Re-imagining Australian federalism

The role of local government in Australia’s federal constitutional system is one I’ve been thinking about while working up the People’s Northern Territory Constitutional Convention wiki.  Constitutional recognition of local government was one of several seemingly innocuous and positive constitutional amendments rejected by the Australian people at the 1988 referendum (mindless obstructionism by the Coalition?).

The draft NT State Constitution I’ve posted on the wiki adopts the very strong provisions of the Queensland Constitution recognising and protecting local government.  It also further strengthens those provisions by requiring the executive government and legislature to take account of the principle of  “subsidiarity” when enacting laws or making administrative decisions. This principle holds that “an organizing principle that matters ought to be handled by the smallest, lowest or least centralized competent authority, and indeed that a central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level” should be the main guiding principle in allocating functions and powers between tiers of government.

In a very real sense this principle is the antithesis of the centralising tendency that is dominant in modern Australian political discourse. More than a century of rule by a remote “colonial” power, first SA and then the Commonwealth, has taught Territorians (at least those who have lived here for a long time) that even a very mediocre local government is better than a remote one. Direct Canberra rule (from 1911 to 1978) tended to oscillate between complete disinterest and heavy-handed, dictatorial interference, usually involving imposition of inappropriate measures through failure to consult locals.

Also see A J Brown, ‘Subsidiarity or Subterfuge? Resolving the Future of Local Government in the Australian Federal System’ (2002) 61 Australian Journal of Public Administration 24. The article includes discussion of public opinion about local government reform, constitutional recognition thereof and the role of the States. It makes the rather surprising finding that around 50% of respondents appear to favour abolition of existing States in favour of a 2 tiered system consisting of  just the Commonwealth and local government.  Brown concludes that there has been “a slump, if not collapse, in the presumed legitimacy of the ‘state’ as a unit of self-determination within the federation”.

I disagree strongly with abolition of existing States.  Apart from anything else, local government lacks the size and clout to stand up to the federal government when needed.  Having just two tiers of government where the lower one consists of smallish local government bodies would be a weakening of the democratic checks and balances which help to “keep the bastards honest”.

But how would a “beefed up” local government sector fit into Australia’s federal structure?  That’s potentially a really interesting question whose answer could help reshape Australian federalism in a fairly fundamental way (albeit picking up and formalising developments that are already happening).

For a start, although subsidiarity suggests that local decisions should be taken at a local level (cf the environmentalist slogan “Think global act local”), longstanding experience  in Australia indicates that local councils are sometimes drastically corrupt or incompetent and need to be dismissed and a temporary administrator appointed.

Moreover, financial prudential supervision and quality assurance/maintenance of standards need to be undertaken from a higher tier of government.  In our system that can only be the State or Federal government.  Similarly, overarching policies may need to be set at a State or national level.

Finally, I would regard local school and hospital boards, which are part of the Rudd/Gillard government’s national health and education reforms, as part of this localised subsidiarity governance model.  Readers will recall that they are intended to be funded on a needs basis, in the case of local hospital boards under a funding model adapted from Victoria’s ‘case mix” system.

The overall picture under a sophisticated subsidiarity model in the Australian context would be one where the Federal government sets national policy directions and provides a significant portion of funding directly to local government (including school and hospital boards), while State governments would also provide some funding and act as local government’s operational “line management”.

This sort of clear role differentiation would, I think, go a long way towards resolving the confusion, blame-shifting and cost-shifting that have characterised Australian federalism for a long time and contributed to the public disillusionment reflected in AJ Brown’s research.  Importantly, the federal role of delivering tied grant funding to local service delivery entities on an objectively assessed needs basis would inhibit state governments from shifting funding from areas of greatest need to areas of greatest electoral advantage.  That phenomenon is not confined to the Northern Territory.  I strongly suspect that it was no coincidence that the hospitals that attracted the most adverse publicity for poor facilities under the recently defeated NSW Labor government were Hornsby Hospital and Royal North Shore Hospital.  Both are situated on Sydney’s north shore, an area never likely to vote Labor.

What is really needed to achieve this sort of structure, it seems to me, is a fundamental restructuring of the federal division of powers in Australia’s constitutional system.  However, the chances of achieving this through a constitutional referendum are slight.  Only eight referenda out of 44 have succeeded since Federation in 1901.

Fortunately there is another possible solution.  States could refer a reasonably extensive agreed set of State powers to the Commonwealth under the referral power in the Commonwealth Constitution (s 51(xxxvii).  Those powers would certainly include control of river waters (especially the Murray-Darling basin) and some other key environmental powers that need a national approach.  They might also include health and education, but on condition that day-to-day operational control remain with the States and local government.  It is reasonably clear that a State can set conditions and limitations on any referral of power,  including limiting a referral to policy and prudential oversight functions.   See R v Public Vehicles Licensing Tribunal (Tas); Ex parte Australian National Airways Pty Ltd (1964) 113 CLR 207, 226.

But why should the States refer powers to the Commonwealth and thereby further reduce their already severely disempowered constitutional position?  My answer is because the key reason for the States’ disempowerment is their fiscal dependence on the Commonwealth. A century of political history and High Court jurisprudence have proven that Alfred Deakin was clairvoyant when he said in 1902:

The rights of self-government of the States have been fondly supposed to be safeguarded by the Constitution. It left them legally free, but financially bound to the chariot-wheels of the central government. Their need will be its opportunity.

My admittedly utopian idea is that the States could negotiate with the Commonwealth for referral of State powers that the Commonwealth needs in the national interest (including policy and prudential oversight of health and education), in exchange for a guaranteed share of income tax and CGT revenue (the major growth taxes) calculated as sufficient to meet their genuine needs on an ongoing basis as untied grants (less the needs-based tied grants to local government already discussed). If a deal like that could be brokered, it would certainly solve the vertical fiscal imbalance, blame-shifting and cost-shifting behaviours that have bedevilled Australian federalism for many years.

Of course, the reason why the concept is utopian is that the Commonwealth can already exercise effective power over most areas, albeit indirectly,  through the terms of tied grants under Constitution s 96.  Accordingly, why would the Commonwealth surrender complete control of revenue when it has no need to do so? That revenue control allows it to play Santa Claus with impunity and nearly always win the blame game with the States.  Still, it’s a neat idea IMO.

For a more detailed discussion of unresolved aspects of the referral power, see Andrew Lynch, ‘After a referral : the amendment and termination of Commonwealth laws relying on s 51(xxxvii)’ (2010) 32 Sydney Law Review 363.

PS Some of the issues I discuss here (though not my proposed solution) are traversed by George Williams in an essay in the excellent anthology Re-Imagining Australia (full text of the essays linked from this page – click on “essays” towards the bottom of the page).  From memory, former econo-blogger and now federal Labor politician Andrew Leigh was one of the editors.

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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Jacques Chester
Jacques Chester
12 years ago

Unrelated: I can’t edit or even discuss the draft. Apparently you have to approve my ‘joining’ the wiki, a concept which to me defies the purpose of a wiki (Nick’s coding for serendipity idea).

12 years ago

“ongstanding experience in Australia indicates that local councils are sometimes drastically corrupt or incompetent and need to be dismissed and a temporary administrator appointed.”

Masterful understatement. Our local is more of a dysfunctional debating society, than a deliverer of water and remover of sewage service.
They get away with a lot because they are so boring that people tune out , the inattention of boredom is a great protector of power.

Mike Pepperday
Mike Pepperday
12 years ago

Clear role differentiation… Section 51 lists the Commonwealth’s powers. Are they unclear? Correct me if I am wrong but I am pretty sure there is a legal principle which says that a specific listing means that all other, not-listed things are excluded. (I knew it once; it has the word “exclusio” in it.)

If I’ve got that right, it means that from section 51 it is clear that health is not within the Commonwealth’s powers. Utterly, totally clear – yes?

Yet you are concerned to divide health into federal and state parts in order to bring about clear role differentiation. Evidently, it used to be clear but the clarity got mucked up via s 51(xxxvii) and s 96.

Thus, I can’t see how the Constitution could ever be written so that roles are clear – no matter what you did, those two sections mean they could always muck the clarity up again.

I understand there is a world-wide tendency in federations toward centralisation. Most observers deplore it. The Australian people deplore it too: the main reason only eight of our 44 questions have passed is because most proposals increased Commonwealth power. I have read that Switzerland resists centralisation best. There the states (cantons) cannot hand power to the feds without a referendum. Things would be different if we had a similar provision.

Irrespective of the rules, it also seems to me to be very hopeful to think that blame and cost-shifting behaviours could be fixed. Aren’t they going to be part and parcel of any division of power? In the US we are perennially hearing about “states’ rights” and in Switzerland the cantons are perennially arguing with the feds. As long as there are mechanisms to settle the arguments, is it so bad? I suppose here and in the US, states can ultimately turn to the Supreme Court. The Swiss constitutional court is not permitted to make any pronouncement on the constitutionality of a federal law. The cantons defence against centralisation is that eight cantons can call a national referendum on a law they don’t like. Similar applies to municipal governments, some of which are so small they do not have full-time staff.

I do not think we should reason that because Australians won’t pass referendums, their will should be by-passed by using those sections. The two major parties have become tight, closed, little power corporations. It is undemocratic for them to be arranging constitutional power transfers through elite bargaining.

I wonder if Australia will ever again see a national referendum.

Mike Pepperday
Mike Pepperday
12 years ago

I wasn’t offering solutions, Ken. I merely gave some reasons for thinking that the goals of clarity and an end to blame-shifting are phantoms, and for thinking that the process was improper.

We should be suspicious of centralisation. We should be doubly suspicious of centralisation by exploiting loopholes (those sections) in order to avoid consulting the people. We should be triply suspicious when the politicians arranging these deals have little experience of real life, are chosen by the few in stacked branches, are elected in safe seats, and operate within exclusive power cliques. That is the solution you are suggesting. Maybe it would deliver good governance but do we ever really achieve a good end by employing bad means?

The only “solution” I can think of is that the public become indignant at their steady disempowerment. That looks unlikely but if present trends continue – and it seems they will – one day they will object. For the moment (while the economy is sound, perhaps) good governance is substituting for democratic government.

Jacques Chester
Jacques Chester
12 years ago

Correct me if I am wrong but I am pretty sure there is a legal principle which says that a specific listing means that all other, not-listed things are excluded.

It depends on whether the list is exhaustive or illustrative. S51 is read as exhaustive, however, except for the purposive powers, each head of power is read as widely as possible without reference to other heads of power or the residual powers of the states.

It turns out that reading a head of power as widely as possible enables some remarkable judicial gymnastics (jymnastics?). This is part of how the Commonwealth got power over dam building in Tasmania, power to levy income tax, power to create a national IR system and so on. As for the rest it’s down to money.

If you want to see where the design of the constitution was turned inside out, the Engineers and Uniform Tax cases are where first gunpowder and then gold were given to the Commonwealth by the High Court. All the rest is annotation.

12 years ago

Effective government in Australia is impossible with the current federal arrangements. What needs to happens is that the states are shut out of the picture and larger units of local government, based on eco-regions, are created as the second tier.
I can’t imagine that the MDB could be quite so badly run if there was a single MBD Regional Government.

Mike Pepperday
Mike Pepperday
12 years ago

So Ken, your proposal is not centralist because everything except the Murray-Darling is already centralised? Hmm.

That tradeoff – isn’t it really the usual one? The states relinquish control of some area in return for money? You propose viable, ongoing, untied funding. But it wouldn’t be stable unless it were somehow entrenched. Having handed over the rivers, and the states happy (let us assume) with their untied thirty pieces of silver and therefore enjoying some increase in federalism (and no one even slightly interested in what the people think of all this) what is to stop a renegotiation in ten or fifteen years’ time? Conditions will have changed, the people and parties will have changed and there will be some other slice of state responsibility the centre wants to control. Unless the untied money were constitutionally entrenched, which it would never be, Deakin will be forever right. And the states will forever have the comfort of blaming Canberra for everything.

Thanks, Jacques. What you called gymnastics I called loopholes. Our movers and shakers bless these loopholes for at least permitting SOME change, albeit gymnastically. Thank goodness for these founders’ oversights which allow those who know best to get around the difficulties which the pig-headed, nay-saying Australian people would otherwise cause.

Section 51 is simply worthless.

Jacques Chester
Jacques Chester
12 years ago

What needs to happens is that the states are shut out of the picture and larger units of local government, based on eco-regions, are created as the second tier.

In practice this means sundering the fundraising base in the cities from the countryside. Requiring still more Canberra-based money trans-shipments.

Good luck with that.

Mike Pepperday
Mike Pepperday
12 years ago

Ken, with reference to your addendum to #6…

I am not saying centralism is evil; I am saying creeping, loophole-driven centralism is evil. Centralism that occurs through the state and federal pollies exploiting one or two clauses to get around the weight and intent of the Constitution is evil. I condemn not “centralism” per se but centralism by stealth.

How should prudential oversight, etc, be distributed in a federation? That is exactly the question. Now, who shall answer this question? I am complaining about the way it is being answered – sneakily, by treating the citizens like dangerous zoo animals. Are the pollies conducting prudential oversight or are they divvying up the spoils?

You say the world and governance are more complex today than in 1901. Is it so? Just because everyone says it, doesn’t make it true. It’s obvious, though, isn’t it? No. I looked into the matter many years ago. I checked those constitutional commissions that were set up in the 70s and 80s. Whitlam headed one of them as I recall. One inquiry (or both, I can’t remember) made the same glib assertion, namely that the world had changed since 1901, and it also set out a fairly long list of recommended changes to the Constitution. Curious to behold, only one of those recommendations concerned a matter that could not have been done in 1901. Just one. (I think it was to do with air travel.) I, too, have the impression that the world is more complicated nowadays but it is not at all clear that this has relevance to the Constitution. Those dodges which 51(xxxvii) and s 96 have permitted – to what extent are they modernisations? To what extent just political expedience?

“…there’s nothing wrong with their [the states] bargaining for tradeoffs like increased security of s 96 grant funding.”

There we differ, Ken. I think it’s very wrong. It strips s 51 of meaning. Why not put such things to the people? Really, why not? Because the people might vote differently from their politicians, that’s why. Because it would be inconvenient for the politicians.

Constitution is not supposed to be static? Too strong a word: there have been eight changes so it is not static. Hard to change? Yes. A constitution is higher law; it is supposed to be hard to change; it is the solid framework within which ordinary laws are to be made. The Constitution is the deal between the people and their government; it sets out the ground rules for the ordinary rules. But 51(xxxvii) and s 96 negate them. The specific, carefully enumerated ground rules of s 51 have become a trifle the politicians can sidestep.

People are always saying it is too hard to change our Constitution. Is it? Compared with…? I also checked this out or found someone who had. Another myth exploded: it is not particularly hard. Our eight changes since 1901 are in keeping with, or ahead of, comparable countries. I suppose they would have been New Zealand, USA, and Canada though I don’t recall. People who make the assertion that it is too hard to change our Constitution should offer some evidence. The only evidence ever offered is that 38 proposals failed. Well, fine but they need to show that this failure proportion is unusually high. Is it? In Switzerland of 176 citizen initiatives to change the constitution only 18 have passed. Of 35 counter-proposals by the government 20 have passed. Not so clear, eh? Data from:

If it is too hard to change our Constitution, offer some evidence!! The record – eight changes – does not show it.

“There is nothing constitutionally to prevent the States from reclaiming their taxing powers…” Hoary. “But the States don’t do it because it would be extraordinarily disruptive and a net detriment to them.” Oh no. They don’t do it because it would be a detriment to the politicians. As I say, hoary – we are way past that conversation.

12 years ago


State referrals, apart from the democracy issue, give rise to serious problems. They can take a very long time to negotiate. They are revocable. And they are far from certain in their legal effect. In 2007 the Howard government desperately needed progress on the Murray-Darling issue. State referral was not an option. The only other source of power was external affairs. As the Senate Legal and Constitutional Affairs Committee notes:

3.48 In contrast, the Gilbert + Tobin Centre of Public Law highlighted that use of the ‘external affairs’ power as the primary constitutional basis for the Water Act means that ‘a Basin Plan must be prepared to give effect to the relevant international conventions’. While social and economic factors must also be taken into account, these ‘factors cannot be given such weight as would prejudice the faithful implementation of the international environmental conventions upon which the validity of the Act depends’.57 It noted further:

…the High Court has made clear on a number of occasions, a law based upon the external affairs power must be ‘reasonably capable of being considered appropriate and adapted to implementing the treaty’. If a law does not pass this test, it will be struck down by the Court as being unconstitutional.58

The Water Act is a classic example where state referral did not work and treaty-based laws are not adequate. The Water Act is (at least) ambiguous on social and economic issues because those issues, unlike the environmental issues, cannot be grounded in a treaty.

12 years ago


I don’t expect the states to revoke of their own motion.

I do think that a situation where much of the commonwealth’s legislative competence depended on state legislation would be an invitation to some Malcolm Fraser of the future. In 1975 Fraser was effectively holding premiers’ conferences while still opposition leader and the opposition states were clearly prepared to jump through hoops in order to secure a federal election. And it would, for example, take only a single basin state to destroy a referral-based MDB scheme.

The commonwealth has driven a truck through state legislative competence by S91 grants and, more recently, by the corporations power. Let us not now have the states drive a truck through the commonwealth’s legislation by de-referring powers. Seriously, the result would look more like an ad hoc confederation where every state had the capacity to wreck every policy than like a renegotiated federalism.

Your plan is reprehensible because it invites the excuse of reprehensible circumstances.