Making states and territories equal partners through a dedicated National Cabinet secretariat, removing tied grants and replacing them with outcome agreements and introducing a whole-of-Federation intergenerational report in 2021 are key recommendations.

“COAG wasn’t working. At this critical time for our economy, we can’t let National Cabinet go the same way,” CEDA Chief Economist, Jarrod Ball said.

“Economic recovery can’t be a siloed approach across jurisdictions and will require ongoing Commonwealth-state collaboration.

“These recommendations are straightforward and relatively easy to apply. They give National Cabinet a better footing to ensure it doesn’t slip back into the mistakes of COAG.

“The National Competition Policy and the Seamless National Economy agendas both saw individual jurisdictions leading the analysis and design for certain reforms. Giving equal recognition to the states and territories in agenda setting, prioritisation and reform design will be important in maintaining the goodwill needed to tackle further reform.”

On tied grants, Mr Ball said there were currently 115 and many dealt with issues in prescriptive detail, from prescribing the number of wifi connections at train stations in Sydney to delivery of very specific medical garments in health.

“Post pandemic recovery will require reform efforts sharply focused on outcomes and incentivising innovation, not micro-managed agreements,” he said.

“This level of detail in administering funds is a costly innovation sapper.

“This is not a criticism of the activities the grants are tied to, but when you need another specific agreement just to streamline the agreements, this is bureaucracy at its worst.

“As part of this paper we are recommending that there are outcome agreements that focus on what they are seeking to achieve, not inputs and specified processes, with funding provided on that basis. It is then up to the states and territories to decide the best options for achieving the outcomes.”

Mr Ball said another key deliverable should be a whole-of-Federation intergenerational report next year, as a precursor to tax reform.

“Currently you have a Federal report and a couple of states independently going it alone. A whole-of-Federation report would set the stage for the long-term demographic trends and spending pressures that the tax system is going to be facing into over coming decades,” he said.

“Financial power is significantly weighted to the Commonwealth and it is the Achilles heel of Commonwealth-state relations. States and territories obtain around 44 per cent of their revenues from the Commonwealth Government, and the level of fiscal dependence of the states on the Commonwealth is among the highest of all federations in the world.

“Broadening the scope of the Federal intergenerational report to include a whole-of-federation view would set the size of the task for Commonwealth-state tax reform. As the last decade has demonstrated, the opportunity for tax reform is rare and it is critical that we get the system right for the long-term.”

Mr Ball said it would need to comprehensively outline the long-term entangled fiscal fates of the Commonwealth Government and the states and territories; service delivery interdependencies and pressures; and the combined revenue task for governments.

“The formation of National Cabinet, and lessons from its effectiveness in recent months, provides a fantastic opportunity to reset Commonwealth-state relations in pursuit of better economic and social outcomes for the community.

“COAG had become a parking lot for ideas and media posturing. We can’t let National Cabinet fall into the same bad habits. It should be an engine for making better decisions and bolstering it now will help ensure it can hold onto its effectiveness once the urgency of the pandemic has passed.”

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