Libertarians believe political decisions should be made at the most local level possible, to maximise freedom, prosperity, and choice. Decentralising power from the federal government to states and communities fosters diverse cultures, local solutions, and policy experimentation.
The original vision for federation was one of free movement of goods and people across state borders, not a central government directly taxing individuals and controlling their lives. In 1942, the Commonwealth government used its wartime powers to seize income-taxation powers from the states and reserve it exclusively for themselves. What began as a wartime expedient has become permanent, leaving states reliant on federal grants and unable to compete or innovate on tax policy.
This vertical fiscal imbalance, where the Commonwealth collects most revenue and distributes it through grants, gives the federal government undue influence over matters that should be state responsibilities, leaving the states beholden to Canberra.
Duplication of departments and 'blame-shifting' are a common problem in areas where both federal and state governments take an interest. Libertarians believe in devolving these responsibilities, and their funding sources, to the more local level, with the federal government focused on truly federal matters such as defence.
Competitive federalism means different states may adopt different levels of taxation and service levels, and people can vote with their feet, by moving to a jurisdiction that best matches their desired outcomes. When people and businesses have the option to change states to get a better welfare or tax outcome, state governments are forced to be more responsive to community needs and expectations and be better stewards of taxpayer money. They must compete with each other for luring productive individuals and corporations.
Hence, the Libertarian Party advocates the following measures:
1. Return income tax powers to the states. Abolish federal income tax and restore state control, to enable competition for businesses and investors, and encourage innovative tax policies. (See our Economy Policy)
2. Abolish federal departments that overlap with the states. Health, education, and other areas of dual jurisdiction should be administered by the states alone, ending the duplication and blame-shifting that shared responsibility produces.
3. Keep the federal government out of local councils. Local government is a state responsibility, and the Commonwealth should not fund or direct it. We will end Financial Assistance Grants and other tied federal-to-council funding programs, and route any legitimate revenue-sharing through the states alone. We oppose constitutional recognition of local government, which would entrench rather than reduce federal reach below the state level.
4. Support new state movements. Competitive federalism thrives with more states, allowing for diverse identities and ideas. Movements to create new states, such as Riverina and New England, should be supported.
5. A right to secede. A federation should be a voluntary union, not a one-way door. Libertarians hold as a matter of principle that if a state's population no longer consents to being governed from Canberra, then no force should be used to compel them to remain in the federation.