(Transcript from World News Radio)
The Prime Minister has emerged from a meeting with State and Territory leaders declaring it constructive and good-spirited.
The comments come after the head of the federal government's Commission of Audit said he was worried tense relations between the states and the Commonwealth could stifle productivity.
And as Thea Cowie reports, the 37th COAG meeting has not been without tension.
The COAG meeting came less than 24-hours after the federal government's Commission of Audit recommended a comprehensive review of the federation.
It called for a reduction of duplication and overlap, states to take greater responsibility for health and education, and for funding arrangements to be overhauled.
Tensions have flared over a suggestion the Goods and Services Tax should be shared on a per-capita basis, with the Commonwealth topping up the payments to so-called "recipient states''.
South Australian Premier Jay Weatherill says the GST carve-up should stay as-is.
"Western Australia was a net receiver of resources until 2006. And they have struck it rich and they have decided they want to essentially cut themselves a drift from the rest of the Federation which I think is intellectually bankrupt and also morally bankrupt. If they want to take this to its logical extreme, all the dough should stay in the Pilbara and shouldn't flow to Perth."
But West Australian Premier Colin Barnett has described the comments as "miserable", saying the GST is "broken" and pointing to the fact the state's taxpayers will only get 37-cents back for every dollar of GST they pay.
Prime Minister Tony Abbott says changes to the GST carve up and jurisdictional responsibilities will be explored in two federal White Papers to be completed by the end of 2015.
The states and Commonwealth are also facing conflict over proposed changes to the federal Racial Discrimination Act.
New South Wales and Victoria have made formal submissions opposing the changes, warning they would weaken protections against racial vilification and threaten social cohesion.
However the Act was not on the meeting's agenda and leaders have refused to say if it was discussed.
Head of the federal goverment's Commission of Audit Tony Shepherd says the level of tension between states, territories and the Commonwealth is alarming.
"I'm very concerned about the state of that relationship. Under the previous government I went to quite a couple of COAG business council meetings and I was quite aghast at the levels of angst between the two levels of government. I see this as a very serious issue and one that really needs to be worked on. And I think this government seems to be heading down the right path. The work they're doing in infrastructure I think has eased a lot of the pain but I think this is something that needs to be addressed in the interests of the whole nation. I think it's actually a restriction on growth."
But the meeting has seen some progress.
The governments have sign a new deal to receive incentive payments if they sell off assets such as ports and electricity utilities, and put the profits into new roads and other infrastructure.
Prime Minister Tony Abbott says the deal is key to ensuring he becomes the Infrastructure Prime Minister.
"This is a government which wants to see Australia's infrastructure deficit addressed. I want to be the infrastructure Prime Minister and in order for me to be infrastructure Prime Minister, people at this table have to be infrastructure Premiers and infrastructure Chief Ministers. This infrastructure recycling fund of which there will be more detail in the budget is a very important way to encourage the States and Territories to do more when it comes to economic infrastructure."
COAG has also agreed, in principle, to the the establishment of a Commonwealth body to provide services for intercountry adoption by early 2015.
West Australian Premier Colin Barnett says there were only a few dozen adoptions in each state last year and creating a national service should see those numbers rise.
"What the states are saying is the Commonwealth will take the role in negotiating with oversease countries and making sure that any international adoption is done in an absolutely proper, ethical way. I think it's a sensible role for the Commonwealth to take. I think the most likely outcome is the state's which have adoption laws will actually conclude the adoptions itself but I think it's a sensible arrangement and hopefully it will help in having more adoptions in Australia and more families without children will be able to find a child."
State and territory leaders have also agreed to a new plan to lift Indigenous school attendance to non-Indigenous levels within five years.
Education department officers will conduct on-the-spot checks of schools and publicly report twice a year on their efforts, and later this year governments will come up with ways to reduce truancy where attendance rates are below 80 per cent.
Northern Territory Chief Minister Adam Giles says there's plenty of work to be done.
"Look a five year target to increase Indigenous school attendance will be a challenge but I think we've always got to set the bar high and do the best we can to improve the outcomes and it's not just about school attendence, it's also about employment and a range of other social aspects and characteristics."
The governments have also reaffirmed their commitment to the full roll out of the National Disability Insurance Scheme and are considered contributing to the Prime Minister's signature Paid Parental Leave Scheme.
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