The Australian federal system is often seen as a barrier to both the achievement of coherent and cohesive public policy, and the larger social democratic project. The formal limits on sovereignty set out in the constitution; the gross unevenness of financial autonomy (the vertical fiscal imbalance); the inequity in the distribution of policy capacity; and the continuous need to negotiate and renegotiate with unwilling partners all serve to frustrate politicians and public servants alike, and act as a brake on clear policy direction and effective delivery. The situation is exacerbated by weaknesses at local and regional level and the traditional local government emphasis on ‘services to property’, commonly characterised as ‘roads rates and rubbish’ (Dollery et al, 2006, 556). While this much is universally acknowledged, the opportunities provided by a federal system to moderate the excesses of neoliberalism and social conservatism at either state or federal level are less commonly recognised. At its best, our system of multilevel governance has the capacity to provide spaces for community engagement, a chance to escape a ‘one size fits all’ policy straightjacket and facilitate the pursuit of a more progressive policy agenda.

Examples of commonwealth interventions, such as its preservation of the Franklin River and its recognition of the Native Title in the face of sometimes strident state opposition, are well known. While often taken as symptomatic of federalism's failure, they can instead be read as evidence of the strength of split-level governance structures, especially when placed alongside examples of state level policy leadership. We need only to recall it was state Labor governments that in 2007 commissioned the Garnaut review of climate change, which provided the blueprint for federal government policy. Such contests over policy direction cannot always be ascribed to partisanship and the simple right–left divide, as demonstrated by the state-based initiatives in the area of same-sex relationships where we have seen Labor resist federally what has been embraced at state level. In the later part of the 1990s, we also saw the re-emergence of space as central to social inclusion and economic recovery and the need to engage local level structures and networks (Smyth et al, 2005).