Australian Federalism: Developments and Prospects

Author(s): Brian Galligan and Cliff Walsh

Source: Publius , Autumn, 1990, Vol. 20, No. 4, Federalism in Australia (Autumn, 1990),
pp. 1-17
Published by: Oxford University Press

Stable URL: https://www.jstor.org/stable/3330289

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 Australian Federalism:
Developments and Prospects
Brian Galligan and Cliff Walsh
Australian National University

This article discusses the principal recent developments in, and future prospects for, con
stitutional change, judicial review, fiscal arrangements, local government, public policy, an
intergovernmental relations since the 1977 Publius issue on Australian federalism, taking into
account the arguments presented in the other contributions to this volume. It highlights th
continuing vertical imbalance of Australian fiscal federalism, and the Hawke Labor govern-
ment's recent initiativefor a closer working partnership with the statesfor reforming intergovern-
mental arrangements. It argues that while there is scope for the latter, there is greater need fo
the former. Nevertheless, the 1980s was significant as a decade of predominantly Labor govern
ments working with the federal Constitution, while the 1990s promises to be a decade of
celebrating the centenary of the Australian Constitution and working toward improving th
functioning of its federal system.

The decade of the 1990s marks the centenary of the making of the
Australian Constitution and the design of its federal system. Beginning with
the 1890 Federation Conference in Melbourne, which resolved in favor of
federation, there followed an exhaustive series of conventions. The first
Australasian Federal Convention met in Sydney in 1891 and produced an
abortive draft. The second Australasian Federal Convention met in Adelaide
Sydney, and Melbourne during 1897 and 1898, and produced a federal con-
stitution that was adopted by the people in referendum, formally passed b
Westminster, and came into operation on 1 January 1901.1 As the various
landmarks are commemorated in the lead-up to the celebration of federa-
tion, there promises to be renewed public and scholarly interest in Australian
federalism and issues of constitutional design and intergovernmenta
relations.2
Partly in anticipation of this, partly as an extension of his government's
quest for "micro-economic reform" (i.e., deregulation and structural chang
in the public and private sectors), and partly to head off mounting pressur
from state premiers, Prime Minister Hawke announced in July 1990 an

'A complete record of these conventions has been republished with indices and commentaries
as the Official Record of the Debates of the Australasian Federal Convention, 4 vols. (Sydney
Legal Books, 1986); J. A. LaNauze, The Making of the Australian Constitution (Melbourne:
Melbourne University Press, 1972).
2Already, the 1890 Melbourne Conference has been marked with an elaborate com-
memorative conference and forthcoming publication, G. Craven, ed., Australian Federalism
Towards the Second Century (Melbourne: Melbourne University Press, 1991).

Publius: The Journal of Federalism 20 (Fall 1990)

1

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2 Publius/Fall 1990

initiative for "a closer partn

Commonwealth-state exercise
with a view, first and princi
get better cooperation within
it stands." A second goal put
of national cooperation in a
itself." A special two-day pre
of October 1990 to promote t
intergovernmental arrangeme
non of South Australia in 1986,
states, particularly from L
Wales.
Although there is common purpose for both the Commonwealth and stat
to pursue greater efficiency in intergovernmental management, there are
ferences in diagnosing the problems and prescribing the cures. The states
to blame the Commonwealth for intrusion and duplication, particula
through specific-purpose grants in such areas as education, health, hou
community welfare, aboriginal affairs, and roads.6 New South Wales
vocating a "rationalization" of Commonwealth and state roles, prefer
through the exclusive allocation of broad policy areas to one or another
of government. This would entail the Commonwealth's withdrawing f
areas that are primarily ones of state jurisdiction, such as education, h
and housing, but also would require the states to hand over other are
joint jurisdiction, such as industrial relations, entirely to the Commonweal
in the interests of creating "a truly national economy." The Commonwealt
however, insists on its role in setting national directions, ensuring minim
standards, and encouraging the adoption of "best practice." Equally i
portant, it continues to use its fiscal muscle to force restraint on the stat
The precise origins of the prime minister's decision to initiate a major r
of intergovernmental relations remain obscure. Correspondingly, ther
pears to be a degree of skepticism, especially among the states, about its r
objectives and about what might be achieved. It is possible, however, to
the present initiative as reflecting distinct trends both in the operation o
federal system and in intellectual fashion over the last decade or mor
Since the mid-1970s, following their experiences in the Whitlam years,

3Robert J. Hawke, Towards a Closer Partnership (Canberra: Speech to the National

Club, 19 July 1990).
4J. C. Bannon, "Overcoming the Unintended Consequences of Federation," Australian
nal of Public Administration 46 (March 1987): 1-9.
5New South Wales Cabinet Office, "Microeconomic Reform of Commonwealth/State
tions" (Discussion Paper prepared for premiers' conference, Canberra, June 1990) and
Greiner, "Physician, Heal Thyself: Micro-economic Reform of Australian Governm
(Canberra: Speech to the National Press Club, 25 July 1990).
6Economic Planning Advisory Council, "Commonwealth/State Overlap of Functions
Regulations: An Overview of Responses from State and Commonwealth Government D
ments and Agencies, " Towards a More Cooperative Federalism? EPAC Discussion Paper
(Canberra: Australian Government Publishing Service, July 1990).

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 Australian Federalism 3

states have undergone a renaissan

creased professionalism in their app
A "managerialist" thrust in public a
both in the states and the Common
directed toward intergovernmental
As well, there has been a revival of
perspective on Australia's political
lenged the centralist paradigms that p
literature. This is especially true amon
among the relatively few Australian
and occasionally even among constit
tellectual stand is evident in the contr
the centralist bias of those in the 1977 issue of Publius on Australian
federalism. This change in attitude is also strongly reflected in recent
Australian federalism literature.8
In addition, there has been a marked broadening of research from the more
formal fiscal and constitutional aspects of Australian federalism to studies
of intergovernmental relations and the management of public policy within
the federal system,9 and an increasing emphasis on understanding and
analyzing state policies and perspectives.10 These trends have been reflected
in, and promoted by, the work of the Federalism Research Centre at the
Australian National University-the new name recently given to the Centre
for Research on Federal Financial Relations.
Managerialism and federalist paradigms are not inherently incompatible:
a better appreciation of both the virtues and realities of a federal system in-
evitably leads to a concern about the nature and the quality of intergovern-
mental relations and management. At this stage, however, it seems clear that
the prime minister's proposed review of federalism has been conceived and
responded to from a simplistic perspective that presupposes "coordinate"
rather than "complex" models of the federal system. If the reform process
is to succeed, the principal participants, officials and politicians, will need
a more sophisticated appreciation of federal arrangements and intergovern-
mental relations.

7Mark Birrell, ed., The Australian States: Towards a Renaissance (Melbourne: Longman
Cheshire, 1987).
8Martin Painter, "Australian Federalism and the Policy Process: Politics with Extra
Vitamins," Politics 23 (November 1988): 57-66; Campbell Sharman, "Australia as a Compound
Republic," Politics 25 (May 1990): 1-5; and Rolf Gerritsen, "A Note on the Appropriate Dispersal
of Powers in the Australian Federation," Politics 25 (November 1990).
9Brian Galligan, Owen Hughes, and Cliff Walsh, eds., Intergovernmental Relations and
Public Policy (Sydney: Allen & Unwin, 1990).
10Brian Galligan, ed., Australian State Politics (Melbourne: Longman Cheshire, 1986); Brian
Galligan, ed., Comparative State Politics (Melbourne: Longman Cheshire, 1988); Scott Prasser,
Rae Wear, and John Nethercote, eds., Corruption and Reform: The Fitzgerald Vision (St. Lucia:
University of Queensland Press, 1990); Ernie Chaples, Helen Nelson, and Ken Turner, eds.,
The Wran Model: Electoral Politics in New South Wales, 1981 and 1984 (Melbourne: Oxford
University Press, 1985); and Richard Blandy and Cliff Walsh, eds., Budgetary Stress: The South
Australian Experience (Sydney: Allen & Unwin, 1989).

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 4 Publius/Fall 1990

In any event, overlying the n

tellectual fashion in Australi
those associated with Austral
by earlier prewar and postw
Australian federalism is likel
past patterns in financial rela
the review and reform process
of the current review reflects
centralized fiscal arrangements
monwealth to use its centralize
states as part of a response

CONSTITUTIONAL CHANGE

Prime Minister Hawke's current initiative for a critical review a

reform of intergovernmental arrangements and intergovernme
ment reflects a realistic acceptance of Australia's established co
structure that is at odds with both his own earlier views" and Labor's tradi-
tional pursuit of constitutional reform. Earlier, the Hawke government had
set up a Constitutional Commission to carry out a complete review of the
Constitution, with a view to making changes during the 1988 bicentenary
year, which marked 200 years of white settlement in Australia.
The commission produced two volumes containing thirty pages of recom-
mendations, including a whole new chapter proposing to entrench an exten-
sive list of rights and freedoms into the Constitution.12 Four proposals for
rather moderate amendment, drawn from the commission's preliminary
report, were put to referendum in 1988. These included extension to the states
of the rights to trial by jury, freedom of religion, and just compensation
for persons whose property is acquired compulsorily by government, which
already apply to the Commonwealth. This mini "peoples' charter" was to
be the precursor of a full blown bill of rights, but this lapsed with the defeat
of the 1988 referendums. The other unsuccessful proposals were for the
recognition of local government in the Australian Constitution, for a four-
year term for the House of Representatives, and for "fair and democratic
elections" for all Australian parliaments.
Some would see this defeat as further evidence that Australia is "constitu-
tionally speaking, the frozen continent," a thesis reiterated by Geoffrey Sawer
in 1977.13 Australia's record on constitutional amendment is modest: of
forty-two amendments put to Australians since 1901, only eight have met
the double requirement of the support of a majority of electors overall and

"Robert J. Hawke, The Resolution of Conflict Boyer Lectures (Sydney: Australian Broad-
casting Corporation, 1979).
12Constitutional Commission, Final Report of the Constitutional Commission (Canberra:
Australian Government Publishing Service, 1988).
'3Geoffrey Sawer, "Constitutional Issues in Australian Federalism," Publius: The Journal
of Federalism 7 (Summer 1977): 34.

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 Australian Federalism 5

of a majority of electors in a major

scholarship, however, suggests tha
amendment is comparable to that o
the United States, and like Canada p
and entrenching of an elaborate Ch
Australia is distinctive in its great
more than 100 proposals have been
Parliament. This has been due to th
streak in Australian political cultur
casion, referendums have been high
posals concerning the filling of "casu
voters in referendums, and mandatin
all passed.
Arguably there was no great need
and, unlike 1977, bitter partisan op
parties ensured defeat of all the p
Rainer Knopff, and John Uhr argue i
ther protect rights by national mean
rooted in strong federalist sentime
Included in the prime minister's rec
federalism, is the call for "a new a
itself." There is the possibility of ano
tion on a four-year term for the H
tisan support is forthcoming. How
are to participate in a conference
centenary of the First Australasia
the prime minister indicates, is to
constitutional change "emerge from

JUDICIAL REVIEW

The prime minister's recent announcements notwithstanding, the mas

jection of the 1988 slate of proposals has greatly dampened expect
constitutional change by referendums for the time being. In any
High Court has always been a more significant agent of constitutional
as was intended by the founding fathers who adopted the model of
ful American style court exercising judicial review. In the past, the A
judiciary has tended to disguise its activist political role in constitu
judication with a public rhetoric of "strict and complete legalism
recent years, senior judges have been grappling with a more accurate a

14Peter H. Russell, "The Politics of Frustration: The Pursuit of Formal Con

Change in Australia and Canada, " A ustralian-Canadian Studies 6 (Winter 1988):
bell Sharman, "Parliamentary Federations and Limited Government: Constitutio
and Redesign in Australia and Canada," Journal of Theoretical Politics 2 (April 199
and Brian Galligan, "The 1988 Referendums and Australia's Record on Constitution
Parliamentary Affairs 43 (1990): 497-506.

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6 Publius/Fall 1990

tion of their ongoing role of r

While the tenure of judges (
by a successful 1977 constitutio
tative political pressures, the e
means of influencing the dir
sonnel of the High Court has
of Justice Mason, and he was
Deane, and Dawson were appo
tion government, and Justic
by the Hawke Labor governm
with earlier Courts, the presen
Certainly, Australia is no fr
In the 1983 Tasmanian Dam
of "external affairs" that gr
legislate in areas that would o
The Whitlam Labor governm
tion in 1974, and the Hawke go
made, proposed statutory bills
under the external affairs po
stiff opposition and hostile S
In his article, Leslie Zines di
was modeled on that of the U
the Australian High Court in s
Constitution has other specif
over corporations and external
fairly broadly. More recentl
cleared away decades of unsa
Constitution, which requires
Court came up, instead, with
precludes only measures that a
tectionist purpose or effect. T
government regulation, althou
it applied its new rule.
In its federal adjudication, t
tralist and adheres to the En
of reading the enumerated h
plenary sense regardless of the
powers of the states.'8 Even s

15See Sir Anthony Mason, "The Ro

parison of the Australian and the U
1-28. Also see Brian Galligan, Politic
Press, 1987) and "Judicial Activism
tive, ed. K. M. Holland (New York:
16Commonwealth v. Tasmania, 156
'7Cole v. Whitfield, 165 CLR 360
'8Amalgamated Society of Enginee

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 Australian Federalism 7

Commonwealth has been pegged

In one case, Commonwealth indu
ment, which purported to overrule
vative Bjelke-Peterson National P
ground that it singled out the Stat
In a more recent decision, the Co
legislate for the incorporation of
of the Commonwealth's power to leg
within the Commonwealth."20
renegotiate a cooperative national
states.

Having no bill of rights to interpret, the High Court's constitutional

remains primarily the adjudication of federal issues and the interp
of machinery of government clauses. However, in the Street case,
Court put some teeth back into Section 117 prohibiting discrimin
one state against residents of another state. In sum, the High Court
an activist body in constitutional adjudication and adjustment, and,
a broadly centralist thrust, continues to restrict certain Common
initiatives.

FISCAL FEDERALISM

Vertical Imbalance

The most contentious, and arguably least satisfactory, aspect of Australian

federalism is its vertical fiscal imbalance, which is due to two factors. First
the Commonwealth has continued the monopoly over income taxation that
was established in 1942 as a war measure. Because this was sanctioned by
the High Court mainly on grounds other than the defense power, it was easily
maintained during peace. Second, the states are unable to levy alternative
broad-based consumption or general sales taxes because of the High Court's
broad interpretation of "excise duties," which the Constitution (S. 90
precludes the states from levying.
The result, as summarized in Table 1, is that despite a roughly 50-50 split
between the Commonwealth and the state-local sector in annual outlays fo
their own purposes, the state-local sector is responsible for raising only about
20 percent of tax revenues and, at most, 29 percent of total public sector
revenues. Hence, this sector depends on payments of various sorts from th
Commonwealth for, on average, over 40 percent of its total revenues.
The centralization of revenue-raising has been justified in the postwar
period as being essential to the Commonwealth's capacity to manage the na
tional economy and to preserve equity in the overall tax system, while allow-

19Queensland Electricity Commission v. Commonwealth, 159 CLR 192 (1985).

20New South Wales v. Commonwealth, 64 ALJR 157 (1990).
21Street v. Queensland Bar Association, 63 ALJR 715 (1989).

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 8 Publius/Fall 1990

TABLE 1
Public Sector Financial Aggregates and Employment
Shares of Each Government, 1988-1989, Percent

Own-source
revenue

Own purpose Final

outlaysa demandb Tax Total Employment
Commonwealth 50 33 79 71 25

State 44 59 17 25 66

Local 5 9 4 4 9

Total 100 100 100 100 100

SOURCE: Budget Paper No. 4,

aCurrent, capital, and total out
government.
bFinal demand consists of final consumption expenditure and gross fixed
capital expenditure.

ing for diversity in state decisionmaking on priorities and programs funded

from their own-source revenue and from Commonwealth grants. However,
more recently, there has been a revival of intellectual support for a federalist
perspective and a renaissance of the states in terms of the professionalism
of their administrative and financial management. Correspondingly, central-
ized revenue collection and the extensive system of grants that is its conse-
quence have been questioned on the grounds that they diminish efficiency,
responsiveness, and responsibility in decisionmaking in the federal system.22
Because the states have more policy responsibilities than they can fund
from their own revenue sources and they rely heavily on Commonwealth
grants, the system can encourage grantsmanship and profligacy in spending
what, from a state perspective, appear to be "50 or 60 cent dollars." Alter-
natively, it can result in a genuine inability to provide or maintain necessary
programs. Some of the worst features of state policies-including distorting
and wasteful competition to attract new business development, and the re-
cent unsuccessful experiences of states as venture capital partners with the
private sector-have been induced or exaggerated by the imbalance in fiscal

22See, for example, many of the papers in Brian Galligan, ed., Australian Federalism
(Melbourne: Longman Cheshire, 1989). For a more detailed critique and proposals for reform,
see Cliff Walsh, "Federalism Australian-Style: Towards Some New Perspectives," Taxation
and Fiscal Federalism: Essays in Honour of Russell Mathews, eds. Geoffrey Brennan, Bhajan
S. Grewal, and Peter Groenewegen (Sydney: Australian National University Press, 1988), pp.
222-239; "State Taxation and Vertical Fiscal Imbalance, " Issues of State Taxation, ed. (Canberra:
Centre for Research on Federal Financial Relations, Australian National University, 1990), pp.
53-92; and "Reform of Commonwealth-State Relations: 'No Representation without Taxation"'
(Centre for Research on Federal Financial Relations, Australian National University, 1990,
mimeo.).

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 Australian Federalism 9

powers that characterizes the Au

The Commonwealth, on the other h
responsibilities. This opens it up
and to respond too readily to intere
in areas that are primarily the sta
to the states treated as a "balanci
there may be a tendency to cut fu
restraint without due attention t
Under the former Fraser govern
tainty in at least part of their fu
tax revenue sharing. This was aba
replaced with financial assistance
the Commonwealth. These have be
Commonwealth's overall policy of
assist in restructuring the Austra
Ironically, the states have become
because they have been given acc
of having their grants cut and being
isting tax sources, many of which
same time, the states have been co
total Commonwealth payments t
Table 2).

TABLE 2
Commonwealth Payments to the States and Territories
General Purpose vs. Specific Purpose

General purpose Specific purpose

Total
Sm % of total Sm % of total Sm

1985-1986 22,048 62 13,649 38 8,398

1986-1987 23,370 62 14,552 38 8,818
1987-1988 24,096 61 14,869 39 9,227
1988-1989 25,086 54 13,677 46 11,409
1989-1990 26,211 52 13,650 48 12,560
1990-1991 28,057 49 13,978 51 14,079
1991-1992a 29,421 49 14,545 51 14,875

SOURCE: Budget Paper No. 4, 1989-1990 and 1990-1991, a

Paper No. 1, 1990-1991.
aForward estimate.

The fungibility of the tied grants, moreover, is limited by the fact that
a substantial proportion is for programs in which the Commonwealth exerts
either substantial direct control or imposes substantial conditions (e.g., ter-
tiary education, health and hospitals, to an extent roads and increasingly
public housing, and grants to be passed on to local government). Table 3
indicates the relevant orders of magnitude.

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 10 Publius/Fall 1990

TABLE 3
Commonwealth Outlays to Other Governments
Summary Table
($ millions)
1990-1991 1991-1992
1989-1990 Budget Forward
Actual estimate estimate

States and territories

General purpose assistance
General revenue 13,278.2 13,647.8 14,215.2
General capital 365.0 330.2 330.2
Subtotal 13,643.1 13,978.0 14,545.4
Specific purpose assistance
Education 4,867.2 5,561.8 5,972.0
Hospitals 3,420.6 3,701.2 3,919.4
Roads 1,352.2 1,513.2 1,512.9
Housing 963.1 670.5 970.5
Local government general purpose 689.5 711.4 759.5
Other 1,274.7 1,620.7 1,741.1
Subtotal 12,567.3 14,078.9 14,875.4

Total states and territories 26,210.4 28,056.9 29,420.8

Payments direct to local government 110.0 103.2 139.5

Gross payments to other governments 26,320.4 28,160.1 29,560.3

Repayments -514.4 -1,310.8 -2,693.1

Total net outlays to other levels of government 25,806.0 26,849.2 26,867.2

SOURCE: Budget Paper No. 1, 1990-1991.

In their article, Geoffrey Brennan and Jonathan Pincus question whether

the form of grants determines whether a particular grant is contingent on
the recipients' behavior. With the relatively small numbers of parties to grant
transactions, they argue that contingent aspects of grants may be partially,
or even entirely, implicit. Thus, nonmatching block grants may be as condi-
tional in their effect as matching grants. Even general-purpose grants, given
without any formal conditions attached to them, may be implicitly contingent
on the recipients' choosing particular patterns of expenditure.
The acquiescence of the states in the postwar federal fiscal arrangements
together with the dominant intellectual tradition supporting the arrangements
has resulted in there being relatively little Australian literature exploring the
consequences of a more competitive federalism, or probing the actual con-
sequences of competition between the states under existing arrangements.
Philip Grossman's article attempts partly to redress this, with a particular
concentration on the effects of the decision by the Queensland government
in the late 1970s to eliminate death and gift duties. The eventual outcome
was the complete elimination of such taxes by all states, and even by the Com-
monwealth. Grossman's analysis adds to our understanding of this episode,

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 Australian Federalism 11

with a particular focus on the role play

ty of taxpayers."
In recent years, proposals to give t
come tax, or to a broad-based consu
literature,23 and have been given a fill
a major review of intergovernmental a
mining the outcome of the future
economic problems, is likely to be
"national" macroeconomic manageme
So far, the Commonwealth has been
ty to influence state spending because
mining Commonwealth macroecono
the Commonwealth does not need to co
funding of state outlays to achieve t
sionmaking that it has currently. Mo
to accept greater responsibility for
independent revenue sources is likely t
decisionmaking by voters, the media
will be significant restructuring of
be seen, but a rare opportunity exists
and for rebalancing fiscal powers.

Public Sector Borrowing and the Au

In addition to its centralized control o

effectively controls the borrowing cap
(including local governments) throu
Established (informally in 1923, and
ment in 1927) to coordinate public se
capital markets and as part of an arran
the ALC in the postwar period has be
macroeconomic control.24 As Chery
rangements under the aegis of the ALC
mation during the 1980s. Precipitated
ing (quite successfully, at times) to
cedures, the story of the reforms to b
case study of the consequences of at
when those who are controlled face
The new "global limits" arrangemen
monwealth control over state-local b

23See, for example, Cliff Walsh, ed., I

Commonwealth-State Relations: 'No Represen
tion, State of Siege: Renewal or Privatisation f
Pluto Press, 1989).
24W. R. C. Jay, "The Australian Loan Cou
(Summer 1977): 101-117.

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 12 Publius/Fall 1990

significant real reductions in

1980s. They have done so, how
rates have dramatically increa
and the cost of new borrowin
they might be in future year
has gone along with an increas
participation in the provision
Although the degree of Com
not been a major issue recentl
the Loan Council rules, as the
is desirable to the commercialization of state (and Commonwealth)
authorities. A recent and welcome development has been the attempt by in-
ternational "ratings" agencies to draw distinctions between the repayment
capacities of state authorities and those of the Commonwealth, and between
the repayment capacities of authorities in different states. This may be an
essential precondition for granting more freedom to state authorities to bor-
row outside strict ALC limits.

Fiscal Equalization and the Commonwealth Grants Commission

A further distinctive feature of Australian fiscal federalism, and one in
which there has been considerable development and debate during the last
decade, is the extensive system of fiscal equalization. In his review of
Australia's "Fair Go Federalism," American economist Ned Gramlich singled
out the elaborate system of equalization as a distinctive feature, and criti-
cized it on efficiency grounds.25 Russell Mathews, on the other hand, wh
as a member of the Grants Commission was influential in its promotion and
application, defends fiscal equalization as an essential component of
federalism. He argues that "if.. . a systematic basis of fiscal equalization
is an essential condition for a truly federal form of government, Australia
might reasonably be regarded as the most federal of all federations because
it has the most highly developed system of fiscal equalization."26
During the 1980s, the role of the Commonwealth Grants Commission
(CGC) has changed from that of assessing "special" grants to claimant states
which it had in earlier decades, to assessing "per capita relativities" for deter-
mining the allocation of the entire pool of general-revenue grants to the states.
According to its equalization principle, the CGC determines a distribution
which enables each state, using comparable revenue effort, to deliver ser-

25Edward M. Gramlich, "'A Fair Go': Fiscal Federalism Arrangements," The Australian
Economy: A View from the North, eds. Richard E. Caves and Lawrence B. Krause (Sydney:
Allen & Unwin, 1984), pp. 231-274.
26Russell Mathews, "Second Discussant, Commentary on Gramlich 'A Fair Go,"' pro-
ceedings of the Conference, The Brookings Survey of the Australian Economy held on 9-11
January 1984, Canberra, Discussion Paper B6 (Canberra: Centre for Economic Policy Research,
Australian National University, 1985), pp. 15-42; also comments by Cliff Walsh, "First Discus-
sant," ibid., pp. 1-15. For a history of the Commonwealth Grants Commission, see Com-
monwealth Grants Commission, Equality in Diversity: Fifty Years of the Commonwealth Grants
Commission (Canberra: Australian Government Publishing Service, 1983).

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 Australian Federalism 13

vices to residents at a standard not

Put another way, the object of fis
capacity to provide an average level
average level of state taxes and char
the discretion to vary their revenu
penalized by the equalization proce
takes periodic reviews of each state's c
dard services. At the 1988 premiers'
mission would undertake annual upd
of methodology and underlying data a
Because the Grants Commission now determines the relative shares in the
total pool of Commonwealth general-revenue payments, its procedures have
come under increased challenge from economists,27 and from the states-
especially New South Wales and Victoria which, in effect, fund equalization
payments to the less populous states. In preparing its 1986 report, the com-
mission was explicitly requested to report on the impact of its equalization
assessments on allocative efficiency. This reflected a claim by the larger states
that the inclusion of an allowance for "cost disabilities" in the commission's
assessment not only worked to their disadvantage but also distorted the loca-
tion of activity. The commission's view was that, by and large, the effects
on the efficiency of locational decisions were slight and that its overall ap-
proach was generally appropriate to a system of fully equalizing fiscal capaci-
ty. It did concede, however, that its procedures could affect decisions about
priorities within state budgets and that changes to its procedures to minimize
these effects were desirable.28 This has not ended the debate, however, and
among a number of other issues, the commission and Commonwealth and
state governments are currently engaged in a further review of this question.
The Commonwealth, New South Wales, and Victoria are arguing that the
current methodology probably results in over-generous and, therefore, distort-
ing "equalization payments" to the less populous states.

LOCAL GOVERNMENT

The role of local government in the Australian federal system

been less than that in comparable federations. Local government
sible for only about 5-6 percent of public sector outlays-principa
vices to property, but with an increasing emphasis on human service
about 75 percent of its own revenue needs, primarily from local rate
sibility for local government in Australia rests, constitutionally
states, and a detailed account of its role and history has been p

27See Cliff Walsh, ed., Fiscal Equalisation, Allocative Efficiency and State Busi
takings: The Commonwealth Grants Commission 1988 Report on Relativities (Ca
tre for Research on Federal Financial Relations, Australian National University
28Commonwealth Grants Commission, Report on General Grant Relativities 1
(Canberra: Australian Government Publishing Service, 1988) and Report on Gen
Relativities 1989 Update (Canberra: Australian Government Publishing Service,

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 14 Publius/Fall 1990

recently.29
Prior to the Whitlam government
the Commonwealth and local gov
to road funding that was passed
sive system of specific-purpos
monwealth's general-purpose pay
ing the Whitlam period have bee
their distribution between local
through State Grants Commissions
to Local Government Finance (the
government, led to a strengthen
general-purpose funding among
At the same time, however, the
one of its important symbols-th
Relations-which had concentrate
Moreover, a 1988 referendum p
tion in the Australian Constitution
ments. On the other hand, the Haw
of measures to enhance local gov
Commonwealth Office of Local G
folios, which has helped to stimula
Local government has also been i
(to be held in October 1990), wh
Australia's federalism arrangeme

POLITICS AND PUBLIC POLICY

In his 1977 Publius article on "Political and Administrative Trends in

Australian Federalism," R. S. Parker noted a resurgence of academic in-
terest in federalism among political scientists during the 1970s. That had been
stimulated, in large part, by the centralist challenges of the Whitlam Labor
government (1972-1975), which was the first Labor administration to hold
national office since the 1940s, and which had sought to strengthen the role
of local governments and regional organizations vis-a-vis the states. This,
in turn, provoked antagonistic responses from the states and, after the 1975
election, the conciliating "New Federalism" proposals from the Fraser
Liberal-National Coalition government (1975-1983).32 These included a

29Australian Local Government Association and ICL Australia, The Australian Local
Government Handbook (Canberra: Australian Government Printing Service, 1989).
30For a description of their working, see D. V. Moye, "The Work of State Local Govern-
ment Grants Commission," Local Government Finance, Occasional Paper 41, ed. Geoffrey
Brennan (Canberra: Centre for Research on Federal Financial Relations, Australian National
University, 1976), pp. 15-29.
31National Inquiry into Local Government Finance, Report (Canberra: Australian Govern-
ment Printing Service, 1985).
32Dean Jaensch, ed., The Politics of New Federalism (Adelaide: Australasian Political Science
Association, 1977).

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 Australian Federalism 15

limited potential return of income tax

signed to give the states greater certain
sharing and a lesser emphasis on spec
framework of moderate fiscal restraint and continued Commonwealth con-
trol. In this, as in other policy areas, however, the Fraser government's per-
formance fell short of its promise.
During the 1980s, the increased scholarly attention to federalism, particular-
ly to state politics and to intergovernmental relations and the management
of intergovernmental policies, has not been so much in response to federal
conflict or promises of a new federal order, as to an enhanced awareness
of the centrality of federalism and the significance of the states for most
aspects of Australian politics and public policy. The 1980s were exceptional
as an unprecedented decade of Labor government during peacetime, with
the Australian Labor Party winning office during 1982-1983 in Victoria,
South Australia, and Western Australia, as well as nationally. Each of those
Labor governments has won successive elections to date. As well, Labor final-
ly regained office in Queensland in 1989 after thirty-two years in opposi-
tion, won back office in Tasmania in 1989 (albeit as a minority government
dependent on the support of "Green Independents"), and lost only New
South Wales in 1988.
For Labor regimes in both the Commonwealth and state governments, it
has been a decade of working with the established federal system rather than
challenging it in radical ways. The culmination is Prime Minister Hawke's
recent initiative for improving intergovernmental management through "a
closer partnership with the states." State Labor leaders have also been pro-
minent in championing federalism and greater recognition of the vital role
of the states. This is indeed a turnaround for a Labor Party that was for-
mally pledged to the abolition of federalism for most of its history. In a 1957
address, Whitlam had summed up more than half a century of Australian
federal politics as "Labor versus the Constitution." To an extent, his own
government's "New Federalism" was a continuation of that tradition.33
Under Hawke's pragmatic leadership, Australia is experiencing an un-
precedented decade of "Labor working within the Constitution." Hawke's
federalism initiative recognizes that fact and redirects Labor's traditional
reformist bent to its improvement.
As research into the politics of Australian federalism has become more
sophisticated, it has brought out the greater subtleties and complexities of
its operation. One traditional assumption that has been challenged is the sup-
posed uniformity of the Australian states. A recent study of state policies
has shown that, despite the relatively homogeneous character of the

33E. G. Whitlam, On Australia's Constitution (Camberwell, Victoria: Widescope, 1977) and

The Whitlam Government 1972-1975 (Ringwood, Victoria: Penguin, 1985); R. S. Parker, "Plan-
ning Federalism and the Australian Labour Party," Journal of Commonwealth and Comparative
Politics 14 (Winter 1976): 3-18; and J. Rydon, "The Frustrations of Federalism," Australian
Quarterly 47 (Fall 1975): 94-106.

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 16 Publius/Fall 1990

Australian people (there are no reg

and the dampening effect of fiscal
among the states in a range of p
the public ownership of mining in
sent volume, Campbell Sharman
systems in terms of the different
that, in spite of the dichotomizi
state electoral competition is cha
bipartisanship.
Another facet of federalism that is emerging from recent research is its
variability. In a number of comparative studies of Australian and Canadian
health care and legal aid systems, Gwen Gray has shown that federalism per
se has no mono-causal effect in producing predictable patterns of policy out-
comes. It all depends on the dynamic relationships with other key variables,
including political culture and history as well as party and leadership.34 In
his article in this volume, Trevor Matthews shows that the relationship be-
tween federal structure and group cohesion in two peak Australian business
groups is also variable. He argues that the contrasting patterns of cohesion
in the two groups reflects the additional factors of party government in the
Commonwealth and the states, the size and wealth of the group's consti-
tuent units, and internal rules for decision and payoff.

INTERGOVERNMENTAL RELATIONS AND MANAGEMENT

A major focus, both for contemporary scholars concerned with unde

ing Australian federalism and for political leaders concerned with its ref
is intergovernmental relations and the management of intergovernment
grams and policies. Although intergovernmental relations and manag
in one form or another, are as old as Australian federalism, scant at
has been paid to them until recently. Ralph Chapman is an exceptio
his article in this volume provides a new synthesis of ideas about fed
and the interdependent powers of policymaking that it necessarily
A recent extensive study entitled Intergovernmental Relations and
Policy puts Australian intergovernmental relations into comparative per
tive and documents the variable working of intergovernmental relations
a range of policy areas.35
The prime minister's July 1990 announcement of a major review
tergovernmental arrangements appears to mark the beginning of anothe
emphasis-another "new federalism' '-characterized by "manageriali
A resorting of roles and responsibilities, and a push toward reducing so-

34Gwen Gray, "Health Policy in Two Federations." (Ph.D. Diss., Australian

University, 1987) and "Legal Aid: Differences in Policy Formulation," Comparative
Studies: Australia and Canada, eds. Malcolm Alexander and Brian Galligan (Melbo
Longman Cheshire, 1990).
35Brian Galligan, Owen Hughes, and Cliff Walsh, eds., Intergovernmental Relatio
Public Policy (Sydney: Allen & Unwin, 1990).

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 Australian Federalism 17

overlap and duplication and lack

by the prime minister and by pr
comed, developments of official t
overly simplistic view of federalis
division of powers. Such conceptu
plexity that reflect the responsiv
democratic participation through
Reforming the federal system is
has opened up the possibilities of
ment of mutual distrust. The pro
damental changes for the better in
difficult to assess at this early st
it will be important that the review
tion of the virtues of federalism,
the day-to-day workings of the fed
ist among politicians and bureaucrat
has begun to change, but this has no
Second, while much that is wor
review of intergovernmental rel
achievement of sustained improve
arrangements. More fiscally indep
accountable, states should be mor
achieving harmonization and coor
if the peak institutions of intergov
conferences and Loan Council mee
the Commonwealth's current fisca
that flow right through the interg

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