Australia’s federal system of government and finances has left many Australians confused about the blurred lines between federal and state roles, according to the Commonwealth’s Green Paper on Reform of the Federation.

There is also a lack of confidence in a system that is prone to “buck passing”, it claims.

The discussion paper, published online this week, says that while people think the Federation “is mostly working well”, there is room for improvement and more than a “rearranging of the deck chairs”.

Potential areas for reform explored in the discussion paper include the effectiveness of policy and administration in health, education, housing and homelessness, and financial relations.

With the operation of the GST is at the heart of debate over Commonwealth-state financial relations, the Green Paper acknowledges its “important intersection” with the Federal Government’s Tax White Paper process now underway. And while noting options for changing the GST, the discussion paper steers clear of commenting on possible changes to the tax.

“Details and discussion around the merits of changes to particular tax rates and bases is left to the Tax Options Paper,” the paper says.

Acknowledging the inherent tension within the Federation, with Canberra raising nearly half the total revenue that is spent by the states, the discussion paper says “addressing the mismatch between revenue and expenditure in Australia would go a long way toward ensuring governments can no longer shift the blame of policy failures and the costs of policy responses between them”.

The discussion paper explores the issue of Horizontal Fiscal Equalisation (HFE), which determines the breakup and distribution of the GST and takes into account such factors as a state’s population, demography, and ability to generate income through royalties from natural resources. The goal of HFE is to distribute GST funds in a manner that ensures each state has the capacity to provide essential services and infrastructure on an equal basis.

The discussion paper poses three options for HFE reform, including maintaining the existing methodology but adding greater transparency; changing the methodology to have less equal shares of GST between the states; and distributing GST on a per capita basis, with the states and territories that would be worse off receiving “top up” grants from the Commonwealth.