DAVID SOLOMON. The triumph of federalism?

How good is federalism – Australian style? Until the coronavirus crisis struck, the verdict would have been: pretty ordinary, at best. But at the moment it is flourishing. Can this outbreak of good health last?

Federalism had been going rapidly downhill since World War II – more precisely since the Commonwealth removed the power of the States to impose their own income taxes, first as a wartime measure, then through uniform tax legislation that was upheld by the High Court.

The Commonwealth was able to use its taxing power not only to boost its own legitimate interests, but also to intrude into areas where the States were struggling to finance areas which fell within their own constitutional responsibilities – such as education, health, roads and housing. It did so mainly through the use of grants made using its power under section 96 of the Constitution to ‘grant financial assistance to any State on such terms and conditions as the Parliament thinks fit’.

The terms and conditions were such that the Commonwealth took over policy making in those areas where it made grants. Worse – so far as the States were concerned – the States were impoverished as well, because grants were normally conditional on the States having to push money into the Commonwealth-dictated programs as well – mostly on a dollar for dollar basis.

And this happened in areas where the Commonwealth did not have the constitutional power to take any action at all.

Through the second half of the 20th century the High Court was also expanding its interpretation of those powers the Constitution did directly give to the Commonwealth. The external affairs power was able to be used to give effect throughout Australia to any treaties that the Commonwealth entered into – for example in the areas of human rights and the environment, the latter helping to allow the Commonwealth to prevent Tasmania building the Franklin River dam.

To cap it all the High Court decided that state taxes on petrol and tobacco were ‘excise’ duties, and, under section 90 of the Constitution, could only be imposed by the Commonwealth, not the states.

From time to time a Liberal Prime Minister would suggest to the States that they could restore some of the power they once had to impose income taxes, and allow them to piggy-back on the Commonwealth tax. None of them was prepared to impose such a tax – they feared they would be voted out of office.

And then came the Goods and Services Tax, the sort of tax forbidden to the States but which the Commonwealth was prepared to raise and hand over to them. This seemed to provide a bonanza at first, but the takings from the tax did not increase as fast as the needs of the states.

In the past few years the High Court has been pulling a tighter rein on the way the Commonwealth may use its financial powers, but that hasn’t helped the states very much. Those states that conform to the Commonwealth’s policies – for example, privatising their electricity networks – are rewarded. If the policy is one that is embraced by the State, well and good. If not, tough, no money.

The overall result has been that meetings of COAG, the Council of Australian Governments, and of the numerous ministerial councils established under its umbrella, have been and are dominated by what the Commonwealth wants or will agree to.

Come the coronavirus crisis, COAG has been transformed into the National Cabinet – and not just in name. Now it is the states that predominately have the powers that are needed for Australia to meet the joint interwoven threats to the health of the people and the national economy.

The Commonwealth remains responsible for national finances – to provide financial assistance to businesses and to people affected by the collapse of the economy.

But the states have the nation’s constitutional powers over education, health, commercial regulation and law and order. In the current crisis, contrary to what happened during the World Wars when all power was taken into the hands of the Commonwealth, the states are insisting on exercising those powers themselves. For the first time since federation in 1901 it is the states that are in the driving seat – or rather, seats. There is national unity of purpose, but there is diversity in the implementation of the goals that are being set by the National Cabinet.

The National Cabinet agrees that schools should resume as soon as possible – but each state and territory decides for itself when and how. Restaurants and pubs will re-open – when each state decides. Border controls will be lifted – as the relevant state determines (and WA says it will be the last). All these decisions will influence the way the economy is restored – to meet the Prime Minister’s policy aim of getting people back to work. The economy, which the Commonwealth thought it controlled, turns out to be more than just what happens in the national budget. It depends on when schools, commerce and so on are freed up by the individual states.

This has not been easy for the Morrison government to accept, though as the Prime Minister acknowledged on Tuesday, ‘We’re a federation and at the end of the day states have sovereignty over decisions that fall specifically within their domain.’ And that local politics will help drive their decisions, ‘At the end of the day every premier, every chief minister, has to stand in front of their state and justify the decisions that they’re taking in terms of the extent of the restrictions that are in place… the trade-off that they are making between people having jobs and the impact of the containment of the coronavirus.’

And he added, ‘on these issues where the Commonwealth has no direct authority at all, our job is to try to make sure as much consistency across state and territory jurisdictions as possible, and it has been one of the more effective tools we have had, when we compare ourselves to other countries that exist in federations Australia really has operated as a federation remarkably well.’

Will the new version of Australian federalism survive the virus? Unlikely. Witness Commonwealth Education Minister, Dan Tehan’s outburst on Insiders on Sunday when he accused the Victorian Premier of taking a sledgehammer to the State’s education system and of a failure of leadership – comments he was forced to withdraw by the Prime Minister.

What was not withdrawn was the attempt by the Commonwealth to persuade/coerce non-government schools in Victoria to break away from the rules set by the Premier using the usually effective device long employed by the Commonwealth when intervening in state affairs – the promise of money.

But the States will be buoyed by their elevated role these past two months and may try to extend their influence over national policies into other areas – and particularly climate change, where the Commonwealth has tried to ignore the science and the threat.

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David Solomon is a former legal and political correspondent. He has degrees in Arts and Law and a Doctorate of Letters. He was Queensland Integrity Commissioner 2009-2014.

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3 Responses to DAVID SOLOMON. The triumph of federalism?

  1. Avatar John Thompson says:

    There is considerable agreement that the seemingly ever-increasing use by the Commonwealth Government of Section 96 grants to the states has diminished the effectiveness and efficiency of our federation. With a confusion of Commonwealth financial interventions and their associated terms and conditions we now have an unduly complex health system which is the constitutional responsibility of the states. In education, again the constitutional responsibility of the states, we now have insanely split our kids into two education systems and fund those systems differently. And so it goes – indeed, it is difficult to identify any constitutional responsibility of the states where the Commonwealth is not ‘interfering’, often conflicting with states’ priorities and policies, and invariably confusing the general community.
    The folly of this situation we are now in was splendidly demonstrated by the recent sports rort. We have a national government that faces major national and international challenges like how to deal with China trade issues or a significant defence environment, but is funding women’s change rooms in small country towns, usually a matter for state governments or local governments.
    The current pandemic has indicated both the positives and negatives of our federal system. Positives such as the premiers determining the best health pathways for their particular state on the basis of expert advice. Negatives such as the Commonwealth Minister for Education trying to financially bribe a section of schools in each state to undermine the authority of the state premiers.
    Could our positive experience of the “national cabinet” provide an incentive to review our federal system and the financial structure it is based on, and work towards a federation that is fit for purpose for the great challenges our nation faces in the near future.

  2. Avatar Richard England says:

    Every day, the states, notably Western Australia, repudiate the foreign policy of the Commonwealth by maintaining good relations with China. Their economic survival depends on it. By joining the evil and stupidly self-defeating US vendetta against China, the Commonwealth sets itself against the interests of the states, and of Australians in general, thereby undermining its own raison d’être.

  3. Avatar john austen says:

    Dr Solomon: thank you for an interesting post.

    While the rebalancing towards the States on relevant matters might be welcome in principle, there is an issue about actions taken by their Governments – especially given the absence of scrutiny by their Parliaments (which is also the case for the Commonwealth).

    Your post referred to the High Court putting a tighter rein on Commonwealth financing. This was a tighter rein on its Government i.e. correcting a problem of Executive Government overstepping its authority. The experience in at least NSW demonstrates this is a problem also at the State level. Given current State actions impact on personal freedom, present over-reach by State Governments is a more direct and serious threat than Commonwealth financing.

    The apparent unexplained inconsistent treatment of NSW Ministers Harwin and Barilaro – one fined and one not for ‘visiting’ a second residence – is one prominent example. In those cases the Premier and Ministers offered the public multiple conflicting – at times incoherent and irrational – explanations of the meaning of the regulation they made without Parliamentary oversight. That there were basic differences between some Ministers and authorities ‘expectations’ – which were broadcast to the public – and what the regulation says (what the law is) was evident by 12 April, but had not been addressed almost a month later. The Government, solely responsible for making the regulation, has been unable or unwilling to say either what it is supposed to mean or what it does mean.

    Unfortunately, that is no surprise to me given similar NSW Government obfuscation, incoherence and aversion to facts in the only other field I look at – infrastructure. A recent post noted the transport Minister’s claim of being unaware until recently of a multibillion dollar Metro cost blowout – even though it was identified 18 months previously -before, yet unmentioned at the recent State election. The Premier ‘ hand on heart’ referred to honesty and integrity. https://johnmenadue.com/john-austen-sydney-metro-developments/

    These are fundamental failures of the role of the Executive under rule of law – to encourage people to follow the law.

    This is not to say the Commonwealth at present would do any better.

    But it is to say such misbehaviour must not be accepted. There should be very careful scrutiny of the actions of Executive Governments re Covid-19 – especially given attention grabbing claims that the recent crisis is a ‘dress rehearsal’.
    A crisis is no excuse for Government to disregard the law – and the ability to make and explain adequate rules for an emergency has never been in doubt.

    Hence, while agreeing with the point you made, on present evidence I consider some aspects of State responses to Covid-19 a disaster rather than triumph and unacceptable as any part of the ‘new normal’.

    Thanks again

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