aust'ralia,'s federal system - queensland parliament · 2.5.4 accountability and...

QUEENSLAND PARLIAMENTARY INTERNSHIP PROGRAMME

Aust'ralia,'s FederalSystem

Is there a need for reform?

Maritsa Samios

Australia's Federal System


TABLE OF CONTENTS

TABLE OFCONTENTS ~ ~: : ; : i

FIGURES, , , ' : iii ,.

EXECUTIVE SUMMARY ...•...: : : .' iv

GLOSSARy : : v, .

1.0 INTRODUCTION · : ; : 1

2.0 FEDERALISM AND THE AUSTRALIAN STATES 22.1 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 3

2.3.2 Decisions of the High Court of Australia ' 4

2.3.3 Referrals of Power to the Commonwealth 6

2.3.4 Commonwealth Referenda 7

2.4 Federal Financial Relations 7

2.4.1 Vertical Fiscal Imbalance , 7

2.4.2 Taxation and the States 8

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 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 DEVOLUTiON IN THE UNITED KINGDOM 15

3.1 Division of Powers and Intergovernmental Relations 15

,3.2 Financial Relations 16

4.0 FEDERALISM IN CANADA 17

4.1 Division of Powers between the Federal and Provincial Governments 17

4.2' Intergovernmental Relations ,17

4.3 Financial Relations 17

5.0 REFORM OF AUSTRALIAN FEDERALISM 19

5.1 Why is Reform Necessary? 19

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5.2 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 ; 21

5.2.4 Reallocation of Responsibilities ~ 23

5.2.5 Reform of Intergovernmental Bodies 24

5.2.6 Local Goverl)ment 24

6.0 CONCLUSION : 26

APPENDIX A: Referendum Dates and Results 1906 - Present.. 27

Pagaii


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 FederalSystemIs there a need for reform?

EXECUTIVE SUMMARY

The purpose of this rE?port was to analyse the history and development of the federalrelationship between the Commonwealth and the Australian States. Ref~rence has beenmade to the State of Queensland (0 Illustrate the ,effects of evolving federal relationship. Thereport 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 andcontrast the gradual decline of the powers of the Australian States with the experiences ofdevolution in the United Kingdom and federalism in Canada.

It is important to gain a better understanding of Australia's federal relationship from a Stateperspective. Such an understanding can aid in determining whether and how Australia'sfederal relationship can be reformed to best provide for the evolving nature andresponsibilities of Australian States. In order to answer these questions, a comprehensiveanalysis of the available constitutional, political, and comp~rative literature was undertakenwith figures and data drawn from government reports.

The results showed that there are a number of advantages evident in federal governmentalsystems. Federal systems, unlike unitary systems of government, promote regional diversityand competition between sub-national governments. However, the dynamics of Australia's

. federal relationship have changed considerably since Federation, with the States graduallybecoming marginalised by growing Commonwealth authority.

Owing to the High Court's interpretation of the Constitution, the States have gradually lostpower to the Commonwealth. A number of High Court decisions have limited the States'financial powers, contributing to a growing vertical fiscal imbalance between theCommonwealth and State governments. The vertical fiscal imbalance has impacted uponthe States' abilities to undertake their traditional areas of responsibility, such as health careand education without financial assistance from the Commonwealth. The growingprevalence of Specific Purpose Payments (or tied grants) have allowed CommonwealthincL!rsion into traditional spheres of State expertise, without accompanying accountabilitymechanisms. Moreover, the proliferation of executive-dominated intergovernmental bodiessuch as the Council of Australian Governments, whilst providing a forum for collaboration,ultimately serve to further reduce the level of scrutiny and accountability over concludedpolicy agreements.

These findings suggest that reform is necessary in order for Australia to achieve the benefitsgenerated by a federal system of government. Reforms aimed improving t,he levels ofaccountability and transparency span the constitutional, financial and political realms, willenhance the operation of Australia's federal system. The challenges facing theCommonwealth of Australia in the 21 st century are inevitably different to those encounteredin the 20th century, and an understanding and greater clarity over the roles of eachgovernment can only aid in the evolution of Australia's federation.

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Australia's Federal System--- -~~~~~~~~~~~~-------'-----~--~--~~----


GLOSSARY

ALGA Australian Local Government AssociationCAF Council for the Australian FederationCGC Commonwealth Grants CommissionCOAG Council of Australian GovernmentsGST Goods and Services TaxOECD Organisation for Economic Co-operation and DevelopmentSPP Specific Purpose PaymentsVFI Vertical Fiscal Imbalance

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1.0 INTRODUCTION

Even before' Federation in 1901,' Australia's federal politics has always been characterisedby a debate ..between those who advocate· for greater centralisation and control to bedirected to the Federal Government, and those who argue for a balance to be maintainedwith the States. The Founders of the Australian Constitution .settled on a system of coordinate federalism, with Commonwealth and State authorities individually responsible fortheir 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 110years, despite the fact the Constitution has not been altered significantly throughout thistime.2 Through a combination of State referrals of power to the Commonwealth, decision bythe High Court as to the interpretation of heads of power, and the limited number ofsuccessful referenda, the balance of power has gradually shifted towards theCommonwealth.3 Today, the system is more aptly characterised as one of co-operative, orcollaborative federalism.4

Amongst politicians and ordinary Australians alike, there is a general dissatisfaction with theAustralian federal system.5 While it has become quite common for Prime Ministers duringelection campaigns to promise to fix or re-invigorate Australia's federal system, the Stateshave often been willing to allow the. Commonwealth to take the lead. While the dominantfeature of many countries today tends to be towards decentralisation, Australia is notable forsuggestions proposing the exact opposite. 6 The dissatisfaction with Australia's federalsystem of government has at times been such that there have been calls to abolish theStates, so as to bestow greaterpower on the central government.?

Problems of accountability, the vertical fiscal imbalance and executive-dominance ofintergovernmental relations have all characterised the Australian federal system. In order toimprove .the federal relationship for the next 100 years, lessons can be drawn fromAustralia's past experiences and comparative experiences with federalism in Canada anddevolution in the United Kingdom.

1 C.P. Harris, 'Relationship Between Federal and state Governments in Australia: (Canberra: AGPS, 1979),27.2 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 andGlenn 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 AustralianFederation, 2007, hUp://www.caf.qov.au/Documents/AustraliasFederaIFuture.pdf, 4.7 Benjamin Herscovitch, 'Democratic Accountability and the Australian Federal System of Government,' Policy26 (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 ofgovern'ment. In this way they differ from the single central authority in unitary sy~tems ofgovernment which delegate to multiple regional authorities. Federations are generallyformed from the union of existing states, or in the case of Australia, colonies, which transfera number of their existing powers to the federal government:8 Powers tran~ferred to thefederal government typically constitute those best dealt with on a national level, such asdefence, currency and foreign relations. 9 The federal government is also responsible forcreating 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 withmultiple levels of services and recourse to government,11

2.2 What are the advantages ofFederalism?While federalism is one of the rarer forms of government found worldwide, flilderal systemsare said to benefit from a number of features not found in unitary systems. 12 A federalsystem of government is well suited to geographically large countries, allowing the diverseand unique requirements of regions to be accommodated under a system of regionalrepresentation. 13

Unlike a unitary system, a federation provides greater regional autonomy to citizens. 14 Afederal system of government provides people with the ability to choose their governmentsat both the State and national level, and ensures power is not concentrated in one centralauthority far removed from the majority of the population. 15 This guarantee of regionalrepresentation was a significant factor influencing the decision of Western Australia tobecome part of the Commonwealth. 16 Additionally, multiple levels of government allowdecisions to be made by the principle of SUbsidiarity, which provides decisions should beundertaken by the least centralised authority.17 Federal systems of government are betterplaced 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

8 C.P. Harris, 'Relationship Between Federal and State Governments In Australia', 3.9 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,' (GraduateProgram in Public Policy: Australian National University), 3.12 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States,' Parliament ofVictoria,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 PublicAdministration 61 (2002); 57, 57. .

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are in competition with each other to sustain their population and investment.19 The multiplejurisdictions within federations allow for a useful reference to compare results of reforms ineach State.20 Such competition, has fostered the creation of a number of successful policiesthat have subsequently been adopted by other States and Territories.21 For example, antidiscrimination laws, road safety' campaigns and the development of regional migrationschemes are all reforms 'led by sub-national governments. 22 This incentive would beunavailable in a unitary system, as the central government is not subjected to the same kindof comp~titive pressures that States in a federatlonexperience. 23 Where competition in fieldsis not beneficial to the federation, these competencies are generally allocated to one level ofgovernment,24' Recent research by Twomey and Withers suggests, contrary to popularlyespoused opinion, "in the last 50 years, federations have consistently outperformed unitarystatesin economic terms".25 Federalisrl) thus increases efficiency and removes the incentivefor complacency. on th(:l part of, go~ernmental authorities, promoting overall economicwellbeing. 26

2.3 Federalism and the Australian ConstitutionThe Australian Constitution embodies a mix of the Westminster system of parliamentaryresponsible government, and the American and Swiss federal systems of government. 27

When drafting the Constitution, the Founders Intended to create a system of co-ordinatefederalism, with the States and Commonwealth each responsible' for their ()wn

. competencies. 28 The Commonwealth was only granted specific and limited exclusivepowers, with the States retaining plenary powers over. traditional colonial areas ofresponsibility.29 However, over time a combination of decisions of the High Court, referrals ofpower to the Commonwealth by the States and limited successful referenda have combinedto alter the initial balance in favour of the States

2.3.1 Constitutional ProvisionsFollowing the design of the American Constitution, the Australian Constitution grants theCommonwealth Parliament a number of enumerated powers in section 51 to make laws forthe peace, order and good government of the Commonwealth.30 The residual powers not

19 Benjamin Herscovitch, 'Democratic Accountability and the Australian Federal System of Government', 37.20 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: 95,98. .25 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 ofPublio Administration 61 (2002): 57, 57.27 Kenneth Wiltshire, 'Reforming Australian Governance: Old states, No States or New States?,' in Federalismand 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 ofAustralia Act, S 51.

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explicitly specified in the Constitution were intentionally left with the States. A numper ofpowers 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, suchas the taxation power.34 The Constitution explicitly provides for powers originally vested inColonial 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 109of the Constitution operates to render the State law invalid to the extent of theinconsistency.36 Thus, whilst acknowledging the existence and continuance of State laws, asin most federal constitutions, supremacy is granted to Commonwealth legislation.

The Constitution also grants the Commonwealth the power to provide Specific PurposePayments (SPPs), or tied grants, under section 96.37 SPPs have played a significant roJe inthe 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 balancethrough its role as the safeguard of the Constitution.38 Immediately after Federation, the HighCourt's "immunity of instrumentalities" doctrine upheld the conception of a co-ordinatefederal system.3S Powers not expressly granted to the Commonwealth were interpreted asbeing reserved to the States, and as the name of ·the doctrine implies, were immune fromlegislative interference or incursion by the Commonwealth.40

.

A number of High Court decisions have significantly altered this balance. The Engineerscase41 in 1920 overturned the immunity of instrumentalities doctrine and ushered in a newinterpretative doctrine. Commonwealth legislative powers were to be interpreted in light oftheir ordinary and natural meaning, without limitations other than those expressed in the textof the Constitution.42 This prevented the Constitution from being interpreted in such a waythat powers could be reserved to the States.43 As a result the Constitution is now interpretedas a British statute, that is, the normal rules of statutory interpretation apply, and implicationswhich are not present in the text cannot be relied upon in interpretation.

31 Constitution of the Commonwealth ofAustralia Act, S 51 (vi).32 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 alsoAroney, 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.

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The ultimate· effect of the Engineers doctrine has been to greatly expand the scope ofCommonwealth powers at the expense of the powers of the States.44 This is the inevitableresult of only the Commonwealth's powers being enumerated in the Constitution. 45 ACommonwealth law now need only fall under one of the legislative powers for it to becharacterised as constitutional. 46 As a result, the Commonwealth has greater- legislative·

. ability to encroach upon areas which were traditionally conceived as falling within thepurview of the States.47

The High Court has also been willing to apply a·broad interpretation to the tied grants powerin - section 96. 48 This has further diminished the power of the States by removing theindependence and authority States would otherwise have in deciding. how grants are bestsp~nt.

Having greatly altered the balance of power between the Commonwealth and States throughthe method employed to interpret the Constitution, the forum for delineating and confirmingState and Commonwealth competencies has shifted to the political process.49 There havebeen a number of critical High Court decisions since Engineers which have served to greaterskew the federal balance against the States. The outcome of three key cases will bediscussed below.

2.3.2.1 The Uniform Tax Cases

The Uniform Tax Cases were significant in altering the financial balance between the Statesand the Commonwealth. During the Second World War, the Commonwealth took control ofincome tax by passing four through the Commonwealth Parliament50 These- Acts were to

.continue until one year following the end of the War.51 In the interim, the States were to begiven grants to replace their Joss of income tax revenue, and were subject to penalties if theycontinued 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 neverfully vacated the income tax field, leaving the States politically unable to raise their ownincome taxes.

In the Second Uniform Tax Case,53 the High Court held that the Commonwealth may rely onsection 96 9f the Constitution to impose conditions which enabled the Commonwealth toforce the States out of the field of income tax. While Justice Dixon believed that section 96should have a limited interpretation, so as to not allow the Commonwealth to legislate

44 Ibid 13.45 Brian Galligan, 'Processes for Reforming Australian Federalism: University of New South Wares Law Journal31 (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', 634.· - ..50 John Wilkinson, 'Sovereign States and National Power: Transition in Federal-State Finance,', New SouthWales Parliamentary Research Service, . 2011,

.. htfo:fJwww.parliamenl.gld.gov.aufConcordDocsJR06JR061005KW02.PDF.11. See also South Austrafia vCommonwealth (1942) 65 CLR 373.51 Ibid.52 Brian Galligan, 'Processes for Reforming Australian Federalism', 638.53 Victoria v Commonwea(th (1957) 99 CLR 575.

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Australla's Federal System


gen~ra!ly, His Honour 'felt bound to follow earlier precedent. 54 Thus, financial assistancegranted as a result of the States' forced removal from the income tax field wa~ held to'be avalid exercise of Commonwealth power, despite the fact it restricted State legislativeauthority.

2.3.2.2 ' Tasmanian Dams

In Commonwealth v Tasmania,55 the main question involved whether the building of a'damin an area excised from a national park listed on the World Heritage List under theConvention for the Protection of, the World Cultural and Natural Heritage. TheCommonwealth passed legislation to give effect to treaty obligations arising under theConvention, 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 section51 (XXiX)56 to give effect to Australia's obligations under the Convention. 57 Moreover, theCommonwealth was entitled to rely on the corporations power section 51 (XX)58 to regulatethe 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 RelationsAct 1996 (Cth) which effectively precluded the operation of State and Territory industrialrelations legislation. In enacting the legislation, the Commonwealth relied upon thecorporations power s 51(xx) to provide for an industrial relations scheme broader than theCommonwealth's grant of power in s 51 (xxxv). Under s 51 (xxxv), the Commonwealth isgranted power with respect to "conciliation and arbitration for the prevention and settlementof industrial disputes extending beyond the limits of anyone State". The High Court held thatthe legislation was valid under the corporations power, and that the corporations power wasnot limited by the inter-State reqUirement of the industrial arbitration power. Thus, theindustrial arbitration power could not be used to read down the corporations power. Thisdecision has attracted significant criticism in relation to current method of constitutionalinterpretation.6o

2.3.3 Referrals of Power to the CommonwealthThe Constitution, under section 51 (xxxvii),61 provides for the States to refer certain of theirpowers to the Commonwealth. The referral power provides the States with the option to refer

54 Victoria v Commonwealth (1957) 99 CLR 575 at 609 per Dixon J.55 Commonwealth v Tasmania (1983) 151 CLR 1.56 Commonwealth ofAustralia Constitution Act, s 51 (xxix).57 Commonwealth v Tasmania (1983) 151 CLR 1.58 Commonwealth ofAustralia 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 ofAustralia Constitution Act, s 51 (xxxvii).

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to the Commonwealth power over a specific issue. Traditionally, powers referred by theStates have. reflected areas of national importance such as corporations law or comp.etitionlaw. The Corporations Act 2001 (Cth) and the Competition and Consumer Law Act 2011(Cth) are both examples of Commonwealth legislation establishing national schemes whichrely upon referrals of power, Referrals are formalis~d through an Act of Parliament of therespective State Legislative Assembly, and typically specify the purpose for which the p,oweris 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 ReferendaSection 128 of the Commonwealth Constitution provides the only means by which theConstitution can be amended. Amendments can only be proposed in the CommonwealthParliament, and must pass both houses before being put to a popular vote.52 In order for aproposed amendment to succeed' at referendum, it must be approved by a majority of thevoting population, as well as majorities in four out of the six States.63 Although there havebeen 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 beenreproduced from the Australian Electoral Commission in Appendix A.'

',.+

2.4 Federal Financial RelationsAustralia's federal financial relationship is characterised by an extensive vertical fiscalimbalance (VFI) when compared to other federations, 65 The gradual loss of financialautonomy and independence of the States is evident through the limited taxation powers ofthe States vis-a-vis the Commonwealth, and the increasing dependence of States onCommonwealth funding and grants.

2.4.1 Vertical Fiscal ImbalanceA VFJ describes the situation where the revenue received by both the federal and statelevels 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) musttransfer their excess revenue to the state governments. 67 The methods employed intransferring surplUS revenue may impact upon transparency and accountability, severing theconnection between revenue raising and the. funding of programmes. 68 All federations

62 IbiO s 128 paragraph 1.63 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 SouthWales 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,

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experience'8 form of VFI.69 Althol)gh the extent of the VFI vari~s qCross federal systems, theVFI 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 aresult, 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 financialpower of t~e States has limited the States' ability to "resi~~ Commonwealth encroachment".73

Queensland Budget Estimates for the 2011 - 2012, reproduced in Figure 1, financiai yearpredict that approximately 47.2 per cent of State government revenue will be' sourced fromthe Commonwealth.74 In Queensland, the total revenue sourced from the Commonwealth isestimated at 43.2 per cent for the 2011 - 2012 financial year.75

Revenue sources, all states, 1999·2000 and 2011-121

AusITallanGovernment

funding35.0%

1999·2000

Slale laxte,~nue

39.8%Austrnffan

Governmenlfunding47.2%

2011·12

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 andstale andAustra/fan GovernmenlBudgel papers.

Figure 1: Revenue Sources, all states, 1999 - 2000 and 2011 - 2012

2.4.2 Taxation and the StatesBefore Federation, the Colonies received the majority of their revenue from customs andexcise duties.76 Upon uniting to form the Commonwealth of Australia, the Colonies agreed totransfer 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 LawJourna/31 (200B): 509, 512. .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,' Polley26 (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.

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forms of taxation available to both levels of government,77 Thus, the imbalance against theStates was apparent from 1901 and has only been exacerbated in the years' that havefollowed.

The States' taxation powers have been limited in a number of areas since Federation. Whilethe States initially held a monopoly over income tax, the Commonwealth's increasingexpenditure pressures during in particular, World War II resulted, .through the decision inFirst Uniform Tax Case/8 in the Commonwealth's exclusion of the States from this revenuestream?9 The High Court permitted the Commonwealth to levy income taxes ata rate whichessentially excluded the States from the field.8o

Figure 2, from the 2011 - 2012 Queensland State Budget Papers illustrate the decreasingtaxation powers of the States. During the 1999 - 2000 fiscal year, Queensland's State taxrevenue amounted to 29 per cent of State revenue sources.81 However, 2011 - 2012 figuresfrom the Australian Bureau of Statistics estimate that 24.5 per cent of Qweensland's revenuewill be collected from State taxes.82 This decline has been mirrored across the remainder ofthe States.

Revenue sources, Queensland, 1999·2000 and 2011-121

AuslralianGovernment

lundlng34.8% .'

1999·2000

Other Slaterevenue'

36.2%

AuslrallanGavernmenl

funding43.4%

2011·12Stale taxrevenue24.6%

OlherSlaterevenue'

32.2%

Notes:1.. 2011-12dataareeslimales.2. 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

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', thistask has been left to the High Court.83 The general definition of excise duty espoused byeconomists covers taxes on the production of goods. 84 However, the High Court'sinterpretation on the section 90 prohibition on customs and excise duties has been extended

77 Commonwealth of Australia Constitution Act, s 90. See also Ariadne Vromen, Katharine Gelber and AnikaGuaja, 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)',134.82 Ibid.83 Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final Report', 19.84 Ibid. . . .

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.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 ,Courtt9 be unconstitutional State-imposed excise taxes under section 90.86

., The main own-source revenue sources for States are:.87

•

••

•

Employers: payroll taxes;Land or prop~rty taxes;Gambling taxes; and.Taxes. on the' us~ ;i goods or performance of activities, including motor vehicleregistration ?nd fines. '

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 costsand disproportionately affecting those with lower incomes.89 Consequently, it is unlikely thatthe States will be able to rectify their subordinate financial positions through reforms to theirown taxes. 90 With regard to at least the High Court's interpretation of the Constitution'staxation powers, it does not seem that this has been done with much reference to the effecton States. ' .

2.4.2.1 Goods and Services Tax

The most significant reform from the perspective of States to taxation has been theintroduction of the GST in 2000. GST payments are distributed to the States in the form ofuntied grants. With the introduction of the' GST, the States were finally granted access to agrowth tax, albeit one collected and'distributed by the Commonwealth.91 GST payments aremade to the States by the Commonwealth Grants Commission (CGC) which operates on theprincipal of Horizontal Fiscal Equalisation (HFE).

As part of the agreement, the Commonwealth and the States agreed to the abolishment ofnine indirect State taxes, "mainly financial institutions taxes and stamp duties on the financialand capital transactions of businesses", relinquished the right to Financial Assistance grantsand "accepted responsibility for funding local government".92

The GST has arguably been responsible for exacerbating the VFI in Australia.93 This is sobecause 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 ofPublic Administration 66 (2007): 298, 299.as' , .

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 HorIzontalEqualisation,' 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.

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of a number of State taxes, while not respectively decreasing the spending responsibilities ofStates.94

Dissatisfaction with the amount of GST distribution is likely to continue in the future. Theresource States· of Queensland and Western Australia, whilst contributing a significantportion of nationalGST revenue, receive less than non-resource States after distributionbecause· of the assessment of royalties. 95 in Queensland's submission to the FederalReview into GST Distribution, Treasurer Andrew Fraser, has called for a fairer balance toensure that royalty incomed,oes not adversely affect the ,level ,of GST funding a Statereceives.96 , . . .

2.4.3 Commonwealth GrantsThe Commonwealth has the power to make financial grants to the States on a tied (SPPs) oruntied basis. Under section 96 of the Constitution, the Commonwealth Parliament has theauthority to make payments to States "on such terms and conditions as the Parliamentthinks fit".97 Section 96 is unique amongst the world's federations, and has been instrumentalin 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-offpayments to States in unforeseen financial difficulties, however this use has since beenexpanded. 99 The High Court has interpreted this provision liberally, holding that theCommonwealth can make tied grants in areas in which it does not have authority.1Oo Thisfurther limits the autonomy States would have had to determine policy outcomes in whatwould otherwise be a sub-national area of responsibility.

The use of SPPs expanded considerably under the Whitlam government in the 1970s, whichused the grants to advance the Commonwealth's desired sOcial policy outcomes.101 TodaySPPs account for approximately 40 per cent of State revenue,102 and are most utilised in theareas of health, education, skills and workf9rce development, disability services andhousing103 - 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 ofAustralia 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,' AustralianJourna{ of Public Administration 66(2007): 298, 299. ' -103 Queensland Treasury, 'Queensland State Budget: BUdget Strategy and Outlook (Budget Paper No 2),137.

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2;4.4..,Commonwealth Grants Commission

The' Commonwealth Grants Commission (eGC) is an independent authority established in1933 in order to assess and manage financial distributions to the States.104 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 fiveyears, with'the latest review completed in 2010. " ' ,,' "

Since 1974, the eGC operates onthe principle of horizontal fiscal equalisation (HFE) withrespect to the distribution of GST funds.10B Horizontal fiscal equalisation refers to the processof distributing grants to States in amanner which seeks to equalise the capacity' by whichStates can deliver services of the same standard.107 Queensland receives the. third fargestshare of GST~ revenlJe, following New South Wales and Victoria. 108 However, these figuresare calculated a,fter the process of equalisation, meaning they do not necessarily reflect thelevel of GST revenue raised by each State. For instance, the Budget Forecast indicatesQueensland will receive $692 million less than its population share of GST revenUe. 109 Whileall federations attempt some form of horizontal equalisation, Australia's is by far the mostextensive,110 likely due to greater VFI and unique nature of the CGC.

2.4.5 Accountability, Transparency, and the Vertical Fiscal ImbalanceBoth accountability and transparency are hindered by the VFI. The ability of States to rely oncompetition with respect to their taxes is also limited by the VFl. 111 Further the significantlevel of Commonwealth grants to the States acts to dislodge the responsibility for raisingrevenue, and the responsibility for the expenditure of that revenue. 112 This dislodgementthen plays out through blame-shifting and Ultimately undermines accountablJity. 113

Expenditure through Commonwealth grants additionally circumvent the "ordinary processesof parliamentary appropriation", and are not subject to the same scrutiny as other Stateappropriations which pass through a State's Consolidated Revenue Fund.114

As is evident through the Commonwealth's increasing use of SPPs to achieve its policyagenda, 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 AriadneVromen, 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, 27107 Commonwealth Grants Commission, 'About CGC' . See also Ariadne Vromen, Katharine Gelber and AnikaGuaja, 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 Accountabilityin a Federal System, eds. R. Else-Mitchell and K.J. Robson (Canberra: Australian National University Centre forReseqrch 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.

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loss of independence and autonomy on the part of the States,115 As a result, the preferencesof 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, theresponsibility for scrutiny' is split between the national and sub-national levels ofgovernment. 117 The current federal financial relationship in Australia is not supportive ofaccQunta.bilitYi as State government are unable their expenditure through taxes withoutfinancial assistance from the Commonwealth.118

2.5 Intergovernmental RelationsIntergovernmental relations are important. in all federations. Within Australia,intergovernmental relations have arguably played a vital role in determining the division ofresponsibilities and national policy initiatives.

2.5.1 Division of Responsibilities betWeen the States and theCommonwealth

The concurrent nature of the enumerated powers in the Constitution means there is no cleardelineation between Commonwealth and State responsibilities. 119 Thus, in areas such astaxation, health, and education, the States have been subject to increasing Commonwealthinvol:vement commensurate to the financial power accumulated by the Commonwealth.120

Neither the States nor the Commonwealth are able to truly act autonomously.121 Duplicationof responsibilities in itself is not necessarily a negative; it can encourage .competition andfacilitate reform of inefficient programmes.122 However, in Australia, duplication arises as aresult of the VFI, and rather than untied funds being transferred to the States to pursue theirown policy objectives, the Commonwealth has instead used SPPs to influence policyoutcomes.123

In stark contrast to the ideas espoused by the subsidiarity principle, the concurrent nature ofAustralia's federation has been altered, with States now acting as "agents" to implementpolicy determined by the Commonwealth. 124 As explained in the previous section, theprincipal means by which the Commonwealth has been able to extend its power has been

2011,115 Geoff Gallop, 'How Healthy is Australian Federalism?,'http://www.pariiament.old.gov.au/ConcordDocs/A11/A110318EF01.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 ofAustralian Governments,' International Association of Constitutional Law, 2011,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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through the use of SPPs, and these have been prevalent in the areas of health care andeducation.125

2.5.2' Council of Australian Governments

The Council of Australian Governments· (COAG) is an intergovernmental forum whichprovides for the representation of State Premiers, Territory Chief Ministers, the PrimeMinister ·and .. local governments (through the Australian Local· Government Association).Established in 1992· by an intergovernmental agreement, COAG does not hold separatelegal status.126 COAG's role is to "initiate, develop and monitor the implementation of policyreforms that are of national significance and which require cooperative action by Australiangovernments" .127

COAG depends extensively on the commitment of the Commonwealth in order to provide abeneficial collaborative forum. The Prime Minister controls the frequency of meetings, and itsagenda, granting the Commonwealth the advantage of determining when and what issueswill be discussed without regard to the States.128 This largely means that policy discussionsrelate to further centralisation, through achieving uniformity, at the expense of the diversity ofthe States. 129 Areas in which agreements have been reached include competition andenvironmental 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 forumcomposed of the State Premiers and Territory Chief Ministers designed to provide the Stateand .Territories.131 CAF allows the States and Territories to discuss initiatives without thepresence of the Commonwealth, and to develop a common position prior to COAGmeetings.132 Unlike COAG, where the Prime Minister is the permanent Chair, CAF .meetingsare chaired on a rotational basis. 133 As a relatively new body, CAF is still determining itsplace in Australia's intergovernmental framework. 134 However, it has so far proven useful inimproving Inter-State and Territory co-operation on a number of issues,135

125 Queensland Treasury, 'Queensland State Budget: Budget Strategy and Outlook (Budget Paper No 2).126 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 Placein 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 Placein 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.

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2.5.4 Accountability and Australia's Intergovernmental FrameworkT~e proliferation of COAG and CAF in intergovernmental relations have 'expanded the role ofthe executive managing and concluding agreements. 136 This "executive federalism" hasmarginalised parliaments, undermining a key tenet of the Westminster system ofgovernment - parliamentary sovereignty. 137 As a result, agreements can be reached withoutany 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 Statewithout a bicameral parliament, the phenomenon of executive federalism arguably has agreater impact on Queensland, without the benefit of a Legislative Council to scrutiniseproposals.139

The lack of a clear division between Commonwealth and State powers has also made itdifficult to apportion blame in the event of policy failures. Without the ability to hold one levelof government ultimately responsible for policy failures, it has also become less likely thatresponsibility will be properly distributed. This is evident in the Commonwealth's treatment ofthe States as "agents" or"service providers" of the Commonwealth's agenda.

.3.0 DEVOLUTION IN THE UNITED KINGDOMAlthough the United Kingdom (UK) is a unitary state, a comparison to the Australian federalsystem is beneficial because of the UK's movement towards decentralisation. The UK'sdevolution 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 andExecutive.14~

3.1 Division ofPowers and Intergovernmental RelationsThe Westminster Parliament has transferred a varying range of power to the Scottish, Welshand Northern Irish assemblies in referendums in 1997 - 1998. There are varyingarrangements for devolution in Scotland, Northern Ireland and Wales. 142 In contrast, theAustralian States are all equally treated under the Constitution. Devolution differs fromfederalism in that while power is being devolved from the central government to sub-nationalauthorities, it is not entrenched and thus subject to reversal by the WestminsterParliament. 143 However, Westminster is only able to legislat~ in devolved areas with the

136 Paul KUdea and Andrew Lynch, 'Entrenching 'Co-operative Federalism': Is It Time to Fonnalise COAG's Placein 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.pdf142 hUp:/lwww,parliamenLukJdocuments/commonsllib/research/rp2003/rp03-084.pdf143 hUp:/Iwww.parliament.ukJdocuments/commonslliblresearch/rp2003/rp03-084.pdf

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consent of the devolved governments.144 This provides a degree of protection from centralgovernment intervention, and is, in a sense, similar to the current concurrent division ofpowers between the Australian States and the Commonwealth.145

The devolutionary p~ocess in the UK is reflective of what is k.nown of as administrativedevolution.146 That. is, the authorities created by devolution are ,directly accountable to locallegislatures rather than the Westminster Parliament.147

Similar to Australia, devolution in the UK has led to the establishment of concurrentintergovernmenta.1 relationship. 'Moreover, the areas devolved are similar to those which arethe responsibility of the Australian States. Powers devolved to Scotland, Wales and NorthernIreland include education, health, local government, public transport, and notably criminallaw in the case of Scotland.14s"Significantly, devolution has created the impetus for policyinnovation amongst the devolved authorities.149

Devolution has invariably raised issues of ulira vires decisions or enactments of devolvedauthorities. That is, as powers are expressly delegated by the Westminster Parliament, anAssembly is unable to act outside those powers which have been delegated to it. 150

3.2 Financial RelationsMore than half of the finances of the devolved authorities are determined by the applicationof the Barnett Formula.151 This formula essentially provides that "changes to programmes inEngland... result in equivalent changes in the budgets of the territorial department calculatedon 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 adevolved authority.153 A recent inquiry by the Select Committee on the Barnett Formula inthe House of Lords has recommended a transition to an independent body such as the CGCto make recommendations on the distribution of expenditure. 154 Unlike in Australia, HMTreasury presently holds the responsibility for determining the distribution of funds, and isnot subject to independent external advice. 155 The financial relationship betweenWestminster and the devolved authorities in the United Kingdom are likely to continue toevolve as devolution progresses.

144 Alan Trench, 'The Framework of Devolution: The Formal Structure of Devolved Power', in Devolution andPower in the United Kingdom, ed. A. Trench (Manchester: Manchester University Press, 2007), 54145 Ibid. .146 James Mitchell, 'The United Kingdom as a State of Unions: Unity of Government, Equality of Political Rightsand Diversity of Institutions', In Devolution and Power in the United Kingdom, ed: A. Trench (Manchester:Manchester University Press, 2007), 39.147 Ibid47.' .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 ChangeProgrl;lmme: http://www.devolullon.ac.uk!finalreport.htm.150 Alan Trench, 'The Framework of Devolution: The Formal Structure of Devolved Power', 53.151 House of' 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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4.0 FEDERALISM IN CANADA

4.1 Division of Powers between the Federal and ProvincialGovernments

The Canadian Constitution grants the Federal government the general authority to makelaws for "the peace, order and good government of Canada", in addition to a number ofenumerated powers.15S The Constitution also specifically lists the powers which are grantedto the Provincial legislatures. 157 Finally, residual powers are bestowed upon the federallegislature, whereas in Australia they are left to the States.158 On a cursory examination, itwould appear that' the federal design of the Canadian system favours the federalgovernment at the expense of the Provinces.159 However, the practical effect of specificallyenumerating powers of the Provinces has been to prevent incursion from the federalgovernment in Provincial affairs.160 This differs from the Australian Constitution where onlythe Commonwealth Parliament's powers are specifically enumerated. The CanadianSupreme Court has also been more willing than its Australian counterpart to interpret theConstitution in fight of the federal system of government.161 This is a result of numerousfactors, including the difference in structure of the Constitution, an interpretative doctrine thattakes account the effect of a law in addition to its purpose, and the greater emphasis theSupreme Court of Canada places on maintaining a federal balance.162

4.2 Intergovernmental RelationsSimilar to Australia, there are a number of intergovernmental forums in Canada. The Councilof the Australian Federation was modelled from The Council of the Federation, which wasalso formed in order to prOVide a more co-operative federal system. 163 The centralgovernment and provinces are able to collaborate during First Ministers Conferences,however, like COAG these occur at the convenience of the federal government.164 UnlikeCOAG, First Ministers' Conferences provide an opportunity for provincial and nationalcollaboration with transparent and accountable agreements.165

4.3 Financial RelationsThe Canadian Provinces are not subject to restrictive interpretations of Constitutionalprovisions which have impacted their ability to raise revenue. While there is still a VFI, the

156 Christopher Gilbert, Australian and Canadian Federalism 1867 - 1984: A Study of Judicial Techniques~Carlton: Melbourne University Press, 1986), 1..57 Canadian Constitution Act 1982 s 92. See also Christopher Gilbert, Australian and Canadian Federalism 1867

- 1984: A Study ofJudicial 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.

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'Provinces are better equipped to address the imbalance than the Australian States, as theypossess a greater tax~tion powers, For instance, th~ Provinces are able to levy income andsales taxes.166 This has been arguably aided by a cultural environment conducive to varyinglevels of taxation, which may not exist in Australia.167 While the dual tax system in Canadaarguably requires greater co-operation, and ultimately enhances overall accountability.Tellingly, 2004 figures show that the Provinces were responsible for over 90 per cent ofhealth and education funding. 16B This not only acco'rds with the principle of subsidiarity, butalso avoids the Australian problem of disparity between the government responsible forraising the funds and that responsible for delivering and overseeing the services.

Health100% .

90% •.•••.••.•..........•........•.•...•.••••........•.•....

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I E1natlonal • stales ISwi12erland

Source: IMF GovernmentFinance Statistics Yearbook, 2004

Figure 3: Health Expenditure - Centra! Government v State Governmene69

166 Benjamin Alarie and Richard Bird, 'Tax Aspects of Canadian Federalism', 2010,http://papers.ssrn.com/soI3/papers.cfm?abstract id=1689311, 28.16/lbld, .168 Neil Warren, 'Benchmarking Australia's Intergovernmental Fiscal Arrangements: Final Report', 37.169 Ibid.

Page 18 ----------------



Educa~on

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Switzertaod

Figure 4: Education Expenditure - Central Government v State Government170

Canada does not have an independent body comparable to the CGC. 171 Insteadequalisation grants are distributed through the Federal Provincial Rel,atlons Officer which is asubsidiary 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, supportfor the Commonwealth has grown significantly, with 40 per cent of respondents agreeing thefederal government should take more powers from the States, compared to 17 per cent in1979. 173 It is understandable that the needs of Australian sOyiety .have evolved sinceFederation in 1901, and Australia's federal structure does need to match this evolution inorder to ,take Australia Into the 21 st century.174 There is scope within the original text of theConstitution 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.171 R Else-Mitchell, 'Achieving Financial Accountability in a Federal System, 7. See also Department of FinanceCanada, '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 toAmalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129; South Australia vCommonwealth (1942) 65 CLR 373; Commonwealth v Tasmania (1983) 151 CLR 1; New South Wales vCommonwealth (2006) 229 CLR 1.

---.~------------ Page 19 ------

Australia's Federal System,


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 wastraditionally seen as State areas of policy.176.

The shift of the balance 9f powe,r away from the States has meant that the benefits offederalism are no longer evident in Australia's federal system. Rather than continue' with thecurrent trend towards. concurrent federalism, reforms must ensure that Australia· benefitsfrom 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 Instancesmeans the benefits of competitive federalism are neglected. 1n As one of the mostcentralised 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 ReformThere are a number of constitutional changes that can be made to improve Australia'sfederal balance. A Canadian-style enumerated list of State powers would place a limit on theCommonwealth's powers, and prevent the High Court from interpreting federal powers sowidely.179 However, this is a not a practical solution, and there are many others which couldachieve similar results without such broad constitutional change.

An additional avenue of constitutional reform could amend section 90 to provide for theStates to levy their own sales taxes.180 This would alleviate much of the VFl. As GST grantsare distributed to the States and Territories, they would be responsible for both levying andappropriating the tax revenue. The current accountability split between the State and federalgovernments would consequently improve, and States could then pursue their own policyobjectives in line with competitive federalism.

The referendum initiation process is also weighed against the States. 181 As only theCommonwealth can propose referenda, those proposed generally favour an expansion ofCommonwealth 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 aproposal, this could then be put to the people at a referendum. Having a minImum number ofStates that need to support an initiative would also safeguard against proposals which do notbenefit the majority of Australians.

176 Federal-State Relations Committee, 'Report on Australian Federalism: The Role of the States', 114.177 Ibid.17)3 Ann Twomey and Glenn Withers, 'Federalist Paper I: Australia's Federal Future, 45.179 Singleton et. aI., Australian Po/meal institutions, 131.180 Chris Merritt, Fiscal Federalism Up for Judgment, Australian Financial Review, June 12th 1997 as cited inFederal-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 onexcise 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 (Inaddition to a majority of total electors) in order to be carried.

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5.2.2 New Interpretation of the Constitution

The High Court's approach to constitutional interpretation has had a profound impact on thefederal balance. While a return to the doctrine of reserved powers would inevitably conflictwith the decision in the Engineers case, there is a greater scope to accommodate the federalnature of the Constitution in judicial practice. In NSW v Commonwealth (Workchoices),i82

. Justice Kirby noted' the importance of constitutional interpretation reflecting the federalConstitution. 183 In dissent, His Honour noted that .interpreting the Commonwealth'senumerated powers individually without regard to constitutional limitations would limit theeffectiveness of federal protections preventing power from accruing in one centralgovernment.184 In the future, the States l)hould be less willing to accept the limitations ontheir power generated by previous High Court decisions. 18S The Commonwealth's powersshould not be exercised without regard to the effect this would have on the States.

The Canadian Supreme Court has notably interpreted the Canadian Constitution withgreater regard to federalism than its Australian counterpart. i86 This has s~feguarded theProvinces 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 casesrelating to devolutionary issues. Having only been established in 2009, the number of caseswhich have come before the UK Supreme Court are limited. As the court continues todevelop its jurisprudence, the approach it takes on devolutionary matters could prove to becentral 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 ofthe States. Reform of Australia's current federal financial relationship could not only reducethe 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 accessto a growth tax, the 2011 - 2012 Queensland Budget Papers note that the predicted growthof GST'is likely to wane over time. i8

? However, the responsibilities of the States are unlikelyto, 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 theCommonwealth. 188 Unsurprisingly, successive Commonwealth governments have beenresistant to such plans. The progressive nature of income tax "results in revenue Increasing

182 NSW v Com~onwealth [2006] 229 CLR 1.183 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 ofreserved 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 SystemIs there a need for reform?

faster than the rate of increase in the base".189 In contrast. the base of GST has remainedunchanged since its introduction in 2000. The recent review on Australia's Future TaxSystem (the Henry Review) noted there were overall benefits in allowing the States to sharea percentage of income tax from a financial and accountability perspective.19o

, ' ,

5.2.3.2 Goods and SerVices Tax

In comparable federations such as Can~da.· the Provinces exercise greater control. oversales taxes. and additionally are; permitted to levy their own at the provincial levE;l1.191 This isnot the case in Australia, as the High Court has ruled State sales taxes to beunconstitutional.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 ofCommonwealth control over the rate and base of GST within Australia arguably separatesthe discretion for raising a necessary amount of revenue from the knowledge of the fundingnecessary 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 notadopted, then a greater degree of control should be granted to the States in determining therate 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 ofSPPs in favour of general grants. especially for areas of polley that are entirely controlled bythe States, will allow the States to maintain autonomy over the scope of policy and preventCommonwealth encroachment into areas of State expertlse. 194 This would allow greaterdiversity in policy and usher in the benefits of competitive federalism. Moreover, there shouldbe a greater emphasis on ensuring that Commonwealth grants are subject to the samedegree of parliamentary scrutiny as State own-source revenue, which pass through a State'sConsolidated Revenue Fund. 195 This would also serve to improve the tension betweenparliamentary responsibility and the executive federalism that has come to dominate theAustralian political landscape, by placing greater responsibility in the hands of StateParliaments. Where SPPs are indispensible,. they should be granted within a greaterframework 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 Consolidated.pdf, 675 as cited in Neil Warren, 'The Henry Review, State Taxation and the Federation,' The AustralianEconomic 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 ----------------



5.2.3.4 Responsibility for Raising Revenue

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 raisingrevenue to fund policy initiatives:197 This would also serve to alter the relationship betweenthe Commonwealth and States from one of principal and agent, to a greater partnership, andreduce 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 raisingapproximately 95 per cent of expenditure.198 In contrast, while the Australian States retainresponsibility for providing health services, the responsibility for funding is almost evenly splitbetween the States and the Commonwealth,199 Moreover, the Commonwealth's use of SPPshas further split the responsibility for raising revenue against delivering services. As financialcontrol is one of the key means through which the States gradually lost power to theCommonwealth, reforms made in this area could have a dramatic Impact on the course ofintergovernmental relations.

5.2.4 Reallocation of Responsibilities

Reallocating policy responsibilities between the States and the Commonwealth would alsoImprove the federal relationship. There needs to be a greater recognition that not everyproblem 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 acursory examination without necessarily examining the underlying causes, such as the VFI.

Where practicable, one level of government should be responsible for administering aparticular area of policy to improve accountability and certainty and limit the .amount of blameshifting between governments. 200 Responsibilities should be allocated between thegovernments according to the principle of subsidiarity, so that State, Territory and localgovernments are primarily responsible. 201 For example, in many federal countries, healthcare is generally within the ambit of one level of government. 202 Rather than theCommonwealth continuing to gradually gain more control over health, as far as practicablethis should be left to the realm of State re.sponsibillty.

Any change in roles and responsibilities should have regard to other factors, includingwhether there are benefits that can be gained through harmonisation or economies ofscale. 203 Further, altering the allocation of responsibilities between the States and theCommonwealth without increasing the VFI illustrates that reform in this area is inextricablylinked with financial reform. A reallocation of responsibilities could be accomplished throughconstitutional amendments, a referral of power from the States to the Commonwea.lth or bythe Commonwealth vacating a field of legislative power it currentlyoccupies.204 However, as

197 Geoff Gallop, 'How Healthy is Australian Federalism?, 5. ,198 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,~IWd. ' ,202 Ibid.203 Ibid.204 Ibid. When the Commonwealth Parliament 'covers a field' this would indirectly affect any state law on such amatter by rendering it inconsistent ~hrough section 109 of the Constitution.

Page 23 ----------------



most of Australia's federal relationship today plays out in political processes, it is conceivablethat a reallocation of responsibilities can also occur via this medium without the. need forconstitutional 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 anddiscuss- policy initiatives. However,' a's .executive-dominated· bodies, they inevitably reducethe accountability of the agre€;lments rea9hed, as there is no opportunity for parliaments toscrutinise proposals until after they'have been adopted by COAG.206 Reforms can be madeto 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, recognitionwould 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 thatrecognising an executive-dominated body would further erode the place of parliamentaryresponsible government within Australia's political system. 208 Alternatively, statutoryrecognition of COAG would provide the benefits of greater legal certainty while avoiding therigidity of constitutional enactment. 209 Either pathway to recognition would open thepossibility of judicial review of either the statutory instruments or constitutional provisions.

The representation of the States, Territories and Local Government within COAG could beimproved through greater control of the agenda and holding meetings at a time which bettersuits 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 bythe Commonwealth in a way which makes the States subordinate, and instead should favoura co-operative approach between all levels of government,212 Finally, an independent COAGSecretariat not within the Commonwealth Department of Prime Minister and Cabinet wouldsecure COAG's role as a co-operative federal forum. 213

5.2.6 Local GovernmentImproving Australia's federal system of government cannot be achieved without ensuring alllevels of government, including local government, are properly able to manage and '

205 Brian Galligan, 'Processes for Reforming Australian Federalism', 634.206 Paul Kildea and Andrew Lynch, 'Entrenching 'Co·operative Federalism': Is it Time to Formalise COAG's Placein 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 ofAustralian Governments', 15.209 Ibid 16.210 Peter Beattie, 'The Immediate Challenge Regarding COAG Reform', 59.211 Ibid.212 Ibid.213 Ibid.

Page 24 ---------------



implement their respective responsibilities, However, the role of local government is oftenoverlooked in discussions about federal reform. 214 There are approximately 650 localgovernment authorities in Australia, which ~xist as a result of State legislation.215 In recenttimes,. local government has tended to assume responsibility for. public transport townplanning, local public works and waste disposal, and these have only increased over thepast few decades.216 A number of local governments are now also taking on responsibilitiesin community safety issues, arts and culture, and environmental management,217 .

As a creature of State governments, local governments do not have the same degree ofindependence and autonomy as other levels of government. This has left local governmentsvulnerable to cost..:shifting, with ever-increasing responsibilities and limited sources ofrevenue. Only .one-thirdof local government revenue is own-source revenue, with theremainder comprising grants from either the State or Commonwealth governments, many ofwhich have conditions attached.218 An Intergovernmental Agreement Establishing PrinciplesGuiding Intergovernmental Relations on Local Government Matters was signed in 2006 bythe Australian, State and Territory and local governments to minimise the cost-shifting thatoccur~ when responsibilities are transferred to local governments.219 Properly financed andresourced local governments will be better able to provide for their evolving responsibilitiesin 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 opportunityto partake in deliberations which affect Australia's federal structure, The place of localgovernment in Australia's federation has also been mooted through a potential constitutionalreferendum proposed by the current Gillard government,221 Two proposals recognising localgovernment have been put to referendum in 1974 and 1988, however neither weresuccessfully adopted.222 The Gillard government has committed to holding a referendum onlocal government constitutional recognition at or before the next federal election.223 While theform of the proposal is still being determined by an independent government-appointedPanel, recognition could have the potential of improving accountability in local government

.and recognise the invaluable role they play in the Australian federal system, This wouldfurther impart the principle of subsidiarity into the Australian federal system.

214 AJ. Brown, 'Reshaping Australia's Federation: The Choices for Regional Australia: Public AdministrationToday 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 inAustralia: 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 SaveAustralia'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'.

Page 25



6.0 CONCLUSION

. 2011 marks 110 years since Federation, and there Is no more suitable a time to re-examinethe dynamics and operation of Australia's federal system. While there have only been limitedchanges to the text of the Constitution, the federal relationship has changed. considerably,with the States becoming increasingly marginalised by the authority which has amassed inthe Commonwealth.

A culmination of High ,Court. decision-making, an increasing· VFI and Commonwealthintervention in traditional areas of State policy have all contributeq to the States' loss ofpower since Federation. Moreover, policies are increasingly concluded in executivedominated intergovernmental bodies, such as COAG and CAF. Accountability, scrutiny andtransparency of government decisions and policies have been consequently been adverselyaffected by this trend. The current operation of Australia's federal system, with its emphasison 'executive federalism' is inconsistent with the notion of parliamentary responsiblegovernment which is a central component of Australia's system of government.

.Reforms are necessary in order to ensure that accountability and responsibility ingovernment decision-making are better protected, and to guarantee that States can continueto fulfil their responsibilities. A number of reforms have been suggested, includingconstitutional amendments, financial arrangements and political responsibilities. Chiefamong these are reforms to minimise the VFI and improve the scrutiny of Commonwealthgrants by limiting the use of SPPs.

The debate surrounding the future of Australia's federal relationship will undoubtedlycontinue into the future. This could manifest itself in yet another State constitutionalchallenge, this time to the Commonwealth's Mineral Resources Rent Tax (MRRT) led by theresource States of Western Australia and Queensland.224 The outcome will have a significantimpact on the future direction of Australia's federal balance. A win for the Commonwealth willtransfer an even greater amount of financial power from the States to the Commonwealth.

[n Workchoices, Justice Kirby stressed the importance. of federal systems in maintainingfundamental freedoms by preventing power from being concentrated in one centralgovernment. 225 Rather than continuing down the path to further centralisation, greateremphasis should be placed on maintaining regional policy preferences and diversity.Research has shown that citizens living in federal systems are financially better off thanthose in other systems of government,226 However, this will not be the case in Australiaunless the federal balance is' restored. Co-operation from all leve[sof government isnecessary 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~~~~~~~~~~~~~~-


APPENDIX A: Referendum Dates and Results 1906 ..Present227

8 November 1906 12 December 1906 Carried AllI·'~':·'~·:·:··::·::·····':·::::·~:·:··:·::::·:: : :.:•.•.::.:.:::.:::::.::'.:.:' :.:.':.::.. ::': :.:.j .. :.: :'. ::..: '..: :.:..: ;.: : : : :...........\.: .:.~..:.: : :.:..:.:..: : :..::..:: ··:::·':·1 ..:::.:::.:::..:.:.:~'.: : ::[ :::.:.. :.:.::.::.:::.;:.

28 February 1910 13 April 1910

82.65

54.95

39.42

39.89

'49.04

WA

WA

Not Qld,Carried WA,

Tas

Carried AllexceptNSW

NotCarried

NotCarried

26 April 191115 March 1911

Senate ElectionsTo enable elections forboth Houses to be heldconcurrently

.._......•_.__.~ -".--""_...,.~.

FinanceTo implement theagreement to allow theCommonwealth tomake a fixed paymentout of surplus revenueto the States accordingto population. This wasto replace the .arrangement where theCommonwealthreturned three-quartersof .net revenue to theStates

,.._.••_ .. "._.._.".,"'_, ".~.A'"'". ..,••,.,,__. ' ..__ "_~.,,,",~.,''''._., ..

State Debts 28 February 1910 13 April 1910To give theCommonwealthunrestricted power totake over State debts

...._ - - _ __ - --_.

*Legislative .Powers 15 March 1911 26 April 1911To extend theCommonwealth'spowers over trade,commerce, the controlof corporations, labourand employment,including wages andconditions; and thesettling of disputes;and combinations andmonopolies..._--_.__....,,-- ....

*MonopoliesTo give power to theCommonwealth to

227 Reproduced from Australian Electoral CommissIon, 'Referendum Dates and Results 1906 - Present, 2011,http://\NWW.aec.gov.aulElections/referendums/Referendum Dates and Results.htm.

Page 27 ~~~~~~~~~~~~~~-



49.1331 May 1913

24 April 191q

. " " "'" _ _ , - _ -. " - ..- ..- __ .

24 Apri! 1913Railway Disputes

Trusts

Industrial Matt~rs

1 --------

Nationalisation ofMonopolies

l~atibn-~lls~m;nop~i~_~:_[_~_:_:~=:::_~_= C~~ -.__•• .:__ -_---_- ~_:r~_:-: I:_- :__I. ~__-JITrade and Commerce 124 April 1913 131 May 1913 Not Old, 49.381I 'Carried -WA, II SA1..____________________________________________________________ __ ---- - - - - --------------..1

I Corporations 24 April 1913 31 May 1913 Not Old, 49.33\Carried WA, i

SA I---------- - --- - -- -------- - -- -------------- ------- -------- --- ----------------- - - --- - -]-~- - --- --------- ---31 May 1913 - _ Not Old, 49.33

Carried WA,SA

Not Old,Carried WA,

__?_p.-: J24 April 1913 131M~y 1913 Not Qld,49.781

---:------l-------- -- ~~~rl~~ __~~:______ __'24 April 1913 31 May 1913 Not Old, 49.33

Carried WA,I SA

42.80__ I .

4 September 1926 I! Not )' NSW,Carried Old

_ i_

.... .. L_J __ ___.I.____.

,r~~~~g~:~~~SIIS Nov~mb~;19i9 13 December 1919~~:ried ~f-I- 49.65

1

I legislatiye powers over ITrade and Commerce, iCorp()ratlons, Industrial i I~:~~~a~~J~~S~3November 1919 Iis December i9ig Not Vic,148641Monopolies Carried Qld, ITo seek power for the WAcommonwealth to Imake laws with respect

~~_I!1?~5?P?II~~ --- -------------- -------------------------------------r

*Industry and 26 July 1926 4 September 1926 Not NSW, 43.50Commerce Carried Old

ITo authorise the

Icreation of authoritiesto control the terms

I and conditions ofindustrial employment,to give State authoritiessimilar powers toCommonwealthauthorities, and toregulate and controltrusts and

- -combinations1._------ __ _ _ _ ------- --- ---

I!- *Essentlal Services 26 July 1926to allow the!Commonwealth to takeI measures to protectI .. ,,_..... . ,." .

Page 28 --~-----------



......................................................_ _._ _ _._.._ _._ 1 J L ./

45,99

36.26

54,39"

50.57

74.30

53.56

NoneNotCarried

Not NSW,Carried Vic,

WA

Not WA,Carried SA

Not Vic,Carried Qld

····---.. --·-----1·__·· ·_·_....·..__.1..·_·..········....·..·-·--..----..1

6 March 1937 .

19 August 1944

17 November 1928 Carried All

6 March 1937

4 February 1937

4 July 1944

""-,' , ,...•.., -._-.-----.-.,,-.------ " .._ -,,,...

21 August 1946 28 September Carried All1946

4 February 1937

9 October 1928

1 ···-_······_· ··_·..·····_ ·.._·.._..·_·_-_.._··_.._- ..--{---- -.- - - -..- - - - - -......... I....········..····· ....-I

the public againstinterruption of essentialservices

State Debtsto end the system ofper capita paymentswhich have been madeby the Commonwealthto the States since1910, and to restri.ctthe right of each Stateto borrow for its owndevelopment bysubjecting thatborrowing to control bya loan council

.......... - - , " _.. - -- 1·· _··-·· ..··.. ·· ·· .. ··· ..·· .

*Aviationto give theCommonwealth powerto legislate on airnavigation and aircraft

..__._.,_. ..,..~,." """..,, "-" " " "- ,,,"-,, ,

*Marketingto give theCommonwealth powerto legislate onmarketing-- _ ,., , ,

*Post·warReconstruction andDemocratic Rightsto give theCommonwealth power,for a period of fiveyears, to legislate on14 specific matters,including therehabilitation of ex-servicemen, nationalhealth, family'allowances and 'thepeople of the.~borig~~~I,~~~~'Social Servicesto give theCommonwealth powerto legislate on a widerange of social services

_ ,'__~~ .•,.~,~."._"_"., , " " ,,,""'..• '., _ _ _._ ,. .. , _........ .. " _, ..""•. " v"'.·_·_·..·,,..·__ · ~~.._·-••-··, ·,--,,-, ·_--_··.··_---"""'-"~ __....•••..- "

Organised Marketing 21 August 1946 28 Septemberof Primary Products 1946to allow theCommonwealth tomake laws for theorganised marketing of

--------------- Page 29

Australia's Federal System-------


----+-_.__._---_.._---

49.441

I

I I140025'

I

I I

-J 90>77jCarried All

NotCarried

-~~~ried l~f .... ,Tas

__I'Not NSWCarried

27 May 1967

.J .....

27 May 196728 April 1967

28 April 1967

Ipri~~~pi~d~~?_!~~..·.-_ .~_- .. _i:_~ ·.~~L __ _!Industrial' 21 August 1946 \28 September

'

Employment , 1946to give theCommonwealth power I

1r;:~\E~~~:~j__· --- ---------I*Rent and Prices 112 April 1948 1 29 May 1948to give theCommonwealth -permanent power to . Icontrol rents and prices .. ..... ......I*P~~~~~t~-6~·~I~-ith-10 August 1951 22 Sept~ll1lJ~~Communists and 1951Communismto give theCommonwe~lth powersto make laws in respectof communists andcommunism.......__ _,. -_.- _ ~ .." .

*Parliamentto increase the numberof Members of theHouse ofRepresentativeswithout necessarilyincreasing the numberof Senators

*Aboriginalsto enable theCommonwealth toenact laws forAborigines. To removethe 'prohibition againstcounting aboriginalpeople in populationcounts in theCommonwealth or aState.

*Prices 12 November 8 December 1973 Not None 43.81 1Ito give powers to the 1973 CarriedCommonwealth to I

l;~~:;~:-t:;~e ~ ~7~ovember-18~ecemb.r 1973- ~~ried-I None ··1 340 4:21Commonwealth to I I! I

legislate on incomes I IIS-i-m~ltaneous----l-20 April 1974 -i18-M~Y--19-74 Not-- iNSW - --i---48.30 I

1_~~~~~o~~CtiO~~ !~r_~h~ I _... . J__ ,_~a~~i:~ I

Page 30 ---------------



...--- - - --- --..- -.--- -- --- .. - .. --.-----..- , - --..---- --.- -------.------- -- -,- -----..---.. --..- - .. --.- ----.---·-· -· ·T--..·..- ..---------------..- -------- ---- - -..------..----..-..--- - ..

47.99

46,85

47.20

62.22

73.32

NSW

NSW

.. - -, --...... -·1

Not NSWCarried

NotCarried

Not NSW,Carried Vic,

SA

NotCarried

Carried All

18 May 1974

18 May 1974

21 May 1977

21 May 1977

18 May 1974

27 April 1977

Senate and the Houseof Representatives on

_~~~_~~~..~ ..~~X_ _., Mode of Altering the 20 April 1974

Constitutionto give a vote inreferendums toelectors In the ACT andthe Northern Territory,and to enableamendments to bemade to theConstitution ifapproved by a majorityof voters and a majorityof voters in half theStates

.._----.-,.--.----_ _---,-_ _--_._~._._..__._ _----_._---.-_...•-.__ -_...•- - - --..------_._ _---,-------_ _.__._-_.__ _ _- -_., _-_._----_ _.._._.._--_.__ _..

Democratic Elections 20 April 1974to make population.instead of electors, asat present, the basis ofdetermining theaverage size ofelectorates in eachState

.......... , ,""............... ' , ' .

local Government 20 April 1974Bodiesto give theCommonwealth powersto borrow money for,and to make financialassistance grantsdirectly to, any localgovernment body

.."-,,-..---,---~,,._ ••_-.._-,.-•.._._,,_.,-._..,-'- "•., ,_.,.,"---~._".~..,.'''*'" _".." ",..,~", ,_ ,

*SimultaneousElectionsto ensure that Senateelections are held atthe same time asHouse ofRepresentativeselections.....-.,~ _.._--_..__..__--"'"_ "~,,, ,,_ ,,---,_._ __ - ,_..

*Senate Casual 27 April 1977Vacanciesto ensure, as far aspracticable, that acasual vacancy In theSenate is filled by aperson of the samepolitical party as theSenator chosen by the

.E~?EI_~, an9. ..~~.~~_!~~_,_. __..,_ _.__ _, ._, .. __,___.................. . _,. . __ ,, .. ,_,_ ..._ , .. _

--------------- Page 31



.. .I

47.06

32.92

37.60

I!ii. _ .•_.•_ ...•.

!i1

-:·1--· ..! 77.72,

.......... "1

None

None

. ... 1._.

-----.. . ···---1--··

........... JCarried All

.3 September 1988 NotCarried

·······ts~Ptembe;:i988·Not-- ·Non~--r33.621... I.carrie~l 1 .....1

13 September 1988 Not I None j 30.79 II Carried I ; I1 '

j 1

I

i I

126 October 1984 11DOC"".';;ber19a4 ~I ~~:~:~I Non. ·1I I

Ij

._. ..13 September 1988 Not

Carried

1~;1:;~~:I'~~~i~~~f!II *Referendums. 27 April 1977 121 May 1977Territories Ito allow electors in ITerritories, as well as Iin the States, to vote in I I . . I

I

~:-:~-~i-~~i:~(:ic) [27 April19n ··121 MaY1iin J ca;;;J-A-II--jllo.iOto provide forretiring , II I I

I;~~::~r~~~~:s of I I '. ......1 . ..• ..' !

Terms of Senators 26 October 1984 1 December 1984 Not NSW, I 50.641to change the terms of Carried Vic Iii.'

Senators so that theyare no longer fixed, Iand to provide that the

.election for bothHouses are always onthe same day

Interchange ofPowersto enable theCommonwealth andthe States voluntarily torefer powers to eachother

........ __ , - ., ..- .

*Parliamentary Terms 25 July 1988Ito provide for 4 yearmaximum terms formembers of bothHouses of theCommonwealthParliament

•••_." "." ._ _" _ "." .,.. • ••• " • • _ .. _n __•__ • •__•__ •• _.__• '_'.. •••• ._"•••••••_ ,'_,_",_ .

*Fair Elections 25 July 1988to provide for fair anddemocraticparliamentary electionsthroughout Australia

*Local Governmentto recognise localgovernment in the

IConstitutionI*Rights and··

I

Freedomsto extend the right to

i trial by jury, to extend

1!!t?(39.?rt1C?!!~ligi~~ .

-~~--~~--~--~-- Page32 ----------------



-_._ ......_,_...",_., .. ,._...__ ._.._.......__... ,-_. -- .......-. _.,_. .__.. _.... -..-~_.~-,~_.-.-._ ..--,..- .._.,.._.-_...__.._._....--,-

and to ensure fairterms for personswhose property isacquired by anygovernment

.__.....,-----_.- ........_-_...-...-..__ .._.._._.__.. "_._---_.._--_._--._.._.._-_._._.....-----~_._,._, ..-._---_._.._--- .- ._~,_._--_.._.__ .._., ..__.__...._---"---,.... -.. _.-"-,-_.-_ ....._,~ .._---_ ..._~.... -._ .._,.. _..-. ................._ ...

*Republlc 1 October 1999 6 November 1999 Not None 45.13To alter the CarriedConstitution toestablish theCommonwealth ofAustralia as a republicwith the Queen andGovernor~General

being replaced by aPresident appointed bya two-thirds majority ofthe members of theCommonwealthParliament

*Preamble 1 October 1999 6 November 1999 Not None 39.34To alter the CarriedConstitution to insert a

--------.------- Page33 ---------------



REFERENCE LIST

. Alarie, Benjamin and Richard Bird. 2010. Tax Aspects of Canadian Fiscal Federalism.Accessed 16 September 2011. Available athttp://papers.ssrn.com/soI3/papers.cfm?abstract id=1689311.

Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR129.

,Aroney, Nick. 2008. 'The Idea of a Federal Commonwealth'. Sir Samuel Griffith Society,Volume 20 Chapter 1. Accessed 16 September' 2011. Available athttp://samuelgriffith.org.au/docs/voI20/v20chap1.pdf.

Australia's Future Tax System. 2010. Final Report: Part 2 - Detailed Analysis - Volume 2.Accessed 16 September 2011. Availabie athttp://taxreview.treasurv.gov.au/contentldownloadslfinal report part 2/AFTS Final ReportPart 2 Vol 2 Consolidated.pdf.

Australian Electoral Commission. 2011. Referendum Dates and Results 1906 - Present.Accessed 28 August 2011. Available athttp://www.aec.gov.au/Electionslreferendums/ReferendumDatesandResults.htm.

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