The BCA issued a report on the matter late last year titled Reshaping Australia’s Federation: A New Contract for Federal-State Relations, in which it estimates that inefficiencies within the federal system cost governments at least $9 billion a year.

Steven Munchenberg, deputy CEO of the BCA, said the report aimed to raise the profile of problems with the federal system under the Constitution.

“Basically it comes out of a push by the Business Council to reignite the reform agenda as over the last 18 months we’ve brought out a range of reports and what we found was that in each of the areas where Australia needs significant reform you run into federal-state relations,” he said.

“So we really want to spark a debate in Australia about whether the current operation of federal systems is satisfactory and what we can do about that in pragmatic terms. We don’t want to abolish a level of government or totally rewrite the constitution or anything — it’s more about practical solutions.”

Associate Professor at the University of Technology, Sydney, Patrick Keyzer, predicts federalism will increasingly be on the political agenda this year.

“Kevin Rudd has characterised it as the last frontier of micro-economic reform, or terms similar to that, and I don’t know if it is the last but it’s certainly a very important area of micro-economic reform. And if the Business Council is even 50 percent accurate in their estimates of the economic benefits then it seems like a very sensible policy proposal — that there be some sort of movement towards reform,” he said.

The BCA blames the inefficiencies on confused and blurred responsibilities between the Commonwealth and state governments, particularly in major areas of policy development such as health and education.

Professor Suri Ratnapala from the University of Queensland agrees, saying there needs to be clarification of responsibilities. “In areas like health and education, the Federal Government gives the funds to the state governments and the state governments spend them, so there is a disconnect between the revenue raising authority and the spending authority. So there is some inefficiency there and there is also the problem of accountability where the revenue raising authority is not the same,” he said.

To address these problems, the BCA proposes a 12-point action plan including the establishment of a Federal Convention to reassess the respective roles of the Commonwealth and states.

“I think there has to be a wide-ranging discussion about federal-state arrangements and how best to make the system more efficient. In my view the states have an important role to play and must continue to exist as viable entities, and for that purpose there should be a better clarification of their responsibilities. At the moment the federal government is perhaps extending their powers into state spheres more than is desirable,” Ratnapala said.

The BCA also calls for Commonwealth and state governments to initiate and support an amendment to the Constitution to include a provision for the states to allow federal courts to determine matters under state laws and to allow federal agencies to administer state laws. The High Court has previously ruled that federal courts can’t exercise judicial powers that arise under state laws.

“If a dispute arises which involves both state and federal matters you have to go to two courts as the federal courts can’t dispose of the whole matter. Most constitutional lawyers would agree that that [proposed] change ought to be the case,” Ratnapala said.

Keyzer, however, pointed out that constitutional change is historically very difficult to achieve.

“There’s historical resistance to proposals for constitutional change, no matter how sensible. If you were a betting person you’d be disinclined to put your money on any change occurring. Having said that, if a referendum has bipartisan support and importantly in this instance, the political support of both the Commonwealth and the states, there is a chance that federalism could be reformed in Australia,” he said.

Munchenburg said the Business Council is going to continue to push the reform agenda in 2007.

“We intend, as a major business organisation, to keep harping on about it and the new federal Opposition Leader has picked up on it and we see that there is a growing recognition that we do need to do something about this issue. We need to address the growing frustration in the community over transport problems, water problems, and export problems — the community doesn’t care who is responsible, they just want someone to sort it out,” he said.