The PM Versus The Premiers


Could the smears and innuendos finally be over? With the last sitting day of federal Parliament winding up last week, federal politics has been granted a reprieve from the merciless pursuit of decades-old slush funds and powers-of-attorney.

We’ve covered the AWU non-scandal here at New Matilda rather reluctantly; I firmly believe that the available evidence on the public record essentially vindicates the Prime Minister. With parliamentarians returning to their electorates, December is therefore a month in which we might have hoped that attention would turn to issues of policy and substance.

For her part, Julia Gillard is getting on with the business of running the country. There’s a meeting of the Council of Australian Governments coming up this Friday, for instance, which gives her the perfect opportunity to resume combat with the natural enemies of all prime ministers, conservative or Labor: state premiers.

This will be a big challenge. Although Gillard’s most committed haters reside in the darker recesses of the right-wing blogosphere, the Prime Minister has some powerful and high-profile opponents ensconced in high office in the many of Australia’s states and territories.

That’s both a problem and an opportunity for Gillard, because the states and territories are more than usually involved in her reform agenda. Yes, voters tend to side with Canberra when state premiers attack the sitting prime minister. But it’s also the case that most of the big-picture reforms that Gillard is pursuing — and which will be central to her re-election campaign — are inextricably tied up in the tangles of Australia’s perennially dysfunctional federation.

Take electricity prices, an issue she’s decided to run strongly on this week. The Prime Minister has unveiled a plan to try and get electricity prices down, or at least alleviate some of the bill shock that has been causing palpitations in the electorate. Ambitiously, and perhaps a little foolishly, an actual number has been put on her reform plans, with the government saying it will try and save householders $250 a year on their power bills.

Tristan Edis has a good account of what the Prime Minister’s plan involves, but the quick summary is that the government plans to implement much of the Australian Electricity Market Commission’s Power of Choice report, including the potential roll-out of smart meters. Number one on the agenda is of course doing something to address the extravagant gold-plating that has been going on in many state-owned electricity networks.

The problem with doing something about the gold-plating, however, is that it is not in the states’ interests to do so. And the states are the biggest gold-platers.

As New Matilda readers will know from our Future Shock series on energy, Australia’s electricity grid is largely under the purview of the states. The relevant legislation for the National Electricity Market is a South Australian law, and many of the big players in the sector are state-owned companies controlled by New South Wales and Queensland.

Unsurprisingly, both Queensland and New South Wales have been less than enthusiastic in their response to the Prime Minister’s proposals. Queensland’s energy minister Mark McCardle told the Australian Financial Review’s Geoff Winestock that "[the]proposed $250 saving is a dishonest grab for a headline that is not backed up by any details". 

New South Wales Energy Minister Chris Hartcher is slightly more nuanced in his stance, telling Fairfax that, "though the NSW government remains opposed to a mandatory national roll-out of smart meters due to the inevitable cost impost on customers if forced upon them without their choice, the NSW government recognises that certain customers may benefit from smart metering technology".

It’s not hard to see why Queensland and New South Wales are opposed to electricity reform. The two states collectively rake in billions a year from their government-owned electricity companies. Given their well-publicised dissatisfaction with how much revenue the GST is affording them, you can see why New South Wales Premier Barry O’Farrell has openly stated that he won’t be refusing the estimated $1.2 billion in electricity dividends the New South Wales Treasury receives. "Understand this, dividends, like other state revenues keep schools, hospitals and police stations operating," O’Farrell said back in November.

Two other big-picture issues that Julia Gillard is current pursuing are also beholden to the messy self-interest of state premiers: the National Disability Insurance Scheme and the Gonski schools funding reforms. Both issues are traditionally and constitutionally policy areas reserved for the states and territories (although that didn’t stop John Howard and David Kemp injecting tens of billions of taxpayer dollars into the coffers of private schools in the early 2000s).

Because schools and disability services are state responsibilities, the Commonwealth faces some thorny issues in pushing through its reform proposals. On Gonski, for instance, much will need to be negotiated in order to harmonise the dog’s breakfast of eight different systems that the states and territories use to fund their primary and secondary schools. This is difficult work that has barely just begun, as the government’s laughably contentless Gonski legislation introduced to Parliament last week amply demonstrates.

Julia Gillard is also pressing ahead with the NDIS as a third-term Labor priority. Here again, Gillard will have to fight conservative state premiers like Campbell Newman and Colin Barnett, neither of whom have formally signed on to the Scheme as yet. Like the Gonski legislation, the NDIS bill presented to Parliament is short on detail. Most notably, it doesn’t appropriate any funding, leaving exact dollar amounts to future budgets.

The problem with making these big social reforms stick is that the roadblocks are largely structural, not political. It would be easier, of course, if Julia Gillard could corral a group of Labor premiers and chief ministers around the COAG table, the better to put the thumbscrews on them to commit. But Australia’s federation is by its nature a balance of power and responsibilities between the states and territories and the Commonwealth.

The underlying problem behind all of these arguments is the parlous fiscal position of most of the states, which are receiving far less GST than they need to deliver the services voters demand of them. This is the notorious "vertical fiscal imbalance" which means that while Canberra levies the lion’s share of the taxes, the states and territories are charged with delivering most of the services. Under Rudd and Gillard, Labor has tried to solve this problem by sending ever more money to the states, in the form of special deals like the national health and hospitals reforms, and now Gonski and the NDIS.

Generally, the states have acquiesced after some grumbling, because, after all, what the states really need is more money. As Paul Keating famously said, "never get between a Premier and a bucket of money."

But with the federal purse-strings now at breaking point due to Labor’s overwhelming political desire to maintain a surplus budget, Julia Gillard doesn’t have any buckets of money from which to dole out bribes.

It’s not all pistols at dawn when premiers and prime ministers meet. This week’s COAG meeting is expected to finalise reductions in so-called "green tape" between federal and state jurisdictions, reforms that have left many environmental groups aghast. Canberra appears to be prepared to hand back some of its powers of environmental regulation to the states to help expedite large resources projects that have been getting delayed by the need for them to comply with both state and federal environmental planning restrictions.

This too appears to be driven by money: encouraged by high-profile business lobbyists like the Business Council of Australia’s Tony Shephard, the green tape reductions are being sold as a way to streamline the approval of mega-projects that will result in billions of dollars of mining royalties for both the states and the Commonwealth. It’s not just state premiers that have a liking for buckets of money. The Commonwealth needs extra resources revenue too.

Ben Eltham is New Matilda's National Affairs Correspondent.