nearly a million people on the disability pension, and unspeakable cruelty and chaos in immigration – it can hardly claim to be going well.

With the states currently carrying far greater challenges, such as ensuring educational equity in Western Sydney and running modern hospitals in the Northern Territory and the Torres Strait, many of the PM’s advisers will recognise the huge implementation risk of trying to sort out the federation mess. 

As we watch with interest, though, and ask ourselves what exactly Tony Abbott will do, a few critical points are worth bearing in mind. We know Abbott is seeking to make his mark, we know he’s a Howard acolyte now on the hunt for a second-term agenda to light the place up and, if there’s anything we know about Abbott, it’s that the prime minister of Australia is nothing if not crazy brave.

This article was first published in the print edition of The Saturday Paper on March 15, 2014 as "Prime minister Tony Abbott's legacy moment".

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Rachel Nolan was transport and later finance minister in the Queensland Labor government between 2009 and 2012.

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