CEDA Chief Executive, Professor the Hon. Stephen Martin said the research report, A Federation for the 21st Century, has found Australia's excessive vertical fiscal imbalance is one of the key issues undermining the positive aspects of our Federation.

"We need to move away from State Governments being held to ransom by the Federal Government and match service delivery responsibility with funding," he said.

"Currently, for example, the Federal Government fails to deliver suitable levels of funding for transport infrastructure because while it collects the majority of revenue, it is not responsible for delivery.

"Distribution of Federal Government funding to the states in areas vital for the economic and social wellbeing of Australians, such as health and education, should not be swayed by politicking."

Professor Martin said a key focus of the Federal Government review of the Federation should include examining the distribution of government revenue and ensuring we have clearly defined levels of responsibility among the different tiers of government.

CEDA's report suggests we need to consider a range of options to align revenue and expenditure requirements such as:
Assigning a fixed portion of income tax to states for funding schooling.

Allowing State Government's to develop a comprehensive land tax or property charge with funds raised to be used specifically for public transport.

State Government's extending road-use charging and receiving the fuel taxes collected by the Commonwealth, specifically to build and maintain roads.

Professor Martin said the report examines a range of different approaches for reform as it is likely the best outcomes will be achieved not by a single solution but by a combination of different approaches.

Another key recommendation is to further extend activity based funding reforms in education, health and welfare.

"The reforms to hospital funding in Victoria are a good example of how this can work well, with hospitals now funded on the individual activities undertaken rather than individual hospitals having to lobbying for an overall amount at the start of each year," he said.

"This has resulted in a much more efficient delivery of services and it is very disappointing that the rollout of this approach to other states has been stalled due to the Federal Government removing funding promised by the previous government in the May Federal Budget.

"Reforms need to focus on making government funding more citizen-focused and able to deliver the services and infrastructure Australians need.

"While the Australian Federation has largely worked well, delivering political stability and economic prosperity for over a century, it can do better."

In addition to making recommendations around changes to revenue allocation and collection, Professor Martin said it important to ensure ownership of any changes by the Australian public. In this regard the report also recommends:

• The creation of a Federation Reform Council to monitor and evaluate the effectiveness of reforms to our Federation and make sure there are no unintended consequences; and
• A series of Federation Conventions be held in conjunction with the white paper process to encourage the participation of as many people as possible in what must be a significant national conversation on this issue.

"Reforming the Federation has been a recurrent issue and is once again a priority on the national agenda with the Federal Government White Paper due next year," he said.

"However, the federalism debate has had the best outcomes when it has engaged the imagination of the broader population, which is why it is vital that discussion around reform is much broader than in the halls of Federal and State Parliaments."

The report includes contributions from 19 experts from academics to former politicians such as the Hon. Fred Chaney AO, the Hon. John Brumby and Lucy Hughes Turnbull AO.

This report was launched at an event in Sydney at noon, with the Hon. Nick Greiner AC, former Premier of NSW; the Hon. Justice Duncan Kerr Chev LH, Judge, Federal Court of Australia; and Terry Moran AC, National President, Institute of Public Administration and contributing author.

The launch event will be followed by a series of events being held in Melbourne, Perth, Brisbane and Adelaide.

Read opinion piece, Another Tenterfield needed to drive reform, by CEDA Chief Executive, Professor the Hon. Stephen Martin.