QUARTERLY ESSAY 82 Exit Strategy



Jennifer Rayner



Jennifer Rayner

One of the more interesting parts of the Covid-19 era has been observing the ways people can and can’t imagine our world will be different after this once-in-a-century crisis. Apparently cities, with their crowded CBDs and coop-like apartments, are over; the logistics and supply chains we’ve relied on for half a century will be radically reshaped; and the frontline work of carers will finally be valued in line with its social contribution (if only). But in George Megalogenis’s Exit Strategy: Politics after the Pandemic, something that is not questioned is the primacy of the federal government in setting the direction for Australia’s recovery and beyond – whether by commission or omission.

This is puzzling because, as Megalogenis notes, the story of the pandemic is the story of a federal government being absent when leadership was needed, slow and hesitant when speed and decisiveness were essential. Late in the essay he observes, “Morrison’s approach has posed a question no one thought to ask before the pandemic: who actually runs the country? The answer in this crisis was the national cabinet, with the premiers claiming their greatest share of power in the federation since Whitlam commenced the long march of centralisation in the 1970s.”

The essay treats this as a temporary state, with Megalogenis’s thoughtful counsel being addressed to a federal government that is assumed to be back in the driver’s seat. But there is another way to see it. Arguably, what the pandemic has really done is lay bare a progressive shift in power between levels of government that has been taking place since the fractious start of the Abbott–Turnbull–Morrison government. Looked at this way, what we’ve seen during the Covid crisis is not an aberration – it’s a window into an alternative way to govern this country as we emerge from the pandemic.

As Megalogenis points out, in September 2021 the government will mark eight years in office, with the first five years being, “on its own admission, wasted.” The rapid burn of leaders has prevented any policy idea or agenda from sticking for too long. Party-room dynamics and the scarring experience of the 2014 budget have tempered any appetite for complex reform. Pretty much the only flag all parts of the party have consistently been able to rally around is the idea of getting the federal budget back to surplus, necessitating a smallness of ambition and a reduced scope for government action in the name of “budget repair.”

All this has created a vacuum: of ideas, of reform, of a willingness to face up to the hard challenges confronting Australia and actually do something about them. This vacuum is one that states and territories have increasingly been stepping into over the past eight years.

Australia lags the world on climate action, doesn’t it? The federal government has refused to join other advanced economies in pursuing genuine emissions reduction, but it’s happening anyway – because of the states and territories. In the past few years, all jurisdictions have signed up to achieve net-zero emissions by 2050 and are getting on with the hard change needed to achieve this. That includes both Labor and Liberal governments, which have realised that the window to act is closing and we can’t keep playing politics while the world literally burns.

Today’s politicians lack the guts to deliver real economy-shaping tax reform, don’t they? Someone must have forgotten to tell that to Victoria, South Australia and New South Wales, which are all in the process of delivering road-user charging reforms that will address the long-term structural decline in federal fuel excise revenue, while helping to tackle emissions and congestion all in one handy tax. Or the ACT, which is well advanced in getting rid of stamp duty – a reform that the Henry Tax Review and approximately 4000 other experts believe is essential to improve productivity and equity in the housing market.

The states and territories have even demonstrated that near-national tax reform can be achieved through coordinated action. The introduction of point-of-consumption gaming taxes, capturing offshore betting operators, is a notable recent example, led by the South Australian government in 2017. All jurisdictions except the Northern Territory now have point-of-consumption taxes in place, tightening the tax net for an age of digital service delivery. The approach to developing these particular taxes was a case study in collaborative yet competitive federalism, with jurisdictions agreeing to create a broadly common tax base but leaving room to compete on the rate.

Australia is bound for gridlock and lost growth because we’ve failed to invest in infrastructure, right? Infrastructure Partnerships Australia tracks the Coalition’s infrastructure spend since coming to office in 2014 at $50.2 billion, an average of about $7 billion a year. Over the same period, New South Wales, Victoria and Queensland alone spent $217 billion, or around four times as much per year. In fact, in every year of the Abbott–Turnbull–Morrison government, New South Wales alone has invested more in infrastructure than the federal government has across the entire country. To give credit where it’s due, the Morrison government’s last two budgets have significantly stepped up infrastructure spending, with a little over $40 billion earmarked for the next three years to 2024. But that investment is entirely dwarfed by the $140 billion that Australia’s three largest states plan to spend on making their cities and regions more connected, efficient and productive over the same period.

All this is by way of demonstrating that the federal government’s wasted years have been anything but for the states and territories. There are many more examples of these jurisdictions rolling up their sleeves and getting on with the job while Australia’s media and commentariat have been preoccupied with the Coalition’s successive unravellings and rebuildings. Important lessons have been learned in these years about how the states and territories can go it alone, together.

For example, they are increasingly working together through channels and forums that are completely independent of the federal government. This is a distinct operating shift from the hub-and-spoke model that dominated during the Rudd–Gillard government, where all roads led to Canberra. An important example of this is the Board of Treasurers, which exclusively comprises state and territory representatives. It was established by the NSW Liberal treasurer Dominic Perrottet as a forum for jurisdictions to debate and pursue economic reform. It has proven to be a welcome circuit-breaker on the interminable lemniscate conversations within the Commonwealth-controlled Council of Federal Financial Relations.

The strengthening of direct ties has also opened new opportunities for healthily competitive collaboration. This has seen states and territories learning from one another while also jockeying for position. On issues as diverse as tax, industry development, zero emissions transition, waste, mental health, hospitals, skills and energy, jurisdictions are looking over each other’s fences for ideas and to benefit from the experience of governments that have tackled hard things first. While the federal government seems afraid to stick its neck out too far on anything at all, states and territories are increasingly making it a point of pride to be the first out of the gates and have other jurisdictions follow their example.

At the same time, the capability of the states and territories has been significantly boosted by an inflow of former federal public servants and advisers who believe in the power of government and want to wield it to drive real change. Regardless of your political persuasion, the Abbott–Turnbull–Morrison years have been an uninspiring time to work in government – dominated by messy and politicised decision-making processes, frequent policy reversals and a reticence to act on problems even when all the indicator lights are flashing red. Many workers have simply made the choice to take their skills elsewhere, strengthening state and territory governments with their knowledge, networks and larger frame of reference.

All this meant that Australia arguably entered the Covid-19 pandemic with the strongest states and territories and the weakest federal government for several decades. The collective action on display when premiers demanded a seat around the table at crisis HQ didn’t materialise overnight. It was an expression of existing relationships and power dynamics six years in the making. The possibility that Megalogenis’s essay missed is: what if we were to go forward like this, not back to the old world of centralised federal control?

This alternative would see the federal government take on the role of partner, not paterfamilias, to the states and territories. Vertical fiscal imbalance and the benefits of a national perspective will mean the federal government always has some role to play in guiding our collective future. But there’s no reason the federal government needs to be the pre-eminent decision-maker on the post-pandemic economy and policy agenda. Jurisdictions would no doubt welcome an approach in which ends were collaboratively agreed, but each had more autonomy to decide on the means. While national consistency in policy has its merits, its pursuit has often also led to gridlock and paralysis, or lowest-common-denominator outcomes that don’t end up moving the dial much. Being closer to communities, the states and territories may also choose to put different issues on the policy agenda than those the federal government has prioritised in recent years. It could only strengthen our democracy for citizens to feel that their concerns are being heard and acted upon.

In some ways this would mark a return to an earlier phase of the Australian federation, when the colonial states regularly muscled up to the nascent Commonwealth. But at the same time, it represents the kind of dispersed and flexible governance that is increasingly seen as necessary to meet the challenges of a world that is becoming more plural, more complex, and is demanding more innovation and experimentation.

If Australia ever gets around to having a credible national climate policy, it will need to be built around frameworks that are already in place and working across the states and territories. The next tax-reform agenda won’t look like the last one, because the up-to-date expertise in designing and delivering complex reform sits in state treasuries and revenue offices, not a Commonwealth Treasury exhausted from the vast effort of keeping the economy together through Covid. More coordination on infrastructure, service delivery and post-recovery program design will be essential to avoid a repeat of the gaps and inefficiencies that the pandemic put up in lights.

The question, then, really is: will future federal governments go with the flow and share more power with states and territories that have shown themselves capable of wielding it well? Or will the coming decade be a fight by the feds to take back all the ground given away since 2014? These are not just questions for Scott Morrison’s Coalition; federal Labor, too, will need to decide what sort of role it wants to play when its next prime minister fronts the premiers. With such a strong cast of experienced and popular state Labor leaders, it would be bold to think Anthony Albanese or anyone else could easily slip back into the old federal role.

Early in his essay, Megalogenis notes that “Covid-19 has demonstrated a wicked genius for exploiting gaps in the old model.” He was talking about the economic model, but in fact the pandemic has laid bare gaps and fractures right across our society – including in how we are governed. The relationship of levels of Australian government may be a rare instance in which what has been exposed is actually an improvement on how we believed things were. We shouldn’t therefore assume that the only way forward is back – back to centralised federal control, back to states and territories as the second tier by design and by function. To do so would be to miss an important opportunity to build a better system of government for our post-pandemic future.

Jennifer Rayner


This correspondence discusses Quarterly Essay 82, Exit Strategy. To read the full essay, subscribe or buy the book.

This correspondence featured in Quarterly Essay 83, Top Blokes.


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