I have written before about how broken Australia’s federalist constitutional arrangements are. They were broken by over a century of the world’s most centralising top court decisions, bar none. (The record of our High Court is laughably bad and verging on the interpretively dishonest at times). That, and a Commonwealth political class that has no clue of the benefits of real federalism and one that takes ridiculously implausible, power-enhancing cases to our top court, confident the top court will almost always favour the centre on anything important, while throwing a few more-or-less meaningless scraps to the states for appearances. (And yes, those preceding sentences exactly describe our federalist set-up.)

Here I’m not going to recite how the top court has made Australia the only federalist set-up in the world where the states – for all practical purposes – lack income tax power. Nor how we have the world’s worst vertical fiscal imbalance. Nor how all the benefits of federalism, such as having different regulatory regimes that foster competition (if anyone talks of ‘co-operative federalism’ they basically have no clue why federalism works and you can stop listening) and experimentation and the satisfying of more citizens’ preferences, all these and more have been slowly asphyxiated and throttled by the myriad centralists in this country, judges and politicians.

No, instead let me tell you about one of the biggest trends right now in the US. I am talking about the huge flow of people from ‘blue’ states (i.e. states run by Democrats) to ‘red’ states (i.e. Republican-run states). This is a huge topic in America right now and the figures are eye-opening. So in 2022-23, red states had a net inflow of Americans from the rest of the country of just over 490,000 people. The blue states lost 520,000 people, net. (There are a few mixed control states, hence the gap.) Those numbers equated to red states gaining US$37 billion in income. The blue states lost US$41 billion in income. Put in simple, generalised terms, hard-working, richer Americans are leaving the big-taxing, big-spending, high-welfare states and moving to smaller-government, lower-taxing states. California, Illinois, Massachusetts and New York are seeing never-before-seen outflows of its most successful citizens. Florida, Texas, Tennessee and more are seeing huge inflows. (That said, over half the gains went to Florida and over half the losses were from California and New York combined.)  People are voting with their feet, not just at the ballot box. In fact, the Governor of New York, Kathy Hochul, recently made a risible public plea for former New York residents to come home to help fund her state’s uber-generous welfare programs.

How generous? Well, greater New York City has a lot fewer people than the whole state of Florida. But Florida’s total budget is US$117 billion to NYC’s US$127 billion.  Do I hear ‘waste’ anyone, huge bureaucratic waste? New York City is spending more per homeless person than the median wage – and that money is clearly going in overwhelming part to over-paid bureaucrats who are doing nothing to fix the system. (Yes, readers, this does remind me of Australia’s bloated, top-heavy, absurd vice-chancellor salaries university system.)

Notice that this only happens because the fifty US states have different state income tax rates (it’s the same federal rate across the country but states tax as they see fit with Florida and some others opting for zero – yes, zero – state income taxes). Likewise, they all have different sales tax rates (roughly, but less expansively, our GST rates). If a US state does what our state of Victoria has done then citizens can punish it severely for its waste, its corruption, its big spending, just by leaving. (This, by the way, is what is happening to Minnesota, the closest analogy to Victoria going.)

Two things follow from this. The states with woeful policy settings do not get bailed out by taxpayers in other states. Make your bed as voters and you have to lie in it. (Australia, as I will note in a second, opts to let Victoria not explore for gas, turn ‘profligacy’ into the state motto, and then force all the rest of us to lie in this Victorian bed. Do you think that amounts to a good set of incentives, ones that encourage better policy settings?) And everyone can see that there are failing and succeeding states.

Competition drives either change or big population movements.

It’s not all upsides in the US, though.  Why? Because, and this shows the perversity of human nature, a lot of the wealthy people fleeing California and New York take their voting habits with them. They get to Georgia and still vote Democrat, even though they know it was Democrat policies that drove them to leave their last homes. So far there hasn’t been enough of this phenomenon to flip any red states. But it certainly worries red-staters who’d just as soon see the wealthy coastal elites stay home. (And readers by now are fully aware that as a generalisation rich people today, across the Anglosphere, vote left. Give them a progressive, moral-posturing political party run by human rights lawyer types and they can’t vote for it fast enough.)

All that said, the US federalist set-up is exactly the one the drafters of our Australian Constitution copied. It was working just fine for the first two decades of federation and then the centralists on the court starting hollowing out and emasculating what works in a federal system. (If you don’t know it, then realise that across the democratic world real federalist set-ups like the US, Canada, Switzerland and Germany are noticeably wealthier per capita than centralist set-ups like France, Britain and New Zealand.) Today, Australia has all the trappings and costs of federalism but with the reality of centralism, so none of the benefits.

To be fair I should not just blame the top judges. For all his virtues John Howard was an instinctive centralist. His WorkChoices legislation opened the door to Labor’s productivity-killing ‘one-size-fits-all’ labour relations regimes. In the US companies often move based on a state’s labour laws. That used to be possible here in Oz till Mr Howard and his centralising legislation (that on no plausible interpretation of our Constitution should ever have got past the High Court, but as I said the one rule on that court amounts to ‘the centre always wins when it matters’).  Then there’s the GST. This Howard tax, too, is incredibly centralising due to the ways the money is distributed. Merit, a business-friendly set of policy settings, rewarding the search for wealth, none of those matter.  It’s as though Karl Marx had been asked to design how the GST monies would be allocated, with ‘to each state according to its need’ being factor numero uno. Who thinks people (and yes, I include politicians in that category) respond to incentives? Who thinks the GST incentives are remotely good ones?

In that sort of world the voters disgusted by the two main parties have only one recourse. Vote One Nation. And more did that in South Australia than voted for the Libs. It is only our virtually world-unique preferential voting system that acts as a protection racket for the two established parties that is keeping the Libs on life support.

If there’d been more federalists over the years they’d be in a better position.