Federalism: the states


Introduction

Like Switzerland and the United States of America, Australia is a federation. The Commonwealth of Australia was created when six British colonies federated in 1901: New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania.

As a result, Australians elect two governments and obey two sets of laws. Similarly, there are two systems of courts and two constitutions. In addition to the federal government, most Australians also live under a state government that has political and legal autonomy and sovereignty apart from the Commonwealth.

The key features of the Australian federal system are:

  • a federal constitution, which brought the federation into existence and provides the basic rules under which the federation continues to operate, including the distribution of powers and authority between the two levels of government;
  • a central federal government, located in Canberra, which governs the nation (also known as the Commonwealth government);
  • six state governments, located in the capital cities of each of the states - Sydney, Melbourne, Brisbane, Adelaide, Perth and Hobart - which govern their respective state;
  • the High Court of Australia, which acts as an umpire, interpreting the constitution and resolving disputes between Commonwealth and the states; and
  • the Senate, a legislative house in the Commonwealth parliament, originally designed to protect the interests of the states.

Subsidiarity

A major concern of Australia’s founding fathers was to ensure the central Commonwealth did not consume the states. Although the Australian states surrendered some of their autonomy to create the Commonwealth, on the whole they only sacrificed the minimum powers necessary and retained the maximum possible powers for themselves.

At federation, the states sought to maximise their role by limiting the legislative power of the Commonwealth. For the Commonwealth parliament to pass a valid law, the Constitution must give it a head of power to legislate in that area. The Australian Constitution identifies the few key areas where the Commonwealth parliament can enact valid legislation. Most of these areas are identified in sections 51 and 52 of the Constitution. These matters include coinage, national defence, immigration, interstate trade and treaties with foreign governments. While most of these matters are “national” in character, some like financial corporations, marriage and old-age pensions are not. The executive power of the Commonwealth is also limited to those areas where it has legislative power.

The state parliaments can legislate in respect of almost anything, including those matters where the Commonwealth parliament has the authority to legislate. However, if a state law is inconsistent with a Commonwealth law, the Commonwealth law prevails. The only matters on which a state cannot legislate are those few matters reserved exclusively for the Commonwealth.

The founding fathers were also keen to ensure that States were financially independent. Thus, all taxing powers were to be shared, with the exception of customs, excise and bounties, which were given exclusively to the Commonwealth.

Centralism

In contrast with the intention of the founding fathers, the history of Australian federalism has been one of power slowly shifting from the states to the Commonwealth. There are a number of reasons for this:

  1. A number of Constitutional amendments have increased the number of areas where the Commonwealth can validly exercise legislative power:
    • The 1910 and 1928 referendums increased the Commonwealth’s management of state debts and loan borrowing.
    • The 1946 referendum extended the Commonwealth’s powers in respect of income support payments and the provision of community services.
    • The 1967 referendum allowed the Commonwealth to take an active role in Indigenous affairs.
  2. The states have voluntary handed a number of matters to the Commonwealth, including: Albury-Wodonga Development Corporation; River Murray Commission; Snowy Mountain Scheme; South Australian and Tasmanian railways; tertiary education.
  3. Since the 1920s, the High Court of Australia has tended to favour the Commonwealth over the States. Key judicial decisions include:
    • 1920 - Engineer’s case - established the authority of the federal arbitration court over state arbitration courts. In this decision, the High Court gave a broad and favourable interpretation to the Commonwealth’s legislative powers as enumerated in the Constitution.
    • 1926 - Clyde Engineering Co. Ltd. v. Cowburn - an award of the Commonwealth Arbitration Court overrides a statute of state parliament.
    • 1942, 1957 - The Uniform Tax Scheme (Nos. 1 and 2) - the Commonwealth gained and held the right to be the sole collector of income tax.
    • 1975 - Offshore Sovereignty case - Commonwealth given sovereignty over the entire offshore area, including the sea, airspace, seabed and subsoil.
    • 1982, 1983 - Koowarta and the Tasmanian Dams case - using the external affairs power in the Constitution, the Commonwealth can legislate to prevent states from undertaking actions that would conflict with any international treaties signed by the Commonwealth.
    • 1997 - Tobacco excise - the traditional state taxing powers in respect of alcohol, tobacco and petrol were declared invalid. (The consequences of this High Court decision were subsequently addressed through payments to the states under the Commonwealth’s Goods and Services Tax, introduced in 2000).
  4. Today, the Commonwealth raises most of the nation’s revenue while the state governments spend more than they collect through taxation. The state’s loss of financial autonomy has shifted power to the centre and made fiscal issues the central feature of intergovernmental relations.
    • Australia has the most acute vertical fiscal imbalance of any federation. In 1942, the Commonwealth used the Second World War and the defence power in the Constitution to take income tax powers away from states. The Commonwealth retained the sole power to collect income tax after the War.
    • Since the 1950s, the Commonwealth has steadily increased its influence over state policy and programs through the application of tied grants under section 96 of the Constitution. By using its power to make grants to states with conditions, the Commonwealth now exercises significant influence over state governments in many areas including transport, road building, hospitals, education, housing, and disability services.
  5. Because of strong party discipline, the Senate has never functioned as a “States House”. The political divisions between the major parties, which are a feature of the House of Representatives, are reflected in the Senate, and they dominate any state divisions that might occur.

As a result of this central tendency, the Australian federation is unbalanced. In practice, the states are no longer equal partners with the Commonwealth in the administration of the nation. Many of the functions of state government are now mirrored in at the Commonwealth level. For example, if you compare the Federal Ministry and the NSW State Government Ministry, you can see that both levels of government have Ministers responsible for Arts, Multicultural Affairs, Health, Aboriginal Affairs, Education and Training, Industrial Relations, Environment, Transport, Energy, Community Services, Primary Industries, and Sport and Recreation. Similar overlaps can be seen between the Commonwealth and all of the state and territory governments.

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