Federalism needs fixing

Reform of Australia’s federal structure is long overdue. The signs are there in areas such as health, education and industrial relations as well as in the parlous financial position of many of the States. Instead of a structure in which each tier of government exercises the powers most appropriate to it, we have a system riven with administrative overlap and buck passing. It is no wonder that Australians are often unsure about who is responsible for even the most basic services.

The Australian Constitution is flexible enough for many problems to be overcome. It enables the States to transfer power to the Commonwealth and co-operative arrangements can sometimes allow for the pooling of power and sharing of responsibility. However, such fixes do not address the underlying problems. These require a longer-term vision.

A central, and understandable, reason for the reluctance to tackle these structural problems is that the Constitution is so hard to change. An amendment must be passed by an absolute majority of both Houses of the Federal Parliament, or by one House twice, and then at a referendum, passed by a majority of the people as a whole, and by a majority of the people in a majority of the states. This process has been invoked 44 times, with only 8 proposals succeeding at a referendum. No referendum has now been passed since 1977, meaning that a whole generation of Australians has grown up without seeing change.

Since the early 1990s, advocacy for constitutional change has focussed upon the idea of an Australian republic. While important, this symbolic shift should not obscure the need for substantive reform in other areas. One such area is our federal structure and whether it provides the best foundation for the Australian economy.

The Australian Constitution has played a significant role over the last 100 years in fostering economic development and growth. For example, section 92 of the Constitution guarantees that “trade, commerce, and intercourse among the States … shall be absolutely free”. As a result of High Court interpretation, the Constitution has also enabled the Federal Parliament to control and regulate the national economy. For example, the Court’s interpretation of the word “excise” in section 90 of the Constitution has given the Commonwealth almost total power over the indirect taxation of goods. Similarly, decisions of the High Court in 1942 and 1957 enabled the Commonwealth to take over the collection of income tax.

These changes reflect the need for a national economy regulated by a central government. However, in other areas the Constitution is still a product of its 19th century drafting. One example is the inability to create a truly integrated national judicial system. Another is that, while the Commonwealth is granted power over trading and financial corporations, it lacks a general commerce power. It has power over “trade and commerce with other countries, and among the States” and not trade and commerce within State boundaries.

The artificial division between the two forms of commerce has been maintained by the High Court. It has meant, for example, that State laws have regulated flights by commercial airlines that take place solely within a State and that separate Commonwealth laws have regulated flights that cross State borders. It is also a reason why Qantas, when a government airline, could not undertake intra-State flights and had to rely upon others to fill this gap.

The idea of drawing a line based in law between inter and intra State commerce made sense in 1901, but not today. Our economy does not now consist of discreet sectors of commerce within each State or even within Australia, but exists within a world of global markets in which there is competition and interdependence with the economies of other nations. In such a world it makes far less sense for Australian businesses to have to comply with different, and possibly conflicting, standards across the nine Australian jurisdictions, let alone different laws according to whether they are engaging in a transaction within a State or across State borders

Some of the urgent problems arising from our federal system, like who has control over health and education, can be resolved through political compromise and accommodated within the constitutional framework. However, few areas are satisfactorily resolved in this way. Attention on areas like health and education should also not mean that we neglect why the problems have arisen in the first place. They are symptoms of a deeper problem.

The legal and political difficulties of reforming Australia’s federal structure are formidable. They include making the referendum mechanism work for the first time since 1977. However, these are issues that must in the long run be addressed unless we are prepared to put up with fractured policy making, further buck passing and other inefficiencies in business and government. Reform does not mean that Australia should abandon federalism, but it does mean that we should examine whether the division of powers agreed to in 1901 is the best model for today.