In its current state, little more than a century after federation, Australian federalism barely resembles that envisaged by the drafters of the federal Constitution. In mid-2014, Prime Minister Tony Abbott, leader of the Australian Liberal Party, told the Federal Liberal Council “it is time to make each level of government sovereign in its own sphere” (Yaxley 2014: 1). In this essay I argue, in partial support of the Prime Minister’s statement, that states and territories should be granted greater sovereignty in order to remedy major defects evident in Australia’s current system of federalism. I will support this argument with evidence illustrating the effect of increased state sovereignty on resolving the vertical fiscal imbalance (VFI), reducing…show more content… The federal Constitution separates power vertically between state and national governments, drafted with the intent to establish a union between the pre-existing, self-governing British colonies, with colonies remaining as powerful as possible (Ward and Stewart 2010: 127-30). The drafters employed a co-ordinate model of federalism which presumes independent “spheres of jurisdiction and government” (Ward and Stewart 2010: 134). In transforming into states the colonies were to retain responsibility for the majority of services and surrender only those powers “best exercised by a national government,” which was created under the Constitution to deal specifically only with issues affecting all colonies (Ward and Stewart 2010: 127-130). This division of power prevents excessive accumulation in one government to protect citizens’ liberties and ensures governments are independent, “each exercising their own legislative, administrative, judicial and fiscal capacities” (Ward and Stewart 2010: 128). This system was clearly intended to vest powers in the most appropriate level of government, promoting efficiency and effectiveness whilst maintaining strong states. However, Australia is now governed under a co-operative federation- the structured division of power between multiple governments has essentially been lost (Ward and Stewart 2010: 128, 134). Resulting from a number of landmark High Court cases involving the interpretation of key Constitutional provisions, power is highly centralised with the federal government holding influence over many policy areas “originally intended as state responsibilities” (Ward and Stewart 2010: 128). Support for centralisation throughout Australian political history was often biased as federal governments were themselves unwilling to give up power (Hollander and Patapan 2007: 283-4). Whilst centralised power encourages uniformity, it allows excessive