Federalism in Overview

One of the factors that complicate policy making in Australia is that we are a federation of sovereign states that formed the Commonwealth Government and there are both independent and overlapping responsibilities for public matters across the jurisdictions as determined by the Constitution. These tensions and complexities are discussed in this topic (Topic 6). After many years operating as independent British Colonies, it became obvious to some of the leading politicians of the time that there may be advantages in becoming independent of Britain and sharing in some of the advantages of mutual interest and shared resources of the continent.  At the time of the late nineteenth century, there were some who would benefit from free trade between the states and others who preferred protectionism; a concern about national defence and a desire to have both a national response to international diplomacy and commerce for mutual benefit.

As a consequence of a number of constitutional conventions, rather than creating a unitary style of government (such as in Great Britain, France and New Zealand), agreement was reached between the six colonies in 1901 on the creation of a federation (such as in Brazil, Canada and the United States). Whilst we now refer to the Commonwealth, states and territories, and local government as being the tiers of government in Australia, local government is not mentioned in the Constitution. It exists as an administrative entity at the discretion of the states. Putting aside the catastrophic politics, torturous cabinet discussions and administrative nightmare that would result, every local government in every state could be abolished, amalgamated or otherwise reorganised by the relevant local government minister as so deemed. The Commonwealth and the six state governments are sovereign in their own right, only limited by the powers of their own parliaments and the Constitution and they cannot be changed against their will. So, while local governments are recognised as democratically elected governments of Australia and an important part of the governance architecture of Australia, they are not sovereign governments of the Australian Federation.

Notwithstanding this, local government has a long and established history in every state, predating federation, and is elected by the same democratic processes as the other governments of Australia. It delivers a range of public services both as part of their own general government functions and on behalf of the other levels of government.

Some local government areas are small in size and population while others have responsibilities for large areas, significant budgets and often have greater financial independence than some states. For example, Brisbane City Council, which covers most of metropolitan Brisbane, governs a population of 1.3 million compared to Tasmania’s population of 570,000 (ABS, 2023)^[1]. The 2023-24 budget for Brisbane is $3.2 billion (BCC, 2023)^[2] while the Tasmanian budget is $8.4 billion (Tasmania Treasury 2023)^[3]. However, 67% of Tasmania’s budget comes from grants compared to only 15% of Brisbane’s budget (BCC, 2023, p. 12; Tasmania Treasury, 2023, p. 13).

As a public servant, you need to be conscious of the strengths and weaknesses of federalism and how it impacts on good policy development and implementation in your area. In addition, financial arrangements between the Commonwealth and the states will impact on resources in your area. In some cases, tied grants may alter local policy decisions in order to attract funding.

At other times, the Commonwealth’s decision to get out of an area may force other tiers to pick up funding as a result of public pressure to retain an initiative.

The States failing to respond to policy demands in an area may pressure the Commonwealth to get involved in order to be perceived to be responsive to a community need. Arguments can be made for federalism both creating waste, duplication and loss of accountability and giving the diverse parts of the nation an important voice in their governance.

Improving the Federation

Efforts to improve the Federation have extended to better co-operation (using various models of federalism over the decades) and enhanced formal linkages between governments since the beginning of the Federation. Both premiers and treasurers have been meeting with their Commonwealth counterparts since 1901 (Sharman, 1977, pp 60-75)^[4] and over the decades ministerial councils have met ad-hoc or more regularly to consider joint action of various public policy matters.

By the 1980’s the ad-hoc Special Premiers’ Conferences were a regular and high-profile annual event with state premiers and treasurers heading to Canberra to make their cases to receive more Commonwealth funds. In 1992 a fundamental redesign of the system of inter-governmental relations occurred with the establishment of the Council of Australian Governments (COAG). Comprised the prime minister, premiers, chief ministers and the president of the Australian Local Government Association (ALGA), it drove an extensive multi-decade micro-economic reform agenda for Australia. This included, sometimes controversially, the sale of government owned businesses, such as QANTAS, Telstra, Medibank, and state-owned power stations and energy grids.

COAG sat atop a system of ministerial councils, interjurisdiction working groups and technical advisory committees dealing with everything from technical standards for vehicles and the creation of new national regulators such as the Australian Securities and Investment Commission through to multiyear funding agreements for the state and territory public health systems. The COAG model was very successful in harmonisation of policy, standards, regulation and funding in a wide range of areas from early childhood development, affordable housing, educational and vocational training through to climate change, as well as to more immediate or highly politically charged issues such as natural disaster relief and gun control (Jackson et. al. 2022)^[5].

While the COAG system proved very adept at strategically and then tactically coalescing political, economic, social and technical factors to deliver and embed socio-economic structural changes, it struggled with the need for very fast, often daily, decision-making needed to respond to the challenges presented by COVID-19.

The new lighter National Cabinet model 

In early 2020 COAG decided ‘a slimmer, nimbler, less formal forum was needed to manage and coordinate a rapidly changing and unknown crises and this new version of inter-governmental relations would be ‘less formal and less driven by structures, processes and agendas’ (Jackson et. al. 2022, p. 41). These new arrangements were formalised and eventually made permanent by May 2020.

The key features of the new National Cabinet model are: monthly meetings rather than one to four a year; a more informal forum, less driven by agendas and standing items and reduced bureaucracy; a smaller number of permanent ministerial councils reporting directly to the National Cabinet and more use of various expert advisory groups (Jackson et. al. 2022). One new feature was the establishment of a National Federation Reform Council (NFRC) to meet annually to consider a small number of priority issues. The NFRC comprises the National Cabinet, Council on Federal Financial Relations (the treasurers) and the ALGA, who were dropped from COAG in the switch to the National Cabinet (Jackson et. al. 2022).

Fundamentally though the basic architecture of COAG remains, albeit somewhat lighter, and there are advantages to having less ministerial councils reporting directly to National Cabinet. However, it is not yet clear if the heralded ‘reduced’ roles for formal agendas and bureaucracies is sustainable over the long run and how such actions will lead to better informed decisions by time poor national leaders. A deeper dive into the formation of the National Cabinet can be found in the section From COAG to National Cabinet: Coordinating Policy in Jackson et. al. 2022, pp 39-44.

For more detail on the architecture, current priorities and actions of the National Cabinet and the other councils or visit federation.gov.au.

Australia’s sophisticated and extensive system of intergovernmental decision-making architecture has been fundamental in fostering an Australia focused way of governing a federated nation. However, it has led to more structural tension points between the Commonwealth and the states and territories. These tension points almost invariably manifest around the Commonwealth wanting to play a greater role in policy direction or outcome specification in areas that have traditionally been the responsibility of the states and territories. Another type of tension point has been around the role and status of local government in these intergovernmental arrangements. As discussed, local government is not recognised in the Constitution and is a creation of the states, yet they are increasingly used as the local providers of many state, and increasingly Commonwealth funded, programs but without the same ‘sovereign capacity’ to negotiate for particular outcomes for their residents.

To gain insights into the future of the Australian Federation read the white paper provided below, listen to the podcast debating the strengths and weaknesses of the New Federalism, and read the lectures by John Brumby (2014) and Tony Abbott (2003) which follow.

Brumby is a former Premier of Victoria and was Chairman of the COAG Reform Council and his speech is the 2014 Hamer Oration^[6], at Melbourne University. He notes there are six benefits of federalism and suggests that great outcomes have been achieved because of co-operative federalism; He then warns of the dangers of competitive federalism promoted by the national Commission of Audit; and, argues for a rebalance between roles, responsibilities and revenue. Tony Abbott as Prime Minister used his position in 2013  to attempt to influence the shape of the Federation through a White Paper^[7] advocating for an earlier model of co-ordinate federalism. This approach would have seen stronger policy borders between governments with less intrusion into each other’s traditional policy domains. Note his policy position and any shifts over time. The podcast uses a panel at the University of Queensland to discuss the virtues or otherwise of reforming the Australian federation.

Issues in the Federal model: local government and state boundaries

Local government is a partner to the Federation and most commentators observe in theory that services should be offered by the level of government, which is closest to the client, yet vertical fiscal imbalance (the difference between what revenue a jurisdiction can raise and what its spending obligations are), continues to hamper local government. Suggestions that the situation may improve by being formally recognised in the Constitution are raised from time to time. This raises another issue for federalism – are the state boundaries appropriate? The Whitlam Government in the 1970s sponsored the strengthening of regions at the expense of the states in the belief that regional operations made more sense in Australia and reduced the tiers of government. Muted calls for secession by communities in the North and West, in the belief they would more appropriately develop their community if independent, remind centralists of the need to respond appropriately to those communities.