Federalism and the Efficiency Deficit

Abstract

Federalism is arguably the chief defining characteristic of the Constitution, yet there is widespread misunderstanding of what federalism is and how it differs from unitary systems. The chapter begins by defining what a federation is and how its chief effect is to limit the capacity of national government. The chapter then discusses the costs of federalism to the Australian economy before refuting the justifications commonly advanced for federalism in Australia. The chapter addresses the confusion that many participants in the debate over federalism have between levels and powers, and argues that a unitary system would give national government the capacity to delegate powers to rationally-based regional and local governments as circumstances dictate, rather than being shackled by a system which restricts the capacity of national government in arbitrary ways and which confers powers on states whose existence is not underpinned by any economic or geographical rationale.