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Chapter 3: New Federalism and new intergovernmental bodies

• ‘New Federalism’
  • Whitlam
  • Fraser
• Hawke’s New Federalism
  • The aims of Hawke’s New Federalism
  • The significance of intergovernmental bodies
  • The 1990s Special Premiers Conference
• The Council of Australian Governments
  • Keating
  • Howard
• The Leaders’ Forum
• The Treaties Council
• Ministerial Councils
• Tables
  • Heads of Governments meetings under 1990s New Federalism
  • The development of 1990s New Federalism
  • National policy making
• Endnotes

3.0 This chapter presents a history of three New Federalisms. It focuses particularly on the New Federalism pursued by the Commonwealth Government under Prime Ministers Hawke and Keating, and on the intergovernmental bodies which have developed out of that New Federalism. These new intergovernmental bodies have played a central role in the changes to the Australian federation that have taken place in the 1990s. The following two chapters will discuss the particular policy areas in which change has been pursued, and consider the nature of the changes that have come about.

‘New Federalism’

Whitlam

3.3 This growth in Specific Purpose Payments represented a greatly enhanced Commonwealth role in such areas of traditional State activity as health, education and urban and regional development. The Commonwealth Government established a number of commissions to plan and supervise the expenditure of these Specific Purpose Payments, arguing that, as the Commonwealth was raising the revenue being expended, so it had a responsibility for monitoring that expenditure.

3.4 This New Federalism was opposed by most State Governments of the time as a centralist restriction on their financial and policy autonomy.²

Fraser

3.6 During the first stage, the States were to receive a direct share of personal income tax received by the Commonwealth. Such a guaranteed share would give the States access to a significant growth tax. The States’ share was specified to be the ratio of 1975-76 income tax collections to 1975-76 Financial Assistance Grants. This ratio was calculated and applied as 33.6%, although subsequent verification revealed the true ratio to be 33.3%.³ In October 1977, the Premiers Conference agreed to alter the States’ share of income tax, to 39.87% of the previous year’s income tax collections.⁴ This alteration enabled the States to better plan their budgets, without concern for a possible shortfall in estimated Commonwealth tax collections.

3.7 This arrangement was combined with a guarantee that no State would receive less than the amount which would have been payable under the Whitlam Government’s State Grants Act 1973-75. This Act had provided for significant increases in Financial Assistance Grants. By 1979-80 all States were receiving the guaranteed amounts, rather than the amounts the first stage arrangements would have yielded. A new arrangement was therefore reached at a June 1981 Premiers Conference, which agreed to apply, from 1982-83, a factor of 20.72% to total Commonwealth tax collections of the previous year, to determine the level of Financial Assistance Grants.

3.8 Increases in Financial Assistance Grants received by the States under the first stage barely kept pace with the rate of inflation. Between 1976-77 and 1982-83, General Revenue Assistance grew from 5.8% to 6.2% of Gross Domestic Product. Over the same period, Specific Purpose Payments declined from 4.6% to 3.5% of Gross Domestic Product.⁵

3.9 During the second stage, the States were to be given the power to impose an income tax surcharge, or to return a tax rebate, within each of their jurisdictions. However, the Commonwealth did not alter it own rates of income tax, nor did it reduce the level of Financial Assistance Grants, and no State implemented such a regime. The Government of New South Wales, under Nick Greiner, had been considering the introduction of an income tax rebate in the late 1980s, but the legislation implementing this second stage – the Income Tax (Arrangements with the States) Act 1978 - was repealed by the Commonwealth in 1989.

3.10 Other elements of Fraser’s New Federalism included:

• an equalisation formula to ensure that less populous States would not be at a disadvantage;
  

• a Council for Inter-Government Relations, comprising members from all levels of government to look into problem areas and responsibilities;
  

• a Minister for Federal Affairs, to improve co-operation and consultation between State and Local Governments.

3.11 Overall, Fraser’s New Federalism failed to grant to the States adequate financial autonomy.

Hawke’s New Federalism

The aims of Hawke’s New Federalism

• the creation of a more integrated and cohesive single economic market;
  

• the provision of a more flexible and decentralised delivery system for economic and social programs;
  

• the enhancement of the ability of governments to make joint decisions;
  

• the maintenance of a balance between competition and co-operation.

In Australia, these goals have been characterised as microeconomic liberalisation, and as reform of Commonwealth and State roles and responsibilities, including federal fiscal relations.

3.14 These goals are reflected in the agenda that was put forward in two speeches delivered in July of 1990 to the National Press Club. The Prime Minister’s speech - “Towards a Closer Partnership”⁸ - set in motion his first Special Premiers Conference:

The time has come to form a closer partnership between our three levels of government – Commonwealth, State and local.⁹

For over a decade, government has been telling industry that it must restructure if Australia is to compete successfully in international markets. . . Now it is government’s turn. Business leaders are asking why, after they have been forced to take the tough decisions, must they put up with failing infrastructure, uncompetitive utility charges and excessive and duplicative regulation? After more than a decade of being lectured by politicians, the nation is saying to the governments of Australia, “Physician, heal thyself!”¹¹

The significance of intergovernmental bodies

3.17 Changes were therefore necessary, both to enable intergovernmental relations to produce the desired public policy results, and to improve the ability of intergovernmental institutions to function effectively in an ongoing way. Unlike previous New Federalisms, Hawke’s New Federalism had a focus on mechanisms of intergovernmental co-operation, commencing with a Special Premiers Conference in October of 1990.

3.18 In developing Australia’s mechanisms of intergovernmental relations, Australian governments took advantage of the full range of instruments available to them. Techniques were adapted from past practice in Australia, as well as from abroad. Australian governments were open to the examples of innovative decision-making procedures set since the mid-1980s by the European Community.

3.19 In a paper submitted to this Committee at a meeting in Brisbane, The Hon Wayne Goss stated that:

I hosted the first meeting of that body [the Special Premiers Conference] in Brisbane in late 1990. Under Prime Minister Keating it was renamed the Council of Australian Governments.

This forum has performed an invaluable role since its inception in delivering key reforms to the Australian economy and the Australian community and it has been achieved by negotiation and by agreement rather than High Court decisions or the Commonwealth using its financial power.¹²

The 1990s Special Premiers Conferences

3.21 Following a particularly acrimonious Financial Premiers Conference in June of 1990, Prime Minister Hawke stated his commitment to improving intergovernmental decision-making. Hawke’s first step was to propose a number of procedural changes to the Premiers Conference itself, intended to reduce its ad hoc nature, and to allow consideration of options and greater preparation prior to the meetings. Unlike at previous Financial Premiers Conferences, at which the States received the Commonwealth offer the morning of the Conference,¹⁵ details of the Commonwealth offer to the States were distributed two days ahead of the May 1991 Financial Premiers Conference.¹⁶

3.22 Hawke’s second step was to convene a new series of Special Premiers Conferences, with himself as Chair. These new meetings allowed the Heads of Government to deal with a broader and longer term agenda concerning the state of the federation, while discussion at Financial Premiers Conferences was henceforth to be confined to short term financial matters.

3.23 These developments were recounted to the Committee by The Hon Wayne Goss, who participated in them as Premier of Queensland:

I went to my first Premiers financial conference in April 1990. I had been in government for only three or four months. Bob Hawke was my good mate and he said, “Come to Canberra”. At 7 o’clock on the morning of the Premiers Conference they pushed the offer under the door. Partly because I have a bit of Irish heritage and am fairly stroppy most of the time anyway, afterwards I went off my brain at Hawke and so did Nick Greiner and Bob said he would have a look at it. He did have a look at it and at the Premiers Conference he made his speech. I think Bob was on the lookout for a new idea and the Special Premiers Conference was a positive idea.¹⁷

3.25 The two Special Premiers Conferences dealt with an agenda of more than a dozen items, covering both microeconomic liberalisation and reform of Commonwealth-State fiscal relations and roles and responsibilities.

3.26 The opening words of the communique issued at the conclusion of the first Special Premiers Conference constitute one of the most complete statements of the mutual objectives of the Heads of Government:

Leaders and representatives acknowledged that past inefficiencies can no longer be tolerated and that changes are needed to make the Australian economy more competitive and flexible. An internal part of any micro economic reform strategy is a more effective public sector. Leaders and representatives therefore declared their intention to use this unique opportunity to maximise co-operation, ensure a mutual understanding of roles with a view to avoidance of duplication and achieve significant progress towards increasing Australia’s competitiveness.¹⁸

3.28 The Committee heard an account of this States-only meeting from The Hon John Bannon, who was Premier of South Australia at the time:

The internal problems of the [Commonwealth] Government caucus virtually immobilised the Prime Minister and resulted in the aborting of a very important Special Premiers Conference which was due to be held in Perth at the end of 1991.

The interesting thing that happened was that we, the State leaders, decided to have our own without the Commonwealth and just see what we could do because we did not want to see this process start collapsing. It was too important to be either deferred while the Commonwealth sorted out their leadership problems or indeed sabotaged by Commonwealth attitudes. In consequence, we met here in Adelaide as it happened in November 1991 and again, perhaps more importantly than the issues we discussed - and they were substantial - was the demonstration that there were things the States could actually do together that did not always need the Commonwealth and could be very productive in terms of federal and State national activities.¹⁹

• The Australian nation principle: all governments in Australia recognise the social, political and economic imperatives of nationhood and will work co-operatively to ensure that national issues are resolved in the interests of Australia as a whole;
  

• The subsidiarity principle: responsibilities for regulation and for allocation of public goods and services should be devolved to the maximum extent possible consistent with the national interest, so that government is accessible and accountable to those affected by its decisions;
  

• The structural efficiency principle: increased competitiveness and flexibility of the Australian economy require structural reform in the public sector to complement private sector reform: inefficient Commonwealth-State divisions of functions can no longer be tolerated;
  

• The accountability principle: the structure of intergovernmental arrangements should promote democratic accountability and the transparency of government to the electorate.²⁰

3.30 All three of these Special Premiers Conferences were attended not only by the Heads of Government themselves, but by some of their cabinet colleagues, and numerous senior officials. These senior officials were drawn principally, but not exclusively, from the Commonwealth Department of Prime Minister and Cabinet, and the State Departments of Premier and Cabinet. A steering committee of senior officials met more frequently between Special Premiers Conferences, and Ministerial Councils and Working Groups of officials were mandated to consider issues and report back to the Heads of Government.

The Council of Australian Governments

Keating

3.32 Keating convened his first Heads of Government meeting in May of 1992. It was called a ‘Heads of Government’ meeting rather than a Special Premiers Conference, distinguishing it from the meetings chaired by his predecessor. That meeting reached agreement to create a more formal Council of Australian Governments.

3.33 The Council of Australian Governments was to include the Prime Minister, the six State Premiers, the Chief Ministers of the Northern Territory and the Australian Capital Territory and the President of the Australian Local Government Association. It was agreed that the Council of Australian Governments would meet at least once a year, and would have the following role:²¹

• increase co-operation among governments in the national interest;
  

• pursue reforms that aim to achieve an integrated, efficient national economy and single national market;
  

• continue the structural reform of government and review of relationships among governments;
  

• consider other intergovernmental or whole-of-government issues.

The Council of Australian Governments quickly established itself as the pinnacle of, and the management forum for, all Australian intergovernmental relations, at least until 1996.

3.34 The first meeting of the Council of Australian Governments took place in December of 1992. Prime Minister Keating chaired four more such meetings between the March 1993 election in which his government was returned to office, and the March 1996 election in which his government was defeated. These meetings were held in June of 1993, February of 1994, August of 1994 and April of 1995, and (like the Special Premiers Conferences) were the culmination of an extensive set of Ministerial Council and senior officials meetings.

3.35 In certain respects, the scope of the agenda of the Heads of Government and Council of Australian Governments meetings was less broad than that of the Special Premiers Conferences. The Special Premiers Conferences had treated reform of Commonwealth-State fiscal relations and roles and responsibilities as a single issue. Under Keating’s chairmanship they became separated, and devolution of fiscal responsibility from the Commonwealth to the States was taken off the agenda.

3.36 However, there continued to be a large number of individual items for discussion, with new issues being added. The High Court decision in the Mabo case²² resulted in the June 1993 meeting being dominated by the issue of native title. The Commonwealth Government also added the issue of constitutional reform and the creation of an Australian republic.

3.37 As well as these changes to intergovernmental bodies, many changes initiated under Hawke’s chairmanship were completed. A great deal of microeconomic liberalisation took place, and changes occurred in selected policy fields, such as environmental protection. There was no significant change in the areas of Commonwealth-State fiscal relations and responsibility for social policy and programs.

Howard

3.39 The meeting held in June of 1996 came back-to-back with the Financial Premiers Conference. This was something which Howard’s predecessors had avoided, and it resulted in short-term financial issues spilling over onto the Council of Australian Governments agenda.

3.40 Under Prime Minister Howard, the Council of Australian Governments has covered a broad range of issues. Continuing agenda items have included environmental protection, gas pipeline access and health care. Changes which have taken place in these policy areas have been natural extensions of earlier developments. Other issues have included native title, illicit drugs, gun control and marine safety. Perhaps most significantly for the States, in 1997 the Commonwealth Government returned the issues of taxation and federal fiscal relations to the Council of Australian Governments agenda.

The Leaders’ Forum

3.42 The Leaders’ Forum has discussed Commonwealth-State and national issues, including the progress of the Council of Australian Governments agenda. These discussions allow the State and Territory Heads of Government to develop joint positions on national issues, and to advance the position of the States in negotiations with the Commonwealth.

3.43 The Leaders’ Forum has also dealt with a variety of issues in state jurisdiction alone, including policy areas in which consistency between states is desirable, such as the regulation of non-bank financial institutions.

The Treaties Council

3.45 The Treaties Council met for the first time in November of 1997. The Council has not met since then. The agenda included four treaties and one other international instrument. Four of these were discussed: the Draft Optional Protocol to the Convention on the Rights of the Child on the Sale of Children, Child Prostitution and Pornography; the World Trade Organisation Agreement on Government Procurement; the Draft Declaration on the Rights of Indigenous Peoples; and the Convention to Combat Desertification.

3.46 The first meeting resulted in requests for information or commitment to ongoing consultation. The Commonwealth was requested to provide further information on the World Trade Organisation Agreement on Government Procurement, and each jurisdiction undertook to analyse the economic and administrative costs and benefits which would result from accession to the treaty. The Commonwealth committed itself to regular consultation with the States on the Draft Declaration on the Rights of Indigenous People, and to continuing inclusion of State officials in Australian government delegations to the Working Group on Indigenous Populations.

3.47 Anne Twomey, a senior officer of the New South Wales Department of Premier and Cabinet, remarks that:

Even though it meets rarely, the Treaties Council can be effective purely through its existence. One official remarked to me that the mere threat of placing a treaty on the Treaties Council agenda resulted in significantly improved co-operation from the relevant Commonwealth Department.²⁴

Ministerial Councils

Ministerial councils have long played a role in relations between the Commonwealth Government and the governments of the states and territories. They are one of the intergovernmental mechanisms that have contributed to the survival of the federal system in Australia.²⁵

3.50 First, a review of Ministerial Councils by the Council of Australian Governments resulted in an express rationalisation of their role and use.²⁶ The number of Ministerial Councils was reduced from 45 to 21, and a protocol was established, together with a set of principles for their ‘efficient and effective operation’.

3.51 The protocol covers, among other things:

• who can be represented;
  

• how agendas are formed;
  

• liaison with other councils and Local Government.

3.52 The principles cover:

• where and when Ministerial Councils should meet;
  

• how the field of coverage of each Ministerial Council is to be determined;
  

• a requirement for regular reviews of Ministerial Council decisions and their implementation;
  

• ways to prevent excess growth of subcommittees;
  

• the role of both Local Government and New Zealand representatives.

3.53 The second change has been more far-reaching. In a number of cases, State and Commonwealth Governments have agreed on a formal decision-making role for Ministerial Councils. Each Ministerial Council’s decision-making functions are set out in a formal intergovernmental agreement, which has been given legal standing through legislation passed by the Commonwealth Parliament and the State and Territory Parliaments.²⁷ This legislation makes the Ministerial Council decisions binding on both State and Commonwealth Governments.

3.54 In most cases the agreement establishing the decision-making mandate for a Ministerial Council also establishes voting rules. These rules provide for majority decisions binding on all parties. The nature of the majority required varies from agreement to agreement. The various types of majority include: a simple majority (fifty percent or more); a qualified majority (most often two-thirds); a simple majority of weighted votes (for example, on the Ministerial Council for the Australian National Training Authority, the Commonwealth gets two votes plus the casting vote).

3.55 Binding decision-making by majority voting preserves intergovernmental collegiality, while permitting decisions to be made which go beyond the consensus agreements usually produced by non-binding procedures. Decisions may be taken which meet the needs of a majority (or ‘supermajority’) of the parties without necessarily satisfying all of them. While there is no evidence of votes actually occurring in Australian Ministerial Councils, the fact that they can occur is likely to have changed the behaviour of governments.

3.56 Voting rules in intergovernmental bodies are not new to Australia: they have been in place for the Australian Loan Council since its inception in 1927. But it is only in the 1990s that they have been adopted anew.²⁸

3.57 These joint decision-making institutions contrast with the Heads of Government meetings. Except when meeting as the Australian Loan Council, Australian Heads of Government operate by consensus decision-making. Each decision which is taken, and each intergovernmental agreement which is reached, is a political commitment, which must be backed up by an Order-in-Council or legislation within each jurisdiction if it is to acquire legally binding force.

Tables

Heads of Government meetings under 1990s New Federalism

Meeting

Date

Government in Office

Commonwealth

NSW

Vic

Qld

WA

SA

Tas

NT

ACT

October 30^th-31^st 1990

ALP

Liberal

ALP

ALP

ALP

ALP

ALP

CLP

Liberal

Special Premiers Conference

July 30^th-31^st 1991

ALP

Special Premiers Conference

November 21^st 1991

Premiers Meeting

April 26^th 1992

Liberal

Heads of Government Meeting

May 11^th 1992

ALP

Council of Australian Governments Meeting

December 7^th 1992

Liberal

Liberal

ALP

Council of Australian Governments Meeting

June 8^th-9^th 1993

Liberal

Council of Australian Governments Meeting

February 25^th 1994

Liberal

Leaders' Forum

July 29^th 1994

Council of Australian Governments Meeting

August 19^th 1994

Leaders' Forum

November 25^th 1994

Leaders' Forum

February 24^th 1995

Liberal

Council of Australian Governments Meeting

April 11^th 1995

ALP

Leaders' Forum

November 3^rd 1995

CLP

Leaders' Forum

April 12^th 1996

National

Liberal

Council of Australian Governments Meeting

June 14^th 1996

Liberal

Leaders' Forum

September 27^th 1996

Leaders' Forum

March 7^th 1997

Liberal

Leaders' Forum

October 31^st 1997

Council of Australian Governments Meeting

November 7^th 1997

Treaties Council

November 7^th 1997

Leaders' Forum

March 19^th 1998

Commonwealth Government

Intergovernmental institutions

Microeconomic liberalisation

Fiscal relations and program roles and responsibilities

(1990-91)

Series of Special Premiers Conferences

National Road Transport Commission

Working groups on tax powers and tied grants

(1991-93)

Rationalisation of Ministerial Councils

Uniform credit laws (States only)

Intergovernmental Agreement on the Environment

(1993-96)

Agreement on standard setting by intergovernmental bodies

Framework agreements on gas and water

New financial agreement (Loan Council)

Howard Government

Establishment of Treaties Council

National Gas Pipeline Access Agreement

Area of policy development

Participating governments

Type of Legislative Scheme

Ministerial Council

Agency

Companies and securities

Commonwealth and States

Adoption of uniform Commonwealth template (Commonwealth and all States)

Ministerial Council for Corporations

Australian Securities and Investments Commission

Competition

Commonwealth and States

Adoption of uniform Commonwealth template

National Competition Council

Disabilities services

Commonwealth and States

Complementary

Environmental protection

Commonwealth and States

Co-operative

National Environmental Protection Council

National Environmental Protection Council Committee

Food standards

Commonwealth and States

Australia-New Zealand Food Standards Council

Australia New Zealand Food Authority

Mutual recognition

Commonwealth and States

Referral of powers to Commonwealth (New South Wales, Queensland and Tasmania)

Non-bank financial institutions

States

Adoption of uniform Queensland template

Ministerial Council on Financial Institutions

Australian Financial Institutions Commission

Rail transport

Commonwealth and States (shareholders)

National Rail Corporation

Road transport

Commonwealth and States

Co-operative

Australian Transport Council

National Road Transport Commission

Training

Commonwealth and States

Complementary

Ministerial Council on the Australian National Training Authority

Australian National Training Authority