In his famous Tenterfield Oration, Henry Parkes, the founding father of the Australian federation, argued for a nationwide approach to defence and immigration. He pushed for free trade across colonial borders claiming this would be socially and economically beneficial to all.

In 1890, an Australasian Federal Conference canvassed the idea whether what is now Queenslan should be three states, and today’s Western Australia, two. However, with only 3.8 million people, the fledgling colonies lacked the critical mass to justify more than the current six.

So, on 1 January, 1901, the Federation was born with six states empowering the federal parliament to admit more if requested.

From the start, the states competed vigorously for resources, trade and, population. They feared central government intervention and believed competition and independence would keep it at bay, guaranteeing better outcomes for their citizens.

Then came the 1930s Great Depression and the establishment of the Commonwealth Grants Commission. Its role was to advise the federal government on assistance to states in need, a theme refined by the Whitlam Labor government in 1973. Whitlam moved to permanently address perceived wealth inequalities in service delivery between states through socialistic financial redistribution.

Come  the GST and the Grants Commission’s voice became more powerful. Its recommendations to compensate underperforming states for ideological frolics and poorly executed decisions made life easier for socialist-minded state policy-makers who refused to accept the disciplines of the marketplace.

Take Tasmania. Richly endowed with natural resources, Green ideology has consistently been a brake on private enterprise. This helps explain why Tasmania’s per capita gross state product per person is around $20,000 less than New South Wales. But, while a sympathetic Grants Commission and the federal government combine to deliver around 60 per cent of state revenue, Tasmanians can believe in a socialist utopia.

South Australians have likewise sacrificed independence on the altar of Canberra’s largesse. Approximately half its state’s revenue comes from there. Canberra’s support for the now defunct auto industry, the Multifunction Polis frolic, ship building, the Hornsdale big battery project and the latest $2.4 billion Whyalla Steel bailout, ensures Adelaide is federal government dependent.

Then there’s Victoria. Once an Australian economic powerhouse, its socialist pursuits have produced the nation’s highest debts, its highest taxes, highest business costs and lowest credit rating. Despite being the second most populous state, its per capita gross product now leads only South Australia and Tasmania.

But it’s not only Victoria. Australia is now a highly leveraged government collective. Like a giant Ponzi scheme, slowing economic activity is countered with more public servants, more debt and increasing budget shortfalls which ratings agencies are calling, ‘world-leading deficits’. Some state debts may soon become a national responsibility.

Still, when 2.6 million politically motivated, bossy public servants, (the Economist, reckons, per 1,000 people, this leads the world), are deciding policy, this is not surprising. No need for a round table to determine why, despite decades of profound technological innovation, Australia’s productivity sits at a sixty-year low and growth rates are slow.

Despite promises of social equality, regional  Australians feel particularly alienated. They believe the political class ignores them and funds ‘sink holes’ in population centres to buy votes, while burdening them with excessive regulations and expensive energy.

A renewed push for additional sovereign states, may not be far away. Unlike the federal territories, these would have powers conferred on them by the Constitution, not the federal parliament.

Plainly, after 125 years Australia’s federation is at a watershed moment.

More prosperous states like  Western Australia and Queensland are now objecting to their wealth being redistributed to under-performing states.

Perth recently negotiated with Canberra a floor of 75 cents for every GST dollar it raises. Dubbed as ‘unfair’ by other states, with billions of dollars possibly being wiped off its exports thanks to trade barriers and weak global economic growth, Perth believes charity begins at home.

Queensland’s current spat with Victoria over its GST share is another example of growing tensions within the federation. Brisbane argues that it should not be punished for improving productivity and rising gas revenues to help Victoria keep ‘hospital lights on’. It has a point. Victoria’s policy priorities have resulted in the lowest formation of new businesses in the country and the fastest growth in insolvencies. Despite lifting bans on gas exploration, it scares off investment by demonising it. In the fifteen months to March 2024, 3,085 Victorian businesses moved interstate. Why should Queenslanders compensate it for reckless policy making?

Today’s federation is hardly what the Fathers of Federation had in mind. Rather than adopt a pragmatic and competitive ethos, dedicated to freedom, security and prosperity, successive administrations have for decades, progressively sought to meet the endless rent-seeking aspirations of entitled minorities. Canberra authoritarians have been prominent cheerleaders.

But experience clearly shows no amount of  bureaucratic rejigging can ‘fairly’ balance commodity price volatility, the higher cost of living in NSW and Victoria, nor state and territory mismanagement. Nor can increased debt and taxes buy the nation out of its worsening predicament. Indeed promising everyone an equal share of resources and wealth through an increase in central governmental power, is turning  mendicant states into little more than outsourced federal agencies.

Indeed there is a strong case for the states to set their own GST rates and retain the revenue they raise. Without central government patronage, competition between states should decide the level of services each provides, placing responsibility and accountability where it should be and reducing  friction costs which inhibit innovation and economic growth.

It could also put pressure on the Commonwealth to pare back its bloated bureaucracies by eliminating duplications in health and education.

Australians could then, as originally intended, ‘unite in one indissoluble Federal Commonwealth’, with each state being responsible for its own future under the Constitution. Alternatively they could stay on the current path towards an inward looking soviet of outsourced  federal agencies, ever dependent on the prevailing predilections of Canberra and the Grants Commission.