Abstract

This edited volume highlights the socioeconomic, financial, and political challenges posed by territorial fiscal inequalities in federal systems, and the diverse mechanisms different federations have developed to confront or mitigate their adverse consequences. The main goal of the book is to study the state of the question of territorial inequalities and fiscal equalisation systems in federal and decentralised countries after the 2008 financial crisis and the COVID-19 health crisis. The volume combines theoretical approaches with case studies and involves scholars from various disciplines in order to provide a comprehensive view of the issue.

The pursuit of both policy diversity and revenue-maximisation means that federations often end up with an uneven distribution of wealth and unequal access to public services of comparable standards across a country (Riker, 1975; Rodden and Wibbels, 2002). Keith Banting (2006) further contends that the inherent characteristics of federalism may even be at odds with the goals of social citizenship. Efforts to remedy the potential inequities of too much power and too many resources at any one level of government in a federal democracy are dependent on a plethora of constitutional, fiscal, political, administrative, and cultural-societal factors.

Two definitive characteristics about Australian fiscal federalism are well established in the literature. First, Australia, in contrast to other more decentralised federal systems, has a strong vertical fiscal imbalance (vfi). vfi refers simply to when one level of government – in this case the Australian Federal Government – collects more revenue than it spends. In both theory and in practice, this structural factor preconditions the states to be fiscally dependent on the centre. Second, Australia has one of the most egalitarian horizontal fiscal equalisation systems (hfe) in the world. These two characteristics appear to be sequentially connected; it is logical that one both permits and necessitates the other. The existence of an egalitarian hfe, however, does not mean the Australian Federal Government (known in Australia as the ‘Commonwealth’) never encroaches upon the states. As the late Australian federal theorist Brian Galligan (2012, p. 322) succinctly observed, ‘money talks politically and buys policy influence’.

Notwithstanding, due to the extent of vfi in Australia, the Commonwealth Government is in a good position to work out the problems of territorial inequality and uneven economic development to ensure all Australians enjoy equal rights of social citizenship. The norm of ‘equality’ is deeply entrenched in Australian society, in particular with regards to labour rights and social welfare (Braun, 2006, p. 12). As this chapter will explore, however, Australia’s HFE system still generates tensions between the states and territories, particularly between the poorer and the wealthier ones.