A year ago, I wrote about the newly launched processes for a government white paper on reforming Australia's federation. I said there were few issues more important to Australia's future, and to the public sector, than how we manage our federal structure of government.

This is a once-in-a-generation opportunity. The federation needs periodic reform to keep it working effectively: a structure invented in the late 1800s might not suit 2015. Technology, infrastructure and citizens' demands of government change over time.

Every 20 years or so, Australia dusts off the machinery of federation to sees what needs replacement or repair. We don't do it more frequently because reform of this nature is exacting, difficult and risky: even well-designed reform proposals can be rejected in the political debates and rivalries of the day.

Each prime minister who takes on the federation reform task, regardless of whether they succeed or fail, vows not to do it again in a hurry. Australia must wait until political memories fade, and voter demand for change grows again, before the next chance comes up.

So where are we with the current processes? Early signs were promising. The Department of the Prime Minister and Cabinet, charged with the white paper process, produced a series of issues papers between September 2014 and February 2015 on the structure of the federation, roles and responsibilities (division of roles between the different jurisdictions in health, housing and education), and financial relations. They set out options for fundamental reforms alongside more modest options for tinkering around the edges. The basic building blocks and information required for serious consideration of change are in place.

A national conversation about federal reform cannot, however, come from issues papers alone. A prerequisite is serious political engagement with the voters. There the progress has not been nearly as encouraging.

The timetable has slipped some way. We were meant to have a green paper in the first half of 2015 and a white paper in the second half. (A green paper is an early draft of options and discussion points for public comment; a white paper is a final statement of government policy. They are called this because the first time this process was used to develop policy, in Westminster, that was the colour the papers were printed on. The names stuck.) The deadline for the white paper is now 2016. In an election year it may be delayed even further, especially if it proposes fundamental reform: all reform attracts vocal minority opponents, even when it is necessary and has majority support.

In June this year, a leaders' retreat – comprising Prime Minister Tony Abbott, premiers and chief ministers – considered reform but only in a desultory way. The retreat communiqué is underwhelming: long on rhetoric ("now is the time for leadership", "we need to confront these issues head on and keep an open mind" and the like) and short on specifics about what leaders actually proposed to do.

The one specific new initiative they announced was a bad idea: statehood for the Northern Territory. It might play well up north but it is not a good prospect for the rest of Australia. The NT already gets $5.66 back for every $1 it collects (via "relativities" in GST distributions – in other words, we heavily subsidise the NT, far more than any other state) and bases a large part of its economy on federal projects in defence and other infrastructure. Imagine what it could extract if it had 12 federal senators and a minimum of five federal MPs (the constitutional allocation for a state).

Perhaps due to its preoccupation with the more pressing issue of political survival, the Commonwealth government has all but abandoned the push for federalism reform. It is still on the agenda but the initiative no longer rests with the Commonwealth. Treasurer Joe Hockey, for example, has indicated that reform of the GST should be up to the states because it was their tax. They duly decided at the meeting of treasurers 10 days ago to apply the GST to all imported goods, with no threshold. The communiqué from the leaders' summit allocated responsibility for "more developed options to progress the reform directions agreed" to various state and territory premiers and chief ministers.

Yet, ultimately, a lack of Commonwealth leadership might not be fatal to the reform process. While the states have played a subordinate role since they gave away their taxing powers to the Commonwealth in the aftermath of World War II, they have found some mojo in recent years. The two premiers who have been foremost in the public debate on reform come from different sides of politics: Mike Baird, the Liberal Premier of NSW, and Labor's Jay Weatherill from South Australia. Despite their different politics, they often argue from the same direction on what needs to be done to give greater responsibility and capacity to the states: giving hope that there could be consensus on reform.

We know what does not work. For example, the approach of giving states greater freedom to manage programs in exchange for better performance reporting has failed on two counts: the states were unable to report realistically and comprehensively on their performance, always preferring to patch over any failings with feeble excuses; and the Commonwealth was unable to resist the urge to apply terms and conditions, often inappropriate and costly, on almost all grants. The COAG Reform Council set up to monitor progress on these arrangements was abolished last year, and arguably was by then of limited usefulness. But in its absence there is a gap in states and territories' accountability for performance. So while this experiment reached the end of its life, something needs to take its place.

We also have some clues as to what does work. Mutual recognition – i.e. leaving responsibility for particular activities with states and territories but requiring them to recognise each others' rules and regulations – has succeeded with occupational licensing for tradespeople, trucking, building regulation and similar activities. There is, though, far more that could be done, in a range of areas that affect everyone's lives. People who buy a car in one state and then face a mountain of paperwork to transfer the registration to another state despair that there is no mutual recognition; in many occupations, licensing or registration is still not recognised between states; environmental, planning and related regulations are still highly divergent. If the states wanted to, they could make the lives of most Australians better simply by extending mutual recognition. In other areas, such as curriculum, mutual recognition does not work – we need one national approach; encouragingly, this is well supported.

States and territories taking the lead on reform may be no bad thing. Remember that the states preceded the Commonwealth: the federal system of government was a result of the states' coming to an agreement to federate in the late 19th century. If they take back the leadership role they once had, it would be a refreshing change.

Reform can be put off – we might miss this chance – but at great cost. The problems we face at present as a result of confused responsibilities in the federal system remain the same as those identified at the start of the reform process. They include health costs that we cannot afford to grow at current rates; an education system that leaves our children slipping down the international rankings; ongoing homelessness and unaffordable housing; a confusing mess of rules and regulations that impede productivity; and a taxation system that would work fine just provided we all agreed to live as we did 50 years ago and forego modern technology and global connectedness. It now falls to state premiers and state and territory public servants to lead the way to solutions.

Stephen Bartos is a former senior public servant. stephenbartos@fastmail.fm