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Federalism: the biff deepens « Previous | |Next »
April 11, 2005

Many say that our system of federalism has ended its shelf life and that a major reform of Australia's federal structure is long overdue.

Their narrative is that the constitution is a product of its nineteenth-century drafting, and that we now live in a national economy regulated by a central government. The framer's vision for the Australian Constitution was a federal one of a system of six states with a weaker central Commonwealth. During the 20th century, in recogniton of Australia being one people, in one land, with a national economy and laws, the High Court, starting from The Engineers case in 1920, shifted the balance of federal power to make the Commmonwealth the centre of Australia's economic and legislative power. And it was right to do so.

Others, such as Mark Bahnisch, have a different view.

How did this come about? In his Conversations with the Constitution Greg Craven makes a good suggestion. He says that there is a serious design flaw in the Constitution, namely that of finance:

From the beginning, the founders faced the difficult problem of how to ensure the fiscal security of the states....Given that under the Constitution the states would retain most of their extensive functions, there clearly needed to be some mechanism that ensured a lightly burdened Commonwealth, presumably awash with money ... returned most of its loot to the states.

The history of the 20th century has seen the states become the financial captives of the Commonwealth with lots of help from a centralist High Court. The result, says Craven:
"..the states are no longer masters of their own destiny.The commonwealth exerts enormous influence in such fields as health and education, not because they are confided to it under the Constitution, but simply because it provides the relevant funds."

For the states Canberra is the big problem because it grinds away at their authority and undermines their power.

You can see that grinding away with the GST.

The GST, as a growth tax, was designed to counter centralism, by giving the States some much needed income of their own. This implies that the States were, and are, sovereign power centres in a federal polity. The Commonwealth is currently playing fast and loose about requiring the States to stick to their (non) agreement to abolish a raft of business taxes in return for GST revenue. Calling a review of taxes an agreement to abolish, the Commonwealth is saying that the GST is a federal tax, and that it can, and will, call the shots on the bad States.

For once the states are sick of being kicked and are showing signs of doing something about it. Ken Parish over at Troppo Armadillo has some suggestions on their options.

The Australian reports that Queensland and Western Australia are saying that two can play these unco-operative games. SO they will refuse to refer their corporations powers to the commonwealth in relation to corporation law when the 5 year agreement comes up for renewal. The states lend/refer the Commonwealth power in five year blocks, and this referral is due for renewal. See Meg Lees for more on this.

A fight over federalism is shaping up. If the Commonwealth is not going to co-operate on GST, neither will the States co-operate on regulating areas of business enterprise. Business will not be pleased by the recent turn of events.

Update: 12 April
George Williams has an op.ed. in The Sydney Morning Herald. He says:

"The GST is a federal tax and it is possible for the Commonwealth to withhold the money or to pass on the revenue under different conditions. The states could take the matter to the High Court, but its earlier decisions clearly state it is up to the Commonwealth to determine the terms and conditions upon which it makes the grant."

A centralist High Court, one would have to add? Will the High Court change its modernist colours and begin a rethink of federalism? After all, the High Court has moved a very long way from the founders' conceptions of federalism in the Convention debates during the 1890s.

| Posted by Gary Sauer-Thompson at 12:16 PM | | Comments (0)