Senator REYNOLDS (Western Australia) (12:45): I rise to speak about an issue that I believe is the single greatest act of national reform that we can achieve together as a nation—that is, change is required to generate new jobs and increase national wealth in our rapidly changing world economy. That reform is reform of our highly dysfunctional federation.

I believe that today our current intergovernmental arrangements are the single biggest drag on current and future prosperity. It is not a problem that will fix itself, but it is something that very few Australians notice and even fewer discuss. However, in this place we daily see the symptoms of a highly dysfunctional federation: the perpetual, unedifying and demeaning fights between states for Commonwealth funds to pay for the services they are responsible for providing. We also see the apparent perpetual inability of politicians to get things done and the increased disillusionment and cynicism with politics and politicians in our community inquiries, where we see so many circumstances where millions of Australians fall through bureaucratic chasms. These are all symptoms, I believe, of a greater national malaise.

Australia has a magnificent Constitution—one that has served our democracy so well for the past 115 years. It is one of very few constitutions that were born out of decades of talk and very, very considered negotiations and not born out of war and conflict. Its simplicity is its greatest strength, but it is also its greatest vulnerability—a vulnerability that should never be ignored. Our own founding fathers very carefully and thoughtfully assigned specific accountabilities between state and Commonwealth governments—between sovereign governments. They did that based on which jurisdiction was best placed to deliver services to all Australians. They also very deliberately did not codify how it was to operate in practice. They left that responsibility to Australian citizens through their elected representatives—through us—to adapt and transform with changing times and changing social circumstances. But, as Prime Minister Robert Menzies wisely cautioned, there are inherent dangers for our nation if the health of these relationships and these processes that underpin our Constitution are not regularly reviewed and reformed. Sir Robert said in 1967:

… I cannot pretend that the growth of the Commonwealth power … does not present great problems of future adjustment for both Commonwealth and States if both are to co-exist and succeed.

…   …   …

The theoretical reason is that, as good Federalists, we would not wish to impair the autonomy of the States in the important functions for which they are responsible. Clearly the strictness with which this principal is applied will depend very much on political circumstances and contemporary pressures.

But he also noted:

But the practical reasons is that the Commonwealth knows that the States are better informed and better equipped administratively and technically in relation to their constitutional functions, their ‘reserved’ or ‘residuary’ powers, and that overall efficiency would suffer from too large a Commonwealth invasion—

into their responsibilities.

I have reflected a great deal on Sir Robert’s cautionary note and I think sadly, today, for most Australians, if not all Australians, how prescient he was in those observations. Reform and centralisation of powers, particularly financial powers, have progressively occurred for over a century now in Australia, but rarely have we ever stopped to consider where these reforms are progressively taking us as a nation. Are they taking us somewhere better or are they taking us somewhere worse?

In politics, money is power. Today’s vertical and horizontal fiscal equalisation and our Byzantine COAG processes are some of the main drivers of our national dysfunction and national economic underperformance. Our founding fathers may have been great constitutional drafters but they were lousy with numbers and accounting in their estimation of what the cost of government would be to deliver services.

Prior to Federation it was predicted that a federal government’s responsibilities would only cost 25 per cent of total national revenue and that the delivery of state government responsibilities would be 75 per cent. Today, that is reversed: 75 per cent of revenue goes to the Commonwealth and 25 to the states, and state governments now rely on the Commonwealth for over half of their budgets, which are mostly tied to Commonwealth, not state priorities.

Greg Craven wittily noted that having a Prime Minister talk about states being sovereign is akin to Vladimir Putin turning up at the Ukrainian president’s house with his wife and an esky—not very welcome, indeed! But I think that, if Australia is to succeed in a highly competitive global economy as a nation, all aspects of our nation, including all levels of our governments, must be agile and innovative. They must be empowered to respond rapidly to the demands of an increasingly interconnected and disruptive global economy—one that we all live in. These are all qualities that I think most Australians would say are not inherent in any of our bureaucracies today.

So where do we start? I believe the answer lies in the most unexpected of areas and starts with an understanding of the difference between two little but profoundly important words that today are used interchangeably by Australians. Those two words are accountability and responsibility. So what is the significance of these two little words to our Federation? Benjamin Disraeli once famously explained the difference between two English words that are often used interchangeably—’misfortune’ and ‘calamity’. He described it thus: ‘The difference between a misfortune and a calamity is this: if Gladstone fell into the Thames, that would be a misfortune. But if someone dragged him out again, that would be a calamity.’ That is a wonderfully witty way of explaining the importance of the meaning between words.

Being responsible means not only being involved but being responsible for delivering a process. Conversely, being accountable means performance is actually judged on success; it means somebody can be held accountable for something happening or not happening. It is important because somewhere along our democratic journey as a nation an understanding of the difference between who is accountable for delivering the services outlined in our Constitution and who is responsible in a process sense for delivering them has been lost. I believe this is to the significant detriment of our nation. Today, it is almost impossible for any Australian to work out who is to be held accountable for individual government outcomes, which I think significantly increases the cynicism of Australians towards all of us in the federal and state parliaments.

The future prosperity and success of our nation is not predetermined, and growth is neither perpetual nor self-sustaining in a world where many countries and many societies are much hungrier for innovation, commercialisation, success and growth. To remain competitive and prosperous, we must reform Australia’s Federation. But until we find a way to restore clear and transparent accountabilities to all of our sovereign governments, and the funding provisions to deliver that, we have little hope of reforming how we deliver government services to and on behalf of all Australians.

Reform of our Federation is hard, but it is possible. To do so, we must encourage all Australians to participate in the discussion and encourage and support reform. It is in all of our interests to do so. The last government, under both coalition prime ministers, engaged in good faith with state and territory leaders; and the conversation on Federation reform, while not widely publicised, has already begun. I believe it is now critically important that these conversations continue, with bipartisan support, in this chamber and in the other place. The time to restart this process is today. I do not believe our nation can wait any longer for the reforms that we so desperately need.