The failure of the federalism reform process and its financial implications for the Australian States

Australia's federalism reform process has been a political rollercoaster, from the optimism associated with the launch of the concurrent federalism and tax reviews in late 2014 and early 2015 to the ailing commitment to reform in the dying days of the Abbott Government. Malcolm Turnbull' s subsequent appointment as Prime Minister in September 2015, and his assurance that all reform options 'were on the table', briefly boosted the prospects of reform, only to be dashed in early 2016 as it became increasingly apparent that tax and federalism white papers would never be published and contested reform proposals, such as modifying the GST, were off the agenda due to a lack of political will. The Coalition's near defeat in the 2016 federal election has further diminished the prospects of reform. The failure of Australia's federalism reform process can easily be dismissed as another act in the drama that was the 2016 federal election. What is less well appreciated is that the financial crisis and the federal government's policy responses to it have fundamentally altered the fiscal balance in the Australian Federation and, in the absence of substantive reform, state and territory governments will come under significant financial pressure threatening their fiscal sustainability and undermining the prospects of intergovernmental cooperation in the Australian Federation.