As for surplus and deficit budgeting, let me introduce you to Lord Keynes, the inventor of Keynesian economics.
At present, the economy is tight as a drum through capacity constraints. There is no way the government can spend the surplus without creating inflation - yet they are spending it - in tax cuts and election promises.
The Reserve Bank has just put a shot across their bows (both parties) by raising interest rates - which is a not so subtle message to the community and government "Stop spending".
Now when the economy turns down, say the US and then China tank, thats the time for the Government to open its cheque book and start spending - to take up the slack or overcapacity in the economy by building dams, roads, airports and other needed items. Since the government has no debt and is running a surplus, it can borrow bigtime overseas without affecting the dollar either.
Keynes worked all this out in the 1930's and got us out of the depression as a result.
Chimbu, three levels of government is about right, since you want decisions to be made at the lowest practical level (closest to the people affected).
I for one, do not want the decisions about paving my street etc. made in Canberra.
I suggest to you that the real problem is the massive overlaps and cost shifting games and the hundreds of thousands of public servants who have a vested interest in perpetuating them.
For example, I once had colleagues in the Federal Industry Department working here in Melbourne, supposedly to "help" manufacturing industry. Their one goal, stated many times in private, was to get a posting back to Canberra to get as close to the Minister as possible and suck themselves further up the tree.
Can you imagine what "Help" these people were to Victorian industry when they couldn't even navigate the city without a map, nor find half the towns in the State? They regarded a posting to where their customers were and away from Canberra as a demotion to be avoided at all costs. Do you want a bunch of Ivory tower people in Canberra making decions at a local level?
And don't point to Britain or America either. Britain has massive County Councils that play the same role as State Governments here, and of course America has fifty State Governments, complete with their own legislatures and tax systems, and it seems to work for them. If you want to know how it feels to have a central Government responsible for everything, read the "Clochemerle" series of comedy novels about the fictional French town, and a few "Yes Minister" scripts for good measure.
If Rudd continues his apparent plan to reconfigure State/Federal relations to end these overlaps and cost shifting games, he'll get my vote.