The States versus the Commonwealth (II)

I think I must reluctantly agree with Christopher Sheil (and I conceded in my previous post anyway) that any scheme to levy a state-based income tax would in all probability be a political suicide note for any state government introducing it.

However, as Chris also observed, the States clearly need to do something to give themselves leverage and inhibit the Howard government’s plans for a large-scale centralist takeover that would effectively destroy federalism. Here are a few other possible ideas that the States might entertain, that don’t involve the massive downside of introduction of a new tax:

  • The States could withdraw from the national Corporations Law scheme and repeal the laws allowing ASIC to regulate and administer the incorporation of companies. The High Court decided in NSW v Commonwealth (The Incorporation Case) in 1990 that the Commonwealth lacked constitutional power to regulate the incorporation of companies, and so the Commonwealth is dependent on State co-operation for its ability to implement a comprehensive corporate regulatory regime.
  • The States could decline to allow federal offenders to be imprisoned in State prisons. Generally speaking, the Commonwealth does not maintain a system of its own prisons at all, so this would be a major inconvenience and expense for any federal government.
  • The States could withdraw co-operation with National Competition Policy in relation to opening up state infrastructure and services to private sector and interstate competitition.

I’m sure there must be other areas where the States could effectively threaten to withdraw co-operation with the Commonwealth that would cause it substantial inconvenience or expense. Do readers have any additional ideas?

Of course, it would be essential for the States to emphasise that they are only making these threats (or taking action) as a last resort because of the Commonwealth’s abandonment of any commitment to co-operative federalism, and that constructive co-operation would be resumed as soon as the Commonwealth stopped acting as centralising thugs and bullies betraying the spirit of the federal constitutional compact.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Evil Pundit
2021 years ago

Those are all wussy schemes. We should have a Civil War, like the Yanks did!

It’s ironic that the Labor Party, which has for a long time talked about abolishing the States altogether, is now up in arms to protect them.

Ken Parish
Ken Parish
2021 years ago

EP

It isn’t at all obvious to me that the Labor Party is up in arms and trying to protect the States. I wish they were doing much more. I suspect they really ARE conflicted (as you probably imply) because Labor’s instincts have always tended to be centralist to a considerably greater extent than the Coalition. This is very much a personal crusade on my part, as someone who has always been a convinced federalist (and who is neither an ALP member nor rusted-on Labor voter).

jen
jen
2021 years ago

So EP would that be a civil war of ‘stacks on Johnny and the crew’ or would the teams/armies be more subtly constructed within the politically concerned AND interested AND active Australian public?

I predict nothing much will happen either way, because Australian politics is generally not well practised at brinkmanship in my humble opinion.

I’m missing HeartBreakers for this and I know the ads are over.

Evil Pundit
2021 years ago

I’m a federalist too, since I don’t like centralisation of power. I’m not sure what Howard is up to, but anyone who wants to put too much power in one place should beware that one day it may be used against them.

jen
jen
2021 years ago

… is that a threat EP?

Evil Pundit
2021 years ago

It’s just an observation of the way these things often turn out. I was thinking of the Queensland Labor government’s abolition of the Upper House in the 1930s, which allowed Joh Bjelke-Petersen to do whatever he pleased in the 1970s.

Cameron Riley
2021 years ago

EP, Apparently the Regional (no-states) Government model came out of a report during the Chifley era. Whitlam was the one that made it part of Labor policy. Gorton was of the opinion that the Feds were for collecting money and making policy. In Gorton’s view the States were for handing out the Fed money in a way that followed Fed policy. Every federal government since Gorton has pretty much followed that point of view.

No-one at the federal or state level is much interested in following federalist principles. Maybe we need a federalist “crash or crash through” Premier who reclaims all the responsibilities of the states back from the feds.

Ken Parish
Ken Parish
2021 years ago

jen

“I predict nothing much will happen either way, because Australian politics is generally not well practised at brinkmanship in my humble opinion.”

I hope you’re right but I fear you may not be. The current situation is quite unique, with the Coalition about to control the Senate but Labor in control in every single state and territory. AFAIK that has never occurred before, and it removes most of the political constraints that would usually dictate only incremental, gradual change.

That danger is compounded by the personality of John Howard, whom historian Judith Brett has suggested (and I agree) is, while a social conservative, anything but a classical Burkean conservative or a Deakinite liberal. Howard is willing to embrace radical change to secure his vision of a private sector, self reliance-based society, not to mention cementing his own place in history. He may well see the current situation as a heaven-sent opportunity to implement such radical changes in major areas like health, education and industrial relations, without hindrace from either the States or the Senate.

I suspect he would only shy away from that course of action to the extent that he perceives political risk in gutting federalism. But federalism is a fairly esoteric value for most people; witness the muted reaction here at Troppo to my posts on the subject. It’s certainly anything but a core value for most committed Labor voters. It won’t be until it’s gone and we’re ruled in our everyday lives by a distant, unresponsive bureaucracy in Canberra that people will belatedly realise what a great democratic idea federalism was in a big, spread out nation like Australia. Old-time Territorians who experienced Canberra rule before self-government in 1978 will know exactly what I mean, but most other Australians don’t have a clue what a huge threat to freedom is involved here.

Moreover, it’s actually potentially even worse. In most areas (but not IR) there won’t actually be a direct federal takeover. We’ll just have a situation as at present in the university sector, where things reamain nominally under State management but in fact every single aspect of decision-making and real control is micro-managed from Canberra in an extraordinarily rigid way that is utterly unresponsive to local needs. What happens then is that the States blame the Commonwealth and vice versa and the people have no idea whom to believe, but just know they’re getting screwed and conclude that all politicians are self-serving, duplicitous bastards (which will ironically actually be true in a very real sense if, as I suspect, the Labor state governments fail to take any effective action to stop Howard’s centralist takeover because they’d rather hang on to the perks and the hollow semblance of power than take the huge risk of confronting Howard).

That’s why I hope you’re right but fear you’re wrong.

saint
saint
2021 years ago

Well the states can abolish all councils – can’t be that hard for states like SA. Then there’d be two levels of government et voila.

(Just joking)

cs
cs
2021 years ago

Ideally, the states should try to think up stuff that disrupts the commonwealth, but is either irrelevant or, even better, popular amongst the citizenry. It is easier to think up the former than the latter, the last on your list fitting into that category i think Ken. Another that would cause enormous disruption to Canberra and be little noticed in the nation at large would be for the states to make a global decision to refuse to participate in all joint committees, from premiers’ conferences down to the lowest officer level (exceptions would have to be approved at premerial level – and there would be a few key exceptions).

Creative thinking is required.

Vee
Vee
2021 years ago

Not cooperating with NCP would win over rural areas as they see that as the main reason for loss of jobs pertaining to infrastructure (Telstra) and they perceive further loss of jobs due to deregulation (dairy farming, etc.) though of course the govts will deny this has anything to do with NCP

Russ Degnan
2021 years ago

The States might have more scope for rejecting Tied Grants than even they think. To quote from the Commonwealth Grants Commission on Specific Purpose Payments (SPPs):
http://www.cgc.gov.au/State_Downloads/U2005/siv/pdf/Q%20U2005%20SIV%20Chapter%207%20to%20Attachment%20C.pdf

“The Commission regards the receipt by States of some Australian Government SPPs as contributing to their capacities to fund general operating expenses. The expenses resulting from the SPPs are included in the expense standards. Operating and capital SPPs are considered relevant.”

In other words: while the Federal Government gives money with one hand, the CGC takes it back with the other because that money makes it easier for said State to provide services. Something like 70% of the total money granted to the States is subsequently ‘equalised’ out, but an assessment is made on a grant by grant basis.

Every time the Federal government offers money the State in question should find out whether they are really going to benefit.

Evil Pundit
2021 years ago

Of course, if the States do actually disrupt the federal government, they run the risk of being painted as obstructive and handing the Feds a propaganda victory.

cs
cs
2021 years ago

The best gig on tied grants would be for the states to cherry-pick commonwealth priorities with matching conditions, and all refuse to match. If all refuse, no losses all-round.

Homer Paxton
Homer Paxton
2021 years ago

I doubt if the States would get any more revenue from an income tax than they are getting now from the GST.
Costello’s threats are hollow from anyone who has read the agreement.
If Howard starts changing the agreement re new senate then in Makeressassian fashion I predict a labor lanslide next election

mark
2021 years ago

Howard doesn’t have to change the agreement, Homer. He just has to “interpret” it and explain that the Labor State Govts are “misrepresenting” what was actually agreed to. It’s hard to see that something as trivial as re-creating the past would cause any uproar. After all, he’s done it repeatedly over the past few years, yet the Libs keep getting elected. Why should he get in trouble over something as dead boring as reapportioning tax money?

Homer Paxton
Homer Paxton
2021 years ago

Because he opens himself up to the mother of all tax scares

Mark Bahnisch
2021 years ago

Troppo proves prophetic:

http://www.theaustralian.news.com.au/common/story_page/0,5744,12815677%255E601,00.html

The states are threatening not to renew the Corporations Laws.

Mark Bahnisch
2021 years ago

I’ve argued that this is a smart move, because the yelps of pain from business will put pressure on the Howardians to back down:

http://larvatusprodeo.redrag.net/2005/04/11/states-fight-back/

ab
ab
2021 years ago

If the States threaten to withdraw support for a national Corporations law, or the NCP for that matter, the ‘economic vandalism’ charge that would inevitably emanate from the Treasurer’s office will be difficult to counter without the States offering credible, presumably state-based, alternatives. Obviously this is destined for the political too-hard basket. Leaving aside the political costs, however, it is interesting to note that Commonwealth funding of those options might not be an issue because, as we all know, regulation of companies is a cash-positive exercise for the Feds, and probably would be for the states as well: if I recall correctly, in 2003-04, ASIC took in around $500 million in fees and fines, and cost around $200 million to operate.

Ken Parish
Ken Parish
2021 years ago

ab

I don’t imagine the States would withdraw from the Corporations Law regime without providing their own State-based substitute. After all, that’s the way things were until the end of the 1980s and, as you say, it won’t be a financial burden to them.