We’re not all Melbournians any more

It’s unsustainable to lump the feds perpetually with the heavy lifting of the economic and fiscal response to the pandemic.

Covid has exposed existent flaws in Australia’s federalism — not only with policy coordination, but increasingly with the long-suffering system of fiscal transfers.

In the early stages of the pandemic, the National Cabinet arrangement notionally promised a new era in federal-state cooperation.

But hopes for this have diminished, as interstate relations have devolved to parochial stoushes and senior members of the federal government have slammed the Victorian premier as the full scale of his state’s health emergency has been revealed.

We’re not all Melbournians now, it would seem.

While Australians unreservedly express solidarity with their southern neighbours, there’s no indication of willingness for short term ‘emergency’ assistance to degenerate into persistent propping up of states. Australia’s federal finances have long tolerated existing disincentives and moral hazard for state underperformance. Allowing covid to exacerbate this will only further breed inefficiency — and ultimately, the ire of taxpayers.

Yet, the feds are being urged to provide yet more extraordinary support to Victoria. The country can’t recover, they say, until Victoria has recovered — a sentiment that could cynically be interpreted as effectively fiscal blackmail, as much as it is statement of economic fact.

Already, the federal government has afforded extra concessions in light of the Victorian situation. Treasurer Josh Frydenberg had little choice but to relax eligibility for the JobKeeper scheme. Education Minister Dan Tehan offered extra childcare provisions for Melbourne-based providers. And Canberra has stumped up new pandemic leave payments for workers unable to earn income while in self-isolation (currently applicable only in Victoria).

Unsurprisingly, the usual suspects clamour that yet more is needed — arguing for full reversal of JobKeeper tapering, permanent expansion of taxpayer-funded childcare arrangements, and for further federal government protections for those in insecure work.

As ever, when you give an inch, the progressive left will take a mile.

But Canberra must hold the line to ensure temporary support remains temporary. One way of ensuring this is that the states step up to the fiscal plate.

As with the approach with pandemic leave payments, it will increasingly be appropriate for costs to be shared between states and the commonwealth — to ensure states genuinely have skin in the fiscal game. As Agriculture Minister David Littleproud expressed last weekend on Sky News: the states “can’t just go back to their old business model of using the federal government as an ATM.”

The more pressing test of Canberra’s nerve could come if presented the task of imparting flexibility to JobKeeper, in the possible event of a sustained two-speed economy — with some states winding back restrictions on activity at the same time others ramp them up.

Ensuring Canberra’s emergency pandemic relief remains time bounded — with a clear schedule for appropriate tapering — will prevent it becoming an economic and fiscal albatross.

This couldn’t be more true for Canberra’s temporary support for Victoria.