Australia’s Productivity Crisis: The Billion-Dollar Flaw in Federation

Australia is facing a productivity crisis, and part of the problem lies in a federation model designed in 1901 that no longer fits the nation we have become.

I have seen government through three different lenses: Britain, Bermuda, and now Australia.

Bermuda was small and simple, but close enough to the US that you could not ignore how complicated multiple layers of government can make life. Taxes stacked on taxes, rules on rules. When I moved here, I expected something cleaner. One country, one system. Instead, I found a federation that too often behaves like separate fiefdoms, with duplication, competing priorities, and inefficiencies that belong to another era.

During the pandemic, each state raced to build its own track-and-trace system. That decision might have made sense politically, but it slowed the national response. Since then, I have noticed the same pattern in IT, housing, and approvals. It is not just untidy. It is expensive.

The NSW Government’s ICT Metrics Report shows that agencies spent AUD 3.08 billion on ICT in 2016–17, about AUD 360 per resident. Smaller jurisdictions like the Northern Territory face much higher costs per person because they lack scale, which means they either pay more or accept fewer services.

The Productivity Commission has shown that housing construction productivity has dropped sharply. Australia now builds half as many homes for every hour worked compared with 30 years ago. Even after accounting for larger and better-quality houses, productivity is still down about 12 percent. Overlapping planning rules and duplicated approvals are singled out as a major drag.

The OECD’s Environmental Performance Review of Australia highlights how environmental regulation is one of the most complex areas of overlap. State and federal duplication creates unnecessary costs and delays for businesses trying to deliver projects.

These are not isolated problems. They add up to tens of billions of dollars lost each year. That is money not going into hospitals, schools, or innovation.

So why do we not hear more about it? Because it is inconvenient. States do not want to lose power. Canberra does not want to give it up. And voters rarely notice costs avoided. They only see the visible wins: a new road here, a new hospital there. The hidden inefficiency is easier to ignore.

That does not mean states are useless. Local tailoring matters. What works in Sydney does not always work in remote WA. States can also act as policy laboratories, with Medicare itself growing out of earlier state schemes. But the structures designed by independent colonies in 1901 are not serving a modern economy as well as they should.

The fix is not complicated. Harmonise approvals and regulations. Share digital platforms so smaller states are not paying double per head for basic IT. Let Canberra set national standards and states deliver against them. Publish performance data so we can learn from the best and stop rewarding duplication.

In business, no one would tolerate this level of overhead. You would consolidate, align, and reinvest. Australia should think the same way.

I have chosen to make this place home because it is already one of the best places to live and work. But being great today does not guarantee being great tomorrow. If we want to stay ahead, we have to be willing to challenge old habits and expect more of our leaders than defending turf.

This is not about making Australia great again. It is about making Australia even greater.

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