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Fiscal balance must prevail

By David Flint - posted Friday, 14 September 2007


One policy which has dominated the court since 1920, and for which there was no constitutional authority, is centralism, once disguised as an objective exercise in literalist interpretation. This began as long ago as 1920 in the decision of the High Court in the Engineer’s Case.

The Court has continued this trend over the years, and most recently in the majority decision in the WorkChoices Case. Whether or not we agree with the changes made in the Howard Government's industrial legislation, it is difficult not to be concerned as to claimed bases of constitutional authority upon which the legislation is based and the consequences of this decision on the future of the federation.

In this case, three decades after it had decided that there were no real limits to the appropriations power, and two decades after it effectively decided there were no limits to the external affairs power, the court came to a similar conclusion about the corporations power. Only Justices Kirby and Callinan dissented, but there is a good argument made by Julian Leeser that had the states and territories argued that crucial earlier cases were wrongly decided, the decision could have been different. (Only a High Court at its most adventurist would come to a conclusion which had not been argued before it.)

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No one could seriously say that this vast expansion of federal power was the intention of the founders, or that it reflects the wishes of the Australian people. But the majority of court found that the wishes of the people, evidenced by failed referenda, were irrelevant in interpreting the Constitution. So much for the proposition that sovereignty under our Constitution is vested in the people.

Professor Greg Craven observed that as a result of WorkChoices, "the states should be in absolutely no doubt" that this decision "is a shipwreck of Titanic proportions. Not since the 1920s has the court struck such a devastating blow against Australian federalism …"

That this should worry conservative constitutionalists is well explained in the dissent of Justice Callinan. That this should also worry conservative politicians and their supporters was demonstrated when P.P. McGuiness warned that this decision could and probably would work both ways. Perhaps Julian Leeser is right with his argument that the states and territories did not want to win the constitutional case in Work Choices.

The advantages of federation

Professor Walker has enumerated ten advantages of federation: the right in the citizen of choice and exit, the possibility of experiment, the accommodation of regional preferences and diversity, participation in government and the countering of elitism, the better protection of liberty, the closer supervision of government, stability, fail-safe design, competition and efficiency, and the resulting competitive edge for the nation.

Some of those advantages were also noted in the recent Business Council of Australia report on federalism. They were stressed in the recent report by Dr Anne Twomey and Professor Glenn Withers to the newly formed Council for the Australian Federation, which brings together all state and territory governments. They say that by focusing too much on the problems in the operation of the federal system, we may forget about the benefits of federation, including checks on power, choice and diversity, customisation of policies, competition, creativity and co-operation.

The media had unfortunately concentrated on only one aspect of the BCA report, the cost of inefficiencies in the federal system. These were estimated at $9 billion in 2004-2005, or $450 per Australian, but the fact that this was highly qualified in the report was either played down or just ignored. So the deformed and simplistic message the public received was that if the states were abolished, a vast amount of money would be saved.

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This is not at all so. The authors of the CFAF report point to an OECD study which found that federations had a 15.1 per cent advantage in increased income over unitary states. They also measured the benefit on incomes of fiscal decentralisation. This averages at 6.79 per cent, but in the most fiscally decentralised federations, Canada, Germany and Switzerland, this rises to 9.72 per cent. The report found what we all suspected: Australia is the most fiscally centralised of the OECD federations, its states and territories raising only 19 per cent of taxes but being responsible for 40 per cent of public spending. This, of course, is appalling, and is at the explanation for the poor performance of our state and territory governments.

The CFAF report found that the benefit in increased income to Australia from being a federation is already 10 per cent; and that this could be raised significantly by further decentralising our taxation system. The result, they believe, would be to raise average incomes by $4,188 per annum.

Now that would be a considerable gain. It can only be achieved if we restore the federation, and not if we abolish it. Abolition would result in the costly inefficiencies centralised states experience, magnified by the physical size of our vast nation.

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This article is based on “The High Court’s Workplaces Decision: Implications for our Federal System” published in the quarterly, the National Observer, Number 72, Autumn, 2007.



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About the Author

David Flint is a former chairman of the Australian Press Council and the Australian Broadcasting Authority, is author of The Twilight of the Elites, and Malice in Media Land, published by Freedom Publishing. His latest monograph is Her Majesty at 80: Impeccable Service in an Indispensable Office, Australians for Constitutional Monarchy, Sydney, 2006

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