Chapter Three: Federalism

Question 1

List the reasons for and against federation

Answer 1

List the reasons for and against federation
Reasons support federation are:
• It would enable faster travel between each state due to unified railway systems
• It would stimulate economic growth by removing tariffs when trading between states
• It would increase Australia’s defence by having a unified military to protect against the growing powers of Germany, Russia and Japan
Reasons against federation are:
• Each state did not want to lost its individual identity
• Each state wanted to retain their own system of government and pre-existing laws

Question 2

Coercive Federalism

Answer 2

A system where the federal balance is in favour of the Commonwealth and they exert a significant amount of influence onto the state governments. An example is Canada, which consists of a strong central government where powers are codified to both levels however the federal government exercises all residual powers and have unlimited taxation. The Senate does not act as a state’s house.

Question 3

Asses the Significance of Referendums on the Federal Balance

Answer 3

Referendums have had limited impact on the federal balance. Out of the eight that have passes, very few have increased the power of the Commonwealth and even those have done this by very small amounts. The 1928 referendum to allow the Commonwealth to assume state debts and set up the Loans Council was somewhat significant in allowing the Commonwealth to control loans to the state governments. The 1946 referendum allowed the Commonwealth to add further social services to its concurrent powers and the 1967 referendum allowed the Commonwealth to legislate with respect to Indigenous Australians, however these referendums have overall done very little to effect the federal balance.

Question 4

Asses the Significance of Referral of powers on the Federal Balance

Answer 4

In early Australian history the states were reluctant to give up their powers to the Commonwealth, however in recent history cooperation between the levels of government have increased and referral of powers has become more common. In 1975 the Commonwealth negotiated with all the states except WA to refer powers related to family law to facilitate the new federal family court. In 2003, the States referred certain powers in order to allow for the Commonwealths uniform policy on terrorism. Between 2006 and 2008 the four states that share the water of the Murray Darling Basin all referred water policy in those areas to the Commonwealth to allow for uniform water conversation and energy policies. Overall however, the effects of these referral of powers on the federal balance have not been too significant.

Question 5

Opportunistic Federalism

Answer 5

A term used to describe central governments taking advantage of political crises in order to further increase their own power. The term was uses during the Howard government, but it can be used to describe the uniform tax agreement of 1942.

Question 6

List and explain the factors that have led to a shift in the federal balance

Answer 6

The factors that have contributed to a shift in the federal balance are:
• Referendums, changes to the constitution that have given the Commonwealth government more power
• Referral of powers and unchallenged legislation, which has given more powers to the Commonwealth government through cooperative and legitimate means.
• Financial powers, some of which were stated in the constitution and some of which have been altered and developed to allow the Commonwealth to become the dominant financial partner in the federal balance.
• High Court judgments, which have led to interpretations of the constitution which favoured the Commonwealth government

Question 7

Asses the significance of Unchallenged Legislation and Cooperative Arrangements on the federal balance

Answer 7

Unchallenged legislation requires a cooperative agreement between the two levels of government, and over time this has made an impact on the federal balance. The Commonwealth legislated outside of their jurisdiction when creating the Snowy Mountain Scheme in 1949 and the Commonwealth Scientific and Industrial Research Organization (CSIRO) in 1916. Overall however, this has been fairly inconsequential in effecting the federal balance.

Question 8

Council of Australian Governments (COAG)

Answer 8

Formed in 1991, COAG intended to improve cooperation between the state and federal governments. It allows leaders of both government levels to meet and discuss ideas for uniform policy and cooperation. It also allows for representation of the national association of local government and for ministers to meet with senior public servants.

Question 9

Cooperative Federalism

Answer 9

A system of federalism which incorporates cooperation and communication between both levels of government that allow for the federal government to reach unified policy decisions with the States. An example of cooperative federalism in practice is the COAG discussions in Australia.

Question 10

Australian Loans Council

Answer 10

A very early system of cooperative federalism, which allowed the Commonwealth to organise state loans.

Question 11

Goods and Services Tax (GST)

Answer 11

A tax created by the Howard government in 2000 which removed some state taxes and reduced income tax to impose a 10% tax on the sale of all goods and services. This tax is collected by the Commonwealth and then distributed directly to the states in order to achieve horizontal fiscal equalization.

Question 12

Dual or Coordinate Federalism

Answer 12

A system of federalism which shares the powers of government relatively equally between the federal and state governments. An example is the US, which allocated a relatively narrow range of codified responsibilities to the central government and gave all other power to the state governments. Both levels of government share taxation equally, and the Senate was designed to be a State’s house with each state receiving equal representation.

Question 13

Horizontal Fiscal Equalization

Answer 13

A scenario where each state is equal in wealth, that is, the standard of government service is equal throughout every state.

Question 14

Mirror Law

Answer 14

A law which is passed in the Commonwealth and then passed identically by the state governments, the uniform gun laws passed by all Australian parliaments in response to the Port Arthur massacre in 1997 are an example of mirror legislation.

Question 15

Summarise the arguments for and against federalism in Australia

Answer 15

Supporting federalism is the following:
• State governments are seen to be closer to the people and more in touch with what they need, as a result they can legislate specific to the needs of the community.
• Competition between state governments stimulates policy growth and innovation as states compete for and adopt the best policy approaches
• Political freedom is enhanced by dividing the powers of the federal government
Against federalism is the following:
• Federalism leads to over-government and parallel systems which waste resources and manpower as well as creating confusion and weakening accountability.
• Federalism exacerbates conflict between the state and federal governments and allows some High Court decisions to become political
• Dividing the powers of government can be seen to weaken the nation’s ability to deal with pressing issues such as environmental change.

Question 16

Council of Australian Federation (CofAF)

Answer 16

Created in 2006, it entails the state and territory governments. It aims to have more of an impact on national policy and also increase cooperation with the federal government.

Question 17

Commonwealth Grants Commission

Answer 17

The role of the Commonwealth Grants Commission is to research and inquire into the relative fiscal capabilities of each of the states and territories and to make recommendations on the distribution of GST revenue among them. Its distribution aims to achieve horizontal fiscal equalization.

Question 18

Assess the impact of the GST on the federal balance

Answer 18

The GST was introduced by the Howard government in 2000 and reduced the impact of tied grants on the states, however it does lead to a loss of revenue for some states who have to pay their tax to other states in order to achieve horizontal fiscal equalization.

Question 19

Washminster System

Answer 19

A political system such as Australia which combines American principles of government and UK Westminster principles of government. Australia’s intended dual federalism was borrowed from the US, but the incorporation of British Westminster parliamentary principles operating through a federalist system was borrowed from Canada. The Swiss referendum also fits into this compromise model.

Question 20

Assess the impact of vertical fiscal imbalance on the federal balance

Answer 20

Vertical fiscal imbalance occurs when the Commonwealth is raising more money than it is spending and the states are consuming more money than they are raising. It ensures that the state governments must rely on grants from then Commonwealth government which can be tied, allowing the Commonwealth to have far reaching policy impact on areas that they may not have jurisdiction in. The Commonwealth collects over 80% of all revenue but only uses around 50% of that. The states collect under 12% of revenue and expend up to 35% of money. This can be said to lead to ‘blame shifting’ in which the state governments blame the Commonwealth government for policy favours and vice versa. There is no evidence though that there is an imbalance in the quality of government services through throughout Australia however, something that exists quite noticeably in the US. VFI also has the advantage that it allows the federal government to establish uniform import tax rates and have a large direction of national macroeconomic policy. It can be argued that VFI allowed Australia to have a better response to the GFC in 2008. VFI is also not a new thing, in the 1950s the states received over 60% of their revenue from the Commonwealth compared to 45% today.

Question 21

Explain ways that Australian Federalism is seen to be underperforming and ways that it could be improved

Answer 21

Federalism isn’t broken in Australia, however it could be significantly approved, and cooperative federalism is the key to this improvement. COAG could be an extremely effective avenue for cooperative federalism, however it needs to be approached in the following steps.
1. Leadership is needed to be seen by the Commonwealth government. They should come forward with a proposal to COAG and sell it with evidence to the other COAG members.
2. Flexibility with certain policy approaches is needed to stimulate innovation. Common goals can be approached in different ways, and doing so allows each state to experiment with different policy and find which policy works best.
3. Rewards should be given for reaching policy requirements and goals set at COAG.
An example of this kind of approach is evident in the Queensland governments proposal for a domestic violence summit held in 2016.

Question 22

Asses the significance of the Council of Australian Governments in engaging in cooperative federalism

Answer 22

COAG has allowed for several cooperative arrangements between different levels of Australian government. Major examples include microeconomic liberalization, companies and security law, food standards and road transport regulations. Microeconomic liberalization is particularly significant as it allows the Australian economy as a whole to be more competitive by nationalising trade practice and various business regulations. The uniform gun laws of 1997 can also be seen as an example of cooperation in COAG.

Question 23

Assess the impact income tax on the federal balance

Answer 23

During the Second World War, increased spending by the Commonwealth led to the 1942 Income tax act which allowed the Commonwealth to be the sole collector of income tax in the country and return the surplus to the states. After the war, the Commonwealth did not withdraw its tax, so the States were left with the option of implementing additional tax, effectively political suicide, or continuing to rely on grants from the Commonwealth.

Question 24

Assess the impact of the Loans Council on the federal balance

Answer 24

In 1928, the Commonwealth government created the Loans Council which was a board of all governments. Utilizing its two votes plus a casting vote, the Commonwealth could effectively control overseas borrowing and had a greater influence over national economic policy.

Question 25

Assess the impact of Custom and Excise Duties on the federal balance

Answer 25

Financial power has been the most significant factor affecting the federal balance since federation. At federation, the Commonwealth was already created as the dominant financial power, its sole collection of custom and excise duties as specified through sections 86 and 90 of the constitution were at that time the greatest source of revenue for the government. The Bradden Blot clause in section 87 specified that 75% of income from custom and excise duties was to be returned to the states, however this only lasted ten years.

Question 26

Assess the impact of tied grants on the federal balance

Answer 26

Section 96 of the constitution which allows the Commonwealth to create tied grants is extremely significant. Tied grants allow for the Commonwealth to have influence in policy areas that are beyond their jurisdiction through conditions that must be met in order for the money to be granted. Between 1972 and 1975 the Whitlam government used tied grants to implement significant change in education and health policy, as a result tied grants rose from 30% to 60% of all financial grants to the state governments.

Question 27

List the Reasons as to why the states are still extremely significant in the federal relationship

Answer 27

The state governments are able to maintain significant amounts of power through:
• Policy jurisdiction
• Finances
• State loyalties
• Inter-state cooperation
The states are responsible for the powers of government that have the most direct impact on the lives of Australian citizens, such as health, education, criminal and civil law and environmental policy. These areas are all facilitated and run by the state governments, as a result they are able to have a distinct say in how they are run. For example, in the 1980s the WA government was able to block the federal government’s policy on Native Title and in the 1990s the WA government was able to block the development of national forest policy. In general, the states get credit for when policy works well and can blame the federal government for lack of funding when policy does not work well.
The Commonwealth cannot easily reduce its level of financial commitment to the states, tied grants can be difficult to arrange. In recent years, the Queensland government has refused to accept tied grants related to water and environmental policy even when their funding was cut as a result.
The influence of political parties between state and federal governments can also vary widely, the Liberal branch of the federal government has limited influence on the Liberal branch of WA for example.
Using the Council of Australian Federation, the States have also been able to decide on a number of uniform policies as well as increase state unity in COAG meetings. CofAF has been able to reach uniform policy on climate change, education and tax reform.