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Cheryl Saunders: ten principles for reforming federalism

Cheryl Saunders
Cheryl Saunders

The federal government’s Reforming the Federation White Paper process has been “opaque” so far, says Melbourne Law School Laureate Professor Cheryl Saunders AO.

“The discussion paper’s reasoning is inconsistent and too opaque to encourage the public comment it purports to seek,” she thinks. “It does not lead to clear conclusions, or even clear choices, leaving outcomes to horse-trading at best.”

Discussing the ten principles for reform of the federation with journalist Jonathan Green at the John Button Oration on Tuesday night, Saunders appeared pessimistic about the process:

“I’m not confident the green paper is necessarily moving in the right direction, because I think it’s too bureaucratic,” she stated.

“I think the discussion paper is difficult to engage with. I know that they’re asking for submissions and I know I looked at that and I thought, ‘I wonder where anybody would start’.”

Saunders, one of the nation’s foremost constitutional experts, was also critical of the way many public leaders were dismissive of the challenge of enhancing democracy, focusing instead on narrow technocratic questions.

“If you really want better services and if you really want fairness and all of these other things, our commitment in a democratic state is to democracy as being able to deliver those things, you don’t need to start with a bureaucratic approach. You should start with the people who give legitimacy to the government and in turn are owed accountability.”

‘A revolution most other federations manage to put up with’

Although Treasurer Joe Hockey has launched a new campaign to convince the states to accept strengthening the GST on the grounds that states should raise the taxes they spend, Saunders told the audience Germany had instead decided to accept vertical fiscal imbalance — where the central government must hand money it raises to sub-national governments — as a part of life.

Indeed, as Saunders pointed out, even the initial framers of the Constitution set up a fiscal imbalance in 1901.

“As best as possible, the revenue-raising capacity of each tier of government should be aligned to responsibilities of funding and service delivery,” the Australian Financial Review reports Hockey’s speech notes for a PwC tax forum as saying.

“Our current federal system clearly fails this objective. Because of the high concentration of revenue-raising capacity at the federal level, vertical fiscal imbalance is higher in Australia than in other federations,” thinks the Treasurer.

But Saunders says that although the imbalance between taxing and spending powers makes the states look like “mendicants” begging the Commonwealth for money, “in itself it’s not the most important thing.”

Discussing what she sees as “the dominant theory in Australia, that if you’re talking about representative democracy, taxing and spending go together”, Saunders argued:

“If we are unable to get out of that mindset, and maybe we are, then the only way of dealing with this problem is by giving the states more access to tax sources. Someone said to me on radio today, ‘that would be revolutionary!’ Well, it’s a revolution most other federations manage to put up with. In the Australian context it would be unusual, but it’s not impossible.

“The other possibility however is to do what the Germans did and say, ‘it suits us as a people to have one level of government do much of the taxing.’ It means that, heaven knows our income tax forms are complicated enough, but they’re not further complicated by having another little state section.”

This would involve a conversation about recognising that the federal government was “taxing for two, and some of its moneys aren’t its moneys, they belong to the others”. This in turn would require “a system for ensuring the others get it,” Saunders added.

“Not because ‘poor things they need to be bailed out’, but because they have responsibilities to us to run education, health, urban infrastructure and all those other things that actually cost a lot of money and are the responsibility of the government that doesn’t have the taxing power.

The Constitution includes a section stipulating that “the Commonwealth may provide, on such basis as it deems fair, for the monthly payment to the several states of all surplus revenue of the Commonwealth.”

Although “of course the Commonwealth made sure from 1908 that there was no surplus, so that was the end of that section,” Saunders argues that this demonstrates the principle that, once the Commonwealth has spent money on Commonwealth own-purpose functions, the remaining revenue is supposed to belong to the states.

Hyperexecutive federalism

Saunders emphasised executive overreach as one of the key governmental issues in Australia.

“Federalism as it presently operates tends to concentrate an enormous amount of power in the executive branch”, she stated.

“I sometimes laugh when I see us putting our hands over our hearts and saying we believe in constitutional government. I think the one part of government that actually departs quite a long way from the Constitution at the moment is the federal system, which was actually the purpose of having the Constitution in the first place. It’s true that we have departed from the original model and I think we should think about how that’s happened as we go through the principles.”

Intergovernmental fora such as the Council of Australian Governments — the next leaders’ meeting of which will discuss federalism reform on July 22-23 — had contributed to a sapping of parliamentary power, she said.

“Our federation relies very heavily on both levels of government — but with the Commonwealth a very dominant figure — getting together in executive meetings to make decisions about what should happen in everything from education to health to homelessness to windfarms to whatever.

“Those decisions become a fait accompli. If they go back to a parliament at all, the parliament must agree because it’s been agreed by a faceless committee, in essence. That whole process of intergovernmentalism, headed by COAG but with plenty of levels down below, is a big contributing factor to what I sometimes call hyperexecutive federalism.”

Saunders also highlighted the ad hoc nature of COAG.

“Our system for intergovernmental cooperation has just grown by itself, without any particular structure being built into it. The idea that governments get together in a council and each council makes up its own voting rules and it’s really a club where you all get together and make decisions and you don’t necessarily need to account to your parliament or your people for what went on. It’s just sort of happened exponentially,” she argued.

“If we now take the opportunity to stand back from the system, we might say to ourselves, they will need to collaborate in our interests on a whole range of matters. But can’t we do the collaboration better? Can’t we first of all think, why do we need to collaborate on this particular matter, what are we trying to achieve, and is the form of collaboration that is best for that? Do you want this kind of deep uniformity … or do you want just an exchange of views, so you both know what’s going on.”

Increasing transparency in intergovernmental fora would be an important way of increasing accountability, she added. “How do you deal with the fact that there might be a spoiler? Well not by covering it up. The best way to deal with spoilers is to get it out in the open — say ‘guess what, this was the plan, let’s explain it to you — and they wouldn’t agree!’ You never get that.”

On the prospect of constitutional alterations, Saunders said she believed much reform could be achieved with the Constitution as it stands.

“Everything that we’ve talked about tonight could be done without constitutional change, even though the Constitution provides some sort of guide to thought. I also think that it could be done with constitutional change. If somebody had a good enough vision and that vision was a democratic vision so it attracted the interest and enthusiasm of the Australian people, this could be an occasion on which constitutional change was effective. But it’s not essential. We can do it without it.”

Reforming federal democracy: ten principles

The oration was structured around the ten points for reforming the federation developed by Saunders in conjunction with former Melbourne Law School Dean Michael Crommelin and published in their paper Reforming Australian Federal Democracy:

  1. The purpose of federalism reform should be to invigorate and enrich Australian democracy.
  2. In Australia, democracy is organised through different levels of government, each of which derives limited authority to govern from the Australian people, or a segment of them, to whom it is accountable.
  3. Democratic accountability relies on the elected Parliaments of the Commonwealth and the states and territories, in which public deliberation on significant decisions can take place and through which transparency can be secured.
  4. The Australian Constitution confers limited authority on both the Commonwealth and state levels of government having regard to which level of government is more appropriate to do what.
  5. Dealings between levels of government must be conducted with the mutual respect, trust and good faith that are due to democratically elected representatives of the Australian people.
  6. Intergovernmental collaboration is an integral part of Australian federal democracy when properly used; it should be undertaken only for purposes that are clear and publically justifiable by reference to a specific need, using mechanisms that are consistent with democratic principle and practice.
  7. The Australian Constitution provides authority to the Commonwealth level of government to raise the public revenues that are required not only to meet its own constitutional responsibilities but also to assist the states to meet theirs.
  8. Each State is accountable to the people of the state for the expenditure of public moneys derived from public revenues raised by the Commonwealth but surplus to its own constitutional responsibilities.
  9. Australian federal democracy recognises a principle of solidarity that requires horizontal sharing of public revenues to redress substantial economic disparities among states and territories.
  10. The values of the composite concept of Australian federal democracy apply also in relation to other levels of Australian government, including indigenous self-government, local and city government and territory government.

Read more at The Mandarin: Michael Keating: the future of federalism

Author Bio

David Donaldson

David Donaldson is a journalist at The Mandarin based in Melbourne.