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Executive summary

Chapter 1: Canada

0.2 The Canadian Parliament has two chambers: the House of Commons and the Senate. Members of the House of Commons are popularly elected while Members of the Senate are appointed by the Government. Senate seats are distributed on a regional basis.

0.3 Canada has a strong tradition of provincial autonomy. Most provincial legislative powers are exclusive, not concurrent with those of the federal parliament. The desire for provincial autonomy is particularly strong in Québec.

Observation 1:

Dynamics of federalism

The Federal-State Relations Committee found that intergovernmental relations issues confronting Canadian Members of Parliament and those involved in the political system resonated with their own concerns as Members of Parliament, and as expressed in the Committee’s Second Report.

However, direct comparison should be tempered by an acknowledgment of several differences between Canada and Australia, which include:

• The possibility of secession by Québec;
  

• The proximity of the United States as a major cultural and economic power;
  

• Progress in reconciliation with indigenous peoples; and
  

• The greater legislative and fiscal powers of the provinces.

0.4 The Canadian Constitution allows the provinces to levy personal and corporate income taxes, and sales taxes, for the purpose of raising provincial revenues. Most provincial income taxes are collected on the provinces’ behalf by the federal tax collection agency. A number of provinces have also harmonised their sales taxes with the federal Goods and Services Tax.

0.5 Canada experiences a low degree of vertical fiscal imbalance. Fiscal transfers from the federal government to the provincial and territorial governments are largely unconditional. An equalisation programme assists fiscally weaker provinces.

Observation 2:

Federal financial arrangements

In Canada both the Federal Government and the Provinces have broad tax powers, with most major taxes being shared.

With the exception of Québec, taxes are administered centrally by Revenue Canada, under a system of “piggy-back” taxation.

This arrangement promotes provincial financial autonomy without the burden of excessive administrative costs arising from federal-provincial duplication.

0.6 Canada has an extensive intergovernmental network of consensus decision making. Intergovernmental relations are conducted primarily at the executive level, through regular ministerial meetings. These meetings occur at a federal-provincial level and at the inter-provincial level. The Canadian Intergovernmental Conference Secretariat provides administrative and support services to these intergovernmental meetings. In most Canadian governments intergovernmental relations receive political support from a Minister of Intergovernmental Affairs.

Observation 3:

Intergovernmental institutions

Intergovernmental relations in Canada reflect a strong provincial identity and the need to seek out the national and regional interest. Intergovernmental relations in Canada are focussed on an extensive range of meetings (provincial-provincial, federal-provincial) and multi-lateral activity. A permanent conference secretariat exists to provide a neutral support for all governments involved and to facilitate meeting organisation. This dynamic range of meetings is promoted by a high level Minister for Intergovernmental Affairs at the federal level and in six of the Provinces.

0.7 Recent developments in Canada have focused on rebalancing federal-provincial relations and changing fiscal transfers. Following the failure of recent attempts at constitutional reform, the federal government has sought to gradually bring about national unity with non-constitutional adjustments to the federal-provincial relationship. The provinces have also initiated change in reaction to cuts in federal fiscal transfers and have pursued their own policy of rebalancing.

0.8 The federal government initiated a programme of “Renewing the Canadian Federation” which proposed limitations on the federal government’s spending power; a review of existing cost-shared programmes for effectiveness and efficiency; addressing issues of overlap and duplication; and a review of Canada’s economic union and inter-provincial free trade. Additional reform to the federal-provincial relationship was initiated by the provinces themselves.

Observation 4:

Role of the States in the federation

The 1990s saw in Canada the establishment of a number of intergovernmental agreements. This was motivated by a need to reassert the viability of the federal system after failed attempts at constitutional reform. Particular efforts have been made in the areas of overlap and duplication (eg environment policy) and federal funding in areas of provincial responsibility (eg health and social policy). Premiers have jointly described the process as successful. The presence of strong intergovernmental relations mechanisms and the regularity of their use definitely facilitated the changes.

Chapter 2: United States of America

Observation 5:

Role of the States in the federation

A fundamental feature of federalism in the United States is the importance attached by the States to what they regard as their rights. This leads to tension between the Federal Government and the States, as State Governments resist the exercise of federal powers in areas of traditional State jurisdiction.

0.10 The federal legislature of the United States is the Congress. Members of the House of Representatives and of the Senate are directly elected. There are two Senators for each state.

0.11 The executive branch of government is headed by the President and Vice-President who are elected on a joint ticket every four years. Members of the executive branch (equivalent to Ministers) are not drawn from the legislature, but are appointed directly by the President.

0.12 The Constitution assigns a number of powers to the President and the Congress, and the residuary to the states. Most federal legislative powers, including those concerning taxation, are concurrent with the states’. Where federal and state laws conflict, federal law prevails.

0.13 Both federal and state governments possess tax powers, though the dominance of federal income taxes leaves limited tax room to the states. There is a low degree of vertical fiscal imbalance. Transfers from the federal to the state governments are typically conditional. The United States does not have a formal mechanism of fiscal equalisation.

Observation 6:

Role of the legislature

A significant difference between Australia and the United States lies in the relationships between the President, Executive and Congress. Members of the executive branch, the Cabinet, are appointed by the President, and may not be members of Congress. This formal separation of the legislative and executive branches of government means that the Congress and President are independent and there is no executive representation in the legislature. Consequently, the executive does not dominate the votes and procedures of the legislature.

0.14 The United States has a very active set of intergovernmental relations. The States have developed a sophisticated web of associations to support them in their actions at all levels of the federal system: relations with the Federal Government; inter-State relations; and policy development within their own States. These activities take place at the level of the executive and legislature. State action at the federal level concentrates on lobbying the Cabinet, federal agencies, Senators and Members of the House of Representatives.

0.15 There are some intergovernmental relations mechanisms at the federal level. The Senate Governmental Affairs Committee has responsibility in the area of intergovernmental relations, and studies the effects of legislation on federal-state relations. The House of Representatives Committee on Government Reform has a similar responsibility. The Advisory Commission on Intergovernmental Relations was established by the federal government in 1959 as a permanent, independent and bipartisan agency. It played a prominent role in monitoring the development of American federalism and providing expert information on the state of American federalism.

Observation 7:

Intergovernmental institutions

The American spirit of federalism does not seem to encourage formal mechanisms for intergovernmental relations because of a reluctance by the States to have the Federal Government attempting to interfere in their policy making. Subsequently, the system focuses on intense lobbying. However, some people have emphasised the view that this has brought about a situation where the States are just one of many lobby groups in Washington DC.

Observation 8:

Intergovernmental institutions

In the United States, the formal mechanisms of intergovernmental relations are to be found at the level of inter-State relations.

In the United States, the States have established many associations to facilitate relations between the States. These associations are able to assist the co-ordination of activities between States, and are also able to represent the States in relations with the Federal Government. All are established on a bipartisan basis, with a Secretariat to provide administrative, policy and research support. Both the National Governors’ Association and the National Conference of State Legislatures have an office in Washington DC to deal with federal-state relations. Both of these organisations also ensure that each State has a designated officer with responsibility for contact between the organisation and the State.

0.16 The 1990s in the United States saw an emphasis on reform of intergovernmental transfers. However, there has not been large-scale reform of roles and responsibilities.

0.17 Areas targeted by President Clinton’s “Reinventing Government” initiative included unfunded federal mandates and welfare policy. The Unfunded Mandates Reform Act 1995 is intended to reduce the financial burden imposed on the states by unfunded federal mandates - legislative requirements imposed by the federal government for which no funding will be granted. In the area of welfare policy, the Personal Responsibility and Work Opportunity Act 1995 and the Balanced Budget Act 1995 have replaced highly conditional grants to the states with block grants.

Observation 9:

Role of the States in the federation

As in Australia, changes in programme funding and programme administration in the United States took place in the 1990s, as a result both of budgetary pressures, and pressures from the States for greater involvement in policy decision-making.

It seems that devolution in the United States has had a limited, though practical, effect in reducing the administrative burden on State and local governments. This increased flexibility for the States in programme implementation and administration has not amounted to a large scale reallocation of roles between Federal and State Governments.

Chapter 3: Germany

Observation 10:

Role of the States in the federation

Germany has a long history of powerful Länder. The Länder’s cultural and political identity is strong. They have a tradition of extensive participation in the government of Germany.

0.19 Germany is a constitutional parliamentary democracy with a bicameral federal legislature.

0.20 Members of the Bundestag (the Lower House) are directly elected on the basis of proportional representation. The Bundestag elects the Federal Chancellor (the federal Head of Government).

0.21 Members of the Bundesrat (the Upper House) are members of the Land governments. Their purpose is to represent the Länder at the federal level.

0.22 The Bundesrat meets in plenary session once every third week. Preparation for the plenary sessions occurs through the Permanent Advisory Council, which is composed of the Plenipotentiaries (or leaders) of each Land delegation. More detailed preparation for the plenary sessions is conducted by select committees. The committees themselves are supported in their work by the Secretariat of the Bundesrat.

0.23 The number of votes of each Land in the Bundesrat depends on its population. Each Land must cast its votes as a block.

0.24 Disagreements between the Bundestag and the Bundesrat over a bill are resolved by a joint Mediation Committee.

Observation 11:

Federal upper chamber

The Bundesrat is an impressive and effective intergovernmental institution. Members of the Bundesrat are Members of their Länder Governments, and their role is to represent the Länder at the federal level. They vote in Länder blocks.

The Basic Law ensures that the Bundesrat occupies a prominent position in federal decision making.

Observation 12:

Role of the States in the federation

The German federal system is a strong partnership. The Federal Government has extensive legislative powers, but much of this law is administered by the Länder. Through the Bundesrat, the Länder also participate in national law making.

0.25 Each Länder has its own parliament and a directly elected president. Most legislative power is held by the Bund (federal) legislature, either exclusively or concurrently with the Länder. The Bund may issue framework legislation in some areas which allows the Länder to implement federal laws according to their own customs and needs. The Länder administer the majority of Bund legislation.

0.26 The German taxation system provides for each level of government - Bund, Land and Local - to raise and administer its own taxes. Most minor taxes are assigned exclusively to one level of government. All three levels of government share the revenue from wages and income taxes. The revenue from corporations and turnover tax revenue is shared between the Bund and the Länder. Revenue sharing is guaranteed by the Basic Law.

0.27 Germany has a low degree of vertical fiscal imbalance. A system of horizontal fiscal equalisation transfers funds from fiscally stronger to fiscally weaker Länder.

Observation 13

Federal financial arrangements

The Basic Law ensures that each government receives sufficient tax revenue to fulfil its responsibilities.

0.28 The German system of intergovernmental relations is based on a shared appreciation of consensual decision making. The need to co-ordinate voting and responses to proposed Bund legislation, and the fact that the Länder administer the majority of Bund law, means that Bund-Land and inter-Land co-operation is extensive.

0.29 Intergovernmental relations are conducted at three levels of the federal system: the Gesamtstaat (‘whole state’), the Bundesstaat (‘federal state’) and the Third Level.

0.30 The Gesamtstaat comprises institutions in which both the Bund and the Länder are represented with equal status. Intergovernmental relations at the Bundesstaat level are constitutionally-based Bund-Land institutions in which decisions are taken by majority vote. The Bundesrat is the premier ‘federal state’ institution. The Third Level of intergovernmental relations refers to inter-Land co-operation and co-ordination.

Observation 14:

Intergovernmental institutions

The Länder maintain permanent Missions to the Bund (currently located in Bonn; to move to Berlin in 1999 or 2000). The location of these Missions at the site of federal government ensures that they are able to:

• provide support for their Land in the Bundesrat;
  

• deal with, and receive information from, federal ministries; and
  

• represent their Land in the national capital.

Observation 15:

Intergovernmental institutions

The conduct of intergovernmental relations in Germany is a reflection of a highly co-operative system of federation. However, the incorporation of intergovernmental mechanisms into the federal parliamentary structure, and the sharing of taxation revenue, reflects the strength of the Länder within the federation and the German emphasis on consensual decision making.

0.31 Many of the challenges confronting the German federal system during the 1990s emanate from the unification of West and East Germany in 1990. The integration of the five East German Länder into the federal system placed strains on the complex web of Bund-Land relationships and exacerbated existing tensions about the system of fiscal transfers. Constitutional reform sought to maintain the balance of the federal system and reaffirm the commitment to a consensus model of Bund-Land relations. A Solidarity Pact, which was designed to facilitate eastern reconstruction through a variety of financial measures, was concluded between the Bund and Länder in 1993.

Observation 16:

Role of the States in the federation

The constitutional reform process re-emphasised the importance of inter-Land co-operation to the stability of the German federal system. The unification process necessitated the commitment of large amounts of federal funds. This process was not controlled by the Bund and was managed in an intergovernmental manner.

0.32 The Länder, through the Bundesrat, play a significant role in shaping German policy on European Union matters. They have extensive institutional involvement through the Bundesrat, inter-Land discussions, and Länder representation to institutions of the European Union.

0.33 Globalisation of the economy and financial markets has had its impact on the Länder and their authority to regulate in the banking and securities industries. As a result of international and European Union demands, regulation of these industries has been centralised. This resulted from a process of consultation and negotiation between Bund and Land governments.

Observation 17:

Role of the States in the federation

The Länder have demonstrated their responsiveness to issues of multilateral co-operation, globalisation and development in European Union policy. The Länder are keen to maintain their role on all of these levels. The strength of the intergovernmental relations culture and the structure of the German system are able to support them in this endeavour.

Chapter 4: Belgium

0.35 Belgium is a parliamentary democracy operating under a constitutional monarch. The Parliament is bicameral, consisting of a Chamber of Deputies and a Senate. Members of the Chamber of Deputies are directly elected. The Senate includes both elected and appointed Senators.

0.36 The federal government is drawn from the Chamber of Deputies. The Ministry must, with the exception of the Prime Minister, have equal numbers of French- and Flemish-speakers.

0.37 Belgium is divided into three Communities, three Regions and four Linguistic Areas, reflecting the geographical distribution of Flemish, French and German speakers. Each Community and Region has a Council and a Government; the Flemish Community Council and Flemish Regional Council are united into a single Flemish Parliament.

0.38 A Member of one Council may not be elected to the Senate or the Chamber of Deputies, but may be a Member of another Council. Each Community Council also appoints a number of Senators.

Observation 18:

Federal upper chamber

The Belgian federal system has a large number of legislative bodies, each representing a different interest within the Belgian nation. Co-ordination of their activities is facilitated by their overlapping membership.

0.39 The powers of the Federal, Community and Regional legislatures are exclusive. The Senate can make decisions on conflicts arising out of the federal arrangement. A Court of Arbitration also exists whose purpose it is to adjudicate conflicts between laws from different legislatures. Taxes are largely shared between the Federal, Regional and Community governments.

Observation 19:

Role of the States in the federation

Belgium is a complex federation which is not easily comparable to other federal systems. Its experience with the allocation of substantial policy responsibilities to the Regions and Communities suggests that it is feasible for states to play a significant role in national policy areas.

Chapter 5: United Kingdom

0.41 The United Kingdom is a constitutional monarchy. The Parliament at Westminster is a bicameral legislature. Members of the House of Commons are directly elected, and the Prime Minister is typically the leader of the political party with the majority of seats in the House of Commons. Members of the House of Lords are not elected, and obtain the right to sit in the House through hereditary or life peerage, or by occupation of senior office in the Church of England. A bill to reform the House of Lords was introduced into the House of Commons in January 1999; should it pass, it will remove the right of hereditary peers to sit in the House of Lords.

0.42 The Scottish Parliament will be a unicameral legislature, elected on the basis of proportional representation. It will have the power to legislate in all matters relating to Scotland, except in areas which the Scotland Act 1998 reserves to the Parliament and Government of the United Kingdom.

Observation 20:

Intergovernmental institutions

It is possible for an individual to be a Member of the Scottish Parliament and a Member of the United Kingdom Parliament, increasing the links between the two levels of government, and the co-ordination of their activities.

Observation 21:

Role of the legislature

The process of law-making in the Scottish Parliament contains provision for judicial scrutiny of bills prior to enactment, to determine if they are within the scope of Scottish legislative power. This is likely to reduce the extent of conflict between Scottish and United Kingdom legislation.

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0.43 The Welsh Assembly will be elected in the same manner as the Scottish Parliament. It will not be a full legislature with a government accountable to it. Rather, with regard to matters concerning Wales, responsibility for which is transferred to it by the Government of the United Kingdom, it will be able to make decisions currently made by United Kingdom Ministers.

Observation 22:

Role of the States in the federation

The Welsh Assembly will administer and implement legislation passed by the United Kingdom. This will allow regional concerns and interests to determine the impact on Wales of centrally determined policy.

0.44 Funding is currently transferred to Scotland from the United Kingdom through the Scottish Office in a block grant. After devolution, this ‘Scottish Block’ will be renamed the Scottish Consolidated Fund. The Scottish Parliament will have the power to vary the basic rate of income tax for residents of Scotland by up to 3 pence in the pound. The power to decide public expenditure will be transferred from the Secretary of State for Scotland to the Scottish Parliament.

Observation 23:

Federal financial arrangements

The implementation of its programmes by the Scottish Executive will be largely dependent on funds transferred by the Government of the United Kingdom. However, the Scottish Parliament’s tax-varying power will give the Scottish Executive some control over its financial decision-making.

0.45 The Welsh Block Fund, currently administered through the Welsh Office, will continue largely unchanged, and will be transferred to the Welsh Assembly.

0.46 The Secretaries of State for Scotland and Wales will continue to act as Cabinet Ministers in the Government of the United Kingdom. They will have principal responsibility for liaison between the Government, the Scottish Executive and the Assembly Executive Committee.

0.47 Scottish and Welsh interests in matters concerning the European Union will be channelled to the Government of the United Kingdom through the Secretaries of State for Scotland and Wales.

Observation 24:

Intergovernmental institutions

The role of the Secretaries of State for Scotland and Wales will be similar to that of a Minister for Federal Affairs: they will be members of the Government of the United Kingdom with special responsibility for relations between that Government and the Scottish Parliament and Executive, and the Welsh Assembly.

Chapter 6: European Union

0.49 The principal intergovernmental decision making institution of the European Union is the Council of Ministers. It debates and decides on proposals put to it by the Commission. Members of the Council of Ministers are Ministers in their national government; there is one representative from each national government. Composition of the Council of Ministers varies according to the policy under discussion. The Presidency of the Council is a six-monthly rotating position.

0.50 The European Council, composed of the Heads of Government of the Member States, meets twice each year to discuss the broader political and economic direction of the European Union, and to discuss the Common Foreign and Security Policy. Each meeting of the European Council is followed by a written report to the European Parliament and a verbal report by the President of the European Council.

0.51 The Commission proposes policies and legislation to the Council of Ministers, and is responsible for the administration of the European Union. It ensures that the provisions of the treaties and the decisions of the European Union are implemented and enforced. It is the only institution with the right to initiate legislation.

Observation 25:

Intergovernmental institutions

The Commission is a body independent of the Member States of the European Union. It safeguards the implementation of the Treaties of the European Union, and enforces European Union law. Its sole right of legislative initiative ensures that the intergovernmental decision-making processes of the European Union are provided with independent policy support.

0.52 The European Parliament is directly elected across the European Union. Representation for each Member State is apportioned roughly according to population. Members of the Parliament do not sit in national groups, but according to political affiliation.

Observation 26:

Role of the legislature

The European Parliament makes the European Union’s intergovernmental processes transparent and accountable. It is able to:

• dismiss the College of Commissioners;
  

• co-legislate with the Council of Ministers; and
  

• receive reports from, and ask questions following, meetings of the European Council.

0.53 The European Union has two consultative bodies which provide it with advice. These are the Committee of the Regions and the Economic and Social Committee.

0.54 The European Court of Justice is the European Union-wide judicial body. Its duty is to interpret and apply the treaties of the European Union, and other texts, legislation and decisions.

0.55 There are four sources of revenue for the European Union: customs duties on trade with non-member countries; agricultural levies, premiums and other duties; a uniform percentage rate applied to Member States’ Value Added Tax; and a rate of the Gross National Product of each Member State.

0.56 Horizontal fiscal equalisation occurs through the Structural Funds, which are distributed by the European Union to regions in order to reduce economic and social disparities within the Union.

0.57 The basis for economic union was set in the Treaty of Rome (1957) but its objectives were not fully realised until 1992 and the completion of the Single Internal Market project. The Single Internal Market, which supports the free movement of people, goods, services and capital, has been strengthened by Economic and Monetary Union. This is a three stage process which will, when complete, mean a common currency, and common economic and monetary policies for Member States of the European Union.

Observation 27:

Dynamics of federalism

Federal systems take different forms in the modern world. The European Union represents an effort to co-operate effectively at the international level in order to face the challenges of globalisation.

0.58 Sub-national units of government have established their own offices in Brussels in order to collect information on European Union activities and to lobby the Commission and the European Parliament.

0.59 The principle of subsidiarity refers to the allocation of decision making to the level of government closest to the issue at hand. In the European Union, it is a guideline designed to ensure that effective and efficient decision making is made as close as possible to the citizen.

Observation 28:

Dynamics of federalism

The principle of subsidiarity supports the efficient and effective allocation of responsibilities in a federal system. It is a means of ensuring that decision making remains close to citizens and enables the system to be judged for whether it remains responsive to the needs of citizens.

Chapter 7: Principles of federalism

Recommendation 1:

The Committee recommends that the responsibilities of the Commonwealth and State Governments and Parliaments be distributed so as to uphold the virtues of federalism, identified in Findings 1 and 14 of the Committee’s Second Report. These virtues are:

• decentralised decision-making which permits diverse responses to regional needs;
  

• a competitive environment for public policy solutions;
  

• multiple points of access to government for citizens;
  

• unity where necessary, without central domination.

0.61 The Committee has identified a number of principles of federalism:

• mutual respect for authoritative decision-making at each level;
  

• significant areas of autonomous decision making and administration at each level of government;
  

• matching legislative responsibility with fiscal capability; and
  

• acknowledgment of the importance of intergovernmental relations in maintaining a balanced federal system.

0.62 The recommendations of this Report are based on these virtues and principles of federalism.

Chapter 8: The role of the States in the Australian federation

Recommendation 2:

Recognising the powers granted by State Constitutions and the Australian Constitution, the Committee recommends that the States be free to make their own policy decisions unless there is an overriding national imperative for a single policy for the whole of Australia.

0.64 The Committee has put forward criteria for determining how national policy decisions should be made.

Recommendation 3:

The Committee recommends that national policy decisions be made in a way which maximises the possibility of interests within States being:

• represented in the decision-making process; and
  

• satisfied by the decisions reached.

This requires the participation of State Governments to represent those interests particular to their States.

0.65 In some cases, the national interest will be defined by a desire for the convenience and efficiency of uniform policy. Recommendation 4 emphasises the capacity of the states, in these cases, to jointly make policy for the nation as a whole.

Recommendation 4:

Where there is an overriding imperative for national policy making, but there is no distinct national interest, other than an interest in the convenience and efficiency of uniform policy, the Committee recommends that the decision be made jointly by the States.

0.66 Where there is a state interest in national decision making, this ought to occur by way of co-operation between the Commonwealth and the States.

Recommendation 5:

The Committee recommends that the States participate in national policy making unless no distinct State interests exist in the policy area. In those few policy areas in which there are no distinct State interests, the Commonwealth alone should have responsibility for national policy making.

Recommendation 6:

Where an overriding imperative makes it necessary to make a national policy decision, and where there are relevant differences of State interest, as well as a distinct national interest, the Committee recommends that the States and the Commonwealth should make the policy decision co-operatively.

0.67 A balancing of administrative responsibilities between federal and state levels can recognise the role of the states in representing the particular needs of their communities. Whilst the implementation of national policy making in some areas will require uniform administration, in other areas this will not be necessary.

Recommendation 7:

The Committee recommends that the administration of policy, as well as responsibility for determining policy, be distributed between the State and Commonwealth Governments so as to uphold the virtues of federalism.

Recommendation 8:

The Committee recommends that, where there is an overriding imperative for national policy making, but a nationally uniform system of administration or implementation is not essential to the policy, then responsibility for implementing the national policy ought to reside with distinct State administrations, responsive to State interests.

Recommendation 9:

The Committee recommends that, in cases where there exists an overriding imperative for a national uniform system of administration in a policy area, but there is no overriding imperative for national policy, then where feasible provision ought to be made for a single administrative agency to implement the distinct policies of the various States.

Chapter 9: Federal decision making

The Committee recommends that intergovernmental institutions be the principal site of co-operation between the Commonwealth and the States. It is also in intergovernmental institutions that inter-State co-operation must take place.

The Victorian Government should therefore pursue the enhancement of Commonwealth-State Relations in Australia through the use and development of existing Australian intergovernmental bodies and institutions. The Council of Australian Governments should be developed as the principal site of Commonwealth-State co-operation. At the same time, the Leaders’ Forum should be developed as the principal site for inter-State co-operation.

0.69 The allocation of responsibilities for particular areas of government activity is itself something to be arrived at through joint Commonwealth-State decision-making in enduring and robust intergovernmental institutions.

Recommendation 11:

The Committee recommends that decisions concerning:

• the need for and scope of national decision-making;
  

• the existence of distinct State and national interests;
  

• the process (either inter-State, Commonwealth or Commonwealth-State) of national decision-making in particular policy areas; and
  

• the implementation of national policy;
  

be made co-operatively by Commonwealth and State Heads of Government. Such decisions should take place in enduring and robust intergovernmental institutions, which permit both the States and the Commonwealth to fully participate, and which enable these decisions to be reviewed on an ongoing basis.

Recommendation 12:

The Committee recommends that the Victorian Government pursue the principles stated in Recommendations 1 to 9 in the Council of Australian Governments and the Leaders’ Forum.

0.70 The following recommendations present a model for the enhancement of intergovernmental relations in Australia. While individual recommendations will not in themselves transform the Australian system, taken as a whole, the model constitutes a significant enhancement of Australian intergovernmental decision making.

0.71 The Council of Australian Governments is currently an ad hoc body. Meetings are called by the Prime Minister, and much of the preparatory work is undertaken by the Department of Prime Minister and Cabinet. This means that the Commonwealth dominates the Council. Mandated meetings of the Council of Australian Governments would enhance the Council as a forum for joint Commonwealth-State decision-making.

Recommendation 13:

The Committee recommends that meetings of the Council of Australian Governments be mandated. The mandate should take the following form:

• the Council of Australian Governments shall meet at least once in each year;
  

• in addition, the Council of Australian Governments shall meet if the Prime Minister requests a meeting;
  

• in addition, the Council of Australia Governments shall meet if at least four Premiers or Chief Ministers request a meeting.
  

0.72 Increasing the regularity of the Council of Australian Government meetings would increase the workload associated with intergovernmental activity in Australia. An Intergovernmental Secretariat would meet the demands of this increased workload, reduce the political control of the Commonwealth and create a sense of continuity between meetings.

Recommendation 14:

The Committee recommends the creation of a permanent Intergovernmental Secretariat to provide administrative and policy support to the Council of Australian Governments.

0.73 Enhancing the institutional character of the Council of Australian Governments will give the states a greater opportunity to effectively use intergovernmental processes. A States’ Secretariat would play a useful role in co-ordinating the intergovernmental activities of the Australian states. It would be distinct from an Intergovernmental Secretariat, which would be concerned with the intergovernmental activities of the Commonwealth in co-operation with the States. Responsibility for leading the Secretariat and responsibility for chairing Leaders’ Forum meetings should rotate on a regular basis among the state Heads of Government.

Recommendation 15:

The Committee recommends that Victoria, in co-operation with the other States, take steps to establish a States-based Intergovernmental Secretariat. Such a Secretariat would strengthen the position of the States in intergovernmental negotiations by:

• providing administrative and policy support for Leaders’ Forum meetings; and
  

• facilitating the flow of information on intergovernmental issues to the community, to the media and to State Parliaments.
  

If such a Secretariat were located in Canberra, it would also:

• provide support to members of State Governments and State Parliaments engaged in business in Canberra; and
  

• maintain links between the States and Commonwealth departments and agencies, the national press gallery and other national institutions based in Canberra.

Recommendation 16:

The Committee recommends that responsibility for leading the Secretariat, and for chairing the meetings of the Leaders’ Forum, rotate on a regular basis among the State Heads of Government.

0.74 The appointment of Ministers for Intergovernmental relations would increase the political and bureaucratic focus on intergovernmental matters.

Recommendation 17:

The Committee recommends that, where an enhanced intergovernmental relations process necessitates additional political work, it is desirable that a Minister be given responsibility for Intergovernmental Relations.

0.75 Parliaments play an important role in a federal system, both in their representation of states and national interests, and in reinforcing democratic intergovernmental decision making. By involving federal and state legislatures in the system of intergovernmental relations, efficient intergovernmental decision making can be combined with transparency and accountability.

Recommendation 18:

The Committee recommends that intergovernmental relations in Australia involve both the Executive Governments, and the Parliaments, of the Commonwealth and the States.

0.76 Enhancing the formal channels of communication between Australian parliaments and the executive in the areas of intergovernmental relations would enhance parliamentary scrutiny of intergovernmental decision-making, particularly where legislative functions are being performed by executive intergovernmental bodies.

Recommendation 19:

The Committee recommends that, following each meeting of any executive intergovernmental body, a report of the meeting be transmitted to the Parliament of each State participating in the meeting, and to the Commonwealth Parliament if the Commonwealth participated in the meeting, to be tabled at the earliest opportunity.

Recommendation 20:

Several schemes of uniform legislation operating in Australia give executive intergovernmental bodies the power to legislate and to regulate. The Committee recommends that, in those cases in which executive intergovernmental bodies have law-making powers, that law-making decisions be taken in an open meeting which the public may attend, and a record kept and transmitted with the report mentioned in Recommendation 19, so that Parliaments are kept informed of the laws that govern their jurisdiction.

0.77 An Inter-Parliamentary Committee for Intergovernmental Affairs would enhance communication between Commonwealth and State Members of Parliament, and enable them to jointly consider matters related to the effective operation of the Australian federation.

Recommendation 21:

The Committee recommends the creation of an Inter-Parliamentary Committee for Intergovernmental and Federal Affairs.

The Inter-Parliamentary Committee should be established by way of uniform legislation passed in each jurisdiction, so as to reflect the federal nature of the Committee, and to ensure the Committee the necessary standing in each jurisdiction to carry out its work.

To ensure bipartisan membership, membership of the Inter-Parliamentary Committee should consist of one Government and one Opposition Member from each Australian Parliament.

The role of the Committee would be to inquire into and report to all Australian Parliaments on any matter concerning relations between the Commonwealth and the States, and the distribution of legislative and administrative responsibilities between them, including any intergovernmental decision-making.

Chapter 10: Reforming Australia’s federal upper chamber

0.79 This is not the case in a number of other federations, in which there is overlapping membership of state and federal legislative and executive organs. The upper chambers of Germany and Belgium allow members of Länder governments and Community Councils to sit as federal legislators. Members of the Scottish Parliament will be able to stand for election to the United Kingdom Parliament, and vice versa.

0.80 In Australia it is unconstitutional for a member of one Parliament to be a member of another Parliament. However, enhancing communication between the Senate and the States would increase Senators awareness of interests particular to their States. A Senate committee dealing with intergovernmental relations would ensure that Senators had systematic exposure to the views of governments other than the Commonwealth Government.

Recommendation 22:

The Committee recommends a Senate Committee for Intergovernmental Affairs as one way of enhancing communication between the Senate and State Governments, and thereby increasing the Senate’s responsiveness, when legislating, to interests particular to individual States.

Recommendation 23:

The Committee recommends that Senators be given the right to present and report to the Parliament of their State on a regular basis, and to answer questions, on matters of concern to their State.

0.81 In Australia, rather than operating as a States’ House, the Senate operates as a Commonwealth House of review. Consistent with this review function, most Senators see their principal role to be supporting either the Commonwealth Government or the Opposition.

0.82 A number of changes can be envisaged which would reduce the focus of the Senate on the concerns of the Commonwealth Executive, and increase the priority given to State concerns. However, any final decision on an appropriate model for Australia’s federal upper chamber could only be taken after widespread community debate.

Recommendation 24:

The Committee recommends that change to the Senate is necessary for it to more effectively represent State interests in the Australian federation. Change should take place following extensive community consideration of the issues involved.

If the Senate is to play its role as a federal upper chamber, the following matters must be resolved:

• the relationship between the Senate and the Commonwealth Executive;
  

• the relationship between the Senate and State Executives;
  

• the relationship between the Senate and State Parliaments;
  

• the method of selecting Senators; and
  

• the need for a Commonwealth House of review.
  

Other federations provide models which ought to be considered:

• the German Bundesrat, in which Länder Governments sit as federal legislators;
  

• the Belgian Senate, in which a number of Senators are appointed by Community Councils; and
  

• the Senate of the United States of America, in which there is no executive representation.

Chapter 11: Federal financial arrangements

0.84 A consideration of federal financial arrangements in other federations suggests two alternative approaches to the federal distribution of revenue: revenue-sharing and autonomous state taxation.

0.85 In Germany, the major taxes - personal income tax, corporate income tax and sales taxes - are uniform throughout the country. However, the Basic Law ensures that the Länder receive revenue adequate to meet their expenditure responsibilities. It also guarantees the Länder (through the Bundesrat) a voice in taxation and revenue-sharing decisions.

0.86 Belgium has similar revenue-sharing arrangements. The Communities have a direct say in these decisions through their representation in the Belgian Senate.

0.87 The Commonwealth Government currently has a revenue-sharing proposal before the Senate. This proposal would abolish Financial Assistance Grants and Revenue Replacement Payments, and grant the States the whole of the revenue to be raised by a Commonwealth Goods and Services Tax on condition that they abolish a number of indirect taxes, take over full responsibility for the funding of Local Government and introduce a new scheme to compensate first home buyers for the impact of the Goods and Services Tax on the cost of housing.

0.88 In Australia, there is no constitutional provision for State participation in revenue-sharing decisions. The Commonwealth’s revenue-sharing proposal includes a commitment not to vary the rate or base of the Goods and Services Tax without the unanimous support of State Governments. However, it is the Commonwealth Parliament that has legislative control over the rate and base of the Goods and Services Tax, and over the allocation of the funds to be raised by that tax.

0.89 In the United States and Canada the States and Provinces levy their own income and sales taxes. The rates of tax are therefore different in different parts of the country. In Canada, every province but Québec sets its personal income tax as a ‘piggy-back’ tax: the rate of tax is specified as a percentage of federal income tax payable, and the tax is collected on the Province’s behalf by the federal tax collection agency.

0.90 Under the devolution arrangements in the United Kingdom, the Scottish Parliament will have the power to vary personal income tax by up to three pence in the pound. These tax collection decisions will be implement on Scotland’s behalf by the Treasury of the United Kingdom.

0.91 In Australia, a constitutional amendment would be required for the States to levy sales taxes. Moreover, allowing rates of sales tax or corporate income to differ between States would be contrary to the spirit of recent microeconomic liberalisation in Australia. However, autonomous state taxation could be introduced if the Commonwealth simultaneously reduced its rates of personal income tax and Financial Assistance Grants to the States, while allowing the States to maintain their level of revenue by levying a tax on personal income. This model could be integrated with the proposal for a Goods and Services Tax: rather than the States receiving a share of the revenue raised by the Goods and Services Tax, revenue from a State income tax could be used to compensate States for the abolition of Revenue Replacement Payments and various State indirect taxes.

Recommendation 25:

The Federal-State Relations Committee recommends that the Victorian Government pursue the further reform of Commonwealth-State financial relations, either through:

• enshrining in the Constitution the participation of the States in decisions concerning revenue-sharing; or,
  

• a reduction by the Commonwealth of its rates of personal income tax and Financial Assistance Grants to the States, allowing the States to maintain their level of revenue by levying a tax on personal income, either along the lines of the Canadian system of piggy-back taxation or as a flat rate of taxable income.

1Section 94.