Federalism in a changing Australia

Federalism is not well understood by many Australians. It’s quite a difficult topic and most people tune out as soon as it’s discussed. But it is an important subject that effects each and every Australian. What it comes down to is – what services and projects do we expect Governments to provide, which Government should provide it and who should pay. This is the very essence of our democracy. How about we educate ourselves so that each of us can be involved with this topic when it comes up in the 45th Parliament.

The Australian Constitution outlines our federalism. But the challenges facing Australia today are very different to the challenges that faced us when the Constitution was written. Does our federation need reform to better meet the needs of Australians in the 21st Century?

What does federalism even mean?

By the 1860’s what we now call Australia was made up of six British colonies. They were all self-governing (well, sort of – they were British colonies) and had two houses of Parliament, except Western Australia who did not gain the right to self-govern until 1890. Around that time the six colonies started to work on joining together and over about a decade they created our Constitution and System of Government. What they designed was our federation, whereby the British colonies gave some of their powers to an overarching Federal Government and each of the colonies became a State.

The Constitution that came into effect on 1 January 1901, outlined the power sharing arrangement between the new Federal Government and the States. Most of the Federal Government’s law making powers are outlined in Section 51 of the Constitution. These powers included new and original powers that had not been previously exercised by the colonies, and old powers that were given up by the colonies. Some of these are exclusive powers and others are shared powers between the States and the Federal Government. Section 51’s 39 subsections include things such as tax, immigration, marriage, old-age pensions, trade with other countries, the post, the census, coinage, bankruptcy etc. There are a couple of other bits and pieces in other sections of the Constitution that outline Federal power, but unless it is described in the Constitution, the power was designed to remain with the States.

At Federation it was pretty clear who had the power for what. Especially as many of those who helped write the Constitution were members of those early Parliaments. But over time the situation has changed and it has become less clear which level of Government has the power for what. In the Government Issues Paper 1 2014 - A Federation for Our Future describes federalism:

The terms 'layer cake federalism' and 'marble cake federalism' are sometimes used to describe two different types of federalism. In layer cake federalism (also called 'coordinate federalism'), each level of government has discrete areas of responsibility separated by 'clean lines' with no overlap. However, the complexity of modern society and a modern economy and the effects of globalisation mean that all federations have significant, albeit different, levels of overlapping responsibility. The term 'marble cake federalism' describes the situation where many responsibilities are shared by the levels of government, and where governments cooperate to achieve common objectives. 'Collaborative federalism' and 'cooperative federalism' also describe this type of federalism. Almost 114 years after Federation, the Australian Federation now resembles more of a marble cake than a layer cake. There are many responsibilities that overlap between the Commonwealth and the States and Territories, with health and education as key examples.

So while Australia may have started as a layer cake, over time we have become more like a marble cake (hope you know your cakes!)

These days many Australians tend to think of the States as junior partners in the power sharing relationship of federation. This was definitely not the view of those who helped to craft our Constitution. Mitchell Institute education and federalism researcher Bronwyn Hinz has said:

We are a federal system, it’s not boss and minions.

So, should we take a look at how the relationship between the Federal Government and States functions? Do we need to more clearly define which level of Government is responsible for what?

Funding Government services

Most Australians expect a certain level of service from Government. This might include education, healthcare, roads, transport, police, etc. You might have other expectations. It’s often stated that we don’t care which level of Government provides the service, we just expect those services to be available.

Most of the services we expect are supposed to be the domain of the State Governments, but over time these services have been funded more and more by the Federal Government. And when the Federal Government funds a service or a project, they may want some control over it.

How did this happen you might say? Well, during WWII the States handed their income tax collecting power over to the Federal Government. It drastically reduced their revenues and the States have become more reliant on the Federal Government to fund their services and projects through Section 96 of the Constitution. This section allows the Federal Government to provide grants to the States on terms imposed by the Parliament:

Section 96 Financial assistance to States
During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.

And this is where some of the problems with federation occur. During the Constitutional Conventions there was some discussion that this section of the Constitution could cause the Commonwealth to become the ‘rich uncle’ for the States.

The Federal Government raises the money, while the State Governments spend it. They have a cool name for this. It’s called vertical fiscal imbalance. The Federal Government provides funding grants to the States, with strings attached and because of this there is a power imbalance. The States might need certain funding for certain services, but the Federal Government may only be willing (or can only afford) to give them a certain percentage of it.

This was never the intention of this section of the Constitution. The States raised their own taxes and Section 96 was meant to be a backup in the case of ‘exceptional circumstances’ where a State might have a funding shortfall. At the Constitutional conferences the discussion around this section was that it may be used to give loans to the States. The writers of the Constitution never imagined that the States would give up their revenue sources and powers.

Politics and ideology can also get in the way of funding cooperation in the federation when some of the States have the opposite Government to the Federal Government.  We saw this with the Gonski education plan, where two Liberal State Governments would not agree to the funding proposal from the Federal Labor party.

What would federation reform involve?

In 2013 the Coalition Government announced that they would launch a Reform of the Federation white paper process. It was meant to produce a discussion paper in spring 2014, a green paper in autumn 2015 and the white paper was supposed to be published in late 2015. All that was delivered was the discussion paper and a couple of issue papers, then whole process was dumped in April 2016.

Earlier this year we did hear some discussion about federation reform, but the commentary didn’t really explain it as such. These topics included raising the GST, giving the States a share of income tax revenue and just in the last few weeks the splitting up of the GST has been flagged for further discussion.

GST is one revenue source for the States that is not tied up in grants. They can use this revenue however they like. The GST was implemented in 2000 and it is the Federal Government that collects it and doles it out. The way that the GST is split between the States and Territories is quite complex and is done on a needs basis. Because the calculation of need are not made in real time, it means that some States (such as Western Australia at the moment) receive a lower GST return that they actually need at the time (although many commentators have pointed out that they did receive a higher GST share a few years ago when they didn’t need it).

The Federal Government has posed the questions as to whether there should be a floor to limit the lowest possible amount of GST that should be returned to each State. Some in the Federal Opposition have argued that this would mean that while Western Australia might get more GST, the other States would get less.

Every now and again the State Premiers meet up with the Prime Minister for a COAG (Council of Australian Governments) meeting. It’s basically a meeting of the leaders of each part of the Federation. Some of the other Federal Ministers also meet at different times with their State counterparts. For instance the COAG Energy Council met last week and the outcome was a commitment from each of the ministers to reform the energy market to meet Australia’s changing energy needs.

Should we be afraid of having the hard discussions?

Former Queensland State Premier Peter Beattie recently wrote a book titled Where To From Here, Australia? He believes we should fund the States properly or get rid of them. Here’s an excerpt:

Australia is over-governed and one tier of government must go. That level is the states. It will not happen in my lifetime but it will happen….In a country of almost 24 million people, you don't need three levels of government….what are the key problems? The tax sharing arrangements in Australia between the Commonwealth and the states are a mess. There is no national strategy to build the nation's desperately needed infrastructure in partnership with the states, funding of education and health has become a blame game between governments, and the duplication in roles between the states and the Commonwealth is costing taxpayers billions.

Peter Beattie also says that he abolished small councils and created larger amalgamated councils to pave the way for federation reform like this. Councils are currently being similarly amalgamated in New South Wales at the moment.

Government leaders have been calling for a more regional approach to federation as far back as the 1970’s. Former Premier Bob Hawke thinks we would be better off without the States and John Howard has stated that if we were starting again we wouldn’t have the States.

Since 1901, the changes to our federalism have been incremental. But slowly over time the States have ceded powers over to the Federal Government. Any changes we try to make now seem big and radical.

What changes, if any, would you like to see to our federation?


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