8 – Reforming the Federation

8.1 Background

The upcoming White Papers on Reform of the Federation and Tax Reform provide the opportunity for detailed analysis of current arrangements for federal financial relations and the development of reform options.

  • There is a commitment to producing these White Papers within the next two years.
  • The White Paper on the Reform of the Federation has a broad remit aimed at clarifying roles and responsibilities between all levels of government to ensure that, as far as possible, each level of government is sovereign in its own sphere.
  • However, in order to meet this goal, funding capacity is a key driver. Substantial vertical fiscal imbalance and long-term fiscal pressures for all levels of government means the two White Paper processes will need to be well linked.

There is scope for significant reform around:

  • Commonwealth-State roles and responsibilities;
  • vertical fiscal imbalance;
  • horizontal fiscal equity; and
  • administrative burden.

These different areas are interdependent, but reform across all of the areas should clarify roles and responsibilities, and provide for sufficient autonomy, capability and sustainability for every Australian government to be sovereign in its own sphere.

In accordance with the Terms of Reference for the National Commission of Audit, the Phase One Report provides an opportunity to:

consider and comment upon the current architecture of Commonwealth-State relations. The Commission’s views on this issue will help to inform the Government’s forthcoming White Paper on the Reform of the Federation.

The Commission considers that governments should be ambitious in reforming and improving Australia’s Federation.