QUEENSLAND PARLIAMENTARY INTERNSHIP PROGRAMME
Aust'ralia,'s Federal
System
Is there a need for reform?
Maritsa Samios
Australia's Federal System
Is there a need for reform?
TABLE OF CONTENTS
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TABLE OFCONTENTS
FIGURES,
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EXECUTIVE SUMMARY ...•...:
GLOSSARy
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1.0
INTRODUCTION
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2.0
FEDERALISM AND THE AUSTRALIAN STATES
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iii ,.
iv
v
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1
2
2.1
What is Federalism?
,'
2
2.2
Whatare the advantages of Federalism?
2
2.3
Federalism and the Australian Constitution
3
2.3.1
Constitutional Provisions
2.3.2
Decisions of the High Court of Australia
2.3.3
Referrals of Power to the Commonwealth
6
2.3.4
Commonwealth Referenda
7
2.4
3
'
Federal Financial Relations
4
7
2.4.1
Vertical Fiscal Imbalance
2.4.2
Taxation and the States
2.4.3
Commonwealth Grants
11
2.4.4
Commonwealth Gra"nts Commission
12
2.4.5
Accountability, Transparency, and the Vertical Fiscal Imbalance
12
2.5
,
7
8
Intergovernmental Relations
:
13
2.5.1
Division of Responsibilities between the States and the Commonwealth
13
2.5.2
Council of Australian Governments
14
2.5.3
Council for the Australian Federation
14
2.5.4
Accountability and Australia's Intergovernmental Framework
15
3.0
3.1
,3.2
4.0
DEVOLUTiON IN THE UNITED KINGDOM
15
Division of Powers and Intergovernmental Relations
15
Financial Relations
16
17
FEDERALISM IN CANADA
4.1
Division of Powers between the Federal and Provincial Governments
17
4.2'
Intergovernmental Relations
,17
4.3
Financial Relations
17
5.0
5.1
REFORM OF AUSTRALIAN FEDERALISM
Why is Reform Necessary?
19
19
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Australia's Federal System
Is there a need for reform?
5.2
6.0
What are the Options for Reform?
·
20
5.2.1
Constitutional Reform
20
5.2.2
New Interpretation of the Constitution
21 .
5.2.3
Financial Reforms
5.2.4
Reallocation of Responsibilities
5.2.5
Reform of Intergovernmental Bodies
24
5.2.6
Local Goverl)ment
24
CONCLUSION
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APPENDIX A: Referendum Dates and Results 1906 - Present..
Pagaii
21
23
26
27
Australia's Federal System
Is there a need for reform? .
FIGURES
Figure 1: Revenue Sources, all states, 1999 - 2000 and 2011 - 2012,
8
Figure 2: Revenue Sources, Queensland, 1999 - 2000 and 2011 - 1-2
9
Figure 3: Health Expenditure - Central Government v State Government..
18
Figure 4: Education Expenditure - Central Government v State Government..
19
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Australia's FederalSystem
Is there a need for reform?
EXECUTIVE SUMMARY
The purpose of this rE?port was to analyse the history and development of the federal
relationship between the Commonwealth and the Australian States. Ref~rence has been
made to the State of Queensland (0 Illustrate the ,effects of evolving federal relationship. The
report focussed on the effect this relationship has had on accountability and responsibility,
among the Commonwealth and the' Australian States. In doing so, it will compare and
contrast the gradual decline of the powers of the Australian States with the experiences of
devolution in the United Kingdom and federalism in Canada.
It is important to gain a better understanding of Australia's federal relationship from a State
perspective. Such an understanding can aid in determining whether and how Australia's
federal relationship can be reformed to best provide for the evolving nature and
responsibilities of Australian States. In order to answer these questions, a comprehensive
analysis of the available constitutional, political, and comp~rative literature was undertaken
with figures and data drawn from government reports.
The results showed that there are a number of advantages evident in federal governmental
systems. Federal systems, unlike unitary systems of government, promote regional diversity
and competition between sub-national governments. However, the dynamics of Australia's
. federal relationship have changed considerably since Federation, with the States gradually
becoming marginalised by growing Commonwealth authority.
Owing to the High Court's interpretation of the Constitution, the States have gradually lost
power to the Commonwealth. A number of High Court decisions have limited the States'
financial powers, contributing to a growing vertical fiscal imbalance between the
Commonwealth and State governments. The vertical fiscal imbalance has impacted upon
the States' abilities to undertake their traditional areas of responsibility, such as health care
and education without financial assistance from the Commonwealth. The growing
prevalence of Specific Purpose Payments (or tied grants) have allowed Commonwealth
incL!rsion into traditional spheres of State expertise, without accompanying accountability
mechanisms. Moreover, the proliferation of executive-dominated intergovernmental bodies
such as the Council of Australian Governments, whilst providing a forum for collaboration,
ultimately serve to further reduce the level of scrutiny and accountability over concluded
policy agreements.
These findings suggest that reform is necessary in order for Australia to achieve the benefits
generated by a federal system of government. Reforms aimed improving t,he levels of
accountability and transparency span the constitutional, financial and political realms, will
enhance the operation of Australia's federal system. The challenges facing the
Commonwealth of Australia in the 21 st century are inevitably different to those encountered
in the 20 th century, and an understanding and greater clarity over the roles of each
government can only aid in the evolution of Australia's federation.
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GLOSSARY
ALGA
CAF
CGC
COAG
GST
OECD
SPP
VFI
Australian Local Government Association
Council for the Australian Federation
Commonwealth Grants Commission
Council of Australian Governments
Goods and Services Tax
Organisation for Economic Co-operation and Development
Specific Purpose Payments
Vertical Fiscal Imbalance
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Australia's Federal System
1.0 INTRODUCTION
Even before' Federation in 1901,' Australia's federal politics has always been characterised
by a debate ..between those who advocate· for greater centralisation and control to be
directed to the Federal Government, and those who argue for a balance to be maintained
with the States. The Founders of the Australian Constitution .settled on a system of coordinate federalism, with Commonwealth and State authorities individually responsible for
their own functions without a great degree of overlap between the authorities. 1
The dynamics of the Australian federal system have changed considerably in the last 110
years, despite the fact the Constitution has not been altered significantly throughout this
time. 2 Through a combination of State referrals of power to the Commonwealth, decision by
the High Court as to the interpretation of heads of power, and the limited number of
successful referenda, the balance of power has gradually shifted towards the
Commonwealth. 3 Today, the system is more aptly characterised as one of co-operative, or
collaborative federalism. 4
Amongst politicians and ordinary Australians alike, there is a general dissatisfaction with the
Australian federal system.5 While it has become quite common for Prime Ministers during
election campaigns to promise to fix or re-invigorate Australia's federal system, the States
have often been willing to allow the. Commonwealth to take the lead. While the dominant
feature of many countries today tends to be towards decentralisation, Australia is notable for
suggestions proposing the exact opposite. 6 The dissatisfaction with Australia's federal
system of government has at times been such that there have been calls to abolish the
States, so as to bestow greaterpower on the central government.?
Problems of accountability, the vertical fiscal imbalance and executive-dominance of
intergovernmental relations have all characterised the Australian federal system. In order to
improve .the federal relationship for the next 100 years, lessons can be drawn from
Australia's past experiences and comparative experiences with federalism in Canada and
devolution in the United Kingdom.
C.P. Harris, 'Relationship Between Federal and state Governments in Australia: (Canberra: AGPS, 1979),27.
Ariadne Vromen, Katharine Gelber and Anika Guaja, Contemporary Australian Politics (Crows Nest Allen &
UnWin, 2009).295.
.
3 Ibid 300.
.
4 C.P. Harris, 'Relationship Between Federal and State Governments in Australia', 28. See also Ann Twomey and
Glenn Withers, 'Federalist Paper I: Australia's Federal Future', Council for the Australian Federation, 2007, .
hltp:/Iwww.caf.gov.au/Documents/AustraliasFederaIFuture.pdf, 28.
.
.
5 Scott Bennett, 'The Politics of the Australian Federal System,' Australian Parliamentary library, 2006,
http://www.parliament.qld.gov.au/ConcordDocs/R07/R070116KW17.PDF, 3.
II Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', Council for the Australian
Federation, 2007, hUp://www.caf.qov.au/Documents/AustraliasFederaIFuture.pdf, 4.
7 Benjamin Herscovitch, 'Democratic Accountability and the Australian Federal System of Government,' Policy
26 (2010): 36.
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·2.0 FEDERALISM AND THE AUSTRALIAN STATES
2.1
What is Federalism?
A federation is a system of government where there are at least two entrenched levels of
govern'ment. In this way they differ from the single central authority in unitary sy~tems of
government which delegate to multiple regional authorities. Federations are generally
formed from the union of existing states, or in the case of Australia, colonies, which transfer
a number of their existing powers to the federal government:8 Powers tran~ferred to the
federal government typically constitute those best dealt with on a national level, such as
defence, currency and foreign relations. 9 The federal government is also responsible for
creating and maintaining a single economic market characterised by the absence of taxes or"
custom duties .on trade within the nation. 1O As a result, federal systems provide citizens with
multiple levels of services and recourse to government,11
2.2
What are the advantages of Federalism?
While federalism is one of the rarer forms of government found worldwide, flilderal systems
are said to benefit from a number of features not found in unitary systems. 12 A federal
system of government is well suited to geographically large countries, allowing the diverse
and unique requirements of regions to be accommodated under a system of regional
representation. 13
Unlike a unitary system, a federation provides greater regional autonomy to citizens. 14 A
federal system of government provides people with the ability to choose their governments
at both the State and national level, and ensures power is not concentrated in one central
authority far removed from the majority of the population. 15 This guarantee of regional
representation was a significant factor influencing the decision of Western Australia to
become part of the Commonwealth. 16 Additionally, multiple levels of government allow
decisions to be made by the principle of SUbsidiarity, which provides decisions should be
undertaken by the least centralised authority.17 Federal systems of government are better
placed than unitary systems to take into account regional community preferences. 18
Federal systems also allow for the possibility of horizontal competition between States.
Comparisons between States as to the effectiveness of polley encourage reform, as States
C.P. Harris, 'Relationship Between Federal and State Governments In Australia', 3.
Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 19.
10 C.P. Harris, 'Relationship Between Federal and State Governments In Australia', 3.
11 Rolf Gerritsen, 'A Comment on the Appropriate Assignment of Powers in the Australian Federation,' (Graduate
Program in Public Policy: Australian National University), 3.
12 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States,' Parliament of
Victoria,5.
.
13 Ann Twomey and Glenn Withers. 'Federalist Paper I: Australia's Federal Future', 19.
14 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 5.
15 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 4.
16 Geoffrey de Q. Walker, 'Ten Advantages of a Federal Constitution,' Policy 16 (2001): 35, 36.
17
Geoff
Gallop,
'How
Healthy
is
Australian
Federalism?,'
2011,
http://\WIIW.parHament,qld.gov.au/ConcordDocs/A11/A110318EF01.PDF. 5.
18 Peter Beattie, 'The Immediate Challenge Regarding COAG Reform,' Australian Journal of Public
Administration 61 (2002); 57, 57.
.
8
9
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Australia's Federal System
Is there a need for reform?
are in competition with each other to sustain their population and investment. 19 The multiple
jurisdictions within federations allow for a useful reference to compare results of reforms in
each State. 20 Such competition, has fostered the creation of a number of successful policies
that have subsequently been adopted by other States and Territories. 21 For example, antidiscrimination laws, road safety' campaigns and the development of regional migration
schemes are all reforms 'led by sub-national governments. 22 This incentive would be
unavailable in a unitary system, as the central government is not subjected to the same kind
of comp~titive pressures that States in a federatlonexperience. 23 Where competition in fields
is not beneficial to the federation, these competencies are generally allocated to one level of
government,24' Recent research by Twomey and Withers suggests, contrary to popularly
espoused opinion, "in the last 50 years, federations have consistently outperformed unitary
statesin economic terms".25 Federalisrl) thus increases efficiency and removes the incentive
for complacency. on th(:l part of, go~ernmental authorities, promoting overall economic
wellbeing. 26
2.3
Federalism and the Australian Constitution
The Australian Constitution embodies a mix of the Westminster system of parliamentary
responsible government, and the American and Swiss federal systems of government. 27
When drafting the Constitution, the Founders Intended to create a system of co-ordinate
federalism, with the States and Commonwealth each responsible' for their ()wn
. competencies. 28 The Commonwealth was only granted specific and limited exclusive
powers, with the States retaining plenary powers over. traditional colonial areas of
responsibility.29 However, over time a combination of decisions of the High Court, referrals of
power to the Commonwealth by the States and limited successful referenda have combined
to alter the initial balance in favour of the States
2.3.1 Constitutional Provisions
Following the design of the American Constitution, the Australian Constitution grants the
Commonwealth Parliament a number of enumerated powers in section 51 to make laws for
the peace, order and good government of the Commonwealth. 30 The residual powers not
Benjamin Herscovitch, 'Democratic Accountability and the Australian Federal System of Government', 37.
Geoffrey de Q. Walker, 'Ten Advantages of a Federal Constitution', 35.
21 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 15.
22 Ibid.
.
23 Ibid 4.
24 Roger Wilkins, 'Federalism: Distance and Devolullon,' Australian Journal of Polltlos and History (2004) 50: 95,
19
20
98.
.
Ann Twomey and Glenn'Withers, 'Federalist Paper I: Australia's Federal Future', 5.
.
26 Ibid 12. See'also Peter Beattie, 'The Immediate Challenge Regarding COAG Reform,' Australian Journal of
Publio Administration 61 (2002): 57, 57.
27 Kenneth Wiltshire, 'Reforming Australian Governance: Old states, No States or New States?,' in Federalism
and Regionalism in Australia: New Approaches, New Institutions?, eds. A.J. Brown and J.A. Bellamy (Canberra:
.
ANU ePress, 2006), 186.
28 C.P. Harris, 'Relationship Between Federal and State Governments in Australia', 27.
29 Aroney, Nick. 2008. 'The Idea of a Federal Commonwealth'. Sir Samuel GrIffith Society, Volume 20 Chapter 1.
Accessed 16 September 2011. Available at http://samuelgrlffith.org.au/docslvoI20/v20chap1.pdf.
30 Constitution of the Commonwealth of Australia Act, S 51.
25
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Australia's Federal System
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explicitly specified in the Constitution were intentionally left with the States. A numper of
powers were granted exclusively to the Commonwealth such as defence,31 quarantine,32 and·
weights and measures,33 while others were to be shared concurrently with the States, such
as the taxation power. 34 The Constitution explicitly provides for powers originally vested in
Colonial Parliaments before Federation to, unless granted to the Commonwealth Parliament,
to continue as powers of the States. 35 .
In the event of an inconsistency between Commonwealth and State legislation, section 109
of the Constitution operates to render the State law invalid to the extent of the
inconsistency.36 Thus, whilst acknowledging the existence and continuance of State laws, as
in most federal constitutions, supremacy is granted to Commonwealth legislation.
The Constitution also grants the Commonwealth the power to provide Specific Purpose
Payments (SPPs), or tied grants, under section 96.37 SPPs have played a significant roJe in
the development of Australia's intergovernmental financial relations.
2.3.2 Decisions of the High Court of Australia·
The High Court of Australia has played an integral role in defining Australia's federal balance
through its role as the safeguard of the Constitution. 38 Immediately after Federation, the High
Court's "immunity of instrumentalities" doctrine upheld the conception of a co-ordinate
federal system. 3S Powers not expressly granted to the Commonwealth were interpreted as
being reserved to the States, and as the name of ·the doctrine implies, were immune from
legislative interference or incursion by the Commonwealth. 40 .
A number of High Court decisions have significantly altered this balance. The Engineers
case41 in 1920 overturned the immunity of instrumentalities doctrine and ushered in a new
interpretative doctrine. Commonwealth legislative powers were to be interpreted in light of
their ordinary and natural meaning, without limitations other than those expressed in the text
of the Constitution. 42 This prevented the Constitution from being interpreted in such a way
that powers could be reserved to the States. 43 As a result the Constitution is now interpreted
as a British statute, that is, the normal rules of statutory interpretation apply, and implications
which are not present in the text cannot be relied upon in interpretation.
Constitution of the Commonwealth of Australia Act,
S 51 (vi).
Ibid s 51 (ix).
.
33 Ibid S 51 (xv).
34 Ibid s 51 (I).
35 Ibid s 107.
M Ibid s 109.
37 Ibid S 96.
38
Alan
Podger,
'Federalism
Reform
(Speech)',
2008,
http://wW.ty.grfffith.edu.au/dataiassets/pdf file/0003/206580/PodgerPAT.pdf, 8.
3~ Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 28. See also
Aroney, Nick. 2008. 'The Idea of a Federal Commonwealth'. Sir Samuel Griffith Society, Volume 20 Chapter 1.
Accessed 16 September 2011. Available at http://samuelgriffith.org.au/docs/voI20/v20chap1.pdf.
40 Ibid.
41 Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129.
42 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 29.
43 Greg Taylor, Characterisation in Federation: Six Countries Compared (Victoria: Springer, 2006), 6.
31
32
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The ultimate· effect of the Engineers doctrine has been to greatly expand the scope of
Commonwealth powers at the expense of the powers of the States. 44 This is the inevitable
result of only the Commonwealth's powers being enumerated in the Constitution. 45 A
Commonwealth law now need only fall under one of the legislative powers for it to be
characterised as constitutional. 46 As a result, the Commonwealth has greater- legislative·
. ability to encroach upon areas which were traditionally conceived as falling within the
purview of the States. 47
The High Court has also been willing to apply a·broad interpretation to the tied grants power
in - section 96. 48 This has further diminished the power of the States by removing the
independence and authority States would otherwise have in deciding. how grants are best
sp~nt.
Having greatly altered the balance of power between the Commonwealth and States through
the method employed to interpret the Constitution, the forum for delineating and confirming
State and Commonwealth competencies has shifted to the political process. 49 There have
been a number of critical High Court decisions since Engineers which have served to greater
skew the federal balance against the States. The outcome of three key cases will be
discussed below.
2.3.2.1
The Uniform Tax Cases
The Uniform Tax Cases were significant in altering the financial balance between the States
and the Commonwealth. During the Second World War, the Commonwealth took control of
income tax by passing four through the Commonwealth Parliament 50 These- Acts were to
.continue until one year following the end of the War. 51 In the interim, the States were to be
given grants to replace their Joss of income tax revenue, and were subject to penalties if they
continued to' impose their own income tax. 52 The High Court upheld the Acts as a valid
.exercise of Commonwealth legislative power. Following the War, the Commonwealth never
fully vacated the income tax field, leaving the States politically unable to raise their own
income taxes.
In the Second Uniform Tax Case,53 the High Court held that the Commonwealth may rely on
section 96 9f the Constitution to impose conditions which enabled the Commonwealth to
force the States out of the field of income tax. While Justice Dixon believed that section 96
should have a limited interpretation, so as to not allow the Commonwealth to legislate
Ibid 13.
Brian Galligan, 'Processes for Reforming Australian Federalism: University of New South Wares Law Journal
31 (2008): 617,631.
.
.
. .
46 Greg Taylor, Characterisation in Federation: Six Countries Compared, 13.
47 Ibid 18.
48 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 34.
49 Brian Galligan, 'Processes for Reforming Australian Federalism', 6 3 4 . ·
..
50 John Wilkinson, 'Sovereign States and National Power: Transition in Federal-State Finance,', New South
Wales
Parliamentary
Research
Service,
. 2011,
.. htfo:fJwww.parliamenl.gld.gov.aufConcordDocsJR06JR061005KW02.PDF.11. See also South Austrafia v
Commonwealth (1942) 65 CLR 373.
51 Ibid.
52 Brian Galligan, 'Processes for Reforming Australian Federalism', 638.
53 Victoria v Commonwea(th (1957) 99 CLR 575.
44
45
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Australla's Federal System
Is there a need for reform?
gen~ra!ly, His Honour 'felt bound to follow earlier precedent. 54 Thus, financial assistance
granted as a result of the States' forced removal from the income tax field wa~ held to'be a
valid exercise of Commonwealth power, despite the fact it restricted State legislative
authority.
2.3.2.2 '
Tasmanian Dams
In Commonwealth v Tasmania,55 the main question involved whether the building of a'dam
in an area excised from a national park listed on the World Heritage List under the
Convention for the Protection of, the World Cultural and Natural Heritage. The
Commonwealth passed legislation to give effect to treaty obligations arising under the
Convention, and listed the dam site as an area where construction of a dam was only
. permitted with the consent of the federal Minister. The High Court held the Act was a valid·
exercise of Commonwealth legislative power under the external affairs power section
51 (XXiX)56 to give effect to Australia's obligations under the Convention. 57 Moreover, the
Commonwealth was entitled to rely on the corporations power section 51 (XX)58 to regulate
the activities of the Hydro-Electric Commission of Tasmania (the company building the dam)
as a trading corporation.
2.3.2.3
Workchoices
The decision in NSW v Commonwealth,59 involved a challenge to the Workplace Relations
Act 1996 (Cth) which effectively precluded the operation of State and Territory industrial
relations legislation. In enacting the legislation, the Commonwealth relied upon the
corporations power s 51(xx) to provide for an industrial relations scheme broader than the
Commonwealth's grant of power in s 51 (xxxv). Under s 51 (xxxv), the Commonwealth is
granted power with respect to "conciliation and arbitration for the prevention and settlement
of industrial disputes extending beyond the limits of anyone State". The High Court held that
the legislation was valid under the corporations power, and that the corporations power was
not limited by the inter-State reqUirement of the industrial arbitration power. Thus, the
industrial arbitration power could not be used to read down the corporations power. This
decision has attracted significant criticism in relation to current method of constitutional
interpretation. 6o
2.3.3 Referrals of Power to the Commonwealth
The Constitution, under section 51 (xxxvii),61 provides for the States to refer certain of their
powers to the Commonwealth. The referral power provides the States with the option to refer
Victoria v Commonwealth (1957) 99 CLR 575 at 609 per Dixon J.
Commonwealth v Tasmania (1983) 151 CLR 1.
56 Commonwealth of Australia Constitution Act, s 51 (xxix).
57 Commonwealth v Tasmania (1983) 151 CL R 1.
58 Commonwealth of Australia Constitution Act, S 51 (xx).
59 New South Wales v Commonwealth (2006) 229 ClR 1.
60 Brian Galligan, 'Processes for Reforming Australian Federalism', 634.
61 Commonwealth of Australia Constitution Act, s 51 (xxxvii).
54
55
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to the Commonwealth power over a specific issue. Traditionally, powers referred by the
States have. reflected areas of national importance such as corporations law or comp.etition
law. The Corporations Act 2001 (Cth) and the Competition and Consumer Law Act 2011
(Cth) are both examples of Commonwealth legislation establishing national schemes which
rely upon referrals of power, Referrals are formalis~d through an Act of Parliament of the
respective State Legislative Assembly, and typically specify the purpose for which the p,ower
is to be referred. In certain instances, power may be referred for a specifie9 period of time,
.or referrals may be permanent.
2.3.4 Commonwealth Referenda
Section 128 of the Commonwealth Constitution provides the only means by which the
Constitution can be amended. Amendments can only be proposed in the Commonwealth
Parliament, and must pass both houses before being put to a popular vote. 52 In order for a
proposed amendment to succeed' at referendum, it must be approved by a majority of the
voting population, as well as majorities in four out of the six States. 63 Although there have
been forty-four amendments proposed since Federation in 1901, only eight have successful,
the last of which occurred in 1977,64 A list of referendum topics and outcomes has been
reproduced from the Australian Electoral Commission in Appendix A.'
',.+
2.4
Federal Financial Relations
Australia's federal financial relationship is characterised by an extensive vertical fiscal
imbalance (VFI) when compared to other federations, 65 The gradual loss of financial
autonomy and independence of the States is evident through the limited taxation powers of
the States vis-a-vis the Commonwealth, and the increasing dependence of States on
Commonwealth funding and grants.
2.4.1 Vertical Fiscal Imbalance
A VFJ describes the situation where the revenue received by both the federal and state
levels of government does not align with each government's expenditure responsibilities. 66
As a result, the level of government receiving surplus revenue (the federal government) must
transfer their excess revenue to the state governments. 67 The methods employed in
transferring surplUS revenue may impact upon transparency and accountability, severing the
connection between revenue raising and the. funding of programmes. 68 All federations
IbiO s 128 paragraph 1.
Ibid s 128 paragraph 4.
64 Australian
Electoral Commission, 'Referendum Dates and Results 1906 - Present, 2011,
http://www.aec.gov.au/Electionslreferendums/Referendum Dates and Results.hlm.
65 Neil Warren, 'Benchmarking Australia's Intergovernmental FIscal Arrangements: Final Report,' New South
Wales Government Treasury; 2006, hltp:/IW'NW,treasurv.nsw.gov.au/ data/assets/pdf file/0006/5793ffin-bench·
~P.pdf,~.
.
Federal-State Relatlons Committee, 'Report on Australian Federalism: The Role of the States', 106.
67 Ibid,
.
.
68 Ibid,
62
63
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Australia's Federal System
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experience'8 form of VFI. 69 Althol)gh the extent of the VFI vari~s qCross federal systems, the
VFI is more severe in Austr.alia than in any other federationJo
.
.
Within Australia, the Commonwealth collects approximately 80 per cent of all tax revenue,
however it is only responsible for approximately 60 per cent of public expenditure. 71 As a
result, the States have been unable to fund many of the policy programmes which fall unqer
. State responsibiiity, ~uch as health care, education' and housing?2 The subordinate financial
power t~e States has limited the States' ability to "resi~~ Commonwealth encroachment".73
of
Queensland Budget Estimates for the 2011 - 2012, reproduced in Figure 1, financiai year
predict that approximately 47.2 per cent of State government revenue will be' sourced from
the Commonwealth. 74 In Queensland, the total revenue sourced from the Commonwealth is
estimated at 43.2 per cent for the 2011 - 2012 financial year. 75
Revenue sources, all states, 1999·2000 and 2011-12 1
1999·2000
2011·12
AusITallan
Government
funding
35.0%
Slale lax
te,~nue
Austrnffan
39.8%
Governmenl
funding
47.2%
Notes:
1. 2011·12 data are estimates.
2.
Includes user charges, Interest earnings, canlrlbuUons from tradIng enterprises and minIng revenue.
Sources: ASS Governmenl FInance Stallslfes Cal No. 5512.0 and stale and Austra/fan GovernmenlBudgel papers.
Figure 1: Revenue Sources, all states, 1999 - 2000 and 2011 - 2012
2.4.2 Taxation and the States
Before Federation, the Colonies received the majority of their revenue from customs and
excise duties. 76 Upon uniting to form the Commonwealth of Australia, the Colonies agreed to
transfer the power to levy customs and excise duties to the Commonwealth with all other
69,Alan Fenna, 'Commonwealth Fiscal Power and Australian Federalism,' University of New South Wal.es Law
.
70 Kenneth Willshire, 'Reforming Australian Governance: Old States, No States or New States?', 190.
71 Benjamin Herscovitch, 'Democratic Accountability and the Australian Federal System of Government,' Polley
26 (2010): 36, 39.
'.
7~ Ariadne Vroman, Katharine Gelber and Anika Guaja, Contemporary Australian Politics, 304.
73
Ben
Davies,
'The
Politics
of
Federalism,'
Sir
Samuel
Griffith.
Society;
2007,
http://samuelgriffith.org.auldocsfvol19/v19chap6.pdf, 58.
,
,
74 Queensland Treasury, 'Queensland State Budget: Budget Strategy and Outlook {Budget Paper No 2)',.2011,
htlp:l!www..budget.qld.oov.aulbudget-papers/2011-12Ibp2-7·2011-12.pdf, .134.
/5 Ibid 136.
76
'lain
McLean,
'Fiscal
Federalism
in
Australia,'
2002,
http://www.nuff.Qx.ac.uklusers/mclean/Fiscal%20Federalism%20In%20Australia.pdf, 22.
Journa/31 (200B): 509, 512.
PageB
Australia's Federal System
Is there a need for reform?
forms of taxation available to both levels of government,77 Thus, the imbalance against the
States was apparent from 1901 and has only been exacerbated in the years' that have
followed.
The States' taxation powers have been limited in a number of areas since Federation. While
the States initially held a monopoly over income tax, the Commonwealth's increasing
expenditure pressures during in particular, World War II resulted, .through the decision in
First Uniform Tax Case/8 in the Commonwealth's exclusion of the States from this revenue
stream?9 The High Court permitted the Commonwealth to levy income taxes ata rate which
essentially excluded the States from the field. 8o
Figure 2, from the 2011 - 2012 Queensland State Budget Papers illustrate the decreasing
taxation powers of the States. During the 1999 - 2000 fiscal year, Queensland's State tax
revenue amounted to 29 per cent of State revenue sources.81 However, 2011 - 2012 figures
from the Australian Bureau of Statistics estimate that 24.5 per cent of Qweensland's revenue
will be collected from State taxes. 82 This decline has been mirrored across the remainder of
the States.
Revenue sources, Queensland, 1999·2000 and 2011-12 1
2011·12
1999·2000
Stale tax
revenue
Auslralian
Government
24.6%
Auslrallan
lundlng
Gavernmenl
34.8% .'
funding
43.4%
OlherSlate
Other Slate
revenue'
36.2%
revenue'
32.2%
Notes:
1.. 2011-12dataareeslimales.
Includes user charges, Interest earnIngs, conlflbullons from trading enterprises and minIng revenue.
Sources: ABS Government Finance Stalistics Cat No. 5512. 0 and Queensland BUdget estfmales
2.
Figure 2: Revenue Sources, Queensland, 1999.- 2000 and 201.1 - 12
Under section 90 of the Constitution, the States are prohibited from levying bounties,
customs and excise. duties. As the Constitution does not define the term 'excise duty', this
task has been left to the High Court. 83 The general definition of excise duty espoused by
economists covers taxes on the production of goods. 84 However, the High Court's
interpretation on the section 90 prohibition on customs and excise duties has been extended
Commonwealth of Australia Constitution Act, s 90. See also Ariadne Vromen, Katharine Gelber and Anika
Guaja, Contemporary Australian Politics 304.
78 South Australia v Commonwealth (1942) 65 ClR 373.
79 John Wilkinson, 'Sovereign States and National power: Transition in Federal-State Finance,' 11.
80 Brian Galligan, 'Processes for Reforming Australian Federalism', 638.
.
81 Queensland Treasury, 'Queensland State Budget: Budget Strategy and Outlook (Budget PaperNo 2)',134.
77
82
Ibid.
83
84
Ibid.
Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final Report', 19.
.
.
.
Page 9
Australia's Federal System
Is there a need for reform?
.to pr~vent States from levyinQ a ,sales tax, such as the Good$ anct SE;lrvices T/3x (G~T).85
, Business franchise fees on tobacco, alcohol and petroleum were also' held by the High ,Court
t9 be unconstitutional State-imposed excise taxes under section 90.86
., The main own-source revenue sources for States are:.87
•
•
•
•
Employers: payroll taxes;
Land
prop~rty taxes;
Gambling taxes; and.
Taxes. on the' us~
goods or performance of activities, including motor vehicle
registration ?nd fines. '
or
;i
These taxes are often criticised as being inefficient and overly regulatory or bureaucratic. aa
MoreoVer, they are also more likely to be "inflationary and regressive", increasing living costs
and disproportionately affecting those with lower incomes. 89 Consequently, it is unlikely that
the States will be able to rectify their subordinate financial positions through reforms to their
own taxes. 90 With regard to at least the High Court's interpretation of the Constitution's
taxation powers, it does not seem that this has been done with much reference to the effect
on States.
' .
2.4.2.1
Goods and Services Tax
The most significant reform from the perspective of States to taxation has been the
introduction of the GST in 2000. GST payments are distributed to the States in the form of
untied grants. With the introduction of the' GST, the States were finally granted access to a
growth tax, albeit one collected and'distributed by the Commonwealth. 91 GST payments are
made to the States by the Commonwealth Grants Commission (CGC) which operates on the
principal of Horizontal Fiscal Equalisation (HFE).
As part of the agreement, the Commonwealth and the States agreed to the abolishment of
nine indirect State taxes, "mainly financial institutions taxes and stamp duties on the financial
and capital transactions of businesses", relinquished the right to Financial Assistance grants
and "accepted responsibility for funding local government".92
The GST has arguably been responsible for exacerbating the VFI in Australia. 93 This is so
because the GST is a tax collected centrally and introduced on the proviso of the elimination
85 Alan Fenna, 'The t0alaise of Federalism: Comparative Reflections on Commonwealth-State Rela~ions,'
Australian Journal of Public Administration 66 (2007): 298, 299.
a s '
,
.
John Madden, 'Australia: Central Fiscal Dominance, Collaborative Federalism, and Economic Reform, 96.
87 Singleton et. aI., Australian Politfcallnstitutions (Frenchs Forest: Pearson Education Australia, 2009),96.
M Federal-State Relations CommIttee, 'Report on Australian Federalism: The Role of the States', 112.
.
89 Singleton et. aI., Australian Politica! Institutions, 96.
90 Percy Harris, 'Financial Assistance Grants In Australia: An Assessment of the Extent of HorIzontal
Equalisation,' in Federalism and the Economy: Internat/onal, National and State Issues, ed. B, Galligan
~Canberra: Australian National University Federalism Research Centre, 1993),113.
.
~ Ben DaVies, 'The Politics of Federalism, 58. .
.
"
92 Denis James, 'Federal State Financial Relations: The Deakin Prophecy,' Parliamentary Library, 2000,
http://www.aph.gov.aullibrarylpubs/rp/1999-2000/2000rp17.htm. 22.
.
93 Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final RepQrt', xxxi.
Page 10 - - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
of a number of State taxes, while not respectively decreasing the spending responsibilities of
States. 94
Dissatisfaction with the amount of GST distribution is likely to continue in the future. The
resource States· of Queensland and Western Australia, whilst contributing a significant
portion of nationalGST revenue, receive less than non-resource States after distribution
because· of the assessment of royalties. 95 in Queensland's submission to the Federal
Review into GST Distribution, Treasurer Andrew Fraser, has called for a fairer balance to
ensure that royalty incomed,oes not adversely affect the ,level ,of GST funding a State
.
.
.
receives. 96 ,
2.4.3 Commonwealth Grants
The Commonwealth has the power to make financial grants to the States on a tied (SPPs) or
untied basis. Under section 96 of the Constitution, the Commonwealth Parliament has the
authority to make payments to States "on such terms and conditions as the Parliament
thinks fit".97 Section 96 is unique amongst the world's federations, and has been instrumental
in the gradual decline of State financial and pol!tical power. 98
The original intent of this section was to allow the federal government to make one-off
payments to States in unforeseen financial difficulties, however this use has since been
expanded. 99 The High Court has interpreted this provision liberally, holding that the
Commonwealth can make tied grants in areas in which it does not have authority.1Oo This
further limits the autonomy States would have had to determine policy outcomes in what
would otherwise be a sub-national area of responsibility.
The use of SPPs expanded considerably under the Whitlam government in the 1970s, which
used the grants to advance the Commonwealth's desired sOcial policy outcomes. 101 Today
SPPs account for approximately 40 per cent of State revenue,102 and are most utilised in the
areas of health, education, skills and workf9rce development, disability services and
housing103 - all areas of State responsibility.
94 Ibid. ,
as Andrew Fraser, 'Queensland Fights for Fairer Share of GST Pie,' Queensland Government,
htlp:JJstatements.cablnet.qld.gov.au/MMS/StatementDisplaySingle.aspx?id=77080.
96 Andrew' Fraser, 'Queensland Fights for Fairer Share of GST Pie,' - Queensland Government,
htlQ:llstatements.cabinel.gJd.gov.au/MMS/StatementDisplaySingle.aspx?id:::77080.
97 Commonwealth of Australia Constitution Act, s 96.
.
98 Alan Fenna, 'Commonwealth Fiscal Power and Australian Federalism', 511.
99 Ariadne Women, Katharine'Gelber and Anika Gmija, Contemporary Australian Politics 306. See also 28c, 187.
100 Alan Fenna,.'Commonwealth Fiscal Power and Australian Federalism, 509.
101 John Wilkinson, 'Sovereign States and National power: Transition in Federal-State Finance', 13.
102 John Madden, 'Australia: CenlralFlscal Dominance, Collaborative Federalism, and Economic Reform', 99.
Alan Fenna, 'The Malaise of Federalism: Comparative Reflections on Commonwealth-State Relations,' Australian
'
Journa{ of Public Administration 66(2007): 298, 299.
103 Queensland Treasury, 'Queensland State Budget: BUdget Strategy and Outlook (Budget Paper No 2),137.
Page 11
Australia's Federal System
Is there a need for reform?
2;4.4..,Commonwealth Grants Commission
The' Commonwealth Grants Commission (eGC) is an independent authority established in
104
1933 in order to assess and manage financial distributions to the States. The CGG only'
has the authority to make· recommendations as to the best distribution .of granfs to' the
'Trea~~rer; as such it is merely an .advisory body.105 The methodology under which the CGC .
. decides the lev~1 of funds to be distributed to each State and Territory is reviewed every five
years, with'the latest review completed in 2010. "
' ,,'
"
Since 1974, the eGC operates onthe principle of horizontal fiscal equalisation (HFE) with
respect to the distribution of GST funds. 10B Horizontal fiscal equalisation refers to the process
of distributing grants to States in manner which seeks to equalise the capacity' by which
States can deliver services of the same standard. 107 Queensland receives the. third fargest
share of GST~ revenlJe, following New South Wales and Victoria. 108 However, these figures
are calculated a,fter the process of equalisation, meaning they do not necessarily reflect the
level of GST revenue raised by each State. For instance, the Budget Forecast indicates
Queensland will receive $692 million less than its population share of GST revenUe. 109 While
all federations attempt some form of horizontal equalisation, Australia's is by far the most
extensive,110 likely due to greater VFI and unique nature of the CGC.
a
2.4.5 Accountability, Transparency, and the Vertical Fiscal Imbalance
Both accountability and transparency are hindered by the VFI. The ability of States to rely on
competition with respect to their taxes is also limited by the VFl. 111 Further the significant
level of Commonwealth grants to the States acts to dislodge the responsibility for raising
revenue, and the responsibility for the expenditure of that revenue. 112 This dislodgement
then plays out through blame-shifting and Ultimately undermines accountablJity. 113
Expenditure through Commonwealth grants additionally circumvent the "ordinary processes
of parliamentary appropriation", and are not subject to the same scrutiny as other State
appropriations which pass through a State's Consolidated Revenue Fund. 114
As is evident through the Commonwealth's increasing use of SPPs to achieve its policy
agenda, the possession of greater financial resources has inevitably led to a corresponding
104 Commonwealth Grants Commission, 'About CGC', 2011, http://www.cgc.gov.au/about egC. See also Ariadne
Vromen, Katharine Gelber and Anika GuaJa, Contemporary Australian Politics, 306,
105 John Madden, 'Australia: Central Fiscal Dominance, Collaborative Federalism, and Economic Reform" 105.
106 Denis James, 'Federal state Financial Relations: The Deakin Prophecy, 27
107 Commonwealth Grants Commission, 'About CGC' . See also Ariadne Vromen, Katharine Gelber and Anika
Guaja, Contemporary Australian Politics, 306.
.
108 Commonwealth Treasury,
BUdget Paper No 3: Australia's Federal Relations 2011 - 2012,
http://www,budget.gov.8u/2011-12/contenUbp3/htmlllndex.htm,
108.
See
also
Queensland' Treasury,
'Queensland State BUdget: Budget Strategy and Outlook (Budget Paper No 2), 143.
'
109 Queensland Treasury, 'Queensland state BUdget: Budget Strategy and Outlook (Budget Paper No 2), 139.
110 Scott Bennett, 'The Polities of the Australian Federal System', 85.
' , , '
111 John Madden, 'Australia: Central Fiscal Dominance, Collaborative Federalism, and Economic Reform', 119.
112 R Else-Mitchell, 'Achieving Financial Accountability in a Federal System,' in· Achieving Financial Accountability
in a Federal System, eds. R. Else-Mitchell and K.J. Robson (Canberra: Australian National University Centre for
Reseqrch on Federal Financial Relations), 3.
'
113 John Madden, 'Australia: Central Fiscal Dominance, Collaborative Federalism, and Economic Reform', 119.
,114 R Else-Mitchell, 'Achieving Financial Accountability in a Federal System', 5.
Page 12
Australia's Federal System
Is there a need for reform?
loss of independence and autonomy on the part of the States,115 As a result, the preferences
of State citizens become subservient to the national goals of the Commonwealth. 116
Moreover, as neariy half of all State funds are not collected by the States themselves, the
responsibility for scrutiny' is split between the national and sub-national levels of
government. 117 The current federal financial relationship in Australia is not supportive of
accQunta.bilitYi as State government are unable their expenditure through taxes without
financial assistance from the Commonwealth.1 18
2.5
Intergovernmental Relations
Intergovernmental relations are important. in all federations. Within Australia,
intergovernmental relations have arguably played a vital role in determining the division of
responsibilities and national policy initiatives.
2.5.1 Division of Responsibilities betWeen the States and the
Commonwealth
The concurrent nature of the enumerated powers in the Constitution means there is no clear
delineation between Commonwealth and State responsibilities. 119 Thus, in areas such as
taxation, health, and education, the States have been subject to increasing Commonwealth
invol:vement commensurate to the financial power accumulated by the Commonwealth. 120
Neither the States nor the Commonwealth are able to truly act autonomously.121 Duplication
of responsibilities in itself is not necessarily a negative; it can encourage .competition and
facilitate reform of inefficient programmes. 122 However, in Australia, duplication arises as a
result of the VFI, and rather than untied funds being transferred to the States to pursue their
own policy objectives, the Commonwealth has instead used SPPs to influence policy
outcomes. 123
In stark contrast to the ideas espoused by the subsidiarity principle, the concurrent nature of
Australia's federation has been altered, with States now acting as "agents" to implement
policy determined by the Commonwealth. 124 As explained in the previous section, the
principal means by which the Commonwealth has been able to extend its power has been
115
Geoff
Gallop,
'How
Healthy
is
Australian
Federalism?,'
2011,
http://www.pariiament.old.gov.au/ConcordDocs/A11/A11 0318EF01.PDF, 6.
.
116 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 108.
117 R Else-Mitchell, 'AchievIng Financial Accountability in a Federal System', 4.
118 Federal-State Relations Committee, 'Report on Australian Federalism: The Rare of the States', 111.
119 Scott Bennett, 'The Politics ofthe Australian Federal System', 4.
120 Ben Davies. 'The Politics of Federalism', 57.
.
121 Paul Klldea and Andrew Lynch, 'Federalism at the'Sub-Constitutional Level: The Case of the Council of
of
Constitutional
Law,
2011,
Australian
Governments,'
International
Association
htlp;//www.juridlcas.unam.mxJwccllponencias/8/142.pdf, 5.
122 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 113.
123 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future, 22.
124 Roger Wilkins, 'Federalism: Distance and Devolution', 99,
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Australia's Federal System
Is there a need for reform?
through the use of SPPs, and these have been prevalent in the areas of health care and
education. 125
2.5.2' Council
of Australian Governments
The Council of Australian Governments· (COAG) is an intergovernmental forum which
provides for the representation of State Premiers, Territory Chief Ministers, the Prime
Minister ·and .. local governments (through the Australian Local· Government Association).
Established in 1992· by an intergovernmental agreement, COAG does not hold separate
legal status. 126 COAG's role is to "initiate, develop and monitor the implementation of policy
reforms that are of national significance and which require cooperative action by Australian
governments".127
COAG depends extensively on the commitment of the Commonwealth in order to provide a
beneficial collaborative forum. The Prime Minister controls the frequency of meetings, and its
agenda, granting the Commonwealth the advantage of determining when and what issues
will be discussed without regard to the States. 128 This largely means that policy discussions
relate to further centralisation, through achieving uniformity, at the expense of the diversity of
the States. 129 Areas in which agreements have been reached include competition and
environmental policy, road transport and non~bank financial institutions. 13o
2.5.3 Council for the Australian Federation
Founded in 2006, the Council for the Australian Federation is a co-operative forum
composed of the State Premiers and Territory Chief Ministers designed to provide the State
and .Territories. 131 CAF allows the States and Territories to discuss initiatives without the
presence of the Commonwealth, and to develop a common position prior to COAG
meetings. 132 Unlike COAG, where the Prime Minister is the permanent Chair, CAF .meetings
are chaired on a rotational basis. 133 As a relatively new body, CAF is still determining its
place in Australia's intergovernmental framework. 134 However, it has so far proven useful in
improving Inter-State and Territory co-operation on a number of issues,135
Queensland Treasury, 'Queensland State Budget: Budget Strategy and Outlook (Budget Paper No 2).
Paul Kildea and Andrew Lynch, 'Federallsm at the Sub-Constitutional Level: The Case of the Council of .
Australian Governments', 7.
127 Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final Report', 23.
128 Paul Kildea and Andrew !.ynch, 'Entrenching 'Co-operative Federalism': [s it Time to Formalise COAG's Place
in the Australian Federation', Federal Law Review 39 (2011) (forthcoming): 103, 11.
129 Ibid 1.2.
'
,
130 Ibid 29.
131 Council of the Australian Federation, 'About Us', http://www.caf.gov.au/aboutus.aspx.. See also Ann Twomey
. and Glenn Withers, 'Federalist Paper I: Australia's Federal Future" 30.'
"
. ,
132 Paul Kltdea and Andrew lynCh, 'Entrenching 'Co-operative Federalism': Is it Time to Formalise COAG's Place
in the Australian Federation', 13. See also Brian Head, 'Taking Subsidiarity Serious: What Role for the States?:
in Federalism and Regionalism In Australia: New Approaches, New Institutions? ads. A.J. Brown and J.A.
Bellamy (Canberra: ANU ePress, 2006),165.
133 Anne Tiernan, 'The Council for the Australian Federation: A New Structure of Australlan Federalism:
Australian Journal of Public Administration 67 (2008): 122,127.
134 Ibid 133.
135 Ibid 127.
125
126
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Australia's Federal System
Is there a need for reform?
2.5.4 Accountability and Australia's Intergovernmental Framework
T~e proliferation of COAG and CAF in intergovernmental relations have 'expanded the role of
the executive managing and concluding agreements. 136 This "executive federalism" has
marginalised parliaments, undermining a key tenet of the Westminster system of
government - parliamentary sovereignty. 137 As a result, agreements can be reached without
any scrutiny outside of the executive branch, and by the time they reach a State parliament,
it is often politically impossible for an Opposition to overturn a proposal. 138 As the only State
without a bicameral parliament, the phenomenon of executive federalism arguably has a
greater impact on Queensland, without the benefit of a Legislative Council to scrutinise
proposals. 139
The lack of a clear division between Commonwealth and State powers has also made it
difficult to apportion blame in the event of policy failures. Without the ability to hold one level
of government ultimately responsible for policy failures, it has also become less likely that
responsibility will be properly distributed. This is evident in the Commonwealth's treatment of
the States as "agents" or "service providers" of the Commonwealth's agenda.
.3.0 DEVOLUTION IN THE UNITED KINGDOM
Although the United Kingdom (UK) is a unitary state, a comparison to the Australian federal
system is beneficial because of the UK's movement towards decentralisation. The UK's
devolution reflects an international shift against the centralisation of power in one authority.
Devolution in the UK has occurred through' a combination of Acts of Parliament,
intergovernmental agreements, and funding proposals from HM Treasury. 140 Today,
Scotland, Wales and Northern Ireland all have a regional Parliament or Assembly and
Executive.14~
3.1
Division of Powers and Intergovernmental Relations
The Westminster Parliament has transferred a varying range of power to the Scottish, Welsh
and Northern Irish assemblies in referendums in 1997 - 1998. There are varying
arrangements for devolution in Scotland, Northern Ireland and Wales. 142 In contrast, the
Australian States are all equally treated under the Constitution. Devolution differs from
federalism in that while power is being devolved from the central government to sub-national
authorities, it is not entrenched and thus subject to reversal by the Westminster
Parliament. 143 However, Westminster is only able to legislat~ in devolved areas with the
Paul KUdea and Andrew Lynch, 'Entrenching 'Co-operative Federalism': Is It Time to Fonnalise COAG's Place
in the Australian Federation', 14.
137 Ibid.
136 Ibid 16.
139 Ibid 16.
140 Alan Trench, 'The Framework of Devolution: The Forma! Structure of Devolved Power', 49.
141 http://www.clicp.ed.ac.ukJpublications/briefingslbriefing01.pdf
142 hUp:/lwww,parliamenLukJdocuments/commonsllib/research/rp2003/rp03-084.pdf
143 hUp:/Iwww.parliament.ukJdocuments/commonslliblresearch/rp2003/rp03-084.pdf
136
- _ . _ - - - - - - - - - - - - Page 15 - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
consent of the devolved governments. 144 This provides a degree of protection from central
government intervention, and is, in a sense, similar to the current concurrent division of
powers between the Australian States and the Commonwealth. 145
The devolutionary p~ocess in the UK is reflective of what is k.nown of as administrative
devolution. 146 That. is, the authorities created by devolution are ,directly accountable to local
legislatures rather than the Westminster Parliament. 147
Similar to Australia, devolution in the UK has led to the establishment of concurrent
intergovernmenta.1 relationship. 'Moreover, the areas devolved are similar to those which are
the responsibility of the Australian States. Powers devolved to Scotland, Wales and Northern
Ireland include education, health, local government, public transport, and notably criminal
law in the case of Scotland. 14s"Significantly, devolution has created the impetus for policy
innovation amongst the devolved authorities. 149
Devolution has invariably raised issues of ulira vires decisions or enactments of devolved
authorities. That is, as powers are expressly delegated by the Westminster Parliament, an
Assembly is unable to act outside those powers which have been delegated to it. 150
3.2
Financial Relations
More than half of the finances of the devolved authorities are determined by the application
of the Barnett Formula. 151 This formula essentially provides that "changes to programmes in
England ... result in equivalent changes in the budgets of the territorial department calculated
on the basis of population shares". 152 The Formula is not linked to level of expenditure
"needed" by a devolved authority, but decides the increase in the expenditure assigned to a
devolved authority.153 A recent inquiry by the Select Committee on the Barnett Formula in
the House of Lords has recommended a transition to an independent body such as the CGC
to make recommendations on the distribution of expenditure. 154 Unlike in Australia, HM
Treasury presently holds the responsibility for determining the distribution of funds, and is
not subject to independent external advice. 155 The financial relationship between
Westminster and the devolved authorities in the United Kingdom are likely to continue to
evolve as devolution progresses.
144 Alan Trench, 'The Framework of Devolution: The Formal Structure of Devolved Power', in Devolution and
Power in the United Kingdom, ed. A. Trench (Manchester: Manchester University Press, 2007), 54
145 Ibid.
.
146 James Mitchell, 'The United Kingdom as a State of Unions: Unity of Government, Equality of Political Rights
and Diversity of Institutions', In Devolution and Power in the United Kingdom, ed: A. Trench (Manchester:
Manchester University Press, 2007), 39.
147 Ibid 4 7 . '
.
148 Alan Trench, 'The Framework of Devolution: The Formal Structure of Devolved Power', 54.
149 Economic and Social Research Council, 'Final Report of the Devolution and Constitutlonal Change
Progrl;lmme: http://www.devolullon.ac.uk!finalreport.htm.
150 Alan Trench, 'The Framework of Devolution: The Formal Structure of Devolved Power', 53.
151
House
o f ' Lords,
'The
Barnett
Formula:
Report
With
Evidence:
2009,
http://www.publicatlons.parliament.uk!paJld2008091IdselecUldbarnetl/139/139. pdf, 1.
152
House
of
Commons,
'The
Barnett
Formula',
UK
Parliament,
1998,
http://www.parllament.ukfdocumeots/commons/liblresearch/rp981rp98-008.pdf, ,2.
15:'llbid. See also House of Lords, 'The Barnett Formula: Report With Evidence', 1.
154 House of Lords, 'The Barnett F.ormula: Report With Evidence', 2.
155 Ibid 33.
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Australia's Federal System
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4.0 FEDERALISM IN CANADA
4.1
Division of Powers between the Federal and Provincial
Governments
The Canadian Constitution grants the Federal government the general authority to make
laws for "the peace, order and good government of Canada", in addition to a number of
enumerated powers. 15S The Constitution also specifically lists the powers which are granted
to the Provincial legislatures. 157 Finally, residual powers are bestowed upon the federal
legislature, whereas in Australia they are left to the States. 158 On a cursory examination, it
would appear that' the federal design of the Canadian system favours the federal
government at the expense of the Provinces. 159 However, the practical effect of specifically
enumerating powers of the Provinces has been to prevent incursion from the federal
government in Provincial affairs. 160 This differs from the Australian Constitution where only
the Commonwealth Parliament's powers are specifically enumerated. The Canadian
Supreme Court has also been more willing than its Australian counterpart to interpret the
Constitution in fight of the federal system of government. 161 This is a result of numerous
factors, including the difference in structure of the Constitution, an interpretative doctrine that
takes account the effect of a law in addition to its purpose, and the greater emphasis the
Supreme Court of Canada places on maintaining a federal balance. 162
4.2
Intergovernmental Relations
Similar to Australia, there are a number of intergovernmental forums in Canada. The Council
of the Australian Federation was modelled from The Council of the Federation, which was
also formed in order to prOVide a more co-operative federal system. 163 The central
government and provinces are able to collaborate during First Ministers Conferences,
however, like COAG these occur at the convenience of the federal government.164 Unlike
COAG, First Ministers' Conferences provide an opportunity for provincial and national
collaboration with transparent and accountable agreements. 165
4.3
Financial Relations
The Canadian Provinces are not subject to restrictive interpretations of Constitutional
provisions which have impacted their ability to raise revenue. While there is still a VFI, the
Christopher Gilbert, Australian and Canadian Federalism 1867 - 1984: A Study of Judicial Techniques
Melbourne University Press, 1986), 1..
57 Canadian Constitution Act 1982 s 92. See also Christopher Gilbert, Australian and Canadian Federalism 1867
- 1984: A Study of Judicial Techniques, 2.
156 Christopher Gilbert, Australian and Canadian Federalism 1867 - 1984: A Study of Judicial Techniques, 2.
159 Ibid 3.
.
160 Ibid 3.
161 Ibid 6. See also Greg Taylor, Characterisation in Federation: Six Countries Compared, 7.
162 Greg Taylor, Characterisation in Federation: Six Countries Compared, 27, 41.
163
The
Council
of
the
Federation
(Canada),
'About
the
Council',
2011,
http://www.councilofthefederation.ca/aboutcouncll/aboutcouncil.html.
164 Government of Alberta, 'First Ministers' Meetings,' 2011, httD:/Iwww.international.alberta.ca/594.cfm.
165 Kenneth Wiltshire, 'Canberra Loses Grip on Stales', The Australian, 19 August, 2011, Features section .
156
~Carlton:
.- - - - - - - - Page 17
Australia's Federal System
Is there a need for reform?
'Provinces are better equipped to address the imbalance than the Australian States, as they
possess a greater tax~tion powers, For instance, th~ Provinces are able to levy income and
sales taxes. 166 This has been arguably aided by a cultural environment conducive to varying
levels of taxation, which may not exist in Australia. 167 While the dual tax system in Canada
arguably requires greater co-operation, and ultimately enhances overall accountability.
Tellingly, 2004 figures show that the Provinces were responsible for over 90 per cent of
health and education funding. 16B This not only acco'rds with the principle of subsidiarity, but
also avoids the Australian problem of disparity between the government responsible for
raising the funds and that responsible for delivering and overseeing the services.
Health
100%
.
90%
•.•••.••.•..........•........•.•...•.••••........•.•....
6~~
~""'~".''''~''''.'~'4'.''''.'.''''''.'''.''
•• _'.''''.'.'._''''
7(}%
60%
50%
40%
30%
20%
10%
0'%
Australia
Austrla
Canada
I E1natlonal
• stales
I
Germany
Swi12erland
Source: IMF Government Finance Statistics Yearbook, 2004
Figure 3: Health Expenditure - Centra! Government v State Governmene 69
Benjamin
Alarie
and
Richard
Bird,
'Tax Aspects
http://papers.ssrn.com/soI3/papers.cfm?abstract id=1689311, 28.
166
16/lbld,
168
169
of
Canadian
Federalism',
2010,
.
Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final Report', 37.
Ibid.
Page 18 - - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
Educa~on
1000/0
••••••••••••• '"
n~"'H
••••• ·.H
, •••••••• _
9O~~
- •••.••..•••••.••.•..... _-_ ..
oo.~>Q
•••• -.- •• - •••• -.,- '" -.__ •••••••__ ••• - •••• _-~ •••••••••••
~
•• _, _••••
._•• n_._'_' ••••
,70%
n..'
,,,,,a
40%
30%
20%
10%
0%
Cenada
Austria
I moallooal
.slales
Germany
Switzertaod
I
SOl/fCe: IMF Govemment Finance Statistics YearbO[Jk, 2004
Figure 4: Education Expenditure - Central Government v State Government170
Canada does not have an independent body comparable to the CGC. 171 Instead
equalisation grants are distributed through the Federal Provincial Rel,atlons Officer which is a
subsidiary branch of the federal Department of Finance. 172
5.0 REFORM OF AUSTRALIAN FEDERALISM
5.1
Why ;s Reform NecessaJY.?
A study by the Australian National University in 2008 indicated that since the 1970s, support
for the Commonwealth has grown significantly, with 40 per cent of respondents agreeing the
federal government should take more powers from the States, compared to 17 per cent in
1979. 173 It is understandable that the needs of Australian sOyiety .have evolved since
Federation in 1901, and Australia's federal structure does need to match this evolution in
order to ,take Australia Into the 21 st century.174 There is scope within the original text of the
Constitution to allow for such ,a gradual evolution. Beginning with the High Court's
. unfavourable interpretation of the powers of the States,175 the Commonwealth has, over time
170
Ibid.
R Else-Mitchell, 'Achieving Financial Accountability in a Federal System, 7. See also Department of Finance
Canada, 'Federal-Provincial Relations and Social Policy Branch', 2011, http://www.fin.gc.caJbranchesdlrections!fedorov-eng.asp.
'
1/2 Ibid.
173 Benjamin Herscovitch, 'Democratic Accountability and the Australian Federal System of Government, 36.
174 Kenneth Willshire, 'Reforming Australian Governance: Old Slates, No Slates or New States?', 185.
175 This has arisen from a number of High Court constitutional decisions, Including, but not limited to
Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129; South Australia v
Commonwealth (1942) 65 CLR 373; Commonwealth v Tasmania (1983) 151 CLR 1; New South Wales v
Commonwealth (2006) 229 CLR 1.
171
---.~------------
Page 19 - - - - - -
Australia's Federal System,
Is there a need for reform?
been able to amass greater financial power. This has come at the expense of the States,
and has manifested itself in greater centralisation, or Commonwealth control 9ver what was
traditionally seen as State areas of policy.176.
The shift of the balance 9f powe,r away from the States has meant that the benefits of
federalism are no longer evident in Australia's federal system. Rather than continue' with the
current trend towards. concurrent federalism, reforms must ensure that Australia· benefits
from a co-operative scheme of federal relations. Regional. representation has been r~placed
by a greater centralised"agenda, and th~ shift towards national policies in all Instances
means the benefits of competitive federalism are neglected. 1n As one of the most
centralised federations, the continuance of this path will lead to the further "withering away"
of the States,178 exacerbating the inefficiencies already present.
5.2
What are the Options for Reform?
5.2.1 Constitutional Reform
There are a number of constitutional changes that can be made to improve Australia's
federal balance. A Canadian-style enumerated list of State powers would place a limit on the
Commonwealth's powers, and prevent the High Court from interpreting federal powers so
widely.179 However, this is a not a practical solution, and there are many others which could
achieve similar results without such broad constitutional change.
An additional avenue of constitutional reform could amend section 90 to provide for the
States to levy their own sales taxes. 180 This would alleviate much of the VFl. As GST grants
are distributed to the States and Territories, they would be responsible for both levying and
appropriating the tax revenue. The current accountability split between the State and federal
governments would consequently improve, and States could then pursue their own policy
objectives in line with competitive federalism.
The referendum initiation process is also weighed against the States. 181 As only the
Commonwealth can propose referenda, those proposed generally favour an expansion of
Commonwealth powers. Allowing the States to initiate the referendum process would shift
, this balance back towards the States. For example, if a majority of States were in favour of a
proposal, this could then be put to the people at a referendum. Having a minImum number of
States that need to support an initiative would also safeguard against proposals which do not
benefit the majority of Australians.
Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 114.
Ibid.
17)3 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future, 45.
179 Singleton et. aI., Australian Po/meal institutions, 131.
th
180 Chris Merritt, Fiscal Federalism Up for Judgment, Australian Financial Review, June 12 1997 as cited in
Federal-State Relations Committee. 'Report on Australian Federalism; The Role of the states', 126. Presently,
states are unable to raise their own sales taxes OWing to the High Court's interpretation of the prohibition on
excise and customs duties in s 90 ofthe Constitution.
181 As opposed to the majorities required to carry a referendum proposal, which requires a majority of States (In
addition to a majority of total electors) in order to be carried.
176
177
- - - - - - - - - - - - - - - Page 20 - - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
5.2.2 New Interpretation of the Constitution
The High Court's approach to constitutional interpretation has had a profound impact on the
federal balance. While a return to the doctrine of reserved powers would inevitably conflict
with the decision in the Engineers case, there is a greater scope to accommodate the federal
nature of the Constitution in judicial practice. In NSW v Commonwealth (Workchoices),i82
. Justice Kirby noted' the importance of constitutional interpretation reflecting the federal
Constitution. 183 In dissent, His Honour noted that .interpreting the Commonwealth's
enumerated powers individually without regard to constitutional limitations would limit the
effectiveness of federal protections preventing power from accruing in one central
government. 184 In the future, the States l)hould be less willing to accept the limitations on
their power generated by previous High Court decisions. 18S The Commonwealth's powers
should not be exercised without regard to the effect this would have on the States.
The Canadian Supreme Court has notably interpreted the Canadian Constitution with
greater regard to federalism than its Australian counterpart. i86 This has s~feguarded the
Provinces from a loss of power to the federal government, as has occurred in Australia.
Similarly, the Supreme Court of the United Kingdom has the authority to determine cases
relating to devolutionary issues. Having only been established in 2009, the number of cases
which have come before the UK Supreme Court are limited. As the court continues to
develop its jurisprudence, the approach it takes on devolutionary matters could prove to be
central to the evolving relationships between the UK jurisdictions.
5.2.3 . Financial Reforms
Many of the federal issues within Australia can be traced to the financial marginalisation of
the States. Reform of Australia's current federal financial relationship could not only reduce
the VFI, but also improve accountability and transparency within the s~stem ..
5.2.3.1
Income Tax
While the establishment of the GST was intended to grant the States and Territories access
to a growth tax, the 2011 - 2012 Queensland Budget Papers note that the predicted growth
of GST'is likely to wane over time. i8 ? However, the responsibilities of the States are unlikely
to, follow a similar trajectory, instead continuing to grow. The States have, for many years,
been supportive of a plan to be allocated a proportion of the income tax collected by the
Commonwealth. 188 Unsurprisingly, successive Commonwealth governments have been
resistant to such plans. The progressive nature of income tax "results in revenue Increasing
NSW v Com~onwealth [2006] 229 CLR 1.
NSWv Commonwealth [2006]229 CLR 1 at 470,612 per Kirby J.
184 NSW v Commonwealfh [2006] 229 CLR 1 at 555 per Kirby J.
185 In his judgement in Workchofces, Justice Kirby noted that none of the States sought to rely on the doctrine of
182
183
reserved powers or that a broad lnterpretatlon of section 51 (xx) of the Constitution would infringe upon states'
~owers at 462 - 465.
'
86 C.P. Harris, 'Relationship Between Federal and State Govemments in Australia, 155.
'
187 Queensland Treasury, 'Queensland State Budget: Budget Strategy and Outlook (Budget Paper No 2).
188 Neil Warren, 'The Henry Review, State Taxation and the Federation,' The Australian Economic Review (2010)
34:409,416.
'
- - - - - - - - - - - - - - - Page21
Australia's Federal System
Is there a need for reform?
faster than the rate of increase in the base". 189 In contrast. the base of GST has remained
unchanged since its introduction in 2000. The recent review on Australia's Future Tax
System (the Henry Review) noted there were overall benefits in allowing the States to share
19o
and accountability perspective.
a percentage of income tax from a financial
,
,
'
5.2.3.2
Goods and SerVices Tax
In comparable federations such as Can~da.· the Provinces exercise greater control. over
sales taxes. and additionally are; permitted to levy their own at the provincial levE;l1.191 This is
not the case in Australia, as the High Court has ruled State sales taxes to be
unconstitutional. 192 If a GST rate similar to' other OECD countries were to be introduced,
Warren argues this could replace up to 65 per cent of State taxes. 193 The monopoly of
Commonwealth control over the rate and base of GST within Australia arguably separates
the discretion for raising a necessary amount of revenue from the knowledge of the funding
necessary to cover a State's policy objectives. As the GST is a tax intend~d for the States'
and Territories. if a constitutional amendment to permit the States to levy a sales tax is not
adopted, then a greater degree of control should be granted to the States in determining the
rate and use of the funding.
5.2.3.3
Commonwealth Grants
The increasing Commonwealth reliance on SPPs has limited the accountability,
transparency and scrutiny of State government policy and functions. Reducing the use of
SPPs in favour of general grants. especially for areas of polley that are entirely controlled by
the States, will allow the States to maintain autonomy over the scope of policy and prevent
Commonwealth encroachment into areas of State expertlse. 194 This would allow greater
diversity in policy and usher in the benefits of competitive federalism. Moreover, there should
be a greater emphasis on ensuring that Commonwealth grants are subject to the same
degree of parliamentary scrutiny as State own-source revenue, which pass through a State's
Consolidated Revenue Fund. 195 This would also serve to improve the tension between
parliamentary responsibility and the executive federalism that has come to dominate the
Australian political landscape, by placing greater responsibility in the hands of State
Parliaments. Where SPPs are indispensible,. they should be granted within a greater
framework for accountability and allow the States more scope to design policy outcomes. 196
,
"
,
t '
189 Ibid.
190 Australia's Future Tax System, Final Report: Part 2 - Detailed Analysis - Volume 2, 2010,
http://taxreview.treasurv.gov.au/contentldownloadsmnal report part 2/AFTS Final Report Part 2 Vol 2 Cons
olidated.pdf, 675 as cited in Neil Warren, 'The Henry Review, State Taxation and the Federation,' The Australian
Economic Review (2010) 34: 409, 415.
191,Benjamin Alarie and Richard Bird, 'Tax Aspects of Canadian Federalism, 27.
192 Alan Fenna, 'The Malaise of Federalism: Comparative Reflections on Commonwealth-State Relations', 299.
193 Neil Warren. 'The Henry Review, State Taxation and the Federation: The Australian Economic Review (201 0)
34:409,415.
.
194 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future'. 48.
195 R Else-Mitchell, 'Achieving Financial Accountabillty in a Federal System, 5.
196 Ann Twomey. and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 48.
Page 22 - - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
Responsibility for Raising Revenue
5.2.3.4
Finally, any financial reforms should have regard to the prihciple of subsidiarity, that is,
ensuring the level of government responsible for policy is al~o responsible for raising
revenue to fund policy initiatives:197 This would also serve to alter the relationship between
the Commonwealth and States from one of principal and agent, to a greater partnership, and
reduce the VFI that currently affects the federal balance, For example, in Canada, the·.
Provinces retain primary control over heath policy and are also responsible for raising
approximately 95 per cent of expenditure. 198 In contrast, while the Australian States retain
responsibility for providing health services, the responsibility for funding is almost evenly split
between the States and the Commonwealth,199 Moreover, the Commonwealth's use of SPPs
has further split the responsibility for raising revenue against delivering services. As financial
control is one of the key means through which the States gradually lost power to the
Commonwealth, reforms made in this area could have a dramatic Impact on the course of
intergovernmental relations.
5.2.4 Reallocation of Responsibilities
Reallocating policy responsibilities between the States and the Commonwealth would also
Improve the federal relationship. There needs to be a greater recognition that not every
problem can be solved by greater centralisation, especially if this is not the underlying cause.
Presently, there is a tendency to assume that centralisation will solve problems, or merely a
cursory examination without necessarily examining the underlying causes, such as the VFI.
Where practicable, one level of government should be responsible for administering a
particular area of policy to improve accountability and certainty and limit the .amount of blame
shifting between governments. 200 Responsibilities should be allocated between the
governments according to the principle of subsidiarity, so that State, Territory and local
governments are primarily responsible. 201 For example, in many federal countries, health
care is generally within the ambit of one level of government. 202 Rather than the
Commonwealth continuing to gradually gain more control over health, as far as practicable
this should be left to the realm of State re.sponsibillty.
Any change in roles and responsibilities should have regard to other factors, including
whether there are benefits that can be gained through harmonisation or economies of
scale. 203 Further, altering the allocation of responsibilities between the States and the
Commonwealth without increasing the VFI illustrates that reform in this area is inextricably
linked with financial reform. A reallocation of responsibilities could be accomplished through
constitutional amendments, a referral of power from the States to the Commonwea.lth or by
the Commonwealth vacating a field of legislative power it currentlyoccupies. 204 However, as
197
198
Geoff Gallop, 'How Healthy is Australian Federalism?, 5.
,
Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final Report', 37.
199
Ibid.
200
Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 46,
202
Ibid.
~IWd.
'
,
Ibid.
Ibid. When the Commonwealth Parliament 'covers a field' this would indirectly affect any state law on such a
matter by rendering it inconsistent ~hrough section 109 of the Constitution.
203
204
Page 23 - - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
most of Australia's federal relationship today plays out in political processes, it is conceivable
that a reallocation of responsibilities can also occur via this medium without the. need for
constitutional reform. 205
_5.2.5 Reform of Intergovernmental Bodies
. Intergovernmental bodies such as COAG and CAF bave provided an important forum for. the
Commonwealth, States, Territories and Local Government representatives to develop and
discuss- policy initiatives. However,' a's .executive-dominated· bodies, they inevitably reduce
the accountability of the agre€;lments rea9hed, as there is no opportunity for parliaments to
scrutinise proposals until after they'have been adopted by COAG. 206 Reforms can be made
to COAG to improve its functions and operations.
Constitutional recognition would entrench COAG as a fixture in intergovernmental relations,
granting legal status and greater legitimacy than it enjoys presently.207 Moreover, recognition
would prevent COAG from being sidelined by the Commonwealth in the political process,
ensuring there remains a legitimate forum through which the Commonwealth, States,
Territories and Local Government can meet. However, Kildea and Lynch warn that
recognising an executive-dominated body would further erode the place of parliamentary
responsible government within Australia's political system. 208 Alternatively, statutory
recognition of COAG would provide the benefits of greater legal certainty while avoiding the
rigidity of constitutional enactment. 209 Either pathway to recognition would open the
possibility of judicial review of either the statutory instruments or constitutional provisions.
The representation of the States, Territories and Local Government within COAG could be
improved through greater control of the agenda and holding meetings at a time which better
suits all parties. 210 All members of COAG should be able to bring Items on the agenda,
rather than the Commonwealth dominating the process. 211 COAG should not be utilised by
the Commonwealth in a way which makes the States subordinate, and instead should favour
a co-operative approach between all levels of government,212 Finally, an independent COAG
Secretariat not within the Commonwealth Department of Prime Minister and Cabinet would
secure COAG's role as a co-operative federal forum. 213
5.2.6 Local Government
Improving Australia's federal system of government cannot be achieved without ensuring all
levels of government, including local government, are properly able to manage and '
Brian Galligan, 'Processes for Reforming Australian Federalism', 634.
Paul Kildea and Andrew Lynch, 'Entrenching 'Co·operative Federalism': Is it Time to Formalise COAG's Place
in the Australian Federation', 16.
"
207 Ibid 19.
208 Paul' Kildea and Andrew Lynch, 'Federalism i:lt the Sub-Constitutional Level: The Case of the Council of
Australian Governments', 15.
209 Ibid 16.
210 Peter Beattie, 'The Immediate Challenge Regarding COAG Reform', 59.
211 Ibid.
212 Ibid.
213 Ibid.
205
206
Page 24 - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
implement their respective responsibilities, However, the role of local government is often
overlooked in discussions about federal reform. 214 There are approximately 650 local
government authorities in Australia, which ~xist as a result of State legislation. 215 In recent
times,. local government has tended to assume responsibility for. public transport town
planning, local public works and waste disposal, and these have only increased over the
past few decades. 216 A number of local governments are now also taking on responsibilities
in community safety issues, arts and culture, and environmental management,217
.
As a creature of State governments, local governments do not have the same degree of
independence and autonomy as other levels of government. This has left local governments
vulnerable to cost..:shifting, with ever-increasing responsibilities and limited sources of
revenue. Only .one-thirdof local government revenue is own-source revenue, with the
remainder comprising grants from either the State or Commonwealth governments, many of
which have conditions attached. 218 An Intergovernmental Agreement Establishing Principles
Guiding Intergovernmental Relations on Local Government Matters was signed in 2006 by
the Australian, State and Territory and local governments to minimise the cost-shifting that
occur~ when responsibilities are transferred to local governments. 219 Properly financed and
resourced local governments will be better able to provide for their evolving responsibilities
in the future.
Local government is represented by the Australian Local Government Association (ALGA)
on COAG.22o This representation is. important in allowing local governments the opportunity
to partake in deliberations which affect Australia's federal structure, The place of local
government in Australia's federation has also been mooted through a potential constitutional
referendum proposed by the current Gillard government,221 Two proposals recognising local
government have been put to referendum in 1974 and 1988, however neither were
successfully adopted. 222 The Gillard government has committed to holding a referendum on
local government constitutional recognition at or before the next federal election. 223 While the
form of the proposal is still being determined by an independent government-appointed
Panel, recognition could have the potential of improving accountability in local government
.and recognise the invaluable role they play in the Australian federal system, This would
further impart the principle of subsidiarity into the Australian federal system.
AJ. Brown, 'Reshaping Australia's Federation: The Choices for Regional Australia: Public Administration
Today 13 (2007), http://WVlIW.parliament.qld.gov.au!ConcordDocs!A08/A080305ML11 ,PDF, 9.
215 Federal-State Relations Commitlee, 'Report on Australian Federalism: The Role of the States', 12.
216 John Madden, 'Australia: Central Fiscal Dominance, Collaborative Federalism, and Economic Reform', 89.
217 Paul Bell, 'How Local Government Can Save Australia's Federal System: in Federalism and Regionalism in
Australia: New Approaches, New Institutions?, eds. AJ. Brown and J,A. Bellamy. Canberra: ANU ePress, 117.
218 Australian Local Government Assoclaton, 'About ALGA', 2011, http://www.alga.asn.au/abouU.
219 Singleton et. al., Australian Politicat Institutions, 109. See also Paul Bell, 'How Local Government Can Save
Australia's Federal System, 178,
220 Kenneth Wiltshire, 'Reforming Australian Governance: Old States, No States or New States?, 188.
221
Simon
Crean,
'Panel Appointed
on
Constitutional
Recognition
of Local
Government,'
http://www.minister.regional.gov.au!sc/releases/2011/augusUse097 2011,aspx.
222 Nicola McGarthy and George Williams. 'Recognition of Local Government in the Commonwealth Constitution'
21 Public Law Review (201 0): 164, 164.
.
223 Simon Crean, 'Panel Appointed on Constitutional Recognition of Local Government'.
214
Page 25
Australia's Federal System
Is there a need for reform?
6.0 CONCLUSION
. 2011 marks 110 years since Federation, and there Is no more suitable a time to re-examine
the dynamics and operation of Australia's federal system. While there have only been limited
changes to the text of the Constitution, the federal relationship has changed. considerably,
with the States becoming increasingly marginalised by the authority which has amassed in
the Commonwealth.
A culmination of High ,Court. decision-making, an increasing· VFI and Commonwealth
intervention in traditional areas of State policy have all contributeq to the States' loss of
power since Federation. Moreover, policies are increasingly concluded in executivedominated intergovernmental bodies, such as COAG and CAF. Accountability, scrutiny and
transparency of government decisions and policies have been consequently been adversely
affected by this trend. The current operation of Australia's federal system, with its emphasis
on 'executive federalism' is inconsistent with the notion of parliamentary responsible
government which is a central component of Australia's system of government.
.Reforms are necessary in order to ensure that accountability and responsibility in
government decision-making are better protected, and to guarantee that States can continue
to fulfil their responsibilities. A number of reforms have been suggested, including
constitutional amendments, financial arrangements and political responsibilities. Chief
among these are reforms to minimise the VFI and improve the scrutiny of Commonwealth
grants by limiting the use of SPPs.
The debate surrounding the future of Australia's federal relationship will undoubtedly
continue into the future. This could manifest itself in yet another State constitutional
challenge, this time to the Commonwealth's Mineral Resources Rent Tax (MRRT) led by the
resource States of Western Australia and Queensland. 224 The outcome will have a significant
impact on the future direction of Australia's federal balance. A win for the Commonwealth will
transfer an even greater amount of financial power from the States to the Commonwealth.
[n Workchoices, Justice Kirby stressed the importance. of federal systems in maintaining
fundamental freedoms by preventing power from being concentrated in one central
government. 225 Rather than continuing down the path to further centralisation, greater
emphasis should be placed on maintaining regional policy preferences and diversity.
Research has shown that citizens living in federal systems are financially better off than
those in other systems of government,226 However, this will not be the case in Australia
unless the federal balance is' restored. Co-operation from all leve[sof government is
necessary to ensure that Australia's federal system is able to face the challenges of the 21 st
century.
224 Ainslie van Onselen, 'Mineral Resources Rent Tax Calls for Fresh Advice,' The Australian, 16 September,
2011, Business section.
225 NSW v Commonwealth (2006) 229 CLR 1 at 555 per. Kirby J.
226 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future', 5.
-----~---------
Page 26 - - - - - - - - - - - - - - - -
Australia's Federal System
~~~~~~~~~~~~~~-
Is there a need for reform?
APPENDIX A: Referendum Dates and Results 1906 ..
Present227
I·'~':·'~·:·:··::·::·····':·::::·~:·:··:·::::·:: :
:.:•.•.::.:.:::.:::::.::'.:.:':.:.':.::..::': :.:.j . :.: :'. ::..: '..:
:.:..: ;.: : : : :...........\.: .:.~..:.:
: :.:..:.:..: : :..::..:: ··:::·':·1..:::.:::.:::..:.:.: ~'.: : ::[ :::.:..:.:.::.::.:::.;:.
Senate Elections
8 November 1906 12 December 1906 Carried All
To enable elections for
both Houses to be held
concurrently
.._......•_.__
...
82.65
Finance
28 February 1910 13 April 1910
To implement the
agreement to allow the
Commonwealth to
make a fixed payment
out of surplus revenue
to the States according
to population. This was
to replace the
.
arrangement where the
Commonwealth
returned three-quarters
of .net revenue to the
States
Not
Qld,
Carried WA,
Tas
'49.04
Carried All
except
NSW
54.95
.~
,.._.••_ ..
-".--""_
,.~.
"._.._.".,"'_,
".~.A'"'".
..,••,.,,__.
' ..__
"_~.,,,",~.,''''._.,
..
State Debts
28 February 1910 13 April 1910
To give the
Commonwealth
unrestricted power to
take over State debts .... _
_ __ - - - _ .
*Legislative .Powers
To extend the
Commonwealth's
powers over trade,
commerce, the control
of corporations, labour
and employment,
including wages and
conditions; and the
settling of disputes;
and combinations and
monopolies
..._--_. __....,,-- ....
15 March 1911
26 April 1911
Not
WA
Carried
39.42
*Monopolies
To give power to the
Commonwealth to
15 March 1911
26 April 1911
WA
Not
Carried
39.89
Reproduced from Australian Electoral CommissIon, 'Referendum Dates and Results 1906 - Present, 2011,
http://\NWW.aec.gov.aulElections/referendums/Referendum Dates and Results.htm.
227
Page 27
~~~~~~~~~~~~~~-
Australia's Federal System
Is there a need for reform?
l~atibn-~lls~m;nop~i~_~:_[_~_:_:~=:::_~_= C~~
ITrade and Commerce
124 April 1913
I
I1..____________________________________________________________
__
I Corporations
-._ • .:_ - ---_- ~_:r~_:-:
131 May 1913
Not
Old,
' C a r r i e d -WA,
SA
---- -
24 April 1913
31 May 1913
---------- - --- - -- -------- - -- -------------- ------- --------
.
"
" "'"
_
_
,
-
_ -.
31 May 1913 -
24 April 191q
Industrial Matt~rs
"
- .. - ..-
__
.
Railway Disputes
24 Apri! 1913
31 May 1913
Trusts
24 April 1913
131M~y 1913
1
24 April 1913
-
-
- -
]-~-
-
--------------..1
49.33\
i
I
--- --------- ---
~~~rl~~ ~~:______
__
Not
Old,
Carried WA,
SA
31 May 1913
,r~~~~g~:~~~SIIS Nov~mb~;19i9 13 December 1919~~:ried
49.33
__'
49.33
~f-I- 49.
65
legislatiye powers over
Trade and Commerce, i
Corp()ratlons, Industrial i
Monopolies
To seek power for the
commonwealth to
make laws with respect
~~_I!1?~5?P?II~~ --- --------------
I
.. ,,_.....
.
,."
.
Vic,148641
I
Carried Qld,
WA
I
-------------------------------------r
*Industry and
26 July 1926
Commerce
To authorise the
I creation of authorities
Ito control the terms
I and conditions of
industrial employment,
to give State authorities
similar powers to
Commonwealth
authorities, and to
regulate and control
trusts and
- 1._------combinations
__
_
_
_
------- --- --!- *Essentlal Services
26 July 1926
Ito allow the
Commonwealth to take
I measures to protect
!
1
I
~:~~~a~~J~~S~3November 1919 Iis December i9ig Not
I
I
49.13
Not
Old,
Carried WA,
__?_p.-:
J
Not
Qld,49.781
I
I
49.381
Not
Old,
Carried WA,
SA --- ----------------- - --- _ Not
Old,
Carried WA,
SA
---:------l-------- -
--------
Nationalisation of
Monopolies
:__ I. ~__-J
I:_-
4 September 1926
Not
NSW,
Carried Old
__
I
.
4 September 1926 Not
)' NSW,
Carried Old
I!
_
43.50
42.80
i _
.. . L _ J __ ___.I.____.
Page 28
--~-----------
Australia's Federal System
Is there a need for reform?
the public against
interruption of essential
services
····---.. --·-----1·__··
·_·_.. .·. __.1..·_·..········....·..·-·--..----..1
17 November 1928 Carried All
9 October 1928
State Debts
to end the system of
per capita payments
which have been made
by the Commonwealth
to the States since
1910, and to restri.ct
the right of each State
to borrow for its own
development by
subjecting that
borrowing to control by
a
loan council,
.......... - "
_. -1·· _··-·· ..··.. ·· · .. ···..··
.
Not
Vic,
4 February 1937 6 March 1937
*Aviation
Carried Qld
to give the
Commonwealth power
to legislate on air
navigation
and aircraft 1 ···-_······_· ··_·..· · ·_ ·.._·.._.·_·_-_.._··_.._- . --{---- -.- - - -..- - - - - -......... I....········..·· · ....-I
..__ ._.,_.
..,..
..
None
Not
4 February 1937 6 March 1937 .
*Marketing
Carried
to give the
Commonwealth power
to legislate on
marketing
-- _
Not
WA,
4 July 1944
19 August 1944
*Post·war
Carried SA
Reconstruction and
Democratic Rights
to give the
Commonwealth power,
for a period of five
years, to legislate on
14 specific matters,
including the
rehabilitation of exservicemen, national
health, family
'allowances and 'the
people of the
.~borig~~~I,~~~~'
,...•.. -._-.-----.-.,,-.-----.._ ...
21 August 1946 28 September
Carried All
Social Services
1946
to give the
Commonwealth power
to legislate on a wide
range of , social
services
_ ,'__ .•
" "
,,,""'..•'., _
_ _._
,. ..
,
_........
.. " _,..""•. "
v"'.·_·_·..·,,..·__ · .._·-••-··, ·,--,,-,
__....•••.."
Not
NSW,
Organised Marketing 21 August 1946
28 September
Carried Vic,
of Primary Products
1946
WA
to allow the
Commonwealth to
make laws for the
organised marketing of
......................................................_ _._ _
_._.._ _._
1
J
~,."
""" ,,
,.,
"-"
,
"
"
"-
,,,"-,,
53.56
,
36.26
,
""-,' ,
~~
74.30
,
,.~,~."._"_".,
- - - - - - - - - - - - - - - Page 29
"
~~
45,99
-,,,
54,39"
·_--_··.··_---"""'-"~
50.57
L
./
Australia's Federal System
-------
Is there a need for reform?
.·.-_ .
Ipri~~~pi~d~~?_!~~ .~_- _i:_~
!Industrial'
Employment
to give the
Commonwealth power
21 August 1946
1r;:~\E~~~:~j __·
-- -----
112 April 1948
to give the
Commonwealth permanent power to .
control rents and prices
1
~
"
Not
Carried
29 May 1948
I
.. ..... .....
I*P~~~~~t~-6~·~I~-ith-10 August 1951
Communists and
Communism
to give the
Commonwe~lth powers
to make laws in respect
of communists and
communism
.......__ _,. -_.- _ ..
.
\28 September
, 1946
I
'
I*Rent and Prices
__ _
·.~~L
49.441
I
Tas
l;~~:;~:-t:;~e ~~7~ovember -18 ~ecemb.r
Commonwealth to
legislate on incomes
I
__I'
.J .....
27 May 1967
28 April 1967
*Parliament
to increase the number
of Members of the
House of
Representatives
without necessarily
increasing the number
of Senators
- - - - + - _ .__._---_.._--27 May 1967
28 April 1967
*Aboriginals
to enable the
Commonwealth to
enact laws for
Aborigines. To remove
the 'prohibition against
counting aboriginal
people in population
counts in the
Commonwealth or a
State.
*Prices
12 November
8 December 1973
to give powers to the
1973
Commonwealth to
1973 -
Not
NSW
Carried
1
J__
I
40025
'
I
I
Carried All
43.81
Not
None
Carried
~~ried-I None ··1
Not-- i NSW -
,_~a~~i:~ I
I
-J 90>77j
!I
I S-i-m~ltaneous ----l-20 April 1974 -i18-M~Y--19-74
1_~~~~~o~~CtiO~~!~r_~h~ I _.. .
..,
-~~~ried l~f
22 Sept~ll1lJ~~
1951
I
I
1
I
34 4:21
0
I
I
I
--i--- 48.30 I
Page 30 - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
...--- -
- --- --..-
-.--- -- --- .. - .. --.-----..- , -
--..---- --.- -------.-------
--
-,-
-----..---.. --..- - .. --.- ----.---·-·
- · ·T--..·..- ..---------------..-
--------
---- -
-..------..----..-..--- - ..
Senate and the House
of Representatives on
_~~~_~~~. ~ .~~X_
_.
..
, Mode of Altering the
20 April 1974
Constitution
to give a vote in
referendums to
electors In the ACT and
the Northern Territory,
and to enable
amendments to be
made to the
Constitution if
approved by a majority
of voters and a majority
of voters in half the
States
.._----.-,.--.----_ _---,-_
. __._ _----_._---.-_...• -. __ -_...•-
18 May 1974
- - --..------_._ _---,-------_
_--_._~._._
-.,~
"~,,,
.E~?EI_~, an9. . ~~.~~_!~~_,_.
_.._._. _--_.
__ _
Not
NSW
Carried
46,85
27 April 1977
21 May 1977
Not
NSW,
Carried Vic,
SA
62.22
27 April 1977
21 May 1977
Carried All
73.32
,_.,.,"---~._".~
,_
-_., _-_._----_
18 May 1974
,
'
••_-.._ - , . -•.._._,,_.,-._ ..,-'- "•.,
__._-_.__ _ _-
47.20
,
---,---~,,._
_.
--...... -·1
47.99
NSW
Not
Carried
local Government
20 April 1974
Bodies
to give the
Commonwealth powers
to borrow money for,
and to make financial
assistance grants
directly to, any local
government body
*Simultaneous
Elections
to ensure that Senate
elections are held at
the same time as
House of
Representatives
elections
.....
_.._--_ . __.. __--"'"_
,,_ ,,---,_._ __ *Senate Casual
Vacancies
to ensure, as far as
practicable, that a
casual vacancy In the
Senate is filled by a
person of the same
political party as the
Senator chosen by the
-,
18 May 1974
Democratic Elections 20 April 1974
to make population
.instead of electors, as
at present, the basis of
determining the
average size of
electorates in each
State
..........
,""...............
.."-,,-..
-
Not
NSW
Carried
..,.'''*'"
_".." ",..
,~",
,_
'
..
.
,
..
_ ..,_ _._ _, ._,
. __,___.. . . . . . . . .
- - - - - - - - - - - - - - - Page 31
.
_,. .
__ ,, . ,_,_ ..._ , . _
Australia's Federal System
Is there a need for reform?
-----.. . ···---1--··
1~;1:;~~:I'~~~i~~~f ! I
I
~:-:~-~i-~~i:~(:ic)
1
...........
I;~~::~r~~~~:s of
-:·1--·! ..77.72
,
I
I
I
I
I.
[27 April19n ··121 MaY1iin
Ito provide forretiring
J
Carried All
121 May 1977
*Referendums.
27 April 1977
Territories
to allow electors in
Territories, as well as
in the States, to vote in
!
i
J ca;;;J-A-II--jllo.iO
,
I I
I
I
Terms of Senators
26 October 1984
to change the terms of
Senators so that they
are no longer fixed,
and to provide that the
. election for both
Houses are always on
i
the same day
Interchange of
1
Powers
to enable the
Commonwealth and
the States voluntarily to
refer powers to each
other
........ __
- ..- .
*Parliamentary Terms 25 July 1988
Ito provide for 4 year
maximum terms for
members of both
Houses of the
Commonwealth
Parliament
*Fair Elections
25 July 1988
to provide for fair and
democratic
parliamentary elections
throughout Australia
.
I
Not
NSW,
Carried Vic
••• _ . "
"."
._
_"
"."
.,..
•
••• "
•
•
*Local Government
to recognise local
government in the
I Constitution
I*Rights and··
Freedoms
to extend the right to
Ii trial by jury, to extend
_ ..
_n
_ _•__ •
• _ _ • _ _ •• _ . _ _ •
'_'..
50.641
Iii.'
I
·1
47.06
I
I
I
j
._.
.,
_
I
!
I
126 October 984 11DOC"".';;ber19a4 ~I ~~:~:~I Non.
,
I
'. ......1 . . • . '
1 December 1984
I
None
3 September 1988 Not
..1
32.92
Carried
••••
. _ "••••••• _
,'_,_",_
.. .I
.......... "1
.
37.60
None
.3 September 1988 Not
Carried
·······ts~Ptembe;:i988·Not--·Non~--r33.621
. . I.carrie~l
1 .....1
1!!t?(39.?rt1C?!!~ligi~~ .
-~~--~~--~--~--
13 September 1988 Not
I None
I
Carried I
1
j
j
;
30.79 I
I
'
1
I
... 1._.
I!
i
i.
_
.•_.•_ ...•.
Page32 - - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
_,~
_~
.-
_
..-._---_._.._---
-
-----~_._,._,
-
- -
_
_-_... ... ..__ .._.._._. __.. "_._---_.._--_._--._.._.._-_._._.....
.
. .....,-----_.- ........
_
__
. --,..- .. _., .. _.-_...__ .. _._ ....--,-
,
_
~_.~-,~_.-.-._
~
-
*Republlc
To alter the
Constitution to
establish the
Commonwealth of
Australia as a republic
with the Queen and
_.... -..-
_
_.,_. .__ ..
.
-_._ ......_,_...",_., .. ,._... __ ._.._.......__... ,-_. -- .......-.
and to ensure fair
terms for persons
whose property is
acquired by any
government
. .. _.-"-,-_.-_ ..... .._---_ ... .... -._ .._,.. ..-. ................._ ...
.._. __ .._., ..__.__...._---"---,...
1 October 1999
6 November 1999
Not
None
Carried
45.13
1 October 1999
6 November 1999
Not
None
Carried
39.34
Governor~General
being replaced by a
President appointed by
a two-thirds majority of
the members of the
Commonwealth
Parliament
*Preamble
To alter the
Constitution to insert a
- - - - - - - - . - - - - - - - Page33 - - - - - - - - - - - - - - -
Australia's Federal System
Is there a need for reform?
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- - - - - - - - - - - - - - - Page 38 - - - - - - - - - - - - - - - -
.,