At the Institute of Public Administration Australia on 30 July, Swan spoke of a “fundamental shift in the federal-state compact”, positioning the issue as one of his top three priorities as federal treasurer; following the introduction of the Carbon Pollution Reduction Scheme and a comprehensive national tax review.

The former Liberal government came under fire from the Federal Treasurer for a tight-fisted and “neglectful” approach to fiscal reform,

“In the past decade, centralised spending and stringent controls wielded by Canberra bureaucrats eroded the responsibilities of the states and shackled the country’s capacity to tackle important microeconomic and social issues.

“Issues like human capital formation, regulatory harmonisation and the provision of physical infrastructure are issues which can only be addressed through effective and co-operative Commonwealth-State arrangements. And for too long they have been neglected,” Swan said.

Swan’s vision for a “new architecture” of federalism will be structured around “market principles and a clear line of accountability and responsibility”. Reporting standards will come under scrutiny, particularly in the areas of hospital care and education.

“The reforms I will outline today move us to a new plane. They will usher in a more ambitious and productive approach to federalism and nation building,” Swan said.

“They are geared towards achieving two essential outcomes: increased productivity, and sustained improvements in the efficiency and quality of services for all Australians. This is modern federalism, not creeping centralism.”

The centerpiece of the new national framework is the Council of Australian Governments (COAG). Established in 1992, COAG comprises the prime minister, state premiers, territory chief ministers and the president of the Australian Local Government Association.

The success of Swan’s reform initiatives will rely on achieving a balancing act between the federal and state governments, and despite the significant progress achieved by COAG, the Treasurer admitted that he anticipates a difficult road ahead,

“This new framework aims to strike a balance between the key drivers of a well functioning modern federation: between co-operation,on the one hand, and competition, on the other. Now, these reforms I have described to you today — to modernise the Australian federation — will not be easy.

“There will be hurdles. There will be disagreements. There will be distractions. All of this is inevitable.”

The other significant hurdle facing Swan is the current climate of economic uncertainty,

“The changes we are making to the Australian federation come at a challenging time for our economy. It is being buffeted by powerful countervailing forces — slowing global growth, record terms of trade for our commodities, and a domestic inflation challenge,” he said.

“Navigating our way through these cross-currents will be difficult. That’s why the three significant economic reforms under way today are needed to help shore up our strong economic foundations.”