Harnessing Federalism
Russell Degnan

A lot has been said on the plastic bag issue in the past few weeks, most of it - though not all - critical of the failure of Federal and State governments to come up with a levy, or a ban, or something that was so obviously (apparently) needed.

I don't have anything substantive to add to that; for those interested, David Jeffery put up two excellent posts on the issue. What I'm interested in here, is drawing on a strand that came out my friend Rob's critique of the 2020 Summit. To quote:

"The 'national' aspect of this strikes me as a complete irrelevance, and symptomatic of a more general assumption that the solution to any serious problem - whether it inherently crosses state borders or not - is to get the federal government to act on it."

The plastic bag issue is a classic case of this, because while plastic bags cross state (and national) borders, the issues Jeffery notes are no more national issues than state ones:

* they're a large component of litter;

* they're a reasonably important component of waste / landfill;

* they get into waterways where they harm marine life;

* they're made from a non-renewable resource.

None of these are national issues, they are either local or they are global, not in between. But, to the environmental lobby - who have a long history of successful pushes at national level - and to people whose main goal for the states is abolishment, failures of environmental policy are failures of national leadership.

This is a mistake, for two reasons. Firstly, because while their have been a number of significant environmental movement successes at national level, they mostly occur before the affected bodies have shifted their focus to counter them at a national, or international level. As someone noted regarding the 2020 sustainability session, the coal lobby came prepared.

Shifting the debate to the national level only shifts the debate. You can only outflank industry so many times; this is true for plastic bags, and it is true for public transport (increasingly being begged for at a federal level). If you can't win a cost-benefit debate at state level, there is no particular reason to believe you'll win it at national level.

Mostly, people seem to chase the money. But just because the Federal government has the money doesn't make them the best people to distribute it. The long term outcome of increased Federal control is increased Federal pork-barreling and Washington-style lobbying. It is practically impossible to hold the Federal government to account on local spending issues (it is extremely difficult even at state level). Lobbyists benefiting from Federal largesse might not care, but things are as likely to turn out badly as good.

Secondly, there is the oft-cited benefit of having states: competitive federalism. Plastic bags, again, offer a clear case of the benefits of multiple state policies. As Jeffery says, the issue is complex, and there is not necessarily one best way to gain benefit the environment; levies might work best, but so might an outright ban, subsidies for alternatives, bio-degradable bags, or even some other issue. Nothing beats an experiment for determining a policy outcome, and other states are normally reasonably quick to follow successful outcomes.

From a national point of view, if the Federal government wants to enact change, and they should, where they can, the best way will almost never be a direct policy. Like a market, often the best policy is targets and incentives, but in this case, not targeting the individual, but the state governments.

At the moment, the Commonwealth Grants Commission works on a strictly neutral policy basis. Their only aim is to give each state the ability to produce services at the same level as each other state, taking into account their different demographic, geographic and fiscal conditions. This can sometimes (or not) work in the environmentalists favour, such as when, two years ago, an increase in (expensive) renewal energy production in NSW and Queensland. meant they increased their percentage of the tax pie, at the expense of (cheaper) polluting energy production.

But most of the time, as the Victorian and NSW Treasuries never fail to point out in their budget papers, it penalises efficiency, because being more efficient reduces the average cost of that service, and therefore, some of the savings to other states.

The Federal government's spending authority would be better utilised, not with handouts, but with the whip hand. If the goal is to reduce landfill, then per capita (per industry) landfill requirements should be assessed for each state. If they manage to use less landfill than expected, then they should receive an environmental efficiency bonus through the grant, that both redresses the existing efficiency de-bonus, and provides incentives for further efficiencies (and further R&D into efficiencies).

Practically any social, environmental or economic outcome can be incentivised in this way, provided the incentives can be brought back to specific state government policy (there is no point penalising Tasmania or Northern Territory for low unemployment, though we make a fair fist of subsidising it now). If lobbyists want more public transport usage, adding an improvement factor for air emissions and health is a much better policy than subsidising new train lines that the State Government, probably rightly, never chose to build through a marginal electorate.

Instead of proscribing a solution, it allows one to be found, be it through improved transport, or congestion charging, or travel demand programs, or better urban design. Similarly, a state-wide ban on plastic bags might be the outcome of improvement factors for litter, landfill, water quality and non-renewable resource usage. Or as no doubt some of the states argued, there may be a better solution to those problems.

Sterner Matters 23rd April, 2008 18:45:42   [#]