REFORMING AUSTRALIA'S FEDERAL SYSTEM
Anne Twomey∗
INTRODUCTION
On 9 February 2007, all State Premiers, in the Council for the Australian Federation,
agreed that a constitutional convention should be held in 2008 to propose reforms to
Australia's federal system.1 The need for a Constitutional Convention to improve the
operation of the federal system has been supported by a broad coalition, ranging from
business groups,2 to local government,3 academics4 and the media.5 Bob McMullan, in
his former role as Shadow Minister for Federal/State Relations, stated that the idea
was 'worthy of serious consideration'.6 The 2020 Summit, held in April 2008, also
proposed the holding of a constitutional convention to reconsider the allocation of
powers and functions across all tiers of government and the finances needed to fund
them.
There appears to be a growing recognition that the current system of creeping
centralism is dysfunctional and that it would be to the benefit of all Australians if our
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∗
Associate Professor in Law, University of Sydney.
1
Council for the Australian Federation, Communiqué, 9 February 2007. Consideration of a
constitutional convention has since been deferred, due to the change in Commonwealth
Government, until other election promises concerning Commonwealth-State co-operation
have been met.
2
Business Council of Australia, Reshaping Australia's Federation — A New Contract for FederalState Relations (2006) 24; Michael Chaney, 'Act Together or Kiss the Federation Goodbye',
The Australian Financial Review (Sydney), 22 November 2006, 59; NSW Business Chamber,
2007 Australian Business Priorities: Fixing the Federation (September 2007).
3
'Local Government Association of Queensland, 'Councils Support Call for Constitutional
Convention' (Press Release, 2006).
4
Andrew Lynch, 'The Die is Cast and it is Time to Reshape Australian Federalism', The
Sydney Morning Herald (Sydney), 15 November 2006, 13; George Williams, 'Expensive Way
to Run a Country', The Australian (Sydney), 8 December 2006, 14; Dean Jaensch, 'Time to
Rewrite the Constitution — Just Keep MPs Out', The Advertiser (Adelaide), 18 April 2007,
20.
5
Steve Burrell, 'It's Time to Rethink the Economics of Federation', The Sydney Morning Herald
(Sydney), 22 February 2007, 20; Editorial, 'States of Disarray: it's Time to Fix the
Federation', The Sydney Morning Herald (Sydney), 10–11 March 2007, 36.
6
Bob McMullan, 'After the War with the States is Over: Reform in a Post-Howard Era',
(Speech delivered to CEDA, 6 September 2007).
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federal system operated more effectively.7 With the election of the Rudd Government
and a period of at least a year in which no State or federal elections are likely to occur,
there is an historic opportunity to achieve substantial federalism reform.
The most common complaints about federalism concern duplication, excessive
bureaucracy and administration, buck-passing and cost-shifting. The most common
suggestions for reform include the reallocation of powers and functions between the
Commonwealth and the States, the reform of Commonwealth-State financial relations
and the improvement of intergovernmental processes.
This article considers the matters that a constitutional convention would be likely to
address in proposing reforms to our constitutional system. It discusses both
constitutional and non-constitutional reforms, and in doing so draws upon the
experience of other federations.8
THE ALLOCATION OF POWERS AND RESPONSIBILITIES WITHIN A
FEDERATION
Federal systems of government have many advantages over unitary systems. They
provide greater choice and diversity, they allow the customisation of policies and laws
to meet local needs and differences, and they support competition and innovation,
leading potentially to more economically efficient governments.9 However, the
benefits of choice and competition must be balanced against the benefits that arise in
some cases from uniformity or the economies of scale that may result from one level of
government performing a particular function. It is therefore important that the
allocation of powers and responsibilities between the levels of government be kept
under review and that a level of flexibility is maintained to ensure that the federal
system operates most effectively.
Centralising power at the Commonwealth level is not the only way of achieving a
degree of uniformity in those subject areas where it is desirable. Indeed, complete
uniformity may not always be necessary or in the best interests of the country. In some
cases the declaration of minimum national standards might be appropriate, leaving
each State the option of building on those standards or implementing them in different
ways. In other cases uniformity might be desirable in relation to some aspects of a
subject matter, while others are best left to be adjusted to take into account local
differences.
There are several different ways of managing the allocation of powers and
responsibilities in a federation in a manner that maintains the appropriate balance
between uniformity and diversity. In Australia, these include:
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7
Matt Wade, 'States' Self-Interest Could Stymie Rudd's Reform Plans', The Sydney Morning
Herald (Sydney), 26 November 2007, 3.
8
Due to the difficulty in obtaining up to date English translations of some foreign
Constitutions, some provisions referred to in this article may no longer be current.
However, they remain useful examples.
9
For a discussion of the economic and social benefits of federalism, see Anne Twomey and
Glen Withers, 'Australia's Federal Future', (Federalist Paper No 1, Council for the
Australian Federation, April 2007). See also Jonathan Pincus, 'Six Myths of Federal-State
Financial Relations' (CEDA, Economic and Political Overview 2008, February 2008), with
regard to the economic advantages of federalism.
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•
•
•
•
•
the constitutional or political reallocation of powers and responsibilities;
the referral of matters to the Commonwealth by the States;
intergovernmental co-operation;
recognition of the standards and qualifications accepted in other jurisdictions;
and
framework structures where the Commonwealth sets national standards and
the States fill in the detail.
The reallocation of powers and responsibilities
Federations often work best when the powers and responsibilities of the different
levels of government are clearly defined and allocated. In Australia, we have an
unusually high level of shared responsibilities. This gives rise to the risk of 'a blurring
of government responsibilities – from cost and blame-shifting among government
levels, wasteful duplication of effort or under-provision of services, and a lack of
effective policy co-ordination'.10 We have also had little change made to the
constitutional allocation of powers in the last century. The allocation made by the
framers of the Commonwealth Constitution in the 1890s may no longer be appropriate
today and deserves to be revisited. Such a reassessment, however, should be based
upon principle rather than political advantage.
The principle generally used to make such an assessment is 'subsidiarity'. This
principle provides that functions should, where practical, be vested in the lowest level
of government to ensure that their exercise is as close to the people as possible and
reflects community preferences and local conditions. As the OECD has noted, by being
'closer to local citizens, sub-national governments are in principle better placed to
respond to their demands for services and to target these at the right people.'11
The principle of subsidiarity places the onus on those who seek to place a function
with a higher level of government to make the case for it. Factors that are taken into
consideration in deciding whether it is not practical to vest a function in a lower level
of government include whether the function concerns matters of peculiarly national
interest, such as the preservation of the nation (defence) or the nation's relationship
with other nations (foreign affairs). Where issues of social equity arise, it may be more
appropriate to apply them nationally both as a matter of fairness and of practicality,
especially where the redistribution of income is involved. For example, if the States
provided different pension and welfare benefits, then unemployed people would flock
to the State with the most generous unemployment benefits and pensioners would
move to the State with the most generous pensions, distorting the labour market and
affecting demands upon other services.12 Accordingly, social security is usually a
national function in federations. Other factors taken into account include crossjurisdictional spill-overs (where the actions of one State have consequences for another
State), economies of scale and efficiency through the creation of uniform or
harmonised rules or standards.13
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10
OECD, Economic Surveys: Australia (2006) 82.
11
OECD, 'Fiscal Relations Across Government Levels', Economic Studies No 36 (2003) 161.
12
Ibid 177. This is known as 'welfare-induced migration'.
13
For a discussion of subsidiarity and its application see Jonathan Pincus, 'Productive Reform
in a Federal System' Productivity Commission, Productive Reform in a Federal System —
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As these same factors tend to be taken into account in all federations, there is a
similar pattern in federations in the allocation of functions and responsibilities.
Defence, foreign affairs and social security tend to be dealt with by the national
government, education and policing tend to be dealt with by sub-national
governments, health and the environment tend to be the primary responsibility of one
or the other level, and economic affairs and housing tend to be shared
responsibilities.14
Aspects of the principle of subsidiarity appear in other federal Constitutions, such
as the Swiss Constitution which confines the Confederation to 'tasks which require
uniform regulation',15 leaving all other matters to the Cantons.16
After it was first elected, the Howard Government established a National
Commission of Audit which reported in June 1996. It studied the inefficiencies in the
federal system and made recommendations on how to reduce duplication, overlap and
cost-shifting. In doing so, it applied the principle of subsidiarity in relation to a number
of policy areas. Health is one of the most problematic areas of the Australian federal
system. This is because the responsibilities of the Commonwealth and the States are
closely intertwined, with the Commonwealth responsible for Medicare and subsidising
private health insurance, the States responsible for running hospitals, the
Commonwealth primarily responsible for aged care and the States primarily
responsible for psychiatric and disability services. The consequence has been a lack of
co-ordination of services, greater difficulty for people to negotiate the system and hold
governments accountable, and serious levels of inefficient cost-shifting.17 The incentive
for cost-shifting is now strengthened by the rapidly increasing health costs of an
ageing population. Back in 1996, the National Commission of Audit concluded:
Ideally, responsibility for the delivery of all services and the collection of revenue to meet
costs should be with one level of government. In practice, however, there would be
inefficiencies if this were located at the Commonwealth level when more appropriate
decisions could be made at the local level; whereas if it were to be at the State level, the
Commonwealth would have to relinquish income tax powers or collect earmarked
revenue on behalf of the States.
•
•
As an ideal overall solution, the Commission considers the latter would be the
most efficient and would most conform with the principles outlined in earlier
chapters.
Such reforms are beyond the Commission's terms of reference.18
In relation to education, the Commission also took a bold stance and made the
following recommendation:
The Commonwealth should negotiate the following delineation of roles with the States:
_____________________________________________________________________________________
Roundtable Proceedings (2006) 27–9; Neil Warren, Benchmarking Australia's Intergovernmental
Fiscal Arrangements (NSW Department of Treasury, 2006) 31–4; Business Council of
Australia, above n 2, 23–6; and OECD, above n 11, 161, 174.
14
Warren, above n 13, 34–5.
15
Constitution of Switzerland art 42.
16
Thomas Stauffer et al, 'Switzerland' in Ann Griffiths (ed), Handbook of Federal Countries 2005
(2005) 346. See also s 146 of the Constitution of South Africa for a different approach.
17
OECD, above n 10, 81–3.
18
National Commission of Audit, Report to the Commonwealth Government (1996) 52.
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•
•
States – preschool, primary and secondary education, with Commonwealth
funding of secondary education transferred by untied grants to the States.
Commonwealth – vocational education and training, and higher education, with
State funding of VET [Vocational Education and Training] transferred to the
Commonwealth through a reduction in general purpose grants.19
Needless to say, neither of these recommendations was taken up by the
Commonwealth Government in 1996. However, the suggestions made are still worth
considering in any principled debate upon the allocation of powers and
responsibilities. Other significant contributions have been made by the Constitutional
Commission20 (which considered whether new powers should be conferred on the
Commonwealth in relation to communications, defamation, nuclear material, family
law and national accident compensation, amongst other matters); the Productivity
Commission21 (which has considered health reform and freight transport reform
amongst other matters); the Business Council of Australia;22 and the States
themselves.23 State Premiers have previously expressed a willingness both to
surrender and assume responsibilities. For example, the former Premier of New South
Wales, Bob Carr, called for the reallocation of spending responsibilities, including the
possibility of the States handing some responsibilities, such as universities to the
Commonwealth, while having undiluted State responsibility for other areas restored.24
The former Queensland Premier, Peter Beattie, has also stated: 'I have no problem
handing over to the Commonwealth responsibilities that will be better managed by the
Commonwealth provided the Commonwealth is prepared to hand over to the states
and to local and regional government areas that can be better managed at our levels as
well'.25
The reallocation of powers and responsibilities has been described as the 'holy grail'
of legal and administrative rationalists.26 It is something sought, but never won. While
such reforms might be difficult to achieve, they are not impossible. Switzerland,
France, Germany, Italy, Norway and Spain have all recently reconsidered and adjusted
their allocations of power, and the United Kingdom has devolved power upon
governments in Scotland, Wales and Northern Ireland.27 For example, in Spain
_____________________________________________________________________________________
19
Ibid 58–9.
20
Constitutional Commission, Final Report of the Constitutional Commission (1988).
21
Productivity Commission, above n 13.
22
Business Council of Australia, above n 2.
23
See, for example, Federal-State Relations Committee, Parliament of Victoria, Australian
Federalism: The Role of the States (October 1998); Western Australia, Department of Treasury
and Finance, Discussion Paper on Commonwealth-State Relations (April 2006); Warren, above
n 13; Twomey and Withers, above n 9. The Queensland Government has initiated a report
on overlaps and duplication, in order to support proposals for reform: Sean Parnell, 'Beattie
to Audit Policy Overlap', The Australian (Sydney), 5 September 2007, 6.
24
Bob Carr, 'Productivity Growth and Micro-economic Reform' (Speech delivered to CEDA,
27 February 2003) 5–6.
25
Queensland, Parliamentary Debates, Legislative Assembly, 4 September 2007, 2915.
26
John Wanna, 'Improving Federalism: Drivers of Change, Repair Options and Reform
Scenarios' (2007) 66 Australian Journal of Public Administration 275, 277.
27
OECD, above n 11; Giampaolo Arachi and Alberto Zanardi, 'Designing Intergovernmental
Fiscal Relations: Some Insights from the Recent Italian Reform' (2004) 25 Fiscal Studies 325;
Cesare Pinelli, 'The 1948 Italian Constitution and the 2006 Referendum: Food for Thought'
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healthcare and social services responsibilities have been transferred to the
Autonomous Communities. In France, functions in areas including higher education,
industrial policy and regional infrastructure have been transferred to the regions.28 'In
Norway, responsibility for hospital care was transferred from the counties to the
central government in 2002.'29 In Germany, the list of concurrent powers has been
completely reviewed, allocating some matters to the federation (such as weapons and
explosives, nuclear energy, anti-terrorism and the care of those injured or affected by
war) and some to the Länder (such as the punishment of crimes, the regulation of
nursing homes and shop closing times). The deletion of framework laws resulted in the
Länder obtaining responsibility for most aspects of education, including higher
education.30 Finally, the Länder were given the power to 'deviate' from some
concurrent federal laws.31
Often such reforms take place because of a commitment made in opposition before
a party is elected to government, as in the case of devolution in the United Kingdom.
In other cases reform arises as a condition to the formation of a coalition government
after an inconclusive election, as occurred in Germany.32 Governments that are already
well entrenched in power are far less likely to agree to reforms that may result in the
loss of some of their powers.
Alternative means of achieving a degree of uniformity
In deciding whether to reallocate powers to the Commonwealth because of the benefits
that would flow from the uniformity of laws on a subject, consideration should be
given to whether those benefits could better be achieved by other means. These might
include the reference of matters by the States to the Commonwealth under s 51(xxxvii),
co-operative legislative schemes, the mutual recognition of standards and
qualifications or the use of framework laws at the Commonwealth level, leaving the
detail and the means of implementing principles to the States. The advantages of these
approaches, as opposed to a formal constitutional reallocation of powers, are that they:
•
•
•
are flexible rather than rigid;
involve the States in determining the nature and scope of the law or reference,
so the States can ensure that it complements existing State laws and programs;
utilise State expertise on subjects in relation to which States have extensive
experience but the Commonwealth has little;
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(2006) 2 European Constitutional Law Review 329; Arthur Gunlicks, 'German Federalism
Reform: Part One' (2007) 8 German Law Journal 111; René Rhinow, 'Swiss Reform and the
Long Tradition of Federalism' (2002) 2(5) Federations 19; Thomas Milic, 'Switzerland' (2005)
44 European Journal of Political Research 1213; Brigid Hadfield, 'Devolution in the United
Kingdom and the English and Welsh Questions' in Jeffrey Jowell and Dawn Oliver (eds),
The Changing Constitution (5th ed, 2004) 237.
28
Arachi and Zanardi, above n 27, 336.
29
OECD, above n 11, 180.
30
The areas of university admission and university degrees remain the subject of concurrent
legislative power of the Federation, but the Länder may 'deviate' from such laws from
August 2008: Rudolf Hrbek, 'The Reform of German Federalism: Part I' (2007) 3 European
Constitutional Law Review 225, 236–8.
31
Gunlicks, above n 27, 121,128; Hrbek, above n 30, 236–8.
32
Gunlicks, above n 27, 112.
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•
•
•
•
permit uniformity in some aspects of a law while allowing flexibility in how
the States implement other aspects of the law;
permit uniformity between groups of States with the same interests, while not
requiring uniformity in all;
can create greater community support for a controversial or hard policy if it is
supported by all Australian governments of different political persuasions;
and
give States greater control over future amendments and reforms on the subject.
Matters for the consideration of a constitutional convention
The first task for a constitutional convention in considering the allocation of powers
would be to determine what principles should apply in assessing which level of
government should exercise particular powers or be responsible for particular
functions, or whether those powers and responsibilities should be shared. In
particular, consideration should be given to the degree of uniformity or harmonisation
needed in relation to particular matters, and which of the means mentioned above is
the most appropriate to achieve it. Where circumstances are likely to change in the
future, a more flexible arrangement may be preferable to a rigid constitutional
reallocation.
A formal constitutional amendment would not necessarily be required to adjust the
allocation of powers in most cases. The expansion by the High Court of the
Commonwealth's legislative powers with respect to external affairs,33 corporations34
and defence35 is such that it has legislative power with respect to most matters.
Further, if it did not have power with respect to a particular matter, the States could
refer that matter to the Commonwealth under s 51(xxxvii) of the Constitution. The
States themselves have plenary legislative power which is only limited by a few
provisions of the Commonwealth Constitution.36 In most cases States could resume
responsibility for a function if the Commonwealth vacated the legislative and
executive field.
If the States and the Commonwealth were to reach an agreement as to which
government would be responsible for which fields of public policy and expenditure,
with a commitment not to legislate or act within a field that fell to the responsibility of
another government, then a reallocation of responsibilities could be achieved without
any formal constitutional amendments with respect to powers.
However, where a reallocation of powers and responsibilities is needed and agreed
upon by the Commonwealth and the States, it would be preferable to achieve this by
formal constitutional change. This ensures that the people are consulted and give their
imprimatur to the change and also prevents backsliding or repudiation by future
governments. Previous referenda that proposed the expansion of Commonwealth
powers have almost always failed.37 In order to succeed, such a proposal would need
_____________________________________________________________________________________
33
Commonwealth v Tasmania (1983) 158 CLR 1.
34
New South Wales v Commonwealth (2006) 229 CLR 1 ('Workchoices Case').
35
Thomas v Mowbray (2007) 237 ALR 194 ('Thomas').
36
For example, Commonwealth Constitution ss 90, 92, 114, 115.
37
See the failure of referenda to expand Commonwealth power in 1911, 1913, 1919, 1926,
1937, 1944, 1946, 1948, 1951, 1973: House of Representatives Standing Committee on Legal
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to involve genuine give-and-take, with subject areas being disentangled so that some
are allocated to the States and some to the Commonwealth. Any proposal that was
perceived as a power grab by the Commonwealth, or which did not have the support
of all the States and the Commonwealth, would most likely fail. The referendum
proposal would have to be derived from a cross-party and cross-government
consensus, in which the people also were involved and consulted. The process by
which any referendum proposal is generated is therefore very important.
One of the problems of constitutional change, however, is the risk of freezing an
allocation of powers that will not be appropriate in the future. That is why it is
important that other tools to permit intergovernmental co-operation are included in
the Constitution. Such tools could include an upgraded s 51(xxxvii) which permitted
the interchange of powers between the Commonwealth and the States or the use of
constitutionally supported intergovernmental agreements. For example, a provision
similar to s 105A could be inserted in the Commonwealth Constitution, that would allow
the Commonwealth and the States to make agreements about the allocation of
responsibilities that would be binding on all parties notwithstanding anything
contained in the Commonwealth or State constitutions or any law of the
Commonwealth or a State.38 By inserting the mechanism in the Constitution, rather
than a particular reallocation of powers, greater flexibility would be permitted for the
renegotiation of such agreements as circumstances change. The agreements would not
be frozen in time.
The problem with such proposals is achieving public support for them. In 1984 a
referendum proposal that would have allowed the interchange of Commonwealth and
State powers failed because it was perceived as a means of taking power away from
the people and placing it in the hands of politicians. It was characterised by the 'No
case' as being 'a scheme to allow Canberra politicians to change Commonwealth and
state powers without consultation' and as a means to 'blackmail the states into
referring important state powers to Canberra and making decisions favourable to
Canberra'.39 The insertion of s 105A in the Constitution was only achieved because of
the desperate financial circumstances of the States at the time and the fact that the
intergovernmental agreements to be validated under s 105A had already been entered
into, so their terms were already known and accepted. It would be a difficult task
indeed to build any further flexibility into the Constitution if it were perceived as
diminishing the power of the people to control changes to the Constitution. However,
provisions that are perceived as supporting co-operation between the Commonwealth
and the States are more likely to be supported.
COMMONWEALTH-STATE FINANCIAL RELATIONS
The primary problem with Australia's federal system is the unusual imbalance in the
federal fiscal system. The ideal in a federal system is to achieve 'fiscal equivalence' or
'fiscal balance', so that each level of government has the capacity and responsibility to
_____________________________________________________________________________________
and Constitutional Affairs, Commonwealth Parliament, Constitutional Change — Select
Sources on Constitutional Change in Australia 1901–1997 (1997) 61–114.
38
John McMillan, Gareth Evans and Haddon Storey, Australia's Constitution — Time for
Change? (1983) 350.
39
House of Representatives Standing Committee on Legal and Constitutional Affairs, above
n 37, 108.
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raise the revenue necessary to fulfil the functions allocated to it.40 This enhances
accountability and responsibility, as the same government has to make the hard
choices related to balancing tax and expenditure levels. It cannot attempt to shift the
blame and responsibility for inadequate services or high tax levels to another level of
government on the ground that it has not been properly funded by that other level of
government. Further, each government can 'tailor the supply of public goods to local
citizens' preferences and willingness to pay'.41 It may be the case that the citizens of
some jurisdictions prefer lower taxes and fewer government services, while the citizens
of other jurisdictions might prefer a higher level and quality of services and be
prepared to pay for them in higher taxes.
In reality, it is impractical to achieve this ideal of fiscal balance, because it is more
efficient for some taxes to be applied uniformly and collected centrally. The OECD has
noted that 'there are few taxing powers which can be transferred to sub-national
governments without raising efficiency and/or distributional concerns'. It has pointed
to problems with giving sub-national governments powers in relation to consumption
taxes, personal income taxes and corporate income taxes.42 Accordingly, some level of
what is known as 'vertical fiscal imbalance' is common in federations.
Australia, however, is uncommon in having one of the highest levels of vertical
fiscal imbalance in federal systems across the world. Approximately 82% of tax
revenue in Australia is raised by the Commonwealth,43 while the States are responsible
for at least 40% of national expenditure.44 The consequence is that the States are reliant
upon grants from the Commonwealth in order to fulfil their responsibilities to provide
services such as schools, hospitals, police and public transport. Currently, from the
Commonwealth's 82% tax-take, 27 percentage points-worth is transferred back to the
States (comprising 16 percentage points of GST grants and 11 percentage points of
specific purpose payments).
The States have a limited capacity to raise their own revenue. They are
constitutionally barred from imposing excises,45 they were effectively deprived of their
income taxes in 1942,46 and their tax-base was further narrowed in 1999 by
Commonwealth requirements imposed as part of the implementation of the
Commonwealth's goods and services tax ('GST').47 In contrast, the Commonwealth
receives revenue far in excess of what it needs to fulfil its constitutional
responsibilities. At the same time, net Commonwealth funding to the States as a
percentage of gross domestic product ('GDP') is at a thirty year low.48
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40
Thomas Hueglin and Alan Fenna, Comparative Federalism — A Systematic Inquiry (2006) 319.
41
OECD, above n 11, 161.
42
Ibid 161–2. See also Pincus, above n 9, 44-5.
43
OECD, above n 10, 77. Contrast Canada, where the federal government raises only 47% of
tax nationwide: Hueglin and Fenna, above n 40, 325.
44
Warren, above n 13, 51.
45
Commonwealth Constitution s 90.
46
South Australia v Commonwealth (1942) 65 CLR 373. See also Victoria and New South Wales v
Commonwealth (1957) 99 CLR 575.
47
A New Tax System (Commonwealth –State Financial Arrangements) Act 1999 (Cth) sch 2:
Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations.
48
Commonwealth funding to the States in 2005–6 was effectively 5.1% of GDP (6.5% of GDP
less compensation for abolition of State taxes of 1.4%), which is less than the pre-GST
position, and a three-decade low: Rory Robertson, 'Budget/Federalism Watch', Macquarie
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How can this problem be fixed? Restoring the original intent of the Constitution and
requiring surplus Commonwealth revenue to be distributed to the States49 is unlikely
to be effective. It would simply lead to arguments as to what funds the
Commonwealth could legitimately earmark and retain for future expenditure and
could potentially give rise to massive Commonwealth spending sprees to ensure that
money is not sent to the States.
An alternative is the restructure of the tax system in a manner compatible with the
reallocation of responsibilities discussed above. However, this would also raise
problems concerning the efficiency of the distribution and administration of taxes.50
No one would wish to be subject to different income and sales taxes, each with their
own exemptions, deductions, rebates and rates. The OECD has noted that while there
has been a trend towards conferring more responsibilities on sub-national
governments resulting in increased sub-national spending, the sub-national share of
government revenues has not increased commensurately. It has observed that this
'may reflect an unavoidable tension between proliferating local spending demands and
a scarcity of tax instruments with the correct characteristics for being levied locally.'51
In other federations a common way of addressing this problem is tax-sharing. The
OECD has noted three different means by which this may occur.52 First, there are
'piggyback' taxes, where a State may impose a percentage of tax on top of a national
tax. This assumes that the national government will reduce the level of its tax to make
room for the sub-national governments, so the overall tax burden is not increased.53
Piggyback taxes are used in the United States and most Nordic countries. Secondly,
tax-sharing may involve sub-national governments being entitled to a percentage of
national tax revenue that is collected in their jurisdictions. This gives sub-national
governments the incentive to promote economic activity in their jurisdictions in order
to increase their tax revenue. Thirdly, sub-national governments may be given a share
of national tax revenue, regardless of the jurisdiction from which it was collected. In
this way tax revenue is shared, including the benefits of increasing revenue as well as
the burden of decreasing revenue. Sub-national governments would remain
responsible for making up the rest of their expenditure needs from their own tax bases.
In Germany, for example, income and corporation tax revenues are shared between
the Federation and the Länder equally.54 Value added tax ('VAT') revenue is allocated
by a formula, set by a federal law, in accordance with a list of principles. The first
principle is that the Federation and the Länder shall have an equal claim against current
_____________________________________________________________________________________
Bank Research Note, 15 May 2007; Rory Robertson, 'Why Canberra's Rolling in Cash' The
Australian (Sydney) 6 July 2006, 25.
49
Commonwealth Constitution s 94. See also John Quick and Robert Garran, The Annotated
Constitution of the Australian Commonwealth (1901) 865; Sir William Harrison Moore, The
Constitution of the Commonwealth of Australia (2nd ed, 1910) 533. Section 94 was rendered
largely ineffective by the High Court in New South Wales v Commonwealth (1908) 7 CLR 179.
50
OECD, above n 11, 161–2 and 182; Arachi and Zanardi, above n 27, 336.
51
OECD, above n 11, 167.
52
Ibid 184.
53
OECD, above n 10, 86. The Fraser Government's proposal for State piggy-back income
taxes failed because the national rate of income tax was not reduced to make room for the
States: Ross Garnaut and Vince Fitzgerald, Review of Commonwealth-State Funding — Final
Report (2002) 30.
54
Basic Law (Germany) art 106.
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revenues to cover their necessary expenditures.55 The enactment or amendment of
such a federal law also requires the consent of the Bundesrat (the upper House of the
federal legislature). Each of the Länder has a block of votes over which it exercises
control in the Bundesrat, so the Länder have a greater say in matters affecting their
shared tax revenue.
One peculiar aspect of federalism in Australia has been that there is such a high
level of sharing of responsibilities but little tax-sharing.56 This has been partially
remedied by the allocation of the proceeds of the Commonwealth's GST to the States.
However, two problems arise. First, as noted above, the GST Intergovernmental
Agreement narrows the tax-base of the States by requiring them not to impose certain
types of taxes. This makes the States even more reliant on Commonwealth funding and
less accountable, exacerbating the problem of blame-shifting. More importantly,
however, the revenue from the GST only replaces a proportion of former
Commonwealth grants to the States. The Commonwealth retains its financial and
policy control over the States through special purpose payments, which make up more
than 42% of total Commonwealth transfers to the States. These are 'tied grants' made
under s 96 of the Constitution which are subject to policy and administrative
conditions. Specific purpose payments are the primary cause of duplication, excessive
administrative burdens, blame-shifting and waste in our federal system.
One way of addressing our federal problems would be to give the States a share of
income tax revenue,57 as well as the GST revenue, so that the States received from both
sources sufficient funds to support their expenditure responsibilities, when combined
with State tax revenue. However, a difficulty with this approach is that if the States
have no control of the rate and base of the Commonwealth's tax, it is easily
manipulated to deprive them of funds. This was one of the problems with the Fraser
Government's 'new federalism' in which the States received a fixed share of income-tax
from 1976. The Commonwealth's continuing power to increase surcharges and levies
(which fell outside the shared income tax pool), such as the Medibank levy, and its
power to increase excises, permitting major tax cuts and the adjustment of tax rates,
left the States completely vulnerable.58 On the other hand, if change to the rate and
base of major national taxes requires unanimous Commonwealth and State approval,59
then this would affect the ability of the Commonwealth Government to manage the
national economy and respond to changing economic circumstances.
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55
Basic Law (Germany) art 106. See also Federal-State Relations Committee, Parliament of
Victoria, Federalism and the Role of the States: Comparisons and Recommendations (May 1999)
226; Hrbek, above n 30, 229. The tax-sharing arrangement is currently under review in
Germany.
56
OECD, above n 10, 75.
57
Such a proposal was canvassed in 1991 but was dropped when Paul Keating became Prime
Minister: Federal-State Relations Committee, above n 23, 230.
58
Peter Groenewegen, 'The Fiscal Crisis of Australian Federalism' in Allan Patience and
Jeffrey Scott (eds), Australian Federalism: Future Tense (1983) 123, 138–40, 153–4; FederalState Relations Committee, above n 23, 50–2.
59
Note that the Commonwealth Parliament cannot abdicate its legislative power, so
provisions such as s 11 of A New Tax System (Commonwealth-State Financial Arrangements)
Act 1999 (Cth), which require the agreement of all States to a change in the GST base and
rate, are not legally effective, although they might be politically effective.
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An alternative would be to tie State funding to a percentage of all Commonwealth
tax revenue or gross domestic product, so that the Commonwealth would maintain
control of the tax base and rates of national taxes, but any manipulation of those taxes
would affect the Commonwealth as much as the States. Further, the benefits and
burdens of changes in Australia's economy would be shared by all levels of
government.
Such a proposal would entail the end of Commonwealth tied grants, with the result
that large swathes of duplication and waste would also be terminated. Such changes
have taken place in other federations. The OECD has noted that because of the
problems involved with what it describes as 'earmarked grants', including poor cost
effectiveness and high administrative costs, 'there has been a move towards general
purpose (block) grants, which allow greater local autonomy and should, in principle,
generate greater cost-efficiency'.60 For example, in the 1990s a number of countries
including Canada, Finland, Iceland, Norway and Sweden 'drastically reformed their
grant system, replacing most earmarked grants by general-purpose grants'.61 In
Canada by the end of the 1990s as much as 94% of grants to the Provinces were block
payments.62 In Italy tied grants to the regions were eliminated in 2000 and replaced
with unconditional grants and a share of national VAT.63 Spain has also reduced the
use of 'earmarked transfers' and replaced them with unconditional grants 'in order to
increase the discretionary power of local governments to organise local provision in
the most effective way.'64
Where national standards are still needed in State areas of jurisdiction, they could
be achieved through intergovernmental agreement or other mechanisms described
above. For example, there is no need for the Commonwealth to impose a national
curriculum upon State education systems. The States have previously agreed to
national standards and testing regimes65 and have also agreed to work towards a
national curriculum, setting core content and achievement standards, but providing
flexibility to jurisdictions, school systems and individual schools on the
implementation of that curriculum.66
If the elimination of tied grants is not achievable, and it may not be,67 there are still
many changes that could be made to the specific purpose payment system that would
improve its operation and reduce duplication, excessive administrative burdens and
waste. Such proposals have been outlined by numerous different reports and studies.68
_____________________________________________________________________________________
60
OECD, above n 11, 162, 194.
61
Ibid 195.
62
Hueglin and Fenna, above n 40, 335.
63
Arachi and Zanardi, above n 27, 329.
64
Ibid 337.
65
This was achieved through the Hobart Declaration of 1989 and the Adelaide Declaration of
1999: The Future of Schooling in Australia, (Federalist Paper No 2, Council for the Australian
Federation, April 2007)
66
Ibid 2, 31. The Commonwealth and States have since agreed to the establishment of a
National Curriculum Board as a co-operative measure to develop a national curriculum
across key subjects by 2010: COAG, Communiqué, 20 December 2007.
67
'A Framework to Guide the Future Development of Specific Purpose Payments'
(Discussion Paper, ALP Advisory Group on Federal-State Reform, 2007).
68
Garnaut and Fitzgerald, above n 53, 70–5; Warren, above n 13; Productivity Commission,
above n 13; Business Council of Australia, above n 2; Allen Consulting Group, Governments
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The general consensus is that specific purpose grants should focus upon outcomes or
objects and not dictate the means by which they are achieved.69 Conditions placed on
specific purpose payments should relate to the purpose of the program, rather than be
directed at unrelated ideological issues. Micromanagement and the imposition of
costly reporting and administrative requirements should be reduced. Data should only
be collected with good justification and in the national interest. Incentives should be
included to find more efficient ways of achieving the desired outcomes. Policy
objectives should complement and be co-ordinated with existing State policies and
programs, in order to avoid overlap and confusion amongst those who use
government services. Funding should be pooled across broader areas, rather than
channelled into narrow subjects, so that services can be provided more efficiently and
equitably rather than over-provided and under-provided as is sometimes the case.
Again, most of this change could be achieved without formal constitutional
amendment. However, as discussed above there are also good democratic and
practical reasons to formalise change in the Constitution.
OPTIONS FOR CONSTITUTIONAL REFORM
A number of proposals for constitutional reform are also likely to be raised at any
constitutional convention on federalism. They include the following matters.
Clarification of the operation of s 51(xxxvii)
One of the reasons why there has been reluctance amongst the States to refer matters
under s 51(xxxvii) is that there is continuing uncertainty about its operation. The first
point of uncertainty is whether a State can revoke its reference and what effect this has
on a Commonwealth law enacted under s 51(xxxvii). The High Court has accepted that
a reference may be given for a limited period only and that it may also be made
conditional upon an event occurring.70 However, uncertainty remains as to whether a
State Parliament could revoke its reference by repealing the law that made the
reference. Would such a State law be ineffective because it was inconsistent with the
Commonwealth law enacted pursuant to that reference?
As a consequence of this uncertainty, States include in their references a limitation
on the term of the reference, with the capacity to extend the term by executive act.71
This ensures that if revocation is ineffective, the reference may still be terminated in the
future if it is operating in a manner inimical to State interests. In addition, State
reference laws may also contain a procedure for terminating the reference by the use of
executive, rather than legislative, power. For example, some references provide that
the Governor may, by proclamation, fix a day upon which the reference shall
terminate.72
_____________________________________________________________________________________
Working Together? Assessing Specific Purpose Payment Arrangements, Report to the
Government of Victoria (2006); OECD, above n 10, 84–6; Twomey and Withers, above n 9;
ALP Advisory Group on Federal-State Reform, above n 67; Wanna, above n 26.
69
COAG has now agreed to this reform: COAG, Communiqué, 20 December 2007.
70
R v Public Vehicles Licensing Appeal Tribunal (Tas); Ex parte Australian National Airways Pty
Ltd (1964) 113 CLR 207, 226.
71
See, eg, Corporations (Commonwealth Powers) Act 2001 (NSW) ss 5–6.
72
See, eg, Commonwealth Powers (Family Law — Children) Act 1986 (NSW) s 4.
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Another area of uncertainty that would benefit from clarification in the Constitution
concerns the repeal or amendment of a Commonwealth law enacted pursuant to
s 51(xxxvii) (the 'referred law'). Can such a law be repealed by the Commonwealth
Parliament in whole or in part regardless of the terms of the reference or whether the
Commonwealth has another appropriate head of power?73 Can a Commonwealth
referred law be amended by a Commonwealth law enacted under a different head of
power, or can it be amended only by a law enacted in the same manner, or a law
within the scope of the original reference? Can the power to amend the
Commonwealth's referred law be granted by referring States, but be made subject to
the prior agreement by State Governments to the form of the amendment? In Thomas,
Justice Kirby criticised the role of the executive in relation to the extension of
references by the approval of amendments. He considered that only State Parliaments
could fulfil this role.74 If this were the case, then the role of the executive in terminating
references must also be doubted.
If all these matters were clarified in s 51(xxxvii), then the States would have more
confidence in using the provision. In other federal countries, where a similar
mechanism is used, some efforts have been made to make clear the effects of such
provisions. For example, in India, an equivalent federal law enacted after a referral by
Indian States can only be amended or repealed by a federal law enacted pursuant to
the same procedure.75 In Malaysia, when a federal law is enacted at the request of the
States, it is then separately adopted by the State legislature, and becomes a law of the
State that may be amended or repealed by the State legislature, if it so chooses.76
A further useful amendment would be to extend the operation of s 51(xxxvii) so
that the Commonwealth could refer matters to the States. It is not uncommon in those
federations which confer exclusive legislative powers on the federal legislature to
include a provision that allows it to delegate those powers to a sub-national
legislature.77 Although the Commonwealth has few exclusive powers, it may still be
useful for it to permit States to legislate on particular subjects, such as the power to
make laws with respect to coastal waters.
As noted above, in 1984 a referendum was held on matters including whether the
Commonwealth and the States should be able to exchange powers. It was defeated
nationally and in all States. In 1988 the Constitutional Commission also recommended
such a constitutional change, as well as the clarification of s 51(xxxvii). It sought to
make clear that a reference could be made subject to conditions, limited in duration
_____________________________________________________________________________________
73
In Kartinyeri v Commonwealth (1998) 195 CLR 337, it was held by Brennan CJ and McHugh J
at 355 and by Gaudron J at 368–9 that the power to enact a law includes the power to repeal
it, but this was subject to 'manner and form restrictions', and it is unclear whether s
51(xxxvii) would be regarded as such. See also South Australia v Commonwealth (1942) 65
CLR 373 where Latham CJ noted at 416 that the Commonwealth Parliament 'cannot repeal
an Act which it has no power to enact'.
74
(2007) 237 ALR 194, 251 (Kirby J). See also Callinan J at 358–9 regarding the further concern
that agreement to the amendment of references should not be delegated by a State to a
majority of States.
75
Constitution of India art 252(2).
76
Constitution of Malaysia art 76(3).
77
See, eg, Constitution of South Africa s 44(1)(a)(iii); Constitution of Spain art 150(1).
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and modified or revoked by the Parliament that made it.78 However, the proposed
amendment was not pursued in light of the previous referendum failure.
Cross-vesting
The Commonwealth Constitution provides for the vesting of federal jurisdiction in State
courts,79 but says nothing about whether State jurisdiction can be vested in federal
courts. In order to avoid litigation on jurisdictional matters and to ensure that the
federal courts could exercise full power in relation to conflicts that involved both
federal and State jurisdiction, the Commonwealth and the States established the crossvesting scheme which came into effect on 1 July 1988. Each State enacted legislation
providing that the Federal Court could exercise jurisdiction with respect to State
matters80 and the Commonwealth Parliament enacted the Jurisdiction of Courts (Crossvesting) Act 1987 (Cth), s 9 of which permitted the Federal Court to exercise jurisdiction
conferred upon it by a State law relating to the cross-vesting of jurisdiction. Legislation
was also enacted specifically to deal with cross-vesting concerning corporations
matters.81
The High Court held that such laws were invalid to the extent that they purported
to confer power on the Federal Court to exercise State jurisdiction.82 This caused a
serious upheaval in the Australian court system83 and eventually resulted in the
s 51(xxxvii) reference by the States to the Commonwealth of the corporations matter,
primarily to ensure that the Federal Court could again hear all matters concerning
corporations. The more general scheme of cross-vesting cannot be reinstated without a
constitutional amendment. In 1988, before the cross-vesting scheme was struck down,
the Constitutional Commission recommended the insertion of a provision in the
Constitution to put it on a firm constitutional footing.84 This should be revisited.
Sharing and delegating executive power
Where uniform legislative schemes are established, it is often desirable that they be
administered by one body, be it a joint body representing the federal and State
governments, or a government body of one jurisdiction in which is vested the power of
the other(s). In the past, the High Court has accepted that a joint body, such as the Coal
Industry Tribunal, could have conferred upon it the powers of the Commonwealth and
_____________________________________________________________________________________
78
Constitutional Commission, above n 20, Vol 2, 753–7.
79
Commonwealth Constitution s 77(iii).
80
See, eg, Jurisdiction of Courts (Cross-Vesting) Act 1987 (WA).
81
See, eg, Corporations Act 1989 (Cth) and Corporations (New South Wales) Act 1990 (NSW).
82
Re Wakim; Ex parte McNally (1999) 198 CLR 511 ('Re Wakim').
83
For a criticism of the Re Wakim judgments and the consequences of the case, see Dennis
Rose, 'The Bizarre Destruction of Cross-Vesting' in Adrienne Stone and George Williams
(eds), The High Court at the Crossroads (2000) 186; Jenny Lovric, 'Re Wakim: An Overview of
the Fallout' (2000) 19 Australian Bar Review 237; George Williams, 'Cooperative Federalism
and the Revival of the Corporations Law: Wakim and Beyond' (2002) 20 Company and
Securities Law Journal 160; Graeme Hill, 'Revisiting Wakim and Hughes: The Distinct
Demands of Federalism' (2002) 13 Public Law Review 205.
84
Constitutional Commission, above n 20, Vol 1, 373.
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the States and therefore exercise powers which neither jurisdiction alone could
exercise.85
Matters become more complicated, however, if the States wish to confer functions
on Commonwealth officers, so they can administer co-operative schemes. The High
Court has held that the States do not have the power to vest executive functions
unilaterally in Commonwealth officers. However, if a State enacts a law which confers
some of its executive powers on Commonwealth officers and the Commonwealth
Parliament legislates to permit its officers to fulfil such functions, then this will be
effective.86 Problems may arise if the Commonwealth law imposes on Commonwealth
officers a duty to perform State functions or exercise powers conferred by a State law,
rather than simply permitting such actions. The High Court has raised doubts as to
whether the Commonwealth Parliament can impose such duties unless the subject
matter of the law falls under a head of Commonwealth legislative power.87 This has
led to concern as to the validity of many co-operative Commonwealth-State schemes
where enforcement or administration is vested in Commonwealth officers.88 It would
therefore be preferable to include in the Constitution a provision that permits the State
and the Commonwealth Parliaments to confer or even impose functions on each
other's officers, where both the conferring and receiving jurisdiction consent.89
Such arrangements are, again, not unusual in other federations. In some
federations, the federal government exercises limited executive power with most of the
administration and implementation of federal laws resting with sub-national units.90
This is because they already have the infrastructure to implement the laws and it is
therefore more efficient for them to do so. It is also consistent with the principle of
subsidiarity to leave the implementation of laws to sub-national governments as much
as possible.91 In practice, this gives sub-national governments significant power,
because the manner in which a law is implemented is often as important as the law
itself.
In other federations, there is often a capacity for the executive government of one
jurisdiction to delegate its executive power to another. In Russia, for example, this is
done by agreements or 'treaties' between the federation and sub-national
_____________________________________________________________________________________
85
R v Duncan; Ex parte Australian Iron and Steel Pty Ltd (1983) 158 CLR 535. See also Deputy
Federal Commissioner of Taxation (NSW) v W R Moran Pty Ltd (1939) 61 CLR 735, 774 (Starke
J).
86
R v Hughes (2000) 202 CLR 535, 553 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and
Callinan JJ).
87
R v Hughes (2000) 202 CLR 535, 553–4 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne
and Callinan JJ).
88
Graeme Hill, 'R v Hughes and the Future of Co-operative Legislative Schemes' (2000) 24
Melbourne University Law Review 478; Alex de Costa, 'The Corporations Law and
Cooperative Federalism after The Queen v Hughes' (2000) 22 Sydney Law Review 451; Dennis
Rose, 'Commonwealth-State Co-operative Schemes after Hughes: What Should be Done
Now?' (2002) 76 Australian Law Journal 631.
89
Williams, above n 83, 170.
90
See, eg, Constitution of Austria art 11, 102; Basic Law (Germany) arts 83–5; Constitution of
Switzerland art 46.
91
Stauffer, above n 16, 346.
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governments.92 The two main issues that arise are whether functions can be imposed
and whether financial compensation is required. The Indian Constitution expressly
allows the executive powers of the Indian Government to be conferred on the States
and vice versa.93 The President of India, with the consent of a State Government, may
entrust functions within the Indian Government's executive power to a State
Government or its officers. Federal laws applying in a State may also confer powers
and impose duties upon the State or its officers or authorities, or authorise such a
conferral or imposition. Where this is done, the Indian Government must pay to the
States an amount in respect of any extra costs of administration incurred by the State in
connection with the exercise of those powers and duties. On the other hand, while a
State Governor, with the consent of the Indian Government, may entrust the Indian
Government, or its officers, with State executive functions, it cannot impose duties and
there is no liability to pay compensation.
The Spanish Constitution provides that the Spanish Government may transfer or
delegate to the Autonomous Communities some of its powers which by their very
nature can be transferred or delegated. In each case, the law must provide for the
appropriate transfer of financial means, as well as specify the forms of control to be
retained by the Spanish Government.94 Through this means several Autonomous
Communities have significantly increased their powers over matters normally within
the exclusive control of a national government such as fiscal affairs, public security and
international affairs.95
Another country where compensation is an issue is Malaysia. The Malaysian
Constitution expressly permits the redistribution of executive powers between the
States and the Federation. Federal laws may confer executive authority on a State to
administer specified provisions of federal law, and in doing so may confer powers and
impose duties on any authority of the State.96 The Federation is required to reach an
agreement with the State on payment for fulfilling these functions. Arrangements may
also be made between the Federation and a State for the performance of functions of
one by the authorities of the other, which may include the making of payments with
respect to the costs incurred under the arrangement.97
Constitutional interpretation and principles for intergovernmental co-operation
The operation of the federal system is affected not only by constitutional provisions
themselves, but how they are interpreted by the courts. The High Court initially
interpreted the Constitution in a manner that recognised that residual powers were
'reserved' to the States98 and which made each level of government independent and
immune from the actions of the other.99 These doctrines of reserved State powers and
_____________________________________________________________________________________
92
Constitution of the Russian Federation art 78, 11(3). See also G Alan Tarr, 'Creating Federalism
in Russia' (1999) 40 South Texas Law Review 689, 704–5.
93
Constitution of India art 258, 258A.
94
Constitution of Spain art 150(2).
95
Siobhan Harty, 'Spain', in Ann Griffiths (ed), Handbook of Federal Countries 2005 (2005) 329.
96
Constitution of Malaysia art 80(4).
97
Constitution of Malaysia art 80(5).
98
R v Barger (1908) 6 CLR 41.
99
D'Emden v Pedder (1904) 1 CLR 91.
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implied immunities were overturned in the Engineers' Case.100 While some have
argued that the Engineers' Case should be overturned,101 this is not a satisfactory
answer in itself, because the pre-Engineers position was also dogged with
inconsistencies and unsatisfactory reasoning.
What might be of more assistance is the constitutional clarification of a number of
federal issues that have vexed the courts. For example, the Melbourne Corporation
principle102 and the Cigamatic doctrine103 concerning the extent to which the
Commonwealth can interfere in the functioning of the States and vice versa, have
never been satisfactorily articulated by the High Court, leaving considerable
uncertainty as to how each doctrine applies.104 A constitutional convention might
consider the insertion of a constitutional provision that sets a consistent and clear rule
on this subject.
Further, in reconsidering the allocation of legislative power, consideration might be
given to clarifying how the different heads of Commonwealth legislative power relate
to one another.105 For example, to what extent does a specific and limited head of
power, such as the industrial relations power in s 51(xxxv), affect the interpretation of
a more general head of power, such as the corporations power in s 51(xx)? To what
extent should a court, in interpreting the scope of a head of power, take into account
matters such as 'federal balance'?106 To what extent, if any, should any matters be
reserved exclusively to the Commonwealth or the States?
Finally, a question arises as to whether there should be inserted in the Constitution
some recognition of the importance of co-operative federalism in addition to practical
measures to facilitate that co-operation. In R v Duncan; Ex parte Australian Iron and Steel
Pty Ltd, Deane J described Commonwealth-State co-operation as 'a positive objective of
_____________________________________________________________________________________
100 Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 ('Engineers'
Case').
101 Geoffrey de Q Walker, 'The Seven Pillars of Centralism: Engineers' Case and Federalism'
(2002) 76 Australian Law Journal 678; Julian Leeser, 'Work Choices: Did the States Run
Dead?', in Upholding the Australian Constitution, Proceedings of the Samuel Griffith Society,
(Vol 19, 2007) 1. See also criticism of the reasoning in Engineers in Geoffrey Sawer,
Australian Federalism in the Courts (1967) 130; New South Wales v Commonwealth (2006) 229
CLR 1, 305, 308 (Callinan J).
102 Melbourne Corporation v Commonwealth (1947) 74 CLR 31, as reinterpreted in Austin v
Commonwealth (2003) 215 CLR 185.
103 Commonwealth v Cigamatic Pty Ltd (1962) 108 CLR 372, as reinterpreted in Re Residential
Tenancies Tribunal (NSW); Ex parte Defence Housing Authority (1997) 190 CLR 410.
104 For criticisms, see Roderick P Meagher and William Gummow, 'Sir Owen Dixon's Heresy'
(1980) 54 Australian Law Journal 25; John Doyle, '1947 Revisited: The Immunity of the
Commonwealth from State Law' in Geoffrey Lindell (ed), Future Directions in Australian
Constitutional Law (1994) 47; Anne Twomey, 'Federal Limitations on the Legislative Power
of the States and the Commonwealth to Bind One Another' (2003) 31 Federal Law Review
507; Amelia Simpson, 'State Immunity from Commonwealth Laws: Austin v Commonwealth
and Dilemmas of Doctrinal Design' (2004) 32 University of Western Australia Law Review 44.
105 See, eg, the interpretative provisions in the Scotland Act 1998 (UK) c 46, including sch 5, Pt
II(3), which provides that an exception or illustration with respect to one reserved matter
does not affect another reserved matter; s 126(3) which requires the courts to look to the
'purpose' of functions to see if they trespass on reserved matters; s 101(2) which requires
Scottish laws to be read narrowly if necessary for them to be held to be within power.
106 See the conflicting views on this issue in Workchoices Case (2006) 229 CLR 1.
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the Constitution'.107 However, in Re Wakim; Ex parte McNally, McHugh J noted that 'cooperative federalism is not a constitutional term. It is a political slogan, not a criterion
of constitutional validity or power.'108 Perhaps it is time that co-operative federalism
became more than a political slogan and was given some form of constitutional
recognition.109
Again, other federations provide some examples. The Swiss Constitution contains a
number of provisions concerning co-operation between the Confederation and the
Cantons. Article 44 requires the Confederation and the Cantons to collaborate and
support each other in the fulfilment of their tasks. It states that they owe each other
mutual consideration and support and shall grant each other administrative and
judicial assistance. It requires that intergovernmental disputes be resolved through
negotiation or mediation, to the extent that this is possible. Article 46 requires the
Confederation to leave the Cantons as large a space of action as possible and to take
into account their different circumstances. Article 47 imposes an obligation on the
Confederation to respect the autonomy of the Cantons and article 48 supports
intergovernmental co-operation amongst the Cantons. Section 41 of the South African
Constitution also sets out an extensive list of principles of intergovernmental
cooperation.
Reform of the Senate
One frequently mentioned proposal is the reform of the Senate to make it operate more
in the manner of a States' House. The former Queensland Premier, Peter Beattie, was
attracted to the German model,110 where the upper House of the national legislature,
the Bundesrat, is comprised of the Premiers and other governmental representatives of
the Länder111 who vote in blocs according to the instructions of the Länder. South Africa
has a variation on this system. Members of the national legislature's upper House, the
National Council of Provinces, are chosen by the provincial legislatures, but in a
manner than ensures minority representation.112 In matters concerning the Provinces
and their powers, each provincial delegation has one vote only, which is given as
instructed by the relevant provincial legislature.113 In other matters each individual
member has a separate vote which can be cast however he or she chooses.114
Realistically, no such change is ever likely to be made in Australia, because it would
involve the people giving up their right to vote directly for Senators. Beattie has
suggested that rather than taking away the directly elected representatives of the
people, one could add to the Senate some representatives chosen by the State
Parliaments. This mixed Senate of directly and indirectly chosen members would then
resemble more closely the Spanish Senate to which the people directly elect four
_____________________________________________________________________________________
107 (1983) 158 CLR 535, 589 (Deane J).
108 Re Wakim; Ex parte McNally (1999) 198 CLR 511, 556 (McHugh J).
109 Williams, above n 83, 160; and Robert French, 'Cooperative Federalism: a Constitutional
Reality or a Political Slogan?' (2005) 32(2) Brief 6.
110 Peter Beattie, 'Commonwealth Must Take a Fresh Look at Federalism', The Australian
(Sydney), 30 November 2006, 10.
111 Basic Law (Germany) art 51.
112 Constitution of South Africa ss 60–1.
113 Constitution of South Africa s 65.
114 Constitution of South Africa s 75.
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representatives from each province but the Autonomous Communities appoint one
representative, plus an additional representative for each million inhabitants.115
An important issue for Australia would be the proportion of directly to indirectly
chosen Senators and whether this would make the Senate unwieldy and ineffective.116
Questions would also arise as to the effect of such a change upon a joint sitting of the
two Houses and the influence of party politics on Senators chosen by State
Parliaments. Would the indirectly chosen representatives be confined to voting on
matters that affect the States, or could they vote on other matters? Would they vote in
blocs upon instructions from the State, or as individuals? How could a distinction be
drawn between matters affecting the States and other matters? Would this lead to the
type of gridlock which provoked recent reforms to the German Basic Law, reducing
the Bundesrat's veto power?
Other reforms might be made to the role of the Senate and Senators which support
its federal status. For example, the Victorian Federal-State Relations Committee
recommended that the Senate establish a standing Intergovernmental Affairs
Committee.117 The Committee also recommended that Senators be given the right to
appear before the Parliament of the State from which they are elected, to report on a
regular basis and answer questions on matters of concern to the State.118 The intention
was to make Senators focus more on their role as representatives of the State as well as
to increase their understanding of matters of importance to the States.
Revival of the Inter-State Commission
Section 101 of the Commonwealth Constitution provides that there shall be an Inter-State
Commission and permits Parliament to confer on it powers of adjudication and
administration in relation to trade and commerce. The Commission has existed for
short periods,119 but has failed to be an effective body because of inadequate powers120
and because it is a creature of the Commonwealth, rather than the federation. If the
Constitution were to be amended to give the Commission greater independence,
provide for State involvement in the appointment of its members, and give it explicit
powers and functions to deal with inter-governmental disputes and oversee intergovernmental co-operation beyond the confines of trade and commerce, it could
become an effective and valuable body.
_____________________________________________________________________________________
115 Constitution of Spain s 69
116 Note that the nexus between the size of the Senate and the House of Representatives,
imposed by s 24 of the Constitution, would probably have to be broken.
117 Federal-State Relations Committee, above n 55, 220.
118 Ibid 221.
119 The Inter-State Commission first operated from 1913 to 1920. It was revived in 1983 but
became defunct again in 1989. Michael Coper has suggested that its existence is related to
the appearance of Halley's comet. See generally Michael Coper, 'The Second Coming of the
Fourth Arm: The Role and Functions of the Inter-State Commission' (1989) 63 Australian
Law Journal 731.
120 The High Court neutered its adjudicative power in New South Wales v Commonwealth (1915)
20 CLR 54.
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Initiative of constitutional reform
One of the flaws in the Constitution is that the initiation of constitutional amendments
is confined to the Commonwealth Parliament.121 This means that constitutional
amendments tend to favour increases in Commonwealth power and that it is
extremely unlikely that constitutional reforms that reverse the flow of power to the
Commonwealth would ever be put to a referendum for the people to decide. There are,
of course, other options.
In some federations, such as Brazil,122 Spain123 and Russia,124 sub-national
governments may initiate amendments to the national Constitution. In the United
States two-thirds of State legislatures may petition the Congress to convene a
constitutional convention.125 When the Australian Constitutional Commission
considered this matter in 1988, it concluded that the Constitution should be amended to
provide that if at least half the State Parliaments, representing a majority of Australians
overall, proposed a constitutional amendment, it be put directly to the people for
approval by way of a referendum.126 However, given the significant cost of holding a
referendum, some mechanism would need to be developed so that States did not
propose frequent referenda and expect the Commonwealth to pay. A more measured
approach might be to require the support of all States and a commitment from the
States to foot half the cost of holding the referendum.
Another alternative is the use of elected constitutional conventions to develop
referenda proposals which would be put to the people directly. In the United States at
the State level, forty-one States use elected constitutional conventions, rather than State
legislatures, to decide on what constitutional amendments should be put to the people
in a referendum. Fourteen States require that the legislature periodically poll the
electorate to determine whether a constitutional convention ought to be called.127 The
constitutional philosophy behind this is that every generation should have the right to
shape the constitution in its own fashion. A mandatory requirement to consult the
people on whether they want to consider constitutional reform ensures that the issue
of updating the constitution is regularly faced. Expert constitutional commissions are
also used, sometimes to prepare the ground for elected constitutional conventions,128
or in the case of Florida, to assess every 20 years all constitutional reform proposals
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121 Commonwealth Constitution s 128.
122 Constitution of Brazil art 60.
123 Constitution of Spain art 166, 87.
124 Constitution of Russia art 134.
125 Constitution of the United States art V.
126 Constitutional Commission, above n 20, Vol 2, 856–872.
127 Alaska (every 10 years), Connecticut (20 years), Hawaii (9 years), Illinois (20 years), Iowa
(10 years), Maryland (20 years), Michigan (16 years), Missouri (20 years), Montana (20
years), New Hampshire (10 years), New York (20 years), Ohio (20 years), Oklahoma (20
years), and Rhode Island (10 years): The Book of the States (2005 ed, Vol 37) 15.
128 Robert Williams, 'Are State Constitutional Conventions Things of the Past? The Increasing
Role of the Constitutional Commission in State Constitutional Change' (1996) 1 Hofstra Law
and Policy Symposium 1. Commissions are also used in Switzerland: Hanspeter Tschaeni,
'Constitutional Change in Swiss Cantons: An Assessment of a Recent Phenomenon' (1982)
12 Publius 113.
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and put directly to the people those they consider most worthy.129 One of the benefits
of constitutional conventions and commissions is that they open up the range of
potential constitutional reforms beyond those in the vested interests of the legislature.
The sticking point, however, is that the Commonwealth Parliament would have to
be persuaded to put to a referendum a proposal that could result in it losing exclusive
control over the submission of constitutional amendments to the people. Such an
outcome is unlikely,130 unless it were a condition of a more substantial agreement that
benefited the Commonwealth overall.
Appointment of Justices of the High Court of Australia
Most studies of federalism note the significant role the High Court has played in the
centralisation of power. Arguments have sometimes been made for State involvement
in the appointment of Justices of the High Court.131 In 1988 the Constitutional
Commission noted:
Various suggestions have been made from time to time for giving the States a shared role
in High Court appointments, such as requiring the agreement of all of the States or in
allowing three or more States to veto any proposed appointments. Other suggestions are
that the States in turn would nominate each alternate appointee or that appointments
should be made on the recommendation of a committee consisting of the Federal and
State Attorneys-General.132
As the Constitutional Commission pointed out, the problem with these suggestions
is that the requirement of unanimous approval is likely to result in compromise
candidates that no government would regard as the best candidates available for
appointment. The appointment of Justices based upon their State of origin might also
undermine the quality of the Court.
The concern of the States is that the Commonwealth tends to appoint judges who
are philosophically inclined towards centralism and the expansion of Commonwealth
powers. In recognition of this concern, s 6 of the High Court of Australia Act 1979 (Cth)
requires the Commonwealth Attorney-General to consult with the Attorneys-General
of the States in relation to appointments to the High Court. However, consultation may
be merely cursory and may not have any effect upon the ultimate appointment.133
Accordingly, the States retain an interest in the establishment of a system that
ensures the Justices of the High Court are appointed solely on merit and without
regard to their views on federalism. One such proposal is the establishment of a
Judicial Commission to recommend appointments to the High Court.134 Such a
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129 Robert Williams, 'The Florida Constitution Revision Commission in Historic and National
Context' (1998) 50 Florida Law Review 215; and Steven Uhlfelder, 'The Machinery of
Revision' (1978) 6 Florida State University Law Review 575.
130 McMillan, Evans and Storey, above n 38, 350.
131 See, eg, Select Committee, Parliament of New South Wales, Appointment of Judges to the High
Court of Australia (1975).
132 Constitutional Commission, above n 20, Vol 1, 401.
133 Max Spry, 'Executive and High Court Appointments', in Geoffrey Lindell and Robert
Bennett (eds), Parliament: the Vision in Hindsight (2001) 439.
134 See Sir Garfield Barwick, 'The State of the Australian Judicature' (1977) 51 Australian Law
Journal 480; George Winterton, 'Appointment of Federal Judges in Australia' (1987) 16
Melbourne University Law Review 185; Michael Lavarch, Judicial Appointments — Procedure
and Criteria (Discussion Paper, 1993); Sir Anthony Mason, 'The Appointment and Removal
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proposal has been supported by the Australian Law Reform Commission as a means of
enhancing the independence and impartiality of the judiciary.135 The establishment of
a Judicial Appointments Commission for England and Wales136 has also led to further
calls for such a body to be established in Australia.137 Others have criticised such a
proposal on the ground that 'domination of such a commission by judges and senior
professionals would tend to self-perpetuation'138 and might undermine the element of
democratic accountability in the appointment of judges.139
The concern about self-perpetuation can be addressed by the composition of the
Judicial Appointments Commission.140 Democratic accountability is more difficult.
The ultimate appointment could be left to the Governor-General acting on the advice
of the Commonwealth Attorney-General (through the Executive Council), who would
remain politically responsible for it, even if the Attorney's discretion were constrained
by the Judicial Appointments Commission, as in England and Wales.
In England and Wales, the Judicial Appointments Commission selects one person
for each vacancy. The Lord Chancellor may accept, reject or ask for the reconsideration
of that selection. The Lord Chancellor must give written reasons for rejecting or
seeking the reconsideration of the selection, and this may only be done on the ground
that the person is not suitable for the office or is not the best candidate on merit. If the
Lord Chancellor rejects the first selection, he or she cannot reject the second selection,
but may ask for its reconsideration. If the Lord Chancellor asks for the reconsideration
of the first selection, he or she can reject the reconsidered choice at the second stage.
However, at the third stage, the Lord Chancellor must accept the candidate selected by
the Commission.141
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of Judges' in Helen Cunningham (ed), Fragile Bastion — Judicial Independence in the Nineties
and Beyond (1997); Anthony Blackshield, 'The Appointment and Removal of Federal Judges'
in Brian Opeskin and Fiona Wheeler (eds), The Australian Federal Judicial System (2000) 437–
41; Enid Campbell and HP Lee, The Australian Judiciary (2001) 83–6.
135 Australian Law Reform Commission, Equality Before Law: Women's Equality, Report No 69,
Part II, (1994) [9.41].
136 Constitutional Reform Act 2005 (UK) c 4. Note that this Commission does not deal with
appointments to appellate committee of the House of Lords, although the Lord Chancellor
has now voluntarily agreed to use the same system to appoint judges to the House of
Lords: United Kingdom, Parliamentary Debates, House of Commons, Vol 465, Col 11WS, 24
October 2007. Different systems also operate in Scotland and Northern Ireland.
137 Simon Evans and John Williams, 'Appointing Australian Judges: A New Model' (Paper
Presented at the JCA Colloquium, Canberra, 7–9 October 2006); Ronald Sackville, 'The
Judicial Appointments Process in Australia: Towards Independence and Accountability'
(2007) 16 Journal of Judicial Administration 125.
138 James Crawford, Australian Courts of Law (3rd ed, 1993) 62. See also Michael Kirby, The
Judges (1983) 22–3; Evans and Williams, above n 137, 32 regarding 'homosocial
reproduction'.
139 Mason, above n 134, 17; and Philip Ruddock, 'Selection and Appointment of Judges'
(Lecture presented at the University of Sydney, Sydney, 2 May 2005) [67–9]. See also
Campbell and Lee, above n 134, 84; Crawford, above n 138, 62.
140 George Williams and Rachel Davis, 'Reform of the Judicial Appointments Process: Gender
and the Bench of the High Court of Australia' (2003) 27 Melbourne University Law Review
819, 859–60; Sackville, above n 137, 137.
141 See the description of the process in UK Secretary of State for Justice and Lord Chancellor,
The Governance of Britain — Judicial Appointments, CM 7210, October 2007, 23–4.
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The United Kingdom Government is now considering 'going further than the
present arrangement' and possibly developing a role for Parliament in the process.142
In a discussion paper, it has considered granting a parliamentary committee a veto
over appointments, or pre-appointment or post-appointment scrutiny of
appointments. However, it has noted the disadvantages in such a process including the
politicisation of the judiciary, the possibility that suitable candidates would not accept
appointment if exposed to parliamentary scrutiny, the effect of such procedures on
limited parliamentary time and resources and the potential delay in the making of
appointments.143 Proposals for parliamentary confirmation hearings have been
roundly rejected in Australia.144
A number of academics and judges have recommended the establishment of an
independent Judicial Appointments Commission for Australia. Some consider that the
Commission should recommend to the Commonwealth Attorney-General a shortlist of
suitable candidates for appointment, leaving the Attorney to recommend the making
of an appointment from the list, seek a reconsideration of the list, or recommend to the
Governor-General the appointment of the Attorney's own nominee, giving reasons to
Parliament for departing from the Commission's list.145 Others have preferred a
system where the Attorney-General can seek a reconsideration of the Commission's
list, but must, in the end, recommend to the Governor-General the appointment of a
person on the list.146
Such a proposal is consistent with the existing requirement that Chapter III judges
be appointed by the Governor-General in Council, although there has been a debate
about the extent to which the Parliament can legislate to reduce or eliminate the
executive's discretion.147 If a Judicial Appointments Commission were itself to appoint
judges, or recommend that the Governor-General make the appointment (without the
involvement of the Executive Council in advising the Governor-General) then an
amendment to s 72 of the Commonwealth Constitution would be required.
Changes to the jurisdiction and operation of the High Court
Finally, changes could be made to the jurisdiction of the High Court so that it could
give advisory opinions on the validity of Bills or Acts that have not yet commenced.
Further, the High Court could be permitted to give judgments that have prospective
operation only or which are suspended in effect for a period so that otherwise
unconstitutional laws may be rectified. The Privy Council has recently acquired such
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142 UK Secretary of State for Justice and Lord Chancellor, The Governance of Britain, CM 7170,
July 2007, para 71.
143 UK Secretary of State for Justice and Lord Chancellor, above n 141, 37–40.
144 Winterton, above n 134, 193–8; Mason, above n 134, 8; Ruddock, above n 139, paras 46–52;
and Evans and Williams, above n 137.
145 Winterton, above n 134, 210; Mason, above n 134, 17; Williams and Davis, above n 140, 858–
9; Sackville, above n 137, 137; Sir Gerard Brennan, 'The Selection of Judges for
Commonwealth Courts' in Papers on Parliament: No 48 The Senate and Accountability (2008)
14–15.
146 Evans and Williams, above n 137, 29. This is based on the model adopted for England and
Wales. See also the South African model described in Spry, above n 133, 441–2. Note also
Sir Garfield Barwick's proposal that the Executive should suggest the list and leave it for
the Commission to decide on the appointment: Garfield Barwick, A Radical Tory (1995) 230.
147 Winterton, above n 134, 209; and Evans and Williams, above n 137, 29.
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powers with respect to Scotland. Section 33 of the Scotland Act 1998 (UK) c 46 ('Scotland
Act') permits Bills that have passed the Scottish Parliament to be referred to the Privy
Council for a decision on legislative competence before royal assent is given to them.
Section 102 of the Scotland Act provides that if a court later decides that any provision
of a Scottish Act is beyond the legislative competence of the Scottish Parliament, the
court may make an order removing or limiting any retrospective effect of the decision
or suspending its effect for any period and on any conditions to allow the defect to be
corrected.148 Equivalent changes may be seen as beneficial to the States and the
federation as a whole because they would reduce constitutional uncertainty and allow
constitutional breaches to be rectified for the future while avoiding the potentially
drastic consequences of laws being held to have been invalid for the past fifty years.149
CONCLUSION
The time is ripe for a review of our federal system. Apart from the constitutional
convention on the republic, there has not been a thorough consideration of
constitutional reform since the Constitutional Commission finished its work almost
twenty years ago. Moreover, from an economic point of view, if Australia is to
maintain its current prosperity in the face of an ageing population and the pressure of
competition from countries such as China and India, major reforms will be needed to
the areas of health and education, which are currently areas of Commonwealth and
State overlapping responsibility. This is why groups such as the Business Council of
Australia have been pressing for the reform of the federal system.150 It is no longer a
subject solely of interest to academics and bureaucrats. Nor is it any longer the subject
of entrenched views in the different political parties. The reform of federalism is an
issue that affects all Australians. It is time that serious consideration is given to the
means of making our federal system work better.
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148 Such powers have not yet been used: Robert Hazell, 'Out of Court: Why Have the Courts
Played No Role in Resolving Devolution Disputes in the United Kingdom? (2007) 37
Publius: The Journal of Federalism 578.
149 See, eg, the serious difficulties that arose in dealing with the consequences of Ha v New
South Wales (1997) 189 CLR 465, and the discussion in that case of prospective overruling.
150 Business Council of Australia, above n 2.