In hoping to reform the Federation, Morrison has sailed into treacherous waters – ABC News

Usually, it's brand new prime ministers still high as kites on the dopamine surge of winning an election whose thoughts stray to reforming the Federation.

Think of Kevin Rudd in 2007, who announced a new era of "Cooperative Federalism" with wall-to-wall Labor state governments, spiked with the threat that if the states didn't fix the hospital system within two years, he'd step in and run the bloody things himself.

Or Tony Abbott, who strode into Government in 2013 taking a whipper-snipper to the COAG system and then commissioned a "Reform Of The Federation" White Paper canvassing, among other things, a total retreat by the Commonwealth from the vexed areas of health and education.

Given that Mr Abbott had descanted at length in his bookBattlelinesabout the necessity of the Commonwealth seizing more power in these areas, not less, and had gone so far as drafting a Constitutional amendment to that effect, this was among the more neck-snapping of his famed policy reversals.

It came, however, to naught; the White Paper died a lonely death somewhere in the Department of Prime Minister and Cabinet, and Mr Abbott himself was gone by late 2015.

The Grail of Federation Reform was duly snatched up by the next new PM, Malcolm Turnbull.

Mr Turnbull's contribution to the field was to announce rather suddenly, while conducting a doorstop interview at the Penrith Panthers Rugby League Academy on March 30, 2016 that he was contemplating redrawing the federal system to allow the states to levy their own income tax.

"The Federation must work better and right at the heart of the problems in the Federation is the fact that the states do not raise enough of the revenue that they spend," he declared.

"In other words, they're not accountable enough in the way a government should be."

With the rampant big cat of the Panthers' clubhouse decal providing a transfixing backdrop, Mr Turnbull delivered a crunchy tutorial on vertical fiscal imbalance, as the Member for Lindsay, Fiona Scott, nodded impassively.

(Ms Scott, who at a doorstop three years earlier in the same postcode had kept a similar neutral expression as Tony Abbott enthused about her "sex appeal", has learned many skills over her career in politics, not least of which is never to betray alarm.)

This was a Wednesday. Mr Turnbull was due to meet with the premiers at COAG on Friday, and had learned during his train ride to Penrith that his secret tax reform plan was beginning to leak.

Which is why the Panthers were witnessing the birth of a new federalism on their home ground.

"Now we've got to recognise that that is the core problem, many people have suggested we should address it. There hasn't been a serious effort to do so for many years for over 40 years," Mr Turnbull expostulated.

This was true. The short history is this: states levied their own income taxes until 1942, whereupon the exigencies of World War II made it a good idea to consolidate income tax in the Commonwealth's coffers.

Well a good idea from the Commonwealth's perspective, anyway. The Government argued that this would be a wartime measure only, but the states' suspicions that this was a permanent hustle were duly confirmed post-Armistice.

To compensate, the Commonwealth legislated a series of grants; the beginning of the begging routine which still plagues us today.

And in June of 1971, Prime Minister Billy McMahon chucked in payroll tax as a sweetener.

The last "serious effort" to revisit the idea of the states getting back a slice of income tax was made by Malcolm Fraser, who passed legislation to this effect in 1977.

But it was never used, thanks to a lethal and populist negative campaign run by NSW opposition leader and premier-to-be Neville Wran, who dubbed the scheme "double taxation".

The closest the idea came to formal revisitation in the following decades was with Bob Hawke's "New Federalism" in the early 1990s, but this review did not enjoy the warm support of Paul Keating and was repurposed when Keating seized the leadership in 1992 and established COAG instead.

Mr Turnbull setting forth the idea of income tax rearrangement in Penrith did not mention the role his mentor and business partner had in squishing that same idea 40 years earlier.

Or his own, for that matter; as Laurie Oakes extracted considerable enjoyment from reporting, Mr Turnbull himself as a correspondent for the Nation Review had written several columns pillorying the prospect of having the states levy income tax.

The states were not merely being sold a pup, wrote the young columnist of Mr Fraser's "New Federalism" plan: they were being saddled with "a large, extremely hungry and undoubtedly treacherous hound".

In any event, Mr Turnbull's 2016 vision of a new federalism lasted nowhere near as long as the Fraser tilt he'd disparaged 40 years earlier.

At the COAG meeting two days after the Panthers press conference, the premiers were cold on the idea and Mr Turnbull huffily retracted his offer.

What do these attempts have in common? What caused these men to sail into the treacherous waters of federal reform, despite ample evidence of their predecessors' wreckage?

A rational assessment of the bleeding-obvious flaws at the heart of the federal model, for starters. An awareness (and who could be unaware, really?) of how much Australians hate the stupid bickering between state and federal governments.

And a rush of optimism in the heart of each respective protagonist that he of all prime ministers might just be the one to fix it.

(The choice of pronoun is intentional. While Hawke, Keating, Howard, Rudd, Abbott, Turnbull and Morrison have all had a go at Federation Reno, our only female PM left the federation alone, satisfying herself with a significant practical enhancement the National Disability Insurance Scheme and the satisfaction of being the only prime minister, in a decade of hot air about a carbon price, to actually legislate one.)

The problem is much as Mr Turnbull described it. For all that the states are required according to the Constitution to provide, they do not raise enough revenue themselves.

What they provide (emergency services, schools, hospitals) is getting more expensive, especially in a time of national crisis, but their revenue-raising opportunities are shrinking.

The disparity is shocking: While the states and territories deliver nearly half of the operating expenditure of the entire government sector, the Commonwealth raises more than 80 per cent of the tax.

How has this inequality been rectified in the past? Through begging, bribery, and above all those funding agreements that tend to increase in complexity and number over the passage of time, and need to be renegotiated regularly at vast cost and inefficiency.

The temptation for federal governments to attach ideologically-driven conditions to these payments is nearly irresistible, as is the temptation to dive into what are ordinarily state government responsibilities.

(See: Sending Commonwealth funded chaplains into public schools. Or the $500million "Commuter Car Park Fund" that inexplicably sees the Commonwealth funding car parks, right now, in urban commuter belts. For all the political heat that was generated by the "sports rorts", virtually none arose from the sensible question of what a Commonwealth Government was doing building toilet blocks at shooting ranges in the first place.)

Nobody disputes that the Commonwealth is obliged to top up the revenue of the states so they can keep the lights on.

Here's the queasy equilibrium at the heart of all this: All governments would like more money, but no government likes to wear the opprobrium of raising it.

The last prime minister to buck this behavioural model was John Howard, who in 1998 took the crazy-brave idea of a goods and services tax to a federal election.

His decision (which horrified colleagues at the time) violated three separate conventions of politics.

One he was breaking his own one-time vow that a GST would "never, ever" again form part of Coalition policy.

Two he was proposing a new tax. A great big new one, to adopt subsequent parlance.

Three the revenue from the proposed GST flowed entirely to the states, meaning that the states would receive a new revenue stream from a tax for which another tier of government would cop the blame.

In political terms: The deal of the century.

The GST is 20 years old on Wednesday three weeks from now (fortunately, there is less confusion about its impact on a birthday cake than there once was).

It is the last significant retooling of the federal/state tax balance we've had. It's also arguably the last time COAG was seriously useful.

Enter Scott Morrison. Australia's 30th Prime Minister.

When elected a year ago, he was not one of these brand-new PMs elected on the promise of throwing open the windows of the Federation and letting a little fresh air in.

He wasn't pimping "New Federalism" or "Cooperative Federalism" or "Federalism 2.0" or "I Can't Believe It's Not Federalism". Nor was he overburdened with ambition for the sorting-out of vertical fiscal imbalance.

In fact, he had promised to do very little apart from implement his previously-announced schedule of personal income tax cuts, and not proceed with anything Bill Shorten was proposing.

If expectations were a vocal register, Scott Morrison would be Barry White. Hell he wasn't even expected to win.

When catastrophe in the form of bushfires first hit Australia after his re-election, Mr Morrison was found badly wanting.

Holidaying in Hawaii (a fact that his office tried awkwardly to avoid disclosing), the PM wasn't even in the country as it burned and when he did return, it was to deal cack-handedly with traumatised survivors.

It wasn't good. The Essential poll, which tracks public attitudes to the Prime Minister on indicators like "good in a crisis", reported in January this year that his crisis management approval rating had dived to 32 per cent.

When catastrophe struck a second time in the form of the COVID-19 virus, Mr Morrison was ready. He convened a National Cabinet of state and territory leaders, meeting regularly online and listening to health experts.

The proximate and universal nature of the peril at hand did away with all the uproar that would have accompanied the establishment of such a council had it been attempted in less troubled times.

On Friday a week ago, the PM announced that the National Cabinet would be kept for good, and COAG the vaguely unpleasant acronym denoting the Council Of Australian Governments abolished for ever.

But that's not all.

Arguments about money will henceforth be conducted between the treasurers, in a body to be known as the Council on Federal Financial Relations.

The National Cabinet will meet once a fortnight while the COVID-19 crisis persists, and once a month thereafter, remotely.

And once a year, the treasurers plus the leaders plus representatives of the Australian Local Government Association will meet in person, calling themselves the National Federation Reform Council (the grandness of which title did not allay the outrage of Australia's mayors at being relegated from their regular COAG spot to a once-a-year outing).

The experience of the National Cabinet, in recent months, has been a positive one.

The COAG structure (otherwise known as "where good ideas go to die") had, since its heyday driving competition reform in the 1990s, become a sclerotic nightmare.

Staging the meetings in Canberra created a performative element, in which premiers would arrive with posses of bureaucrats, staging pre- and post-meeting press conferences of sufficient bravado to justify the airfare. Or even better flounce out halfway through.

COAG was like a wood-chipper into which problems were fed like logs, the resultant pulp shaped into communiques of impenetrable bureaucratese. No-one has in the 10 days since its abolition mourned COAG at any length.

The National Cabinet has had the operating advantage of genuine crisis. And its outward appearance of leaders putting aside their differences in order to get important things done has been significantly restorative for the PM.

According to the Essential poll, Mr Morrison's "good in a crisis" rating has recovered spectacularly from 32 per cent in January to 66 per cent now.

It's the most profound turnaround, says Essential's Peter Lewis, since Kevin Rudd rocketed just as fast in the other direction a decade ago.

This surge of approval has survived two late-Friday visits to the federal bad news dumpster which the PM was careful to keep separate from his "father of the nation" press conferences; one a $60 billion blunder in the projected size of the JobKeeper scheme, the second a $710 million admission that the long-contested Robodebt programme was indeed unfair.

"What would normally be toxic and divisive millstones have been mostly waved through by a public that appears to be warming to this new look of collaborative, centrist leadership," says Lewis.

A year on from his re-election, Scott Morrison is now better placed than any prime minister since Kevin Rudd to effect change. He has a clear parliamentary majority and high personal approval ratings.

He has a good working relationship with state and territory leaders that is based not on the laboured choreography of bureaucrats but on recent shared trust and achievement.

He has the galvanising force of genuine crisis at his back. He has no internal opponents of plausible note. No Abbott, no Turnbull; even Alan Jones has vacated the scene.

He is unconstrained by grandiose election promises or it must be said personal ideology. He is perfectly placed to do something.

"I will do such things what they are yet I know not. But they shall be the terrors of the earth!" Shakespeare has King Lear pledge, as he stumbles about in a tempest.

And for all that the National Cabinet is new and full of potential, and the idea of funding issues being addressed directly by the treasurers is interesting, the million-dollar question is not what structure the decision-making bodies adopt, it's what the Prime Minister will attempt to do.

Rather presciently, the most ambitious of the state treasurers NSW's Dominic Perrottet commissioned a review of federal/state financial relations last year, well before bushfires and COVID-19 wrecked his books.

He pinched former Telstra chief David Thodey probably the nation's most thoughtful and gifted corporate leader to chair it, with a distinguished panel featuring former New Zealand PM Bill English, former Australian deputy PM John Anderson, constitutional expert Anne Twomey, former mandarin Jane Halton, and the economist John Freebairn.

The final report NSW Review of Federal Financial Relations is complete and will be released within weeks.

As foreshadowed by Mr Perrottet, it will recommend replacing stamp duty with a broad-cased land tax, and an overhaul of payroll tax, whose workhorse role in state budgets has been decimated by COVID-19-related waivers and at any rate is a profoundly inefficient and unpopular tax.

Other recommendations likely to excite comment are the ABC understands the trial of a congestion charge zone around the Sydney CBD, and a plan for distance pricing eventually to replace the existing motor vehicle registration, licencing, insurance and stamp duty systems..

But for the federation, two recommendations are particularly notable.

One is the proposal that the treasurers revisit together the scope and rate of the GST.

John Howard's original plan for the GST was a comprehensive charge, generating enough income to allow the states to abolish stamp duty entirely.

The compromise model, negotiated item by item with the Australian Democrats, carved out food, health and education; the states held onto stamp duty on property but abolished in on shares, along with a range of other taxes.

Prior to COVID-19, it was estimated that the exemptions to the GST in 2019-20 totalled $27.4 billion in lost revenue.

The other proposal from the review is you guessed it the revisitation of income tax.

Mr Thodey's proposal is for an opt-in system by which a state would not levy income tax directly, but be eligible for a share of the income tax paid by its residents. Revenue neutral for the taxpayer, this share would operate as an untied grant.

Mr Morrison already has a review of industrial relations on the boil; he's used the warmer-than-usual relationship between the Government, employers and ACTU leader Sally McManus as an opening to pursue progress in what's historically been a field every bit as seized-up as COAG.

He also has an energy and climate review lobbing before the end of the year, and no-one needs reminding how particularly sulphurous that policy bilge-pit has been for the Coalition and for Australian governments more broadly for the last decade.

A leader's influence is only ever as big as the amount of personal political capital he or she is prepared to blow on it.

Scott Morrison has a lot of political capital right now. Where will he spend it? We'll know soon enough.

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In hoping to reform the Federation, Morrison has sailed into treacherous waters - ABC News