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3 - Australia: Central Fiscal Dominance, Collaborative Federalism, and Economic Reform

Published online by Cambridge University Press:  25 July 2009

By
John R. Madden
Edited by
Jessica Wallack  and
T. N. Srinivasan
John R. Madden
Affiliation:
Professor of Economics and Deputy Director Centre of Policy Studies, Monash University, Australia
Jessica Wallack
Affiliation:
University of California, San Diego
T. N. Srinivasan
Affiliation:
Yale University, Connecticut
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Summary

INTRODUCTION

The Australian federation, as it has evolved over the past century, has a number of distinguishing characteristics. A high degree of separation of taxes with federal government control over major tax bases has led to a very high level of vertical fiscal imbalance. Much of the dynamics of center–state relations occurs against the backdrop of fiscal dominance by the federal government. Borrowing by all levels of government is subject to a process of Loan Council endorsement. With regard to redistribution, Australia employs the most elaborate system of horizontal fiscal equalization of any federation.

During the 1980s a worsening external debt position helped focus attention on structural weaknesses in the Australian economy. Efforts to rectify these weaknesses and increase public and private sector efficiency have led Australia to undergo a wide range of economic reforms, including some changes to federal institutions and arrangements, over the past two decades. There have been changes to the borrowing rules for national and subnational governments, a new tax-sharing arrangement, and reviews of intergovernmental administrative bodies. A significant increase in collaborative federalism over the past decade has facilitated major reforms to Australia's internal markets.

Over the past decade the Australian federal system has delivered substantial reform of the nation's internal markets, which has allowed Australia to increase its competitiveness and take advantage of greater global integration.

Type
Chapter
Information
Federalism and Economic Reform
International Perspectives
 , pp. 85 - 142
Publisher: Cambridge University Press
Print publication year: 2006

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