The Future of Australian Federalism

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There are good and bad Commonwealth governments, good and bad state and territory governments and good and bad local governments. Somehow or other a range of commentators seem to think that increasing the power of the Commonwealth will automatically mean a lesser involvement of vested interests in decision-making.

Unfortunately, however, it is not the case that rationality resides in a particular level of government. All levels of government are subject to political pressure on issues like economic and environmental reform. This is clearly demonstrated in the debate currently going on within the Commonwealth over the meaning of the words in the Murray—Darling legislation.

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In recent times we have seen failures in public administration, some very serious, in all levels of government. At the same time we have seen innovation and reform, some coming from above and some from below.

Much of this has come from state governments. In a recently published speech Helen Silver, Secretary of the Department of Premier and Cabinet in Victoria has listed the following examples:. There are tremendous benefits to be gained from vigorous policy competition between the states and territories, as proven strategies in one jurisdiction are taken up in others.

They sit in contrast to the euthanasia legislation in the Northern Territory and the civil partnerships legislation in the Australian Capital Territory. These were territories whose work could be easily overturned by the Commonwealth. This leads me to my second point for the day. Even though the position of the states has weakened constitutionally and financially they still play an important role in Australian politics.

They provide important services and advocate for the communities within their boundaries and, however limited it may be, they still have important tax-raising powers. They are facilitators of development within a national and global context. Note, too, that they allow for displays of difference, perhaps best illustrated by the absence of poker machines in hotels and clubs throughout Western Australia. We still have a complex system of power relations unlike those that apply in a unitary system. A very good illustration of this complexity comes from the National Reform Agenda, for which a good deal of the political and intellectual work was done by Victoria during the premiership of Steve Bracks, backed up as he was then by Terry Moran, head of Premier and Cabinet.

I say pragmatic because there was a recognition that vertical fiscal imbalance was a nut too hard to crack. It was to be a partnership approach to governance and financing directed to promoting competition and participation in the interests of productivity. In proposing this approach Victoria had drawn on the experience of the National Competition Policy of the s. This had seen the Commonwealth and the states agree on the changes required to improve productivity.

However, each state was left free to determine the rate and range of change. Should their performance be assessed as acceptable by the National Competition Council they would receive payments from the Commonwealth. This mixture of national purpose, state delivery and Commonwealth incentives produced significant reform.

As Australia entered the new century it had become clear that the economic challenge was also a social challenge, particularly in health, education and social welfare generally. A healthier, more skilled and better motivated population was needed to bring about further productivity improvement. Given that both Commonwealth and state governments had responsibilities in these areas it was clear that a new partnership would be required.

About the new financial and operational arrangements which have emerged from the Council of Australian Governments to facilitate this partnership let me say a member of things. Outcomes are distinguished from outputs, roles and responsibilities are to be agreed, performance indicators and benchmarks set to judge performance and the COAG Reform Council CRC created to monitor and assess that performance. Indeed the whole idea of the program was to move away from the input controlled Special Purpose Payments to a system that allowed for local flexibility.

What mattered was whether the outcomes were being achieved not how that was to be done. From this emerged the new national agreements in education, skills and workforce development, health care, disability services, affordable housing and Indigenous reform. The states loved it—guaranteed revenue, devolution of responsibility and transparency to drive performance by way of the public reporting of results across the nation.

Added to this was a new system of National Partnership Payments NPPs to facilitate or reward reforms of national importance. This leads to my second observation about the system that has emerged following the election of The NPPs are paid to the states to deliver discrete projects or outputs. They are to have a limited time horizon and in respect of reward payments they are only to be paid following a favourable assessment of performance by the CRC.

In relation to facilitation payments they are only paid if certain things are done, deemed to be reforms of national significance. There are a massive number of such partnership agreements, ranging from preventative health to early childhood education, to homelessness and productivity places. Also in the mix is the NPP to deliver a seamless national economy which builds on the competition agenda of the s. It contains 36 streams of regulation and competition reform.

In assessing what all this means for Australian federalism we need to go below the surface and look at the real dynamics at play. Despite an aspiration to see a change in the culture of inter-governmental relations, required to make this co-operative system work, the players at both levels are reverting to type.

Once again highly restrictive requirements and controls are emerging in relation to the NPPs. Even in the health and education agreements the Commonwealth has moved beyond an outcome agenda to an output agenda with its push for hospital networks and a national curriculum.

The concept of subsidiarity which requires decisions to be handled by the least centralised authority and not handed up to a higher level unless the task cannot be properly undertaken from below, such as the defence of the nation, is as alien to the Commonwealth as socialism has become for the Labor Party. Nor is it necessarily understood by the states and if understood, often breached in dealings with localities and sacrificed in the search for money from the Commonwealth.

We saw how some of these stresses and strains are playing out in the recent revision of the health agreement. Only deft footwork by Julia Gillard rescued the package.

Note, however, that it is still an agreement which is yet to be finalised and there is sure to be more conflict over the detail. However, what the health issue demonstrated was the potential that still exists for the states to push their agenda, should they so decide. They do have power in the system. Whilst it is clear, then, that co-operative federalism along the lines developed in recent years is the best way forward for the states it remains doubtful whether it can be fully institutionalised in a way that protects their long-term interests and autonomy. Attitudes and values within the Commonwealth may have moderated but it is hard to see that they have fundamentally changed.

The reality here is that VFI continues to exert its influence. Resources mean power, power leads to temptation and more often than not temptation leads to coercion and control. The only known remedy to this illness comes from checks and balances and a more equal distribution of resources.

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The range of safeguards available to protect State interests, and therefore federalist principles where a reference is made, could be classified and some policy adopted for the selection of the most appropriate mix. At the present time the choices of whether to refer or not and, if so, on what terms, seem to be ad hoc and historically contingent. On the other hand, politics being what it is perhaps that is as good as it gets.

That history is a useful case study for a succession of different arrangements endeavoring to effect national consistency in the regulation of companies. The law in each State had application only within the territorial limits of the jurisdiction of that State.

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Jurisdiction was exercised by the Courts of the States. There was thus a mosaic of similar laws throughout the country rather than one law covering the whole country. The scheme, although simple in concept, was susceptible to the development of differences over time because of pressures brought to bear upon particular State legislatures. In the High Court held elements of the Act invalid because the Commonwealth did not have power to make laws about the incorporation of companies. The States each passed their own statutes which applied the provisions of the Territory Acts designated as the Corporations Law and the ASC Law respectively as laws of the respective States.

In the High Court struck down so much of the legislation as purported to confer jurisdiction on the Federal Court with respect to matters arising under the State laws. Each State also referred to the Commonwealth:. The formation of corporations, corporate regulation and the regulation of financial products and services The Commonwealth and the States made an agreement which included undertakings about the use of the referred powers and procedures for the alteration of the statutes and for termination of the references.

The agreement required that the operation of the scheme be reviewed every three years. The scheme was powerfully supported by referral agreements made by Victoria and New South Wales directly with the Commonwealth. Other States were then left with little option but to fall into line.

Western Australia did so following a change of government in that State. South Australia and Tasmania also joined after the Commonwealth agreed to consider an amendment limiting the degree to which the power could be used to require persons to incorporate. Referral has the virtue of simplicity. Nevertheless, from the point of view of the States it involves an expansion, be it permanent or temporary, of Commonwealth legislative power on the subject matter referred.

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Typically safeguards are sought. It is no doubt for this reason that the reference in relation to corporations was limited to the text of a particular Bill and subject to a sunset clause. There is a sense however in which such safeguards may be illusory. The exercise by the Commonwealth of referred power may become widely accepted by the relevant elements of the community.

A retreat from the post-reference legislation becomes impossible. So while legally temporary or conditional, the reference may become politically permanent and unconditional. The three areas selected for review in this context are: The inquiry, headed up by Professor Fred Hilmer, reported in August It recommended, inter alia:. It agreed, inter alia, that any recommendation or legislation arising from the Hilmer Report would be applicable to all bodies, including Commonwealth and State agencies and authorities.

It would have new powers and Commonwealth, State and Territory governments were to participate in appointments to it. Clause 4 provided for structural reform of public monopolies and clause 5 for a review of legislation. Importantly, this element of the Competition Principles Agreement recognised that infrastructure facilities entirely within a State or Territory might be of national significance.

They also attempted to avoid the development of differences following the initial adoption. Clause 6 1 stated:. It is the intention of the Parties that where modifications are made to provisions of either Part IV of the Trade Practices Act or of the Schedule Version of Part IV of that Act, similar modifications will be made to corresponding provisions of the other. It would have two votes. Each of the other parties would have one. The Commonwealth would also have the casting vote. It agreed not to submit for parliamentary consideration any amendment to the Competition Code text unless a majority of the votes of the Commonwealth and the other parties supported the amendment.

The third party access regime in relation to significant infrastructure was also introduced into the TPA. Importantly, State and Territory application laws were permitted to confer functions or powers on Commonwealth entities. Section 6 provided that modifications to the Competition Code text would not apply as the law of New South Wales under s 5 until at least two months after the date of the modification unless an earlier date were appointed by proclamation.

The effect of these two provisions seems to be that a law of the Parliament of New South Wales had a content varying without legislative action by the New South Wales Parliament, according to changes in the content of the Commonwealth law.

Conferral by State Parliaments of functions under State law on Commonwealth bodies is not straight forward. In R v Hughes the High Court held that at [31]:. A State cannot by its laws unilaterally invest functions under such laws in officers of the Commonwealth. A State law which purports to give to a Commonwealth officer a wider power or authority than that the acceptance of which is prescribed by Commonwealth law would, to that extent be inconsistent with the Commonwealth law and invalid under s of the Constitution.

It does not require the support of any express Commonwealth head of power. If a State law however purports to impose a duty on a Commonwealth body, then the duty must be authorised and, indeed, imposed by a Commonwealth law which is in turn supportable by reference to a head of Commonwealth legislative power. If there is an intergovernmental agreement by which duties may be imposed on Commonwealth officers to carry out functions under State law, then a Commonwealth law imposing such a duty may be an exercise of the incidental power under s 51 xxxix in aid of the executive power of the Commonwealth under s It provides, in effect, that if the State could impose a duty on the Commonwealth body, with the consent of the Commonwealth and that duty would be consistent with constitutional doctrines, then it will operate by force of State law alone.

If the imposition of the duty requires the support of Commonwealth laws then that support is available. The difficulties to which the decision in Hughes gives rise may be said to have led to unnecessary complexity in the legislation and corresponding uncertainty about its interpretation and application. The Industry Commission reported in finding that there was an urgent need for reform of both sectors. The primary source of the inefficiency was identified as lack of commercial discipline imposed by competition. The NGMC proposed the establishment of a competitive national market in the trading of electricity and made other recommendations about features of that market including absence of barriers to interstate trade to entry for new participants in generation or retail supply to uniform trading rules across South and Eastern Australia.

Each of those entities agreed to a National Electricity Law with South Australia as the lead jurisdiction. It was given effect as a law of South Australia by s 6 of that Act and was applied and adopted as a law of the Commonwealth, the other States and the ACT. The National Electricity Market began its operations on 13 December It interacted with price control legislation in the States. In particular, the AEMC and the AER, along with the ACCC, have now taken over many of the regulatory arrangements for electricity that were previously the responsibility of the state government authorities.

It is responsible for the national energy policy framework, including governance and institutional arrangements for the energy market and the legislative and regulatory framework within which the market operates and natural monopolies are regulated. It was aimed at establishing a uniform national regulatory framework for third party access to natural gas pipelines.

Tasmania will follow, while Western Australia will not. As Western Australia has only agreed to implement legislation conferring functions and powers on the AEMC in respect of natural gas pipeline access, [46] it will pass complementary legislation to give effect to the relevant access sections of the National Gas Law. That is not to say it cannot be regulated to a degree by application of the other heads of power.

Since there has been in place a Federal Interstate Registration Scheme designed to provide uniform charges and operating conditions for heavy vehicles engaged solely in interstate operations. It is administered by State and Territory road transport authorities on behalf of the Commonwealth government. Vehicles for which registration is sought must comply with relevant Australian design rules. The corporations power is used in addition to the trade and commerce powers to regulate new motor vehicle safety and environmental standards through that Act.

In the end a majority of the nine governments need to agree to most proposed changes, and there is then little ability to enforce agreements. For example, there was agreement among Ministers to uniform heavy vehicle mass limits but not all States have implemented them. It is still the case today that there is no common heavy vehicle mass limit across Australia.

A vehicle with the maximum allowable mass in Victoria, for example, cannot travel into New South Wales. These include the trade and commerce power, and ss 51 xxxii , 51 xxxiii and 51 xxxiv. The Commonwealth government at that time offered to take over State owned entities and create a single national rail operator. Only South Australia and Tasmania took up the offer. Their rail operations were combined with existing Commonwealth Railways operations linking the Eastern States with Western Australia.

The new organisation, which came into existence in , was known as Australian National Railways. The rail network for which it had responsibility ran from Broken Hill to Kalgoorlie. Over the years that followed there was a gradual conversion of railway lines within Australia to standard gauge until when all Australian State capitals were linked by one standard gauge rail network.

Although there was now one standard gauge network, there were five different government owned rail authorities operating it. The Australian National Railway was privatised and a distinct business known as AN Track Access was established to administer access to interstate track under Australian National control. Over particular corridors it is responsible for selling access to train operators, the development of new business, capital investment, management of the network and management of infrastructure maintenance.

The remainder of the interstate rail network is controlled by government agencies comprising Queensland Rail Brisbane to Queensland border , Railcorp the Sydney metropolitan region and WestNet Kalgoorlie to Perth. Australia has seven rail safety regulators for a population of around 20 million people. In contrast, the United States, with a population of million people, has one rail safety regulator. One example of rail services fragmentation which he gave related to train communications. As at each State and Territory required trains within its jurisdiction to have a particular type of radio.

New South Wales mandated two. This meant that a train could not operate nationally without eight different radio systems. The Agreement recites the desirability of a national approach to the regulatory and operational reform of road and rail transport. To improve[e] transport, productivity, efficiency, safety and environmental performance and regulatory efficiency in a uniform or nationally consistent manner. It is jointly funded by the Commonwealth, the States and the Territories.

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These include the development of proposals for the efficient pricing of road and rail infrastructure through consistent and competitively neutral pricing regimes, the harmonisation and reform of rail and road regulation within five years, the strengthening and coordination of transport planning and project appraisal processes and the reduction of current and projected urban transport congestion. These included rail safety regulation. This expenditure has rarely been tied to regulatory issues. The Offshore Constitutional Settlement of 29 June followed this decision. It was described at the time as a milestone in cooperative federalism.

The Commonwealth on the other hand took responsibility for trading vessels on interstate or overseas voyages, the navigation and marine aspects of offshore industry mobile units and offshore industry vessels other than those confined to one State and Territory. The Code was to be used as the basis for uniform Commonwealth, State and Northern Territory legislation for the survey and manning of commercial vessels, including fishing vessels. It provides safety standards for the design, construction and operation of domestic commercial vessels.

Some ports have been privately developed for the exclusive handling of specific commodities. Some eg Adelaide and other South Australian ports have been privatised in recent years. Port Authorities in general are responsible for providing channels, berths and operating some common use facilities. The private sector commonly establishes infrastructure and operates services … under leases or licences within the port precincts. That possibility has not recently been publicly pursued. However regulation of ports is under review as part of the COAG national reform agenda.

To provide for a simpler and consistent national system of economic regulation for nationally-significant infrastructure, including for ports, railways and other export-related infrastructure. The aims of the foreshadowed reforms are to reduce regulatory uncertainty and compliance costs for owners, users and investors in significant infrastructure and support the efficient use of national infrastructure.

Regulatory arrangements for water in Australia are complex. They differ between the States and Territories. Some governance and regulatory arrangements exist at the national, State, river basin, regional and local government levels. The allocation is as follows:. The Initiative set out a framework for national water reform with a view to creating a nationally-compatible market-, regulatory-and planning-based system for the management of water resources.

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