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Twomey, Anne --- "Reforming Australia's Federal System" [2008] FedLawRw 3; (2008) 36(1) Federal Law Review 57

  • INTRODUCTION
  • CONCLUSION
  • REFORMING AUSTRALIA'S FEDERAL SYSTEM

    Anne Twomey[∗]

    INTRODUCTION

    On 9 February 2007, all State Premiers, in the Council for the Australian Federation, agreed that a constitutional convention should be held in 2008 to propose reforms to Australia's federal system.[1] The need for a Constitutional Convention to improve the operation of the federal system has been supported by a broad coalition, ranging from business groups,[2] to local government,[3] academics[4] and the media.[5] Bob McMullan, in his former role as Shadow Minister for Federal/State Relations, stated that the idea was 'worthy of serious consideration'.[6] The 2020 Summit, held in April 2008, also proposed the holding of a constitutional convention to reconsider the allocation of powers and functions across all tiers of government and the finances needed to fund them.

    There appears to be a growing recognition that the current system of creeping centralism is dysfunctional and that it would be to the benefit of all Australians if our federal system operated more effectively.[7] With the election of the Rudd Government and a period of at least a year in which no State or federal elections are likely to occur, there is an historic opportunity to achieve substantial federalism reform.

    The most common complaints about federalism concern duplication, excessive bureaucracy and administration, buck-passing and cost-shifting. The most common suggestions for reform include the reallocation of powers and functions between the Commonwealth and the States, the reform of Commonwealth-State financial relations and the improvement of intergovernmental processes.

    This article considers the matters that a constitutional convention would be likely to address in proposing reforms to our constitutional system. It discusses both constitutional and non-constitutional reforms, and in doing so draws upon the experience of other federations.[8]

    The allocation of powers and responsibilities within a federation

    Federal systems of government have many advantages over unitary systems. They provide greater choice and diversity, they allow the customisation of policies and laws to meet local needs and differences, and they support competition and innovation, leading potentially to more economically efficient governments.[9] However, the benefits of choice and competition must be balanced against the benefits that arise in some cases from uniformity or the economies of scale that may result from one level of government performing a particular function. It is therefore important that the allocation of powers and responsibilities between the levels of government be kept under review and that a level of flexibility is maintained to ensure that the federal system operates most effectively.

    Centralising power at the Commonwealth level is not the only way of achieving a degree of uniformity in those subject areas where it is desirable. Indeed, complete uniformity may not always be necessary or in the best interests of the country. In some cases the declaration of minimum national standards might be appropriate, leaving each State the option of building on those standards or implementing them in different ways. In other cases uniformity might be desirable in relation to some aspects of a subject matter, while others are best left to be adjusted to take into account local differences.

    There are several different ways of managing the allocation of powers and responsibilities in a federation in a manner that maintains the appropriate balance between uniformity and diversity. In Australia, these include:

    • the constitutional or political reallocation of powers and responsibilities;

    • the referral of matters to the Commonwealth by the States;

    • intergovernmental co-operation;

    • recognition of the standards and qualifications accepted in other jurisdictions; and

    • framework structures where the Commonwealth sets national standards and the States fill in the detail.

    The reallocation of powers and responsibilities

    Federations often work best when the powers and responsibilities of the different levels of government are clearly defined and allocated. In Australia, we have an unusually high level of shared responsibilities. This gives rise to the risk of 'a blurring of government responsibilities – from cost and blame-shifting among government levels, wasteful duplication of effort or under-provision of services, and a lack of effective policy co-ordination'.[10] We have also had little change made to the constitutional allocation of powers in the last century. The allocation made by the framers of the Commonwealth Constitution in the 1890s may no longer be appropriate today and deserves to be revisited. Such a reassessment, however, should be based upon principle rather than political advantage.

    The principle generally used to make such an assessment is 'subsidiarity'. This principle provides that functions should, where practical, be vested in the lowest level of government to ensure that their exercise is as close to the people as possible and reflects community preferences and local conditions. As the OECD has noted, by being 'closer to local citizens, sub-national governments are in principle better placed to respond to their demands for services and to target these at the right people.'[11]

    The principle of subsidiarity places the onus on those who seek to place a function with a higher level of government to make the case for it. Factors that are taken into consideration in deciding whether it is not practical to vest a function in a lower level of government include whether the function concerns matters of peculiarly national interest, such as the preservation of the nation (defence) or the nation's relationship with other nations (foreign affairs). Where issues of social equity arise, it may be more appropriate to apply them nationally both as a matter of fairness and of practicality, especially where the redistribution of income is involved. For example, if the States provided different pension and welfare benefits, then unemployed people would flock to the State with the most generous unemployment benefits and pensioners would move to the State with the most generous pensions, distorting the labour market and affecting demands upon other services.[12] Accordingly, social security is usually a national function in federations. Other factors taken into account include cross-jurisdictional spill-overs (where the actions of one State have consequences for another State), economies of scale and efficiency through the creation of uniform or harmonised rules or standards.[13]

    As these same factors tend to be taken into account in all federations, there is a similar pattern in federations in the allocation of functions and responsibilities. Defence, foreign affairs and social security tend to be dealt with by the national government, education and policing tend to be dealt with by sub-national governments, health and the environment tend to be the primary responsibility of one or the other level, and economic affairs and housing tend to be shared responsibilities.[14]

    Aspects of the principle of subsidiarity appear in other federal Constitutions, such as the Swiss Constitution which confines the Confederation to 'tasks which require uniform regulation',[15] leaving all other matters to the Cantons.[16]

    After it was first elected, the Howard Government established a National Commission of Audit which reported in June 1996. It studied the inefficiencies in the federal system and made recommendations on how to reduce duplication, overlap and cost-shifting. In doing so, it applied the principle of subsidiarity in relation to a number of policy areas. Health is one of the most problematic areas of the Australian federal system. This is because the responsibilities of the Commonwealth and the States are closely intertwined, with the Commonwealth responsible for Medicare and subsidising private health insurance, the States responsible for running hospitals, the Commonwealth primarily responsible for aged care and the States primarily responsible for psychiatric and disability services. The consequence has been a lack of co-ordination of services, greater difficulty for people to negotiate the system and hold governments accountable, and serious levels of inefficient cost-shifting.[17] The incentive for cost-shifting is now strengthened by the rapidly increasing health costs of an ageing population. Back in 1996, the National Commission of Audit concluded:

    Ideally, responsibility for the delivery of all services and the collection of revenue to meet costs should be with one level of government. In practice, however, there would be inefficiencies if this were located at the Commonwealth level when more appropriate decisions could be made at the local level; whereas if it were to be at the State level, the Commonwealth would have to relinquish income tax powers or collect earmarked revenue on behalf of the States.

    • As an ideal overall solution, the Commission considers the latter would be the most efficient and would most conform with the principles outlined in earlier chapters.

    • Such reforms are beyond the Commission's terms of reference.[18]

    In relation to education, the Commission also took a bold stance and made the following recommendation:

    The Commonwealth should negotiate the following delineation of roles with the States:

    • States – preschool, primary and secondary education, with Commonwealth funding of secondary education transferred by untied grants to the States.

    • Commonwealth – vocational education and training, and higher education, with State funding of VET [Vocational Education and Training] transferred to the Commonwealth through a reduction in general purpose grants.[19]

    Needless to say, neither of these recommendations was taken up by the Commonwealth Government in 1996. However, the suggestions made are still worth considering in any principled debate upon the allocation of powers and responsibilities. Other significant contributions have been made by the Constitutional Commission[20] (which considered whether new powers should be conferred on the Commonwealth in relation to communications, defamation, nuclear material, family law and national accident compensation, amongst other matters); the Productivity Commission[21] (which has considered health reform and freight transport reform amongst other matters); the Business Council of Australia;[22] and the States themselves.[23] State Premiers have previously expressed a willingness both to surrender and assume responsibilities. For example, the former Premier of New South Wales, Bob Carr, called for the reallocation of spending responsibilities, including the possibility of the States handing some responsibilities, such as universities to the Commonwealth, while having undiluted State responsibility for other areas restored.[24] The former Queensland Premier, Peter Beattie, has also stated: 'I have no problem handing over to the Commonwealth responsibilities that will be better managed by the Commonwealth provided the Commonwealth is prepared to hand over to the states and to local and regional government areas that can be better managed at our levels as well'.[25]

    The reallocation of powers and responsibilities has been described as the 'holy grail' of legal and administrative rationalists.[26] It is something sought, but never won. While such reforms might be difficult to achieve, they are not impossible. Switzerland, France, Germany, Italy, Norway and Spain have all recently reconsidered and adjusted their allocations of power, and the United Kingdom has devolved power upon governments in Scotland, Wales and Northern Ireland.[27] For example, in Spain healthcare and social services responsibilities have been transferred to the Autonomous Communities. In France, functions in areas including higher education, industrial policy and regional infrastructure have been transferred to the regions.[28] 'In Norway, responsibility for hospital care was transferred from the counties to the central government in 2002.'[29] In Germany, the list of concurrent powers has been completely reviewed, allocating some matters to the federation (such as weapons and explosives, nuclear energy, anti-terrorism and the care of those injured or affected by war) and some to the Länder (such as the punishment of crimes, the regulation of nursing homes and shop closing times). The deletion of framework laws resulted in the Länder obtaining responsibility for most aspects of education, including higher education.[30] Finally, the Länder were given the power to 'deviate' from some concurrent federal laws.[31]

    Often such reforms take place because of a commitment made in opposition before a party is elected to government, as in the case of devolution in the United Kingdom. In other cases reform arises as a condition to the formation of a coalition government after an inconclusive election, as occurred in Germany.[32] Governments that are already well entrenched in power are far less likely to agree to reforms that may result in the loss of some of their powers.

    Alternative means of achieving a degree of uniformity

    In deciding whether to reallocate powers to the Commonwealth because of the benefits that would flow from the uniformity of laws on a subject, consideration should be given to whether those benefits could better be achieved by other means. These might include the reference of matters by the States to the Commonwealth under s 51(xxxvii), co-operative legislative schemes, the mutual recognition of standards and qualifications or the use of framework laws at the Commonwealth level, leaving the detail and the means of implementing principles to the States. The advantages of these approaches, as opposed to a formal constitutional reallocation of powers, are that they:

    • are flexible rather than rigid;

    • involve the States in determining the nature and scope of the law or reference, so the States can ensure that it complements existing State laws and programs;

    • utilise State expertise on subjects in relation to which States have extensive experience but the Commonwealth has little;

    • permit uniformity in some aspects of a law while allowing flexibility in how the States implement other aspects of the law;

    • permit uniformity between groups of States with the same interests, while not requiring uniformity in all;

    • can create greater community support for a controversial or hard policy if it is supported by all Australian governments of different political persuasions; and

    • give States greater control over future amendments and reforms on the subject.

    Matters for the consideration of a constitutional convention

    The first task for a constitutional convention in considering the allocation of powers would be to determine what principles should apply in assessing which level of government should exercise particular powers or be responsible for particular functions, or whether those powers and responsibilities should be shared. In particular, consideration should be given to the degree of uniformity or harmonisation needed in relation to particular matters, and which of the means mentioned above is the most appropriate to achieve it. Where circumstances are likely to change in the future, a more flexible arrangement may be preferable to a rigid constitutional reallocation.

    A formal constitutional amendment would not necessarily be required to adjust the allocation of powers in most cases. The expansion by the High Court of the Commonwealth's legislative powers with respect to external affairs,[33] corporations[34] and defence[35] is such that it has legislative power with respect to most matters. Further, if it did not have power with respect to a particular matter, the States could refer that matter to the Commonwealth under s 51(xxxvii) of the Constitution. The States themselves have plenary legislative power which is only limited by a few provisions of the Commonwealth Constitution.[36] In most cases States could resume responsibility for a function if the Commonwealth vacated the legislative and executive field.

    If the States and the Commonwealth were to reach an agreement as to which government would be responsible for which fields of public policy and expenditure, with a commitment not to legislate or act within a field that fell to the responsibility of another government, then a reallocation of responsibilities could be achieved without any formal constitutional amendments with respect to powers.

    However, where a reallocation of powers and responsibilities is needed and agreed upon by the Commonwealth and the States, it would be preferable to achieve this by formal constitutional change. This ensures that the people are consulted and give their imprimatur to the change and also prevents backsliding or repudiation by future governments. Previous referenda that proposed the expansion of Commonwealth powers have almost always failed.[37] In order to succeed, such a proposal would need to involve genuine give-and-take, with subject areas being disentangled so that some are allocated to the States and some to the Commonwealth. Any proposal that was perceived as a power grab by the Commonwealth, or which did not have the support of all the States and the Commonwealth, would most likely fail. The referendum proposal would have to be derived from a cross-party and cross-government consensus, in which the people also were involved and consulted. The process by which any referendum proposal is generated is therefore very important.

    One of the problems of constitutional change, however, is the risk of freezing an allocation of powers that will not be appropriate in the future. That is why it is important that other tools to permit intergovernmental co-operation are included in the Constitution. Such tools could include an upgraded s 51(xxxvii) which permitted the interchange of powers between the Commonwealth and the States or the use of constitutionally supported intergovernmental agreements. For example, a provision similar to s 105A could be inserted in the Commonwealth Constitution, that would allow the Commonwealth and the States to make agreements about the allocation of responsibilities that would be binding on all parties notwithstanding anything contained in the Commonwealth or State constitutions or any law of the Commonwealth or a State.[38] By inserting the mechanism in the Constitution, rather than a particular reallocation of powers, greater flexibility would be permitted for the renegotiation of such agreements as circumstances change. The agreements would not be frozen in time.

    The problem with such proposals is achieving public support for them. In 1984 a referendum proposal that would have allowed the interchange of Commonwealth and State powers failed because it was perceived as a means of taking power away from the people and placing it in the hands of politicians. It was characterised by the 'No case' as being 'a scheme to allow Canberra politicians to change Commonwealth and state powers without consultation' and as a means to 'blackmail the states into referring important state powers to Canberra and making decisions favourable to Canberra'.[39] The insertion of s 105A in the Constitution was only achieved because of the desperate financial circumstances of the States at the time and the fact that the intergovernmental agreements to be validated under s 105A had already been entered into, so their terms were already known and accepted. It would be a difficult task indeed to build any further flexibility into the Constitution if it were perceived as diminishing the power of the people to control changes to the Constitution. However, provisions that are perceived as supporting co-operation between the Commonwealth and the States are more likely to be supported.

    Commonwealth-State financial relations

    The primary problem with Australia's federal system is the unusual imbalance in the federal fiscal system. The ideal in a federal system is to achieve 'fiscal equivalence' or 'fiscal balance', so that each level of government has the capacity and responsibility to raise the revenue necessary to fulfil the functions allocated to it.[40] This enhances accountability and responsibility, as the same government has to make the hard choices related to balancing tax and expenditure levels. It cannot attempt to shift the blame and responsibility for inadequate services or high tax levels to another level of government on the ground that it has not been properly funded by that other level of government. Further, each government can 'tailor the supply of public goods to local citizens' preferences and willingness to pay'.[41] It may be the case that the citizens of some jurisdictions prefer lower taxes and fewer government services, while the citizens of other jurisdictions might prefer a higher level and quality of services and be prepared to pay for them in higher taxes.

    In reality, it is impractical to achieve this ideal of fiscal balance, because it is more efficient for some taxes to be applied uniformly and collected centrally. The OECD has noted that 'there are few taxing powers which can be transferred to sub-national governments without raising efficiency and/or distributional concerns'. It has pointed to problems with giving sub-national governments powers in relation to consumption taxes, personal income taxes and corporate income taxes.[42] Accordingly, some level of what is known as 'vertical fiscal imbalance' is common in federations.

    Australia, however, is uncommon in having one of the highest levels of vertical fiscal imbalance in federal systems across the world. Approximately 82% of tax revenue in Australia is raised by the Commonwealth,[43] while the States are responsible for at least 40% of national expenditure.[44] The consequence is that the States are reliant upon grants from the Commonwealth in order to fulfil their responsibilities to provide services such as schools, hospitals, police and public transport. Currently, from the Commonwealth's 82% tax-take, 27 percentage points-worth is transferred back to the States (comprising 16 percentage points of GST grants and 11 percentage points of specific purpose payments).

    The States have a limited capacity to raise their own revenue. They are constitutionally barred from imposing excises,[45] they were effectively deprived of their income taxes in 1942,[46] and their tax-base was further narrowed in 1999 by Commonwealth requirements imposed as part of the implementation of the Commonwealth's goods and services tax ('GST').[47] In contrast, the Commonwealth receives revenue far in excess of what it needs to fulfil its constitutional responsibilities. At the same time, net Commonwealth funding to the States as a percentage of gross domestic product ('GDP') is at a thirty year low.[48]

    How can this problem be fixed? Restoring the original intent of the Constitution and requiring surplus Commonwealth revenue to be distributed to the States[49] is unlikely to be effective. It would simply lead to arguments as to what funds the Commonwealth could legitimately earmark and retain for future expenditure and could potentially give rise to massive Commonwealth spending sprees to ensure that money is not sent to the States.

    An alternative is the restructure of the tax system in a manner compatible with the reallocation of responsibilities discussed above. However, this would also raise problems concerning the efficiency of the distribution and administration of taxes.[50] No one would wish to be subject to different income and sales taxes, each with their own exemptions, deductions, rebates and rates. The OECD has noted that while there has been a trend towards conferring more responsibilities on sub-national governments resulting in increased sub-national spending, the sub-national share of government revenues has not increased commensurately. It has observed that this 'may reflect an unavoidable tension between proliferating local spending demands and a scarcity of tax instruments with the correct characteristics for being levied locally.'[51]

    In other federations a common way of addressing this problem is tax-sharing. The OECD has noted three different means by which this may occur.[52] First, there are 'piggyback' taxes, where a State may impose a percentage of tax on top of a national tax. This assumes that the national government will reduce the level of its tax to make room for the sub-national governments, so the overall tax burden is not increased.[53] Piggyback taxes are used in the United States and most Nordic countries. Secondly, tax-sharing may involve sub-national governments being entitled to a percentage of national tax revenue that is collected in their jurisdictions. This gives sub-national governments the incentive to promote economic activity in their jurisdictions in order to increase their tax revenue. Thirdly, sub-national governments may be given a share of national tax revenue, regardless of the jurisdiction from which it was collected. In this way tax revenue is shared, including the benefits of increasing revenue as well as the burden of decreasing revenue. Sub-national governments would remain responsible for making up the rest of their expenditure needs from their own tax bases.

    In Germany, for example, income and corporation tax revenues are shared between the Federation and the Länder equally.[54] Value added tax ('VAT') revenue is allocated by a formula, set by a federal law, in accordance with a list of principles. The first principle is that the Federation and the Länder shall have an equal claim against current revenues to cover their necessary expenditures.[55] The enactment or amendment of such a federal law also requires the consent of the Bundesrat (the upper House of the federal legislature). Each of the Länder has a block of votes over which it exercises control in the Bundesrat, so the Länder have a greater say in matters affecting their shared tax revenue.

    One peculiar aspect of federalism in Australia has been that there is such a high level of sharing of responsibilities but little tax-sharing.[56] This has been partially remedied by the allocation of the proceeds of the Commonwealth's GST to the States. However, two problems arise. First, as noted above, the GST Intergovernmental Agreement narrows the tax-base of the States by requiring them not to impose certain types of taxes. This makes the States even more reliant on Commonwealth funding and less accountable, exacerbating the problem of blame-shifting. More importantly, however, the revenue from the GST only replaces a proportion of former Commonwealth grants to the States. The Commonwealth retains its financial and policy control over the States through special purpose payments, which make up more than 42% of total Commonwealth transfers to the States. These are 'tied grants' made under s 96 of the Constitution which are subject to policy and administrative conditions. Specific purpose payments are the primary cause of duplication, excessive administrative burdens, blame-shifting and waste in our federal system.

    One way of addressing our federal problems would be to give the States a share of income tax revenue,[57] as well as the GST revenue, so that the States received from both sources sufficient funds to support their expenditure responsibilities, when combined with State tax revenue. However, a difficulty with this approach is that if the States have no control of the rate and base of the Commonwealth's tax, it is easily manipulated to deprive them of funds. This was one of the problems with the Fraser Government's 'new federalism' in which the States received a fixed share of income-tax from 1976. The Commonwealth's continuing power to increase surcharges and levies (which fell outside the shared income tax pool), such as the Medibank levy, and its power to increase excises, permitting major tax cuts and the adjustment of tax rates, left the States completely vulnerable.[58] On the other hand, if change to the rate and base of major national taxes requires unanimous Commonwealth and State approval,[59] then this would affect the ability of the Commonwealth Government to manage the national economy and respond to changing economic circumstances.

    An alternative would be to tie State funding to a percentage of all Commonwealth tax revenue or gross domestic product, so that the Commonwealth would maintain control of the tax base and rates of national taxes, but any manipulation of those taxes would affect the Commonwealth as much as the States. Further, the benefits and burdens of changes in Australia's economy would be shared by all levels of government.

    Such a proposal would entail the end of Commonwealth tied grants, with the result that large swathes of duplication and waste would also be terminated. Such changes have taken place in other federations. The OECD has noted that because of the problems involved with what it describes as 'earmarked grants', including poor cost effectiveness and high administrative costs, 'there has been a move towards general purpose (block) grants, which allow greater local autonomy and should, in principle, generate greater cost-efficiency'.[60] For example, in the 1990s a number of countries including Canada, Finland, Iceland, Norway and Sweden 'drastically reformed their grant system, replacing most earmarked grants by general-purpose grants'.[61] In Canada by the end of the 1990s as much as 94% of grants to the Provinces were block payments.[62] In Italy tied grants to the regions were eliminated in 2000 and replaced with unconditional grants and a share of national VAT.[63] Spain has also reduced the use of 'earmarked transfers' and replaced them with unconditional grants 'in order to increase the discretionary power of local governments to organise local provision in the most effective way.'[64]

    Where national standards are still needed in State areas of jurisdiction, they could be achieved through intergovernmental agreement or other mechanisms described above. For example, there is no need for the Commonwealth to impose a national curriculum upon State education systems. The States have previously agreed to national standards and testing regimes[65] and have also agreed to work towards a national curriculum, setting core content and achievement standards, but providing flexibility to jurisdictions, school systems and individual schools on the implementation of that curriculum.[66]

    If the elimination of tied grants is not achievable, and it may not be,[67] there are still many changes that could be made to the specific purpose payment system that would improve its operation and reduce duplication, excessive administrative burdens and waste. Such proposals have been outlined by numerous different reports and studies.[68] The general consensus is that specific purpose grants should focus upon outcomes or objects and not dictate the means by which they are achieved.[69] Conditions placed on specific purpose payments should relate to the purpose of the program, rather than be directed at unrelated ideological issues. Micromanagement and the imposition of costly reporting and administrative requirements should be reduced. Data should only be collected with good justification and in the national interest. Incentives should be included to find more efficient ways of achieving the desired outcomes. Policy objectives should complement and be co-ordinated with existing State policies and programs, in order to avoid overlap and confusion amongst those who use government services. Funding should be pooled across broader areas, rather than channelled into narrow subjects, so that services can be provided more efficiently and equitably rather than over-provided and under-provided as is sometimes the case.

    Again, most of this change could be achieved without formal constitutional amendment. However, as discussed above there are also good democratic and practical reasons to formalise change in the Constitution.

    Options for constitutional reform

    A number of proposals for constitutional reform are also likely to be raised at any constitutional convention on federalism. They include the following matters.

    Clarification of the operation of s 51(xxxvii)

    One of the reasons why there has been reluctance amongst the States to refer matters under s 51(xxxvii) is that there is continuing uncertainty about its operation. The first point of uncertainty is whether a State can revoke its reference and what effect this has on a Commonwealth law enacted under s 51(xxxvii). The High Court has accepted that a reference may be given for a limited period only and that it may also be made conditional upon an event occurring.[70] However, uncertainty remains as to whether a State Parliament could revoke its reference by repealing the law that made the reference. Would such a State law be ineffective because it was inconsistent with the Commonwealth law enacted pursuant to that reference?

    As a consequence of this uncertainty, States include in their references a limitation on the term of the reference, with the capacity to extend the term by executive act.[71] This ensures that if revocation is ineffective, the reference may still be terminated in the future if it is operating in a manner inimical to State interests. In addition, State reference laws may also contain a procedure for terminating the reference by the use of executive, rather than legislative, power. For example, some references provide that the Governor may, by proclamation, fix a day upon which the reference shall terminate.[72]

    Another area of uncertainty that would benefit from clarification in the Constitution concerns the repeal or amendment of a Commonwealth law enacted pursuant to s 51(xxxvii) (the 'referred law'). Can such a law be repealed by the Commonwealth Parliament in whole or in part regardless of the terms of the reference or whether the Commonwealth has another appropriate head of power?[73] Can a Commonwealth referred law be amended by a Commonwealth law enacted under a different head of power, or can it be amended only by a law enacted in the same manner, or a law within the scope of the original reference? Can the power to amend the Commonwealth's referred law be granted by referring States, but be made subject to the prior agreement by State Governments to the form of the amendment? In Thomas, Justice Kirby criticised the role of the executive in relation to the extension of references by the approval of amendments. He considered that only State Parliaments could fulfil this role.[74] If this were the case, then the role of the executive in terminating references must also be doubted.

    If all these matters were clarified in s 51(xxxvii), then the States would have more confidence in using the provision. In other federal countries, where a similar mechanism is used, some efforts have been made to make clear the effects of such provisions. For example, in India, an equivalent federal law enacted after a referral by Indian States can only be amended or repealed by a federal law enacted pursuant to the same procedure.[75] In Malaysia, when a federal law is enacted at the request of the States, it is then separately adopted by the State legislature, and becomes a law of the State that may be amended or repealed by the State legislature, if it so chooses.[76]

    A further useful amendment would be to extend the operation of s 51(xxxvii) so that the Commonwealth could refer matters to the States. It is not uncommon in those federations which confer exclusive legislative powers on the federal legislature to include a provision that allows it to delegate those powers to a sub-national legislature.[77] Although the Commonwealth has few exclusive powers, it may still be useful for it to permit States to legislate on particular subjects, such as the power to make laws with respect to coastal waters.

    As noted above, in 1984 a referendum was held on matters including whether the Commonwealth and the States should be able to exchange powers. It was defeated nationally and in all States. In 1988 the Constitutional Commission also recommended such a constitutional change, as well as the clarification of s 51(xxxvii). It sought to make clear that a reference could be made subject to conditions, limited in duration and modified or revoked by the Parliament that made it.[78] However, the proposed amendment was not pursued in light of the previous referendum failure.

    Cross-vesting

    The Commonwealth Constitution provides for the vesting of federal jurisdiction in State courts,[79] but says nothing about whether State jurisdiction can be vested in federal courts. In order to avoid litigation on jurisdictional matters and to ensure that the federal courts could exercise full power in relation to conflicts that involved both federal and State jurisdiction, the Commonwealth and the States established the cross-vesting scheme which came into effect on 1 July 1988. Each State enacted legislation providing that the Federal Court could exercise jurisdiction with respect to State matters[80] and the Commonwealth Parliament enacted the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), s 9 of which permitted the Federal Court to exercise jurisdiction conferred upon it by a State law relating to the cross-vesting of jurisdiction. Legislation was also enacted specifically to deal with cross-vesting concerning corporations matters.[81]

    The High Court held that such laws were invalid to the extent that they purported to confer power on the Federal Court to exercise State jurisdiction.[82] This caused a serious upheaval in the Australian court system[83] and eventually resulted in the s 51(xxxvii) reference by the States to the Commonwealth of the corporations matter, primarily to ensure that the Federal Court could again hear all matters concerning corporations. The more general scheme of cross-vesting cannot be reinstated without a constitutional amendment. In 1988, before the cross-vesting scheme was struck down, the Constitutional Commission recommended the insertion of a provision in the Constitution to put it on a firm constitutional footing.[84] This should be revisited.

    Sharing and delegating executive power

    Where uniform legislative schemes are established, it is often desirable that they be administered by one body, be it a joint body representing the federal and State governments, or a government body of one jurisdiction in which is vested the power of the other(s). In the past, the High Court has accepted that a joint body, such as the Coal Industry Tribunal, could have conferred upon it the powers of the Commonwealth and the States and therefore exercise powers which neither jurisdiction alone could exercise.[85]

    Matters become more complicated, however, if the States wish to confer functions on Commonwealth officers, so they can administer co-operative schemes. The High Court has held that the States do not have the power to vest executive functions unilaterally in Commonwealth officers. However, if a State enacts a law which confers some of its executive powers on Commonwealth officers and the Commonwealth Parliament legislates to permit its officers to fulfil such functions, then this will be effective.[86] Problems may arise if the Commonwealth law imposes on Commonwealth officers a duty to perform State functions or exercise powers conferred by a State law, rather than simply permitting such actions. The High Court has raised doubts as to whether the Commonwealth Parliament can impose such duties unless the subject matter of the law falls under a head of Commonwealth legislative power.[87] This has led to concern as to the validity of many co-operative Commonwealth-State schemes where enforcement or administration is vested in Commonwealth officers.[88] It would therefore be preferable to include in the Constitution a provision that permits the State and the Commonwealth Parliaments to confer or even impose functions on each other's officers, where both the conferring and receiving jurisdiction consent.[89]

    Such arrangements are, again, not unusual in other federations. In some federations, the federal government exercises limited executive power with most of the administration and implementation of federal laws resting with sub-national units.[90] This is because they already have the infrastructure to implement the laws and it is therefore more efficient for them to do so. It is also consistent with the principle of subsidiarity to leave the implementation of laws to sub-national governments as much as possible.[91] In practice, this gives sub-national governments significant power, because the manner in which a law is implemented is often as important as the law itself.

    In other federations, there is often a capacity for the executive government of one jurisdiction to delegate its executive power to another. In Russia, for example, this is done by agreements or 'treaties' between the federation and sub-national governments.[92] The two main issues that arise are whether functions can be imposed and whether financial compensation is required. The Indian Constitution expressly allows the executive powers of the Indian Government to be conferred on the States and vice versa.[93] The President of India, with the consent of a State Government, may entrust functions within the Indian Government's executive power to a State Government or its officers. Federal laws applying in a State may also confer powers and impose duties upon the State or its officers or authorities, or authorise such a conferral or imposition. Where this is done, the Indian Government must pay to the States an amount in respect of any extra costs of administration incurred by the State in connection with the exercise of those powers and duties. On the other hand, while a State Governor, with the consent of the Indian Government, may entrust the Indian Government, or its officers, with State executive functions, it cannot impose duties and there is no liability to pay compensation.

    The Spanish Constitution provides that the Spanish Government may transfer or delegate to the Autonomous Communities some of its powers which by their very nature can be transferred or delegated. In each case, the law must provide for the appropriate transfer of financial means, as well as specify the forms of control to be retained by the Spanish Government.[94] Through this means several Autonomous Communities have significantly increased their powers over matters normally within the exclusive control of a national government such as fiscal affairs, public security and international affairs.[95]

    Another country where compensation is an issue is Malaysia. The Malaysian Constitution expressly permits the redistribution of executive powers between the States and the Federation. Federal laws may confer executive authority on a State to administer specified provisions of federal law, and in doing so may confer powers and impose duties on any authority of the State.[96] The Federation is required to reach an agreement with the State on payment for fulfilling these functions. Arrangements may also be made between the Federation and a State for the performance of functions of one by the authorities of the other, which may include the making of payments with respect to the costs incurred under the arrangement.[97]

    Constitutional interpretation and principles for intergovernmental co-operation

    The operation of the federal system is affected not only by constitutional provisions themselves, but how they are interpreted by the courts. The High Court initially interpreted the Constitution in a manner that recognised that residual powers were 'reserved' to the States[98] and which made each level of government independent and immune from the actions of the other.[99] These doctrines of reserved State powers and implied immunities were overturned in the Engineers' Case.[100] While some have argued that the Engineers' Case should be overturned,[101] this is not a satisfactory answer in itself, because the pre-Engineers position was also dogged with inconsistencies and unsatisfactory reasoning.

    What might be of more assistance is the constitutional clarification of a number of federal issues that have vexed the courts. For example, the Melbourne Corporation principle[102] and the Cigamatic doctrine[103] concerning the extent to which the Commonwealth can interfere in the functioning of the States and vice versa, have never been satisfactorily articulated by the High Court, leaving considerable uncertainty as to how each doctrine applies.[104] A constitutional convention might consider the insertion of a constitutional provision that sets a consistent and clear rule on this subject.

    Further, in reconsidering the allocation of legislative power, consideration might be given to clarifying how the different heads of Commonwealth legislative power relate to one another.[105] For example, to what extent does a specific and limited head of power, such as the industrial relations power in s 51(xxxv), affect the interpretation of a more general head of power, such as the corporations power in s 51(xx)? To what extent should a court, in interpreting the scope of a head of power, take into account matters such as 'federal balance'?[106] To what extent, if any, should any matters be reserved exclusively to the Commonwealth or the States?

    Finally, a question arises as to whether there should be inserted in the Constitution some recognition of the importance of co-operative federalism in addition to practical measures to facilitate that co-operation. In R v Duncan; Ex parte Australian Iron and Steel Pty Ltd, Deane J described Commonwealth-State co-operation as 'a positive objective of the Constitution'.[107] However, in Re Wakim; Ex parte McNally, McHugh J noted that 'co-operative federalism is not a constitutional term. It is a political slogan, not a criterion of constitutional validity or power.'[108] Perhaps it is time that co-operative federalism became more than a political slogan and was given some form of constitutional recognition.[109]

    Again, other federations provide some examples. The Swiss Constitution contains a number of provisions concerning co-operation between the Confederation and the Cantons. Article 44 requires the Confederation and the Cantons to collaborate and support each other in the fulfilment of their tasks. It states that they owe each other mutual consideration and support and shall grant each other administrative and judicial assistance. It requires that intergovernmental disputes be resolved through negotiation or mediation, to the extent that this is possible. Article 46 requires the Confederation to leave the Cantons as large a space of action as possible and to take into account their different circumstances. Article 47 imposes an obligation on the Confederation to respect the autonomy of the Cantons and article 48 supports intergovernmental co-operation amongst the Cantons. Section 41 of the South African Constitution also sets out an extensive list of principles of intergovernmental cooperation.

    Reform of the Senate

    One frequently mentioned proposal is the reform of the Senate to make it operate more in the manner of a States' House. The former Queensland Premier, Peter Beattie, was attracted to the German model,[110] where the upper House of the national legislature, the Bundesrat, is comprised of the Premiers and other governmental representatives of the Länder[111] who vote in blocs according to the instructions of the Länder. South Africa has a variation on this system. Members of the national legislature's upper House, the National Council of Provinces, are chosen by the provincial legislatures, but in a manner than ensures minority representation.[112] In matters concerning the Provinces and their powers, each provincial delegation has one vote only, which is given as instructed by the relevant provincial legislature.[113] In other matters each individual member has a separate vote which can be cast however he or she chooses.[114]

    Realistically, no such change is ever likely to be made in Australia, because it would involve the people giving up their right to vote directly for Senators. Beattie has suggested that rather than taking away the directly elected representatives of the people, one could add to the Senate some representatives chosen by the State Parliaments. This mixed Senate of directly and indirectly chosen members would then resemble more closely the Spanish Senate to which the people directly elect four representatives from each province but the Autonomous Communities appoint one representative, plus an additional representative for each million inhabitants.[115]

    An important issue for Australia would be the proportion of directly to indirectly chosen Senators and whether this would make the Senate unwieldy and ineffective.[116] Questions would also arise as to the effect of such a change upon a joint sitting of the two Houses and the influence of party politics on Senators chosen by State Parliaments. Would the indirectly chosen representatives be confined to voting on matters that affect the States, or could they vote on other matters? Would they vote in blocs upon instructions from the State, or as individuals? How could a distinction be drawn between matters affecting the States and other matters? Would this lead to the type of gridlock which provoked recent reforms to the German Basic Law, reducing the Bundesrat's veto power?

    Other reforms might be made to the role of the Senate and Senators which support its federal status. For example, the Victorian Federal-State Relations Committee recommended that the Senate establish a standing Intergovernmental Affairs Committee.[117] The Committee also recommended that Senators be given the right to appear before the Parliament of the State from which they are elected, to report on a regular basis and answer questions on matters of concern to the State.[118] The intention was to make Senators focus more on their role as representatives of the State as well as to increase their understanding of matters of importance to the States.

    Revival of the Inter-State Commission

    Section 101 of the Commonwealth Constitution provides that there shall be an Inter-State Commission and permits Parliament to confer on it powers of adjudication and administration in relation to trade and commerce. The Commission has existed for short periods,[119] but has failed to be an effective body because of inadequate powers[120] and because it is a creature of the Commonwealth, rather than the federation. If the Constitution were to be amended to give the Commission greater independence, provide for State involvement in the appointment of its members, and give it explicit powers and functions to deal with inter-governmental disputes and oversee inter-governmental co-operation beyond the confines of trade and commerce, it could become an effective and valuable body.

    Initiative of constitutional reform

    One of the flaws in the Constitution is that the initiation of constitutional amendments is confined to the Commonwealth Parliament.[121] This means that constitutional amendments tend to favour increases in Commonwealth power and that it is extremely unlikely that constitutional reforms that reverse the flow of power to the Commonwealth would ever be put to a referendum for the people to decide. There are, of course, other options.

    In some federations, such as Brazil,[122] Spain[123] and Russia,[124] sub-national governments may initiate amendments to the national Constitution. In the United States two-thirds of State legislatures may petition the Congress to convene a constitutional convention.[125] When the Australian Constitutional Commission considered this matter in 1988, it concluded that the Constitution should be amended to provide that if at least half the State Parliaments, representing a majority of Australians overall, proposed a constitutional amendment, it be put directly to the people for approval by way of a referendum.[126] However, given the significant cost of holding a referendum, some mechanism would need to be developed so that States did not propose frequent referenda and expect the Commonwealth to pay. A more measured approach might be to require the support of all States and a commitment from the States to foot half the cost of holding the referendum.

    Another alternative is the use of elected constitutional conventions to develop referenda proposals which would be put to the people directly. In the United States at the State level, forty-one States use elected constitutional conventions, rather than State legislatures, to decide on what constitutional amendments should be put to the people in a referendum. Fourteen States require that the legislature periodically poll the electorate to determine whether a constitutional convention ought to be called.[127] The constitutional philosophy behind this is that every generation should have the right to shape the constitution in its own fashion. A mandatory requirement to consult the people on whether they want to consider constitutional reform ensures that the issue of updating the constitution is regularly faced. Expert constitutional commissions are also used, sometimes to prepare the ground for elected constitutional conventions,[128] or in the case of Florida, to assess every 20 years all constitutional reform proposals and put directly to the people those they consider most worthy.[129] One of the benefits of constitutional conventions and commissions is that they open up the range of potential constitutional reforms beyond those in the vested interests of the legislature.

    The sticking point, however, is that the Commonwealth Parliament would have to be persuaded to put to a referendum a proposal that could result in it losing exclusive control over the submission of constitutional amendments to the people. Such an outcome is unlikely,[130] unless it were a condition of a more substantial agreement that benefited the Commonwealth overall.

    Appointment of Justices of the High Court of Australia

    Most studies of federalism note the significant role the High Court has played in the centralisation of power. Arguments have sometimes been made for State involvement in the appointment of Justices of the High Court.[131] In 1988 the Constitutional Commission noted:

    Various suggestions have been made from time to time for giving the States a shared role in High Court appointments, such as requiring the agreement of all of the States or in allowing three or more States to veto any proposed appointments. Other suggestions are that the States in turn would nominate each alternate appointee or that appointments should be made on the recommendation of a committee consisting of the Federal and State Attorneys-General.[132]

    As the Constitutional Commission pointed out, the problem with these suggestions is that the requirement of unanimous approval is likely to result in compromise candidates that no government would regard as the best candidates available for appointment. The appointment of Justices based upon their State of origin might also undermine the quality of the Court.

    The concern of the States is that the Commonwealth tends to appoint judges who are philosophically inclined towards centralism and the expansion of Commonwealth powers. In recognition of this concern, s 6 of the High Court of Australia Act 1979 (Cth) requires the Commonwealth Attorney-General to consult with the Attorneys-General of the States in relation to appointments to the High Court. However, consultation may be merely cursory and may not have any effect upon the ultimate appointment.[133]

    Accordingly, the States retain an interest in the establishment of a system that ensures the Justices of the High Court are appointed solely on merit and without regard to their views on federalism. One such proposal is the establishment of a Judicial Commission to recommend appointments to the High Court.[134] Such a proposal has been supported by the Australian Law Reform Commission as a means of enhancing the independence and impartiality of the judiciary.[135] The establishment of a Judicial Appointments Commission for England and Wales[136] has also led to further calls for such a body to be established in Australia.[137] Others have criticised such a proposal on the ground that 'domination of such a commission by judges and senior professionals would tend to self-perpetuation'[138] and might undermine the element of democratic accountability in the appointment of judges.[139]

    The concern about self-perpetuation can be addressed by the composition of the Judicial Appointments Commission.[140] Democratic accountability is more difficult. The ultimate appointment could be left to the Governor-General acting on the advice of the Commonwealth Attorney-General (through the Executive Council), who would remain politically responsible for it, even if the Attorney's discretion were constrained by the Judicial Appointments Commission, as in England and Wales.

    In England and Wales, the Judicial Appointments Commission selects one person for each vacancy. The Lord Chancellor may accept, reject or ask for the reconsideration of that selection. The Lord Chancellor must give written reasons for rejecting or seeking the reconsideration of the selection, and this may only be done on the ground that the person is not suitable for the office or is not the best candidate on merit. If the Lord Chancellor rejects the first selection, he or she cannot reject the second selection, but may ask for its reconsideration. If the Lord Chancellor asks for the reconsideration of the first selection, he or she can reject the reconsidered choice at the second stage. However, at the third stage, the Lord Chancellor must accept the candidate selected by the Commission.[141]

    The United Kingdom Government is now considering 'going further than the present arrangement' and possibly developing a role for Parliament in the process.[142] In a discussion paper, it has considered granting a parliamentary committee a veto over appointments, or pre-appointment or post-appointment scrutiny of appointments. However, it has noted the disadvantages in such a process including the politicisation of the judiciary, the possibility that suitable candidates would not accept appointment if exposed to parliamentary scrutiny, the effect of such procedures on limited parliamentary time and resources and the potential delay in the making of appointments.[143] Proposals for parliamentary confirmation hearings have been roundly rejected in Australia.[144]

    A number of academics and judges have recommended the establishment of an independent Judicial Appointments Commission for Australia. Some consider that the Commission should recommend to the Commonwealth Attorney-General a shortlist of suitable candidates for appointment, leaving the Attorney to recommend the making of an appointment from the list, seek a reconsideration of the list, or recommend to the Governor-General the appointment of the Attorney's own nominee, giving reasons to Parliament for departing from the Commission's list.[145] Others have preferred a system where the Attorney-General can seek a reconsideration of the Commission's list, but must, in the end, recommend to the Governor-General the appointment of a person on the list.[146]

    Such a proposal is consistent with the existing requirement that Chapter III judges be appointed by the Governor-General in Council, although there has been a debate about the extent to which the Parliament can legislate to reduce or eliminate the executive's discretion.[147] If a Judicial Appointments Commission were itself to appoint judges, or recommend that the Governor-General make the appointment (without the involvement of the Executive Council in advising the Governor-General) then an amendment to s 72 of the Commonwealth Constitution would be required.

    Changes to the jurisdiction and operation of the High Court

    Finally, changes could be made to the jurisdiction of the High Court so that it could give advisory opinions on the validity of Bills or Acts that have not yet commenced. Further, the High Court could be permitted to give judgments that have prospective operation only or which are suspended in effect for a period so that otherwise unconstitutional laws may be rectified. The Privy Council has recently acquired such powers with respect to Scotland. Section 33 of the Scotland Act 1998 (UK) c 46 ('Scotland Act') permits Bills that have passed the Scottish Parliament to be referred to the Privy Council for a decision on legislative competence before royal assent is given to them. Section 102 of the Scotland Act provides that if a court later decides that any provision of a Scottish Act is beyond the legislative competence of the Scottish Parliament, the court may make an order removing or limiting any retrospective effect of the decision or suspending its effect for any period and on any conditions to allow the defect to be corrected.[148] Equivalent changes may be seen as beneficial to the States and the federation as a whole because they would reduce constitutional uncertainty and allow constitutional breaches to be rectified for the future while avoiding the potentially drastic consequences of laws being held to have been invalid for the past fifty years.[149]

    CONCLUSION

    The time is ripe for a review of our federal system. Apart from the constitutional convention on the republic, there has not been a thorough consideration of constitutional reform since the Constitutional Commission finished its work almost twenty years ago. Moreover, from an economic point of view, if Australia is to maintain its current prosperity in the face of an ageing population and the pressure of competition from countries such as China and India, major reforms will be needed to the areas of health and education, which are currently areas of Commonwealth and State overlapping responsibility. This is why groups such as the Business Council of Australia have been pressing for the reform of the federal system.[150] It is no longer a subject solely of interest to academics and bureaucrats. Nor is it any longer the subject of entrenched views in the different political parties. The reform of federalism is an issue that affects all Australians. It is time that serious consideration is given to the means of making our federal system work better.


    [∗] Associate Professor in Law, University of Sydney.

    [1] Council for the Australian Federation, Communiqué, 9 February 2007. Consideration of a constitutional convention has since been deferred, due to the change in Commonwealth Government, until other election promises concerning Commonwealth-State co-operation have been met.

    [2] Business Council of Australia, Reshaping Australia's Federation — A New Contract for Federal-State Relations (2006) 24; Michael Chaney, 'Act Together or Kiss the Federation Goodbye', The Australian Financial Review (Sydney), 22 November 2006, 59; NSW Business Chamber, 2007 Australian Business Priorities: Fixing the Federation (September 2007).

    [3] 'Local Government Association of Queensland, 'Councils Support Call for Constitutional Convention' (Press Release, 2006).

    [4] Andrew Lynch, 'The Die is Cast and it is Time to Reshape Australian Federalism', The Sydney Morning Herald (Sydney), 15 November 2006, 13; George Williams, 'Expensive Way to Run a Country', The Australian (Sydney), 8 December 2006, 14; Dean Jaensch, 'Time to Rewrite the Constitution — Just Keep MPs Out', The Advertiser (Adelaide), 18 April 2007, 20.

    [5] Steve Burrell, 'It's Time to Rethink the Economics of Federation', The Sydney Morning Herald (Sydney), 22 February 2007, 20; Editorial, 'States of Disarray: it's Time to Fix the Federation', The Sydney Morning Herald (Sydney), 10–11 March 2007, 36.

    [6] Bob McMullan, 'After the War with the States is Over: Reform in a Post-Howard Era', (Speech delivered to CEDA, 6 September 2007).

    [7] Matt Wade, 'States' Self-Interest Could Stymie Rudd's Reform Plans', The Sydney Morning Herald (Sydney), 26 November 2007, 3.

    [8] Due to the difficulty in obtaining up to date English translations of some foreign Constitutions, some provisions referred to in this article may no longer be current. However, they remain useful examples.

    [9] For a discussion of the economic and social benefits of federalism, see Anne Twomey and Glen Withers, 'Australia's Federal Future', (Federalist Paper No 1, Council for the Australian Federation, April 2007). See also Jonathan Pincus, 'Six Myths of Federal-State Financial Relations' (CEDA, Economic and Political Overview 2008, February 2008), with regard to the economic advantages of federalism.

    [10] OECD, Economic Surveys: Australia (2006) 82.

    [11] OECD, 'Fiscal Relations Across Government Levels', Economic Studies No 36 (2003) 161.

    [12] Ibid 177. This is known as 'welfare-induced migration'.

    [13] For a discussion of subsidiarity and its application see Jonathan Pincus, 'Productive Reform in a Federal System' Productivity Commission, Productive Reform in a Federal System — Roundtable Proceedings (2006) 27–9; Neil Warren, Benchmarking Australia's Intergovernmental Fiscal Arrangements (NSW Department of Treasury, 2006) 31–4; Business Council of Australia, above n 2, 23–6; and OECD, above n 11, 161, 174.

    [14] Warren, above n 13, 34–5.

    [15] Constitution of Switzerland art 42.

    [16] Thomas Stauffer et al, 'Switzerland' in Ann Griffiths (ed), Handbook of Federal Countries 2005 (2005) 346. See also s 146 of the Constitution of South Africa for a different approach.

    [17] OECD, above n 10, 81–3.

    [18] National Commission of Audit, Report to the Commonwealth Government (1996) 52.

    [19] Ibid 58–9.

    [20] Constitutional Commission, Final Report of the Constitutional Commission (1988).

    [21] Productivity Commission, above n 13.

    [22] Business Council of Australia, above n 2.

    [23] See, for example, Federal-State Relations Committee, Parliament of Victoria, Australian Federalism: The Role of the States (October 1998); Western Australia, Department of Treasury and Finance, Discussion Paper on Commonwealth-State Relations (April 2006); Warren, above n 13; Twomey and Withers, above n 9. The Queensland Government has initiated a report on overlaps and duplication, in order to support proposals for reform: Sean Parnell, 'Beattie to Audit Policy Overlap', The Australian (Sydney), 5 September 2007, 6.

    [24] Bob Carr, 'Productivity Growth and Micro-economic Reform' (Speech delivered to CEDA, 27 February 2003) 5–6.

    [25] Queensland, Parliamentary Debates, Legislative Assembly, 4 September 2007, 2915.

    [26] John Wanna, 'Improving Federalism: Drivers of Change, Repair Options and Reform Scenarios' (2007) 66 Australian Journal of Public Administration 275, 277.

    [27] OECD, above n 11; Giampaolo Arachi and Alberto Zanardi, 'Designing Intergovernmental Fiscal Relations: Some Insights from the Recent Italian Reform' (2004) 25 Fiscal Studies 325; Cesare Pinelli, 'The 1948 Italian Constitution and the 2006 Referendum: Food for Thought' (2006) 2 European Constitutional Law Review 329; Arthur Gunlicks, 'German Federalism Reform: Part One' (2007) 8 German Law Journal 111; René Rhinow, 'Swiss Reform and the Long Tradition of Federalism' (2002) 2(5) Federations 19; Thomas Milic, 'Switzerland' (2005) 44 European Journal of Political Research 1213; Brigid Hadfield, 'Devolution in the United Kingdom and the English and Welsh Questions' in Jeffrey Jowell and Dawn Oliver (eds), The Changing Constitution (5th ed, 2004) 237.

    [28] Arachi and Zanardi, above n 27, 336.

    [29] OECD, above n 11, 180.

    [30] The areas of university admission and university degrees remain the subject of concurrent legislative power of the Federation, but the Länder may 'deviate' from such laws from August 2008: Rudolf Hrbek, 'The Reform of German Federalism: Part I' (2007) 3 European Constitutional Law Review 225, 236–8.

    [31] Gunlicks, above n 27, 121,128; Hrbek, above n 30, 236–8.

    [32] Gunlicks, above n 27, 112.

    [33] Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1.

    [34] New South Wales v Commonwealth [2006] HCA 52; (2006) 229 CLR 1 ('Workchoices Case').

    [35] Thomas v Mowbray [2007] HCA 33; (2007) 237 ALR 194 ('Thomas').

    [36] For example, Commonwealth Constitution ss 90, 92, 114, 115.

    [37] See the failure of referenda to expand Commonwealth power in 1911, 1913, 1919, 1926, 1937, 1944, 1946, 1948, 1951, 1973: House of Representatives Standing Committee on Legal and Constitutional Affairs, Commonwealth Parliament, Constitutional Change — Select Sources on Constitutional Change in Australia 1901–1997 (1997) 61–114.

    [38] John McMillan, Gareth Evans and Haddon Storey, Australia's Constitution — Time for Change? (1983) 350.

    [39] House of Representatives Standing Committee on Legal and Constitutional Affairs, above n 37, 108.

    [40] Thomas Hueglin and Alan Fenna, Comparative Federalism — A Systematic Inquiry (2006) 319.

    [41] OECD, above n 11, 161.

    [42] Ibid 161–2. See also Pincus, above n 9, 44-5.

    [43] OECD, above n 10, 77. Contrast Canada, where the federal government raises only 47% of tax nationwide: Hueglin and Fenna, above n 40, 325.

    [44] Warren, above n 13, 51.

    [45] Commonwealth Constitution s 90.

    [46] South Australia v Commonwealth [1942] HCA 14; (1942) 65 CLR 373. See also Victoria and New South Wales v Commonwealth [1957] HCA 54; (1957) 99 CLR 575.

    [47] A New Tax System (Commonwealth –State Financial Arrangements) Act 1999 (Cth) sch 2: Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations.

    [48] Commonwealth funding to the States in 2005–6 was effectively 5.1% of GDP (6.5% of GDP less compensation for abolition of State taxes of 1.4%), which is less than the pre-GST position, and a three-decade low: Rory Robertson, 'Budget/Federalism Watch', Macquarie Bank Research Note, 15 May 2007; Rory Robertson, 'Why Canberra's Rolling in Cash' The Australian (Sydney) 6 July 2006, 25.

    [49] Commonwealth Constitution s 94. See also John Quick and Robert Garran, The Annotated Constitution of the Australian Commonwealth (1901) 865; Sir William Harrison Moore, The Constitution of the Commonwealth of Australia (2nd ed, 1910) 533. Section 94 was rendered largely ineffective by the High Court in New South Wales v Commonwealth [1908] HCA 68; (1908) 7 CLR 179.

    [50] OECD, above n 11, 161–2 and 182; Arachi and Zanardi, above n 27, 336.

    [51] OECD, above n 11, 167.

    [52] Ibid 184.

    [53] OECD, above n 10, 86. The Fraser Government's proposal for State piggy-back income taxes failed because the national rate of income tax was not reduced to make room for the States: Ross Garnaut and Vince Fitzgerald, Review of Commonwealth-State Funding — Final Report (2002) 30.

    [54] Basic Law (Germany) art 106.

    [55] Basic Law (Germany) art 106. See also Federal-State Relations Committee, Parliament of Victoria, Federalism and the Role of the States: Comparisons and Recommendations (May 1999) 226; Hrbek, above n 30, 229. The tax-sharing arrangement is currently under review in Germany.

    [56] OECD, above n 10, 75.

    [57] Such a proposal was canvassed in 1991 but was dropped when Paul Keating became Prime Minister: Federal-State Relations Committee, above n 23, 230.

    [58] Peter Groenewegen, 'The Fiscal Crisis of Australian Federalism' in Allan Patience and Jeffrey Scott (eds), Australian Federalism: Future Tense (1983) 123, 138–40, 153–4; Federal-State Relations Committee, above n 23, 50–2.

    [59] Note that the Commonwealth Parliament cannot abdicate its legislative power, so provisions such as s 11 of A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (Cth), which require the agreement of all States to a change in the GST base and rate, are not legally effective, although they might be politically effective.

    [60] OECD, above n 11, 162, 194.

    [61] Ibid 195.

    [62] Hueglin and Fenna, above n 40, 335.

    [63] Arachi and Zanardi, above n 27, 329.

    [64] Ibid 337.

    [65] This was achieved through the Hobart Declaration of 1989 and the Adelaide Declaration of 1999: The Future of Schooling in Australia, (Federalist Paper No 2, Council for the Australian Federation, April 2007)

    [66] Ibid 2, 31. The Commonwealth and States have since agreed to the establishment of a National Curriculum Board as a co-operative measure to develop a national curriculum across key subjects by 2010: COAG, Communiqué, 20 December 2007.

    [67] 'A Framework to Guide the Future Development of Specific Purpose Payments' (Discussion Paper, ALP Advisory Group on Federal-State Reform, 2007).

    [68] Garnaut and Fitzgerald, above n 53, 70–5; Warren, above n 13; Productivity Commission, above n 13; Business Council of Australia, above n 2; Allen Consulting Group, Governments Working Together? Assessing Specific Purpose Payment Arrangements, Report to the Government of Victoria (2006); OECD, above n 10, 84–6; Twomey and Withers, above n 9; ALP Advisory Group on Federal-State Reform, above n 67; Wanna, above n 26.

    [69] COAG has now agreed to this reform: COAG, Communiqué, 20 December 2007.

    [70] R v Public Vehicles Licensing Appeal Tribunal (Tas); Ex parte Australian National Airways Pty Ltd [1964] HCA 15; (1964) 113 CLR 207, 226.

    [71] See, eg, Corporations (Commonwealth Powers) Act 2001 (NSW) ss 56.

    [72] See, eg, Commonwealth Powers (Family Law — Children) Act 1986 (NSW) s 4.

    [73] In Kartinyeri v Commonwealth [1998] HCA 22; (1998) 195 CLR 337, it was held by Brennan CJ and McHugh J at 355 and by Gaudron J at 368–9 that the power to enact a law includes the power to repeal it, but this was subject to 'manner and form restrictions', and it is unclear whether s 51(xxxvii) would be regarded as such. See also South Australia v Commonwealth [1942] HCA 14; (1942) 65 CLR 373 where Latham CJ noted at 416 that the Commonwealth Parliament 'cannot repeal an Act which it has no power to enact'.

    [74] [2007] HCA 33; (2007) 237 ALR 194, 251 (Kirby J). See also Callinan J at 358–9 regarding the further concern that agreement to the amendment of references should not be delegated by a State to a majority of States.

    [75] Constitution of India art 252(2).

    [76] Constitution of Malaysia art 76(3).

    [77] See, eg, Constitution of South Africa s 44(1)(a)(iii); Constitution of Spain art 150(1).

    [78] Constitutional Commission, above n 20, Vol 2, 753–7.

    [79] Commonwealth Constitution s 77(iii).

    [80] See, eg, Jurisdiction of Courts (Cross-Vesting) Act 1987 (WA).

    [81] See, eg, Corporations Act 1989 (Cth) and Corporations (New South Wales) Act 1990 (NSW).

    [82] Re Wakim; Ex parte McNally (1999) 198 CLR 511 ('Re Wakim').

    [83] For a criticism of the Re Wakim judgments and the consequences of the case, see Dennis Rose, 'The Bizarre Destruction of Cross-Vesting' in Adrienne Stone and George Williams (eds), The High Court at the Crossroads (2000) 186; Jenny Lovric, 'Re Wakim: An Overview of the Fallout' (2000) 19 Australian Bar Review 237; George Williams, 'Cooperative Federalism and the Revival of the Corporations Law: Wakim and Beyond' (2002) 20 Company and Securities Law Journal 160; Graeme Hill, 'Revisiting Wakim and Hughes: The Distinct Demands of Federalism' (2002) 13 Public Law Review 205.

    [84] Constitutional Commission, above n 20, Vol 1, 373.

    [85] R v Duncan; Ex parte Australian Iron and Steel Pty Ltd [1983] HCA 29; (1983) 158 CLR 535. See also Deputy Federal Commissioner of Taxation (NSW) v W R Moran Pty Ltd [1939] HCA 27; (1939) 61 CLR 735, 774 (Starke J).

    [86] R v Hughes (2000) 202 CLR 535, 553 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ).

    [87] R v Hughes (2000) 202 CLR 535, 553–4 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ).

    [88] Graeme Hill, 'R v Hughes and the Future of Co-operative Legislative Schemes' [2000] MelbULawRw 18; (2000) 24 Melbourne University Law Review 478; Alex de Costa, 'The Corporations Law and Cooperative Federalism after The Queen v Hughes' [2000] SydLawRw 21; (2000) 22 Sydney Law Review 451; Dennis Rose, 'Commonwealth-State Co-operative Schemes after Hughes: What Should be Done Now?' (2002) 76 Australian Law Journal 631.

    [89] Williams, above n 83, 170.

    [90] See, eg, Constitution of Austria art 11, 102; Basic Law (Germany) arts 83–5; Constitution of Switzerland art 46.

    [91] Stauffer, above n 16, 346.

    [92] Constitution of the Russian Federation art 78, 11(3). See also G Alan Tarr, 'Creating Federalism in Russia' (1999) 40 South Texas Law Review 689, 704–5.

    [93] Constitution of India art 258, 258A.

    [94] Constitution of Spain art 150(2).

    [95] Siobhan Harty, 'Spain', in Ann Griffiths (ed), Handbook of Federal Countries 2005 (2005) 329.

    [96] Constitution of Malaysia art 80(4).

    [97] Constitution of Malaysia art 80(5).

    [98] R v Barger [1908] HCA 43; (1908) 6 CLR 41.

    [99] D'Emden v Pedder [1904] HCA 1; (1904) 1 CLR 91.

    [100] Amalgamated Society of Engineers v Adelaide Steamship Co Ltd [1920] HCA 54; (1920) 28 CLR 129 ('Engineers' Case').

    [101] Geoffrey de Q Walker, 'The Seven Pillars of Centralism: Engineers' Case and Federalism' (2002) 76 Australian Law Journal 678; Julian Leeser, 'Work Choices: Did the States Run Dead?', in Upholding the Australian Constitution, Proceedings of the Samuel Griffith Society, (Vol 19, 2007) 1. See also criticism of the reasoning in Engineers in Geoffrey Sawer, Australian Federalism in the Courts (1967) 130; New South Wales v Commonwealth [2006] HCA 52; (2006) 229 CLR 1, 305, 308 (Callinan J).

    [102] Melbourne Corporation v Commonwealth [1947] HCA 26; (1947) 74 CLR 31, as reinterpreted in Austin v Commonwealth (2003) 215 CLR 185.

    [103] Commonwealth v Cigamatic Pty Ltd [1962] HCA 40; (1962) 108 CLR 372, as reinterpreted in Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority (1997) 190 CLR 410.

    [104] For criticisms, see Roderick P Meagher and William Gummow, 'Sir Owen Dixon's Heresy' (1980) 54 Australian Law Journal 25; John Doyle, '1947 Revisited: The Immunity of the Commonwealth from State Law' in Geoffrey Lindell (ed), Future Directions in Australian Constitutional Law (1994) 47; Anne Twomey, 'Federal Limitations on the Legislative Power of the States and the Commonwealth to Bind One Another' (2003) 31 Federal Law Review 507; Amelia Simpson, 'State Immunity from Commonwealth Laws: Austin v Commonwealth and Dilemmas of Doctrinal Design' [2004] UWALawRw 3; (2004) 32 University of Western Australia Law Review 44.

    [105] See, eg, the interpretative provisions in the Scotland Act 1998 (UK) c 46, including sch 5, Pt II(3), which provides that an exception or illustration with respect to one reserved matter does not affect another reserved matter; s 126(3) which requires the courts to look to the 'purpose' of functions to see if they trespass on reserved matters; s 101(2) which requires Scottish laws to be read narrowly if necessary for them to be held to be within power.

    [106] See the conflicting views on this issue in Workchoices Case [2006] HCA 52; (2006) 229 CLR 1.

    [107] [1983] HCA 29; (1983) 158 CLR 535, 589 (Deane J).

    [108] Re Wakim; Ex parte McNally (1999) 198 CLR 511, 556 (McHugh J).

    [109] Williams, above n 83, 160; and Robert French, 'Cooperative Federalism: a Constitutional Reality or a Political Slogan?' (2005) 32(2) Brief 6.

    [110] Peter Beattie, 'Commonwealth Must Take a Fresh Look at Federalism', The Australian (Sydney), 30 November 2006, 10.

    [111] Basic Law (Germany) art 51.

    [112] Constitution of South Africa ss 601.

    [113] Constitution of South Africa s 65.

    [114] Constitution of South Africa s 75.

    [115] Constitution of Spain s 69

    [116] Note that the nexus between the size of the Senate and the House of Representatives, imposed by s 24 of the Constitution, would probably have to be broken.

    [117] Federal-State Relations Committee, above n 55, 220.

    [118] Ibid 221.

    [119] The Inter-State Commission first operated from 1913 to 1920. It was revived in 1983 but became defunct again in 1989. Michael Coper has suggested that its existence is related to the appearance of Halley's comet. See generally Michael Coper, 'The Second Coming of the Fourth Arm: The Role and Functions of the Inter-State Commission' (1989) 63 Australian Law Journal 731.

    [120] The High Court neutered its adjudicative power in New South Wales v Commonwealth [1915] HCA 17; (1915) 20 CLR 54.

    [121] Commonwealth Constitution s 128.

    [122] Constitution of Brazil art 60.

    [123] Constitution of Spain art 166, 87.

    [124] Constitution of Russia art 134.

    [125] Constitution of the United States art V.

    [126] Constitutional Commission, above n 20, Vol 2, 856–872.

    [127] Alaska (every 10 years), Connecticut (20 years), Hawaii (9 years), Illinois (20 years), Iowa (10 years), Maryland (20 years), Michigan (16 years), Missouri (20 years), Montana (20 years), New Hampshire (10 years), New York (20 years), Ohio (20 years), Oklahoma (20 years), and Rhode Island (10 years): The Book of the States (2005 ed, Vol 37) 15.

    [128] Robert Williams, 'Are State Constitutional Conventions Things of the Past? The Increasing Role of the Constitutional Commission in State Constitutional Change' (1996) 1 Hofstra Law and Policy Symposium 1. Commissions are also used in Switzerland: Hanspeter Tschaeni, 'Constitutional Change in Swiss Cantons: An Assessment of a Recent Phenomenon' (1982) 12 Publius 113.

    [129] Robert Williams, 'The Florida Constitution Revision Commission in Historic and National Context' (1998) 50 Florida Law Review 215; and Steven Uhlfelder, 'The Machinery of Revision' (1978) 6 Florida State University Law Review 575.

    [130] McMillan, Evans and Storey, above n 38, 350.

    [131] See, eg, Select Committee, Parliament of New South Wales, Appointment of Judges to the High Court of Australia (1975).

    [132] Constitutional Commission, above n 20, Vol 1, 401.

    [133] Max Spry, 'Executive and High Court Appointments', in Geoffrey Lindell and Robert Bennett (eds), Parliament: the Vision in Hindsight (2001) 439.

    [134] See Sir Garfield Barwick, 'The State of the Australian Judicature' (1977) 51 Australian Law Journal 480; George Winterton, 'Appointment of Federal Judges in Australia' [1987] MelbULawRw 17; (1987) 16 Melbourne University Law Review 185; Michael Lavarch, Judicial Appointments — Procedure and Criteria (Discussion Paper, 1993); Sir Anthony Mason, 'The Appointment and Removal of Judges' in Helen Cunningham (ed), Fragile Bastion — Judicial Independence in the Nineties and Beyond (1997); Anthony Blackshield, 'The Appointment and Removal of Federal Judges' in Brian Opeskin and Fiona Wheeler (eds), The Australian Federal Judicial System (2000) 437–41; Enid Campbell and HP Lee, The Australian Judiciary (2001) 83–6.

    [135] Australian Law Reform Commission, Equality Before Law: Women's Equality, Report No 69, Part II, (1994) [9.41].

    [136] Constitutional Reform Act 2005 (UK) c 4. Note that this Commission does not deal with appointments to appellate committee of the House of Lords, although the Lord Chancellor has now voluntarily agreed to use the same system to appoint judges to the House of Lords: United Kingdom, Parliamentary Debates, House of Commons, Vol 465, Col 11WS, 24 October 2007. Different systems also operate in Scotland and Northern Ireland.

    [137] Simon Evans and John Williams, 'Appointing Australian Judges: A New Model' (Paper Presented at the JCA Colloquium, Canberra, 7–9 October 2006); Ronald Sackville, 'The Judicial Appointments Process in Australia: Towards Independence and Accountability' (2007) 16 Journal of Judicial Administration 125.

    [138] James Crawford, Australian Courts of Law (3rd ed, 1993) 62. See also Michael Kirby, The Judges (1983) 22–3; Evans and Williams, above n 137, 32 regarding 'homosocial reproduction'.

    [139] Mason, above n 134, 17; and Philip Ruddock, 'Selection and Appointment of Judges' (Lecture presented at the University of Sydney, Sydney, 2 May 2005) [67–9]. See also Campbell and Lee, above n 134, 84; Crawford, above n 138, 62.

    [140] George Williams and Rachel Davis, 'Reform of the Judicial Appointments Process: Gender and the Bench of the High Court of Australia' [2003] MelbULawRw 32; (2003) 27 Melbourne University Law Review 819, 859–60; Sackville, above n 137, 137.

    [141] See the description of the process in UK Secretary of State for Justice and Lord Chancellor, The Governance of Britain — Judicial Appointments, CM 7210, October 2007, 23–4.

    [142] UK Secretary of State for Justice and Lord Chancellor, The Governance of Britain, CM 7170, July 2007, para 71.

    [143] UK Secretary of State for Justice and Lord Chancellor, above n 141, 37–40.

    [144] Winterton, above n 134, 193–8; Mason, above n 134, 8; Ruddock, above n 139, paras 46–52; and Evans and Williams, above n 137.

    [145] Winterton, above n 134, 210; Mason, above n 134, 17; Williams and Davis, above n 140, 858–9; Sackville, above n 137, 137; Sir Gerard Brennan, 'The Selection of Judges for Commonwealth Courts' in Papers on Parliament: No 48 The Senate and Accountability (2008) 14–15.

    [146] Evans and Williams, above n 137, 29. This is based on the model adopted for England and Wales. See also the South African model described in Spry, above n 133, 441–2. Note also Sir Garfield Barwick's proposal that the Executive should suggest the list and leave it for the Commission to decide on the appointment: Garfield Barwick, A Radical Tory (1995) 230.

    [147] Winterton, above n 134, 209; and Evans and Williams, above n 137, 29.

    [148] Such powers have not yet been used: Robert Hazell, 'Out of Court: Why Have the Courts Played No Role in Resolving Devolution Disputes in the United Kingdom? (2007) 37 Publius: The Journal of Federalism 578.

    [149] See, eg, the serious difficulties that arose in dealing with the consequences of Ha v New South Wales [1997] HCA 34; (1997) 189 CLR 465, and the discussion in that case of prospective overruling.

    [150] Business Council of Australia, above n 2.


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