Australia’s Federal System:
Flexibility, Change, and Schooling
Brian Galligan and Bronwyn Hinz
University of Melbourne
Paper presented to 22nd IPSA World Congress,
Madrid
8-12 July 2012
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Australia’s Federal System: Flexibility and Change
Perceptions of federalism, like those of beauty, are often as much in the eye of the
beholder as in the richly complex and varied aspects that constitute the subject. Patterns
of federalism from time to time reflect the imprint of the underpinning institutional
framework, but only in part, as exogenous political forces interplay with changing social
factors and economic structures. Federalism provides the institutional stage and some
broad defining rules, but the action is scripted in the political realm and played by
political actors striving for political ends and advantages.
To evaluate how, and how well, Australian federalism is flexible and changeable, we
need to pay attention to two sets of interacting variables: one set is that between
perceptions or mindsets and the actual federal phenomena; the second is that between
federal and extra-federal political causes. Both are challenging exercises. The first
because knowledge is an interactive process in which mental structures mediate the
known. We can make some progress here by critical reflection and identifying mindsets
that colour analysis and prescription—federalism abounds in these. The second challenge
of sorting out the inevitable symbiotic intermingling of federalism and politics is the stuff
of federalism scholarship. Here we use two methods for highlighting flexibility and
change within the Australian federal system: changes over time that show how changing
political drivers bring out different aspects of federalism; and the case of education policy
that illustrates the opportunistic and partly perverse pattern of federalised politics and
policy in Australia. Comparative federal analysis is also a powerful tool, but not the
subject of our paper, which should nevertheless provide rich material for refining
comparative insights.
Changing Mindsets and Approaches
Federalism, and in particular Australian federalism, has been much discussed and much
maligned during more than one hundred years of commentary and practice. The character
of federalism, its propensity for development and change, and its suitability for strong
and effective government have been centre stage with commentators and critics. This was
especially the case in Australia where the Labor Party was pledged for most of the
twentieth century to its abolition in favour of centralized national government. This
negative mindset changed in the latter decades of the twentieth century. Australia
provides a rich source for insight into the interplay between the mindsets of critical
commentators and the commitment and experience of a major political party working
within, but pledged to abolish, federalism.
Federalism is a constitutional system of multiple governments, with powers distributed
between national and state governments so that neither level of government has
sovereignty over the other. The basic framework that determines the broad distribution of
powers is entrenched in a written constitution with an independent court charged with
making authoritative interpretation of disputed clauses and deciding the precise
boundaries of particular government powers in contested cases. By its very nature,
federalism is complex and makes for a complicated system of government. Powers are
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divided, at least in the American-style republican federalist model, to restrain and check
the exercise of absolute power by any one government. Precisely for its limiting of
government powers, over the national economy and in implementing the welfare state,
federalism was criticized by a generation of twentieth century postwar progressives and
centralists. William Riker, a prominent American scholar of federalism, moved from
being a New Dealer critic in the 1960s to a liberal advocate in the 1990s: ‗Taking
together all federations in the world at all times, I believe that federalism has been a
significant force for limited government and hence for personal freedom‘ (1993, 513).
For the Australian Labor Party, formed at about the same time as the Constitution in the
last decade of the nineteenth century, federalism was the bogey and bane of its political
life. Out of office for much of the twentieth century up until the 1980s (the 1940s decade
of World War II and postwar reconstruction was the exception when the Curtin and
Chifley Labor governments ruled for most of the time) mainly because of internal party
splits, Labor nevertheless blamed the federal Constitution for unduly restricting its
centralist and socialist agenda. Labor‘s indictment of federalism was championed by a
youngish Gough Whitlam in a 1957 lecture aptly titled ‗the Constitution versus Labor‘.
Whitlam claimed that the Labor Party was ‗unable to perform, and therefore finds it
useless to promise, its basic policies. It has been handicapped… by a Constitution framed
in such a way as to make it difficult to carry out Labor objectives and interpreted in such
a way as to make it impossible to carry them out‘ (Whitlam 1957). The Labor Party
remained formally committed to the abolition of federalism until its reforming party
conventions in the 1960s and the Whitlam government in the early 1970s. To the extent
that Labor was genuinely socialist and centralist, Whitlam‘s 1957 prognosis was correct
because of the constraining liberal character of federalism that the older Riker affirms
above.
Labor antipathy towards federalism was well supported by notable scholars of the day.
The leading federalist scholar, K. C. Wheare, an expatriate Australian and Oxford
professor, emphasized the legalism and consequent conservatism he claimed was inherent
in federalism (Wheare 1946). The influential English scholar, Harold Laski (1939), had
pronounced the ‗Obsolescence of Federalism‘ and influenced a generation of students
from the British Empire cum Commonwealth. One notable disciple was the prominent
Australian historian Gordon Greenwood who wrote the then classic account of The
Future of Australian Federalism (1946), arguing that it had no future. Geoffrey Sawer,
eminent constitutional lawyer, summed up his study of Australian Federalism in the
Courts (1967) with the bleak conclusion that, constitutionally, Australia was ‗a frozen
continent‘.
The liberal character of federalism, the Australian Labor party‘s longstanding opposition,
and the negative conclusions of mainstream mid-twentieth century scholars have been
discussed and evaluated extensively elsewhere. We recall them here in order to underline
the sustained negative case against federalism as a legalistic, conservative, and inflexible
system that stymies change. Our argument is that federalism generally, and Australian
federalism in particular, is a flexible system of government that allows, and in certain
circumstances, promotes and facilitates change. This is particularly true at the subnational
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level, but can be observed within the system as a whole. The character and extent of
change depend not just on the federal structure, but on interacting political forces as well
as the entrenched patterns and routines that have deeply cultural, social and economic as
well as political aspects. Put another way, we find federal aspects rather than federal
outcomes in the larger institutional arrangements and ‗settled‘ policies that make up
Australian governance and policy. If our positive take on federalism, and particularly
Australian federalism, is diametrically opposed to the mid-twentieth negative orthodoxy
of scholars and the Australian Labor Party, it is more in line with more recent scholarship
and the Labor Party‘s stance .
By 1972 when he became prime minister, Whitlam was espousing a ‗New Federalism‘
and a more creative use of existing constitutional powers to achieve Labor objectives.
There was virtually nothing a modern Labor government might want to do—having
jettisoned its socialization plank and primary concern with controlling capitalism to focus
on social services and filling the gaps capitalism left—that could not be done with the
creative use of existing powers. As Whitlam pointed out, the fiscal dominance of the
Commonwealth combined with section 96 that allowed the Commonwealth to give grants
to the States on terms and conditions that it saw fit, ie ‗tied grants‘, allowed a Labor
government to use these grants ‗to achieve far-reaching reforms in education, medical
services, hospitals, sewerage, transport and other urban and regional development
programs‘ (Whitlam 1985, 716). Even if Labor retains some residual centralist
propensities, these are probably no stronger than those of the modern Liberal and
National parties. Subsequent Labor prime ministers have all contributed to reforming
federalism: in the 1980s Hawke most effectively in major intergovernmental agreements
with the States to achieve greater efficiency in economic management and infrastructure;
in the 1990s Keating somewhat reluctantly in implementing the Council of Australian
Governments (COAG) as the official intergovernmental forum; and Rudd least
successfully in 2007-8 in ‗ending the blame game‘ and implementing more cooperative
federalism.
If the Labor Party‘s reconciliation with Australian federalism has been mainly pragmatic
and opportunistic, the opposing Liberal and National party coalition has largely
abandoned its traditional championing of federalism. Leaders like John Howard,
Australia‘s second longest serving prime minister (1996-2007), and Tony Abbott, the
current leader are also pragmatic opportunists with little commitment to federalism and a
readiness to expand Commonwealth power for political purposes. Support for federalism
remains, as one might expect, in the Senate or at least among groups of Senators and with
the States. Both have institutional prerogatives for supporting federalism against
expansionist Commonwealth governments from either side of politics. While anti-federal
rhetoric and partisan rejection have largely passed, there has been surprisingly little
celebration of Australian federalism or much interest in its detailed operation. Australia is
a leading federal country, but a laggard in its modern articulation. At least in part that is
due to widespread assumptions that Australian federalism is something of a hangover
from the past, an unduly complex and fragmented system of government, and an
impediment to development and change. Our paper seeks to correct that view.
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Flexibility and Change: constitutional, fiscal and political
Australia‘s constitutional system is open-textured and highly flexible. It allows different
sorts of development. There are multiple avenues for change, and a variety of ways in
which changes can occur (Galligan 2008). That the Australian constitutional system has
developed in a centralist fashion—‗ever increasing centralism‘ is a common, if somewhat
overstated characterization —is often used as an indictment of its original design. Those
who laud centralization and aspire to a unitary system typically blame the original design
and the federal structure more generally as obsolete and an institutional obstacle to
national integration. Those who see dangers in central power and prefer a more
decentralized system also blame the constitutional founders and their original design as
deeply flawed. Both these views are wrong-headed and neglect the fact that the
Australian constitution facilitates evolution and innovation of government roles over
time. It allows, but does not require a centralist developmental pathway. These
pessimistic views also neglect the more complex mélange of political, economic and
social changes that have worked through much of the twentieth century to produce such a
centralist trajectory.
We argue that Australia‘s constitutional system is deliberately open-textured and flexible,
allowing innovation and change through interaction with exogenous phenomena. One
consequence of this flexibility is Australian fiscal federalism that is highly centralized
and gives the Commonwealth the whip-hand in large areas of policy that would otherwise
be the exclusive domain of the states. Such centralized fiscal federalism is partly the
product and, interactively, partly the cause of political federalism. Although
constitutional, fiscal and political realms are interconnected aspects of a dynamic,
developmental process, we can achieve some clarity by separating them out for brief
consideration. But first, it is worth acknowledging the overall pattern of change in
Australian federalism.
Over more than a century of practice, Australia‘s constitutional system has developed in
response to changing social, economic and political changes as the country matured from
a newly minted and loosely structured federation in 1901 to a more centralized and
integrated federal nation during the twentieth century. This process of national
consolidation was in part an ongoing responsive process of dealing with the challenges of
globalization through the twentieth century: benefiting from world trading opportunities,
alleviating depressions, forging security alliances and participating in world wars.
Leading orthodoxies such as ‗protection all round‘ that promoted domestic manufacturing
and job creating to enable extensive migration through most of the century, Keynesian
economics that privileged macro-economic management by the Commonwealth
government from mid-century, and the expanding postwar welfare state all seemed to
favour national consolidation and centralized government. Politics drove this process,
exploiting the flexibility of the constitution to its advantage, and achieving a highly
centralized fiscal system to underwrite its expansionist policies.
Since Australian fiscal federalism is so highly centralized, with Australia having the most
acute vertical fiscal imbalance of any comparable federation, this stand-out feature might
serve as something of a test case for our argument. Was fiscal centralism mandated by
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Australia‘s federal constitution? The answer is No. Was it permitted? Obviously Yes. Is it
reversible? Yes, but with difficulty because it is so deeply embedded in ongoing practice,
championed by the Commonwealth and tolerated by the states—despite periodic protests,
the states find it easier to work with, rather than work to change, vertical fiscal
imbalance. This curious state of fiscal federalism merits special attention because it is at
the heart of Australian federalism and central to our argument about its flexibility. It has
received extensive coverage recently (Galligan 2012; Fenna 2008; Bodman 2012), so can
be summarily covered here.
The fiscal provisions were the most contentious ones for the constitutional founders
(Aroney 2009); ‗the hardest nut to crack‘ (Saunders 1986). In this pre-income tax era,
customs and excise duties were the primary revenue source of the colonies and varied
from colony to colony and were collected at colonial borders, making colonial Australia a
patchwork of different fiscal fiefdoms. To ensure a common fiscal union, customs and
excise were made an exclusive Commonwealth power, so that ‗trade, commerce and
intercourse among the states‘ would be ‗absolutely free‘. Arrangements to ensure revenue
allocation to the colonies cum states was done by means of complicated formulas, but
these were limited to a period of transition, and ‗thereafter until parliament otherwise
provides (section 93). State expenditures were provided for by a cumbersome formula for
the interim, but for the longer term the Commonwealth parliament was left free to
provide payments of surplus revenues to the states ‗on such basis as it deems fair‘
(section 94). So sum up, the primary revenue source was transferred to exclusive
Commonwealth control, with interim arrangements for allocations to the states, and left
to Commonwealth discretion in the future. Customs and excise has been broadly
interpreted by the High Court to include any tax on the production or distribution of
goods, and this includes the Goods and Services Tax (GST). The GST consensual
agreement, brokered by prime minister Howard, shows how political consensus, on a 10
per cent rate and distribution of all proceeds to the states, can favour the states even when
the Commonwealth has a constitutional monopoly power.
Power to levy income tax, now the main tax source, was made a concurrent power with
the Commonwealth given power to make laws with respect to ‗Taxation; but so as not to
discriminate between States or parts of States‘ (section 51(ii)). The states were the first to
levy income taxes, with the Commonwealth entering the field in World War I and Labor
Treasurer Ben Chifley creating a monopoly in World War II that was upheld by the High
Court and continues today. The result is that the Commonwealth collects much more
revenue that it needs for its own purposes, and uses ‗tied grants‘ under section 96 to enter
the core state policy domains of education, health and infrastructure. Section 96 allows
the Commonwealth to ‗grant financial assistance to any State on such terms and
conditions as the parliament thinks fit‘. Its original purpose was to enable special
payments for poorer states like Tasmania, but it would become the blank cheque for
Commonwealth expansion that the Whitlam labor government and Liberal coalition
governments have exploited. These are the constitutional parts that have allowed, but not
mandated, the extreme vertical fiscal imbalance of the Australian system. The states and
territories provide the bulk of public services but depend on Commonwealth grants for
approximately 40 percent of their expenditure needs.
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The Commonwealth controls both vertical and horizontal fiscal federalism. Two-thirds of
Commonwealth grants are untied, and one third have tied policy conditions set by the
Commonwealth, although these have been broad-banded in recent years. An independent
Commonwealth agency, the Commonwealth Grants Commission, determines the relative
share of total grants going to each of the states and territories, taking account of the
revenue and expenditure advantages and disadvantages. By including tied grants in its
calculations, it effectively offsets the monetary effect of such grants, making them
basically political instruments for Commonwealth policy. Although strictly only an
advisory body, the Grants Commission is a formidable institution whose
recommendations are invariably implemented. With the current resources boom
favouring Western Australia and Queensland, and these states facing reduced
Commonwealth grant allocations because of their booming economies, the Grants
Commission methodology is under review. This may lead to some modification of its
sharing formula—for example, to take account of only half of resources revenue, as is
done in Canada to accommodate Alberta—but is unlikely to change the Commonwealth
controlled fiscal order.
Fiscal centralization has been driven by politics: the Curtin-Chifley Labor government
creating a Commonwealth monopoly over income taxation during wartime but structured
in such a way that it was upheld by the High Court and sanctioned to continue in
peacetime. Beginning with Menzies, Liberal Coalition as well as subsequent Labor
governments have kept this in place. Public opinion and the states have been sufficiently
complicated to ensure its continuation. The Commonwealth‘s expenditure power is not
completely open-ended, however, as the Pape case (2009) showed while allowing direct
payments to taxpayers as an emergency measure to alleviate the Global Financial Crisis.
The Commonwealth‘s ambit claims of having a general power, independent of its
specified powers and a limited executive power for emergency action that some judges
sanctioned, were quashed. In similar fashion the High Court recently pegged back the
Commonwealth‘s executive power to spend money directly on policy initiatives in the
states‘ jurisdictional domain without bothering with legislation, which would need to be
supported by a Commonwealth head of power, or using section 96 tied grants. In this
case, Williams v. Commonwealth (2012), the National School Chaplaincy Program based
on administrative guidelines and contracts with private providers, was struck down, and
other policies that rely on Commonwealth ‗regulation by contract‘ (Saundes and Yam
2004) put at risk.
To conclude, Australia‘s fiscal constitution was weighted in the Commonwealth‘s favour,
but left to future Commonwealth parliaments to decide. The Commonwealth has
progressively expanded its fiscal domain, mainly through monopolizing income taxation
and exploiting section 96 tied grants. There have been some partial counter moves and
proposals, such as returning all the GST to the states and territories, and broad banding
the bulk of tied grants. Bolder moves and proposals for returning some income taxing
power to the states have foundered. Prime ministers from both sides of politics have
taken advantage of the open-textured constitutional provisions. Labor prime minister
Keating (1991) claimed VFI was not a design fault, but a design feature of the
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constitution. The early radical Liberal Prime Minister Alfred Deakin, also a centralist,
had noted approvingly that the states were ‗legally free, but financially bound to the
chariot-wheels of the Commonwealth‘ (quoted in Davis 1946, 80).
Fiscal expansion is one avenue of Commonwealth expansion; the other is expansive
interpretation of its enumerated powers. Australian federalism follows the American
model, with Commonwealth powers specified and the residual remaining with the states.
Most enumerated powers are concurrent—ie shared with the states, but with provision
that in cases of conflict the Commonwealth is paramount. Australian federalism differs
from that of Canadian which followed more of a coordinate model—with both national
and provincial powers specified. Along with fiscal provisions, concurrency is often
touted as a weakness of Australia‘s federal structure. According to Taylor (2012, 97) ‗the
greatest weakness made by the drafters of the Australian Constitution was the failure to
include an explicit list of state powers‘. But would this have saved the day for
decentralization? The Canadian experience that Taylor and others appeal to does not
establish the case because the main reasons for Canada‘s becoming highly decentralized
despite having a highly centralized federal constitution, albeit with some concurrency, are
political, social and demographic. The largest province, Ontario, asserted provincial
rights early on; Quebec expanded provincial claims to safeguard its distinct Francophone
culture and traditions; and more recently the Western provinces led by Alberta have been
fiercely anti-centralist. The Privy Council as Canada‘s final constitutional court for many
decades sanctioned the decentralization of the BNA Act, and national governments in
Ottawa fell into line. The lesson to be drawn from Canada is that political and social
forces will shape a nation and develop its constitution to suit. Coordinate provincial
powers were a minor aspect in Canada‘s federal development, and would most likely
have been so if adopted in Australia. Constitutional lawyers who purport to find reasons
and remedies for federal developments in static legal provisions are likely to get it wrong.
The more general point is that we need to view institutions like federalism not as discreet
arrangements but as complex structuring entities made up of basic defining rules and
established practices that order collective behavior. Institutions are in dynamic interaction
among themselves and with those who operate them—politicians, public servants,
political parties and interest groups. They are dynamic and changeable over time, and can
be shaped by varying combinations of technological, demographic, cultural and social
forces, and political reactions to them. The way institutions work and patterns of stability
and change are heavily path-dependent. But even if path-dependent, change can occur
through punctuated equilibrium or incrementalism (March and Olsen 2006, 12). As well
as structures and agents, we need also to add in ideas to give a more complete account of
‗constructive institutionalism‘ (Hay 2006, 63). This has been evident in the evolution of
Australian federalism, as sketched above. It is also evident in way Australian federalism
operates in major policy areas such as schooling that is analysed in the next section.
Federalism and Schooling
Under the Australian constitution, schooling is a residual power of the states. Yet, despite
having no designated constitutional power, the Commonwealth government has become a
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major player in schooling, with a minister supported by a huge department of education
in Canberra and a myriad of policy programs and initiatives. Australian constitutional
federalism has allowed this Commonwealth policy expansion, fiscal federalism has
funded it, and politics has driven it. As with most spheres of shared Commonwealth-state
policy, however, federalism has structured the Commonwealth‘s becoming a major
education policy provider, facilitating its primacy in funding the private, mainly Catholic,
sector, and its shared but secondary role in the public school sector. For their part, the
states have retained the major control and funding responsibility for the state sector. We
sketch how this has come about through brief reference to historical milestones in the
Commonwealth‘s partial occupation of the schooling policy domain. Concurrency in
schooling has had advantages as well as disadvantages that have been addressed in recent
reviews. For their part, the states have both participated in intergovernmental
arrangements, securing additional funding while surrendering exclusivity. At the same
time, they have retained a jealous coordinate attitude towards protecting their primacy
over the public school sector.
Federalism and schooling have combined to consolidate a peculiarly Australian dual
system that has its roots in earlier times. Public schools – attended by the vast majority of
students - were funded and run by state governments. Independent and systemic (mostly
Catholic parish) private schools operated alongside these state systems and were
generally self-funded and self-run within a state regulatory framework. In effect, this
results in dozens of systems of schools, each with their own administrative procedures,
including student enrolment and teacher employment policies.
This policy settlement began to change in 1964, when the Menzies Liberal government
provided funding for science laboratories, and later for Catholic schools, which were
experiencing an acute funding crisis. These limited initiatives received enormous
electoral support. In 1972, the newly elected Whitlam Labor government established a
comprehensive review of school funding and, determining that existing funding was
inadequate, in 1974 began providing general, recurrent funding to public and private
schools to supplement their existing state and private revenue. This funding was based on
relative need, bringing each school up to a ‗community resource standard‘ and was a
central plank of the Whitlam government‘s social justice policy platform. Funding was and still is – delivered via tied grants to state treasuries, who then passed it on to relevant
education authorities, be it their own education departments, Catholic education offices
or independent private schools, who then added their own revenue before distributing the
combined total amongst their schools according to their individual formulas and
priorities. In effect, this means there are many dozens of school systems - public and
private - each working within multiple financial accountability frameworks, and each
possessing their own curriculums, administrative procedures, student enrolment policies
and teacher accreditation systems.
Commonwealth involvement in schooling has increased and mutated under every
successive government, to the extent that it is now effectively a shared responsibility with
the states, characterized by highly complex intergovernmental fiscal and regulatory
arrangements and significant overlap in government activity. Each government, in
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pursuing their own reform agendas, has added rather than reduced this complexity. The
current degree of overlap in school funding and policies in Australia is unique among
federations (Warren 2006, 2) and is highly controversial. Of all policy areas inhabited by
both levels of government, schooling is repeatedly identified as one of the policy areas
most in need of reform and rationalization of government responsibilities.
Current arrangements
The states have retained primary responsibility for schooling. They continue to run the
public school systems – which enroll 66 per cent of all students and cater
disproportionately to disadvantaged groups. They also determine curricula, maintain
teacher accreditation systems and the regulatory and accountability frameworks for all
schools, and provide over 75 per cent of all government funding for schools, of which 89
per cent is directed to public schools. The Commonwealth provides general, recurrent
funding for public schools through the National Education Agreement, a set of tied grants
forming part of the Intergovernmental Agreement on Federal Financial Relations, and
for private schools through the Commonwealth Schools Assistance Act 2008. These tied
grants have significant conditions governing the running of school systems by states and
non-government school authorities. [See Figure 1 for additional information]. The
Commonwealth also provides hundreds of smaller, separate grants to schools, school
systems and organizations supporting schooling, and runs a vast number of education and
school infrastructure programs, of which Building the Education Revolution –
constructing a new building in every Australian school as part of a broader fiscal stimulus
initiative – is a noteworthy example.
Australia currently has almost 10,000 schools, of which 71 per cent are government
owned and managed (public schools). Schooling is compulsory until 15 or 16 years of
age – depending on the state in which the child is enrolled – and is divided into primary
schools and secondary schools. In August 2009, there were 3.5 million full time
equivalent students enrolled in primary and secondary schools. Generally, public schools
must accept all students that live within their catchment zones and are nominally free,
while private schools can select their students from anywhere. They can also charge
tuition fees in addition to receiving government funding.: Catholic parish shools fees
have relatively low fees, but independent elite schools chargeup to $27,000 per annum.
There has been a residualisation of the public school systems, which enroll a
disproportionate and increasing share of students from disadvantaged backgrounds
(Preston 2007, Connors, 2007).
Figure 1: General, recurrent school funding by level of government and school sector.
(Data from Productivity Commission, 2012, Report on Government Services)
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Accompanying these state and Commonwealth programs is a national literacy and
numeracy testing regime – NAPLAN – and MySchool, an online school information and
comparison database – both of which are administered by an independent, but federally
appointed and funded body, ACARA. The results of these programs are linked to many
of the conditions within the tied grants and intergovernmental agreements. The principal
forum for such agreements and other collaboration on national programs and priorities in
schooling matters is the Ministerial Council for Education, Early Childhood,
Development and Youth Affairs (MCEEDYA) – comprising Commonwealth, state and
New Zealand ministers of education. The Council‘s influence has waxed and waned over
its 74 year history, largely in response to its evolving membership. Agreements are more
likely, though never pre-ordained, when all or most ministers belong to the same party.
While nominally intergovernmental, MCEEDYA is primarily another venue for the
Commonwealth to try to exert policy influence over the states, particularly in efforts by
both Labor and Liberal Coalition governments to develop and implement a national
curriculum.
Program federalism is a useful concept here. Coined by Parkin and Anderson (2007), it
refers to the re-engineering of tied grants programs as vehicles for pursuing
Commonwealth policies in state domains, resulting in greater Commonwealth influence
over state-delivered programs. Recent examples in schooling include the Howard
government (1996 – 2007) putting advisory arrangements under direct Commonwealth
ministerial control and increasing accountability and performance requirements for public
schools – duplicating many existing state government requirements. These reforms were
initiated and implemented unilaterally by the Commonwealth, claiming that it had the
right and responsibility to set financial, policy and administrative directions and
conditions to ensure important (Commonwealth) reforms were implemented.
That this dramatic transformation in government roles, from a coordinate ‗layer cake‘
policy settlement to a concurrent, competitive ‗marble cake‘ one occurred without formal
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constitutional change, without judicial intervention, without significant
intergovernmental conflict and with electoral support demonstrates the flexibility and
robustness of the Australian federal system. It also underlines the responsiveness of the
federal system in allowing political responses to the rise of education as a policy priority
amongst governments and voters, due to the relationship between education level and
quality, and economic welfare for individuals and nations alike. While this
transformation was driven by Commonwealth government opportunism it was aided by
state-level acquiescence and significant public support. More Commonwealth
involvement - accompanied by more Commonwealth funding for schools - is a votewinner, and governments know it. The Australian public seems more concerned with
good outcomes, rather than which level of government provides the service.
Australia‘s schooling system performs very highly compared to other OECD nations.
However, this performance has been stagnating and declining for the past decade and
scholastic excellence is not evenly distributed amongst the student population. Students
from low socio-economic and indigenous backgrounds – overwhelmingly educated in
public schools – achieve lower educational outcomes than those from other backgrounds,
and the gap between Australia‘s highest and lowest performing students is widening,
despite a 40 per cent increase in funding for schools (Gonski 2011, Jensen 2012). A 2008
Senate Inquiry found that Australia‘s school funding system was one of the most
complex, inconsistent and opaque in the developed world, with serious consequences for
accountability, educational outcomes and equity. Australia‘s federal system is viewed by
some as the cause of the problem, or at least an obstacle to improvement (Lingard et al,
Keating etc).
Proposals and Prospects for Reform
The virtues of concurrent government activity are overlooked or misunderstood by both
policymakers and researchers. Every Commonwealth government since Whitlam has
pledged to reduce concurrency and the ensuing blame-shifting. Ironically Commonwealth
governments have done this through extending their involvement in traditional state
policy domains, thereby increasing concurrency. Two recent reviews that have ventilated
the issues and made proposals for reform merit attention: the 2008 Intergovernmental
Agreement on Federal Financial Relations and National Education Agreement, and the
Rudd/Gillard Government appointed Gonski review of school funding that reported in
December 2011.
The Intergovernmental Agreement on Federal Financial Relations, while formally the
product of the Council of Australian Governments, was driven by Prime Minister Rudd in
pursuit of his election promise to ‗fix federalism‘ and ‗end the blame game‘ through a
new ‗collaborative federalism‘ (ALP Advisory Group 2007). It was forged during the
global financial crisis and represents the biggest structural shift in intergovernmental
financial relations and program federalism in decades. Over 90 tied grants (special
purpose payments) were rationalized to five; possessing fewer Commonwealth
prescriptions, theoretically allowing states increased flexibility in how they spent the tied
grants to delivery services. Roles and responsibilities were clarified, in an effort to
improve service delivery, policy outcomes and accountability (COAG 2008). In
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education, a National School Special Purpose Payment was accompanied by a National
Education Agreement, which stipulates mutually agreed outcomes, outputs, performance
indicators, and government roles to ‗achieve a new era of transparency and stronger use
of evidence to inform the allocation of resources‘ (MCEEDYA 2008). These were
complemented by National Partnership Payments on Teacher Quality, Literacy and
Numeracy, and Low Socio-Economic School Communities and an additional $2.2billion
from the Commonwealth government. They were based on the presumption that clearer
roles and reduced overlap will produce improved service outcomes. This is not
necessarily the case. Concurrency can enhance policy, as discussed in the Victorian case
below.
Early indications suggest these reforms – at least in the schooling portfolio - were mostly
superficial. Each of these revised grants posses many sections and subsections, and is
bound by enhanced, ‗mutually agreed‘ accountability measures. The Commonwealth –
with its greater fiscal and administrative power – still possesses the whip hand and still
finds additional ways to exert policy influence – such as threatening to cut its payments
to states that fail to comply with these agreements (ABC News 2009). The
Commonwealth‘s ‗Building the Education Revolution‘ policy is a case in point. Part of
the government‘s economic stimulus package, it delivered $14.7 billion to the states on
the condition the money be spent as soon as possible constructing or upgrading specific
items of school infrastructure, such as school halls, in accordance with stringent
Commonwealth guidelines. How the conditions embedded in tied grants affect actual
practice is more problematical and opaque .
The Gonski Review of School Funding was established in 2009 by the Commonwealth to
develop a funding system for Australia which was ‗transparent, financially sustainable
and effective in promoting excellent outcomes for all Australian students‘ (Gonski 2011,
4). It was the first comprehensive review of school funding arrangements -state, federal,
public and private - in the almost 40 years since the Whitlam government‘s review which
had heralded the Commonwealth‘s ongoing funding for schools. Gonski endorsed the
conclusion of the 2008 Senate Inquiry, finding that the current arrangements were
opaque, inconsistent and ineffective; that resources were poorly targeted; government
roles were unclear, and worryingly, that family background had a strong correlation to
poor educational outcomes. The central recommendation was a $5 billion cash injection,
to be shared by the states and the Commonwealth, allocated using a new, needs-based
funding formula – the Schooling Resource Standard – which would be applied to both
public and private schools. These recommendations were unsurprising if unlikely to be
adopted by either level of government due to the absence of political will and finances.
This has already been reflected in the 2011-2012 state and Commonwealth budgets which
essentially ignored the recommendations. The Commonwealth government, facing a
hostile, hung parliament and continuously low approval ratings, has already ruled out a
significant increase in school funding. The states are fiscally constrained by a downturn
in GST revenues, and unreceptive—some even hostile—to sweeping recommendations
from a Commonwealth appointed review that requires their co-payment of $2.5 billion to
make them work.
13
The second major set of recommendations was more controversial in that it advocated
that current systems of school funding and management be maintained, on the condition
that there is greater transparency and accountability and sharing of information. Instead
of a national school system or even a national funding agreement, funding allocation and
other management decisions should continue to reside with school systems, whose local
knowledge and administrative capacities are superior to those of the Commonwealth.
Gonski had such little faith in the Commonwealth‘s program capacity that it repeatedly
recommended it respect the states‘ policy responsibilities and let schooling authorities get
on with the business of running schools. The Commonwealth‘s involvement should
remain, but be rationalized to largely that of banker and facilitator of information sharing
via independent authorities such as ACARA – with the new funding model used to
determine to bulk sums to be sent to each school system.
While this overlap of government roles may appear ‗messy‘ and undesirable to some, a
detailed analysis of policymaking at the state level adds credence to Gonski‘s
recommendation. Our argument is that flexible federal arrangements and concurrency,
even if driven by exogenous events and political opportunism, can offer opportunities for
enhanced policy development and improved service outcomes. The Victorian school
reforms of the 1990s support the cse.
The Victorian ‗Schools of the Future‘ reforms (1992 - 1999) devolved 93 percent of the
Victorian state government‘s public education budget to individual schools, effectively
allowing schools to govern themselves and pursue their own educational priorities, within
a state accountability and curriculum framework. They were developed by the Victorian
education minister, in consultation with advisors, school principals and communities, in
response to a ‗crisis in education‘ and a severe state-wide budget deficit. Despite
spending more per pupil than other state, Victoria at the time had mediocre educational
outcomes (Victorian Commission of Audit, 1992). SOTF represented the largest
devolution of a public school system of its size, and was described by supporters and
detractors alike as the most radical Australian education reform in the last century, with
profound repercussions beyond the state‘s borders (Haywood 1998, Spaull 1999). These
reforms occurred within a period of major renovations to Australia‘s federal institutions –
including the creation of the Council of Australian Governments and the reconstitution of
the Ministerial Council of Education – in an effort to enhance intergovernmental
cooperation, harmonise state policy divergences and increase formal agreements of issues
deemed to be of national importance, namely those related to micro-economic reform.
Education was one such issue, evidenced by the Hawke Government‘s ‗Strengthening
Australia‘s Schools‘ policy and his successor, Keating‘s ‗Knowledge Nation‘ policy
platform, both of which resulted in greater Commonwealth funding and involvement
through its tied grants, whose administrative guidelines were greater and more stringent
than at any previous time.
However, despite this intergovernmental context so seemingly hostile to state policy
innovation and autonomy, the Victorian state government‘s reforms proceeded without
difficulty. There is no evidence that Commonwealth‘s policies or the stringent conditions
attached to its tied grants affected the SOTF reforms or Victorian policy autonomy in any
14
way. While the many administrative directions (contained in a 250 page booklet, updated
annually) required states to spend the tied grants on areas of national priority, these
priorities, such as improving literacy or improving educational outcomes for
disadvantaged students, were already being pursued by the Victorian government (and all
other state governments). Reporting requirements were flexible enough for Victoria‘s
reforms to be implemented without amendment or any Commonwealth intervention.
From the Commonwealth‘s perspective, the grant conditions appeared to have been met,
and they possessed neither the inclination nor capacity to challenge Victoria on this
matter (Hinz 2010). This finding is supported by Watson (1998) who found that the
Commonwealth was unable to ensure that the conditions and purposes of its recurrent
grants were met by the states. Similar observations have been made in relation to federal
grants for education purposes in the United States (Tsang and Levin 1983; Gordon 2007,
both cited in Hinz 2010). Furthermore, the tied grants facilitated rather than hindered the
Victorian reforms as they mediated against the government-wide budget cuts impelled by
the economic crisis that was experienced by Victoria at the time.
The fact that Victoria was steering its school system in a different direction to that of the
other states was not discussed let alone discouraged at meetings of the Ministerial
Council of Education, and the Council‘s influence on the reforms was non-existent. Yet,
although there was no formal, horizontal or vertical intergovernmental collaboration on
the ‗Schools of the Future‘ reforms during their design or implementation, there is clear
evidence of successive horizontal and vertical policy learning and transfer. By 1998 all
other Australian states had devolved some funding and management powers to schools in
their systems. This horizontal policy transfer was enabled by the Commonwealth
requirement from 1988 that states report annually on a range of educational outcomes,
allowing ‗yardstick‘ comparisons. An academic architect of the Victorian reforms, Brian
Caldwell, was later hired by the Howard Commonwealth government to write a report on
self-managing schools.
The SOTF reforms were successful in their stated aims of lifting educational outcomes,
decreasing government spending and transferring financial and employment powers to
individual schools. By 2009, Victoria had the highest average student performance, the
highest school retention rates and the lowest per pupil expenditure of any Australians
state (Productivity Commission 2010).
These findings challenge the most common critiques of Australian federalism. First, tied
grants, even when accompanied by extensive, stringent conditions and complementary
Commonwealth policies, do not necessarily weaken state policy autonomy or change
their existing or planned programs. The absence of direct Commonwealth involvement in
the Victorian school system suggests that a coordinate model of federalism best describes
the actual decision but that concurrency that does exist, provides a useful function –
facilitating innovation and enhancing service provision in areas identified as national
priorities. This was achieved in the first instance by provision of Commonwealth funding,
and in the second instance of policy transfer across jurisdictional boundaries, facilitated
by yardstick comparisons between states, horizontal fiscal equalization payments that
15
enabled states to provide services of comparable quality despite differing state revenues,
and the movement of key policy actors.
In short, the Victorian school reforms proceeded unilaterally despite ongoing
Commonwealth tied grants and intergovernmental agreements on state education policy.
Australia‘s ‗messy‘ institutional and fiscal arrangements facilitated, rather than
obstructed, policy innovation, implementation and transfer of best practice (Hinz 2010).
This supports our understanding of federalism as a flexible system encompassing
dynamic relations and processes between levels of government, political institution
and actors, and allowing ambitious reforms at the state level.
Conclusion
The Victorian SOTF study and the Gonski Review recommendations – nearly 20 years
apart - both demonstrate the virtues and opportunities offered by the flexibility of the
Australian federal system, in particular from state opportunities to innovate and
concurrent funding arrangements. Greater information sharing and transparency between
governments and systems– as opposed to uniformity - further enhance these
opportunities. Nationalisation or even harmonization of school funding policies are not a
magic bullet but a potential block to creative policy responses at the subnational level for
complex problems such as educational achievement and school residualisation. Further,
these cases show that Australian federalism still broadly operates within the parameters
of the Australian Constitution, which is neither outdated nor necessarily an obstacle.
Instead, Australian federalism – including the contested fiscal settlement - offers political
actors at both state and Commonwealth levels additional and flexible opportunities to
respond to new or changed public concerns or policy problems. This remains the case
even when these actors are pursuing separate agendas or are driven by exogenous factors,
such as the global financial crisis or electoral concerns.
Federalism in this case both helped to shape, and is a product, of the interaction between
institutions, political actors and exogenous events. It is not static, but dynamic. This
dynamism is a virtue too often overlooked or misunderstood. Communicating this fact is
critical to changing ‗inflexible‘ mindsets.
16
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