Is cooperative federalism all it’s cracked up to be?

Thank-you Dr Oscar Roos for your comment on the article we published earlier this week titled: A functioning Parliament during a time of crisis. Dr Roos suggested that we might like to write about federalism:

The States, and cooperative federalism (and its more prominent cousin, unco-operative federalism)…


Federalism distributes political power between the different parts of the federation. In Australia, we have the ‘Federal’ or ‘Commonwealth’ Government, and the Governments of the States and Territories. Federalism ensures that there is no single all-powerful government. By dividing power like this, federalism strengthens representative democracy, can protect liberty, and can promote local decision making on issues of local importance.

The creation of our federal system of government

By the 1890s what we now call Australia was made up of six British colonies. They were all self-governing, with each having its own Parliament, Executive and Judiciary. Various methods of cooperation were tried in the 19th century, including the establishment of the Federal Council of Australasia in 1885, but it was eventually agreed in 1890 that a formal federal system of government was needed.

During the 1890s, delegates appointed and elected from the colonies drafted the Constitution that would, according to its preamble, unite the people of the Australian colonies ‘in one indissoluble Federal Commonwealth’. On 1 January 1901, each colony became a State within a federation under a Constitution that established a federal government and Parliament and distributed powers amongst the levels of government. The two internal Territories were added later as land surrendered from the States, with the Australian Capital Territory coming under Commonwealth administration in 1909 and the Northern Territory in 1911.

The federal distribution of powers

The things that the Federal Parliament can legislate on are largely listed in sections 51 and 52 of the Constitution, but there are also some Commonwealth powers in other sections, such as sections 90, 111, 114, 115, 122 and 125. The Commonwealth’s powers include the sorts of things you would expect for a national government, such as defence, immigration, taxation, currency and banking. They also include powers in relation to cross-border matters, such as inter-state trade and commerce and industrial disputes that cross State borders. The quarantine power is relevant here, as disease has no respect for State borders.

Since the Constitution came into force in 1901, the effective scope of the Commonwealth Parliament’s powers has expanded due to the High Court giving a broad interpretation to them. The external affairs power was interpreted by the High Court in the Tasmanian Dam Case as allowing the Commonwealth Parliament to legislate to implement treaties to which Australia is a party. This allowed the Commonwealth to legislate about matters such as human rights and the environment when it was giving effect to treaties on those subjects.  In the Work Choices case, the High Court also interpreted the corporations power broadly so the Commonwealth can enact laws about what corporations may or may not do and their relations with others, such as their employees.

Although most of the Commonwealth’s powers are ‘concurrent’, meaning that both the Commonwealth and State Parliaments can validly legislate on the subject, section 109 of the Constitution says that where State and Commonwealth laws are inconsistent, the Commonwealth law prevails and the State law becomes inoperative to the extent of the inconsistency.

The Commonwealth Parliament also has greater power to raise revenue. Only the Commonwealth Parliament can impose excises, which are taxes on goods. This is why the GST is a Commonwealth tax, even though the revenue is distributed to the States, once the Commonwealth has deducted its costs in administering the tax. The Commonwealth also took control over income tax during World War II and never gave it back to the States after the war was over.

Grants to the States

The people who wrote our Constitution were worried about whether the Commonwealth Government would become the ‘rich uncle’ to the States. This concern has been realised. The federal Parliament has most of the taxing power and thus the biggest revenue, while the States have most of the spending responsibilities, such as health, education, police and prisons.  Economists call this imbalance between responsibilities for raising and spending money ‘vertical fiscal imbalance’.

The consequence of this imbalance is that money raised by the Commonwealth needs to be transferred to the States. The people who wrote our Constitution thought that they had solved this problem by limiting Commonwealth spending to matters within Commonwealth powers and requiring that the surplus be distributed to the States. But the Commonwealth thwarted that outcome in 1908 by appropriating all its spare money at the end of each financial year for expenditure in the future on Commonwealth purposes. This means that the Commonwealth has not had a surplus since 1908.

Instead, the Commonwealth uses a provision that was inserted at the last minute in the Constitution to deal with emergency circumstances where a State might need special help:

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

Such a section was proposed and rejected at the constitutional conventions in the 1890s because no one wanted the States to be beggars seeking money from the Commonwealth. It was only added by a Premiers’ Conference in 1899 due to concerns that an individual State might need extra help in the transitional period after federation.

But once the States lost access to the Commonwealth surplus and their own income tax revenue, they became reliant upon grants under section 96 of the Constitution, which often have conditions attached. By imposing conditions on grants, the Commonwealth Parliament has another tool to intervene in policy areas that are otherwise outside its powers.  

Cooperative federalism during the coronavirus

While the Commonwealth therefore has extensive financial and legislative power to address the coronavirus outbreak, and has employed those powers in creating its fiscal stimulus packages and exercising its quarantine and immigration powers, we can see that it cannot act alone to achieve the outcomes needed to protect the community. More is needed from the federation as a whole.

Federal systems rely on both competition and cooperation to function. Competition is important to ensure innovation and higher quality outcomes. In a federal system, States can experiment and learn from each other, adopting the successful outcomes achieved in one State while choosing not to go down the less successful path of another State. Many of the laws and policies we now take for granted, such as anti-discrimination laws and the compulsory use of seat-belts, started off as the policy of an innovative State and later spread across the nation.

Federalism also allows the customisation of laws and policies to meet the circumstances of each particular State. One size does not fit all in a large country. But sometimes cooperation and uniform policies are needed. The key is to know when to cooperate, when to compete and when to customise laws and policies to meet the particular needs of a jurisdiction.

All of these aspects come into play during the coronavirus crisis. On the one hand, we need States to innovate in how their hospitals deal with the crisis and to share information about what is working best so others can adopt successful practices and avoid failed ones. If everyone applied the same rules and policies, there would be no hope for breakthroughs to achieve greater successes. Federalism gives room to do something that is different and better.

Different States will also be in different positions regarding the spread of the coronavirus, justifying different laws and policies.  For example, Tasmania, as an island, is in a different position in terms of shutting down its borders than other States.  The ACT, in contrast, is completely within a State and also houses the seat of government, to which access must be guaranteed. Some States and territories will have vulnerable outback Indigenous communities that need special protection. Others will be dealing with high levels of spread in dense urban areas. It would be foolish to say that one uniform rule should apply to all.

But we also need strong cooperation between the Commonwealth, States and Territories. Many Commonwealth and State responsibilities are closely intertwined. While the Commonwealth has strong quarantine powers, the States run public hospitals and also have a responsibility for public health. Aged care facilities, prisons and immigration detention facilities, all of which have high concentrations of people, will require careful management with varying levels of State and federal involvement, as will schools and pre-school centres. Decisions made in relation to one institution will have knock-on effects in relation to others.

That is why it has been a sensible decision to establish a national cabinet through which decisions on such matters, and their consequences, can be discussed and cooperation best achieved. Having a national cabinet does not mean that every State must behave the same way with the same laws and policies. Doing so would be a betrayal of the citizens in different States who have different immediate needs. But it does mean that a higher degree of cooperation can be achieved. The national cabinet can make the decisions about when, in the federal system, we need uniformity and consistency, and when we need diversity and innovation. Let’s hope it makes the right choices.



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