Pape and Fiscal Federalism

Having the ability to do things is great if you have the money to do them.

And the States don’t have the dosh to do much.

As Bob Carr has observed, as a result of High Court decisions State Governments have lost the power to (effectively) tax petrol and alcohol – a lot of the capacity for states to raise ‘own source revenue’ has been lost.

The Australian reported a recent appearance of Queensland Treasurer Andrew Fraser at the Toowoomba Chamber of Commerce thusly:

"Without fiscal sovereignty, state sovereignty is illusory," Fraser said, in his unique style. "The sheer imbalance of the fiscal capacities of the states vis-a-vis the commonwealth invites a form of implicit fiscal bullying and tacit mendicancy. It is this dynamic that pervades commonwealth-state financial relations."
……………….

In his speech, Fraser pointed out that, with 45 per cent of all revenues across the states and territories coming from commonwealth grants, his own revenue streams were limited.

"The nature of the state revenue base - dominated as it is by transfer duty, payroll taxes and royalties - is narrow and sectoral," he said. "On the principles of tax design, this is undesirable. The effects of a sectoral decline can quickly tip a state budget in a manner disproportionate to the broader changes in the economic environment."

When all three sectors tip, as has occurred of late in the mining sector, property market, and in employment generally, a state such as Queensland finds itself in huge trouble, now contemplating a budget deficit of more than $3 billion.

The next pivotal part of the play will be the Henry Review of the tax system.

In a speech given on 26 March 2009 review chairman Ken Henry noted that improving the federal structure of the tax transfer system was an one of the important elements of the review.

He said there were three dimensions to this assignment exercise – the level of government responsible for the design of the tax; the level of government responsible for administration and collection of the tax; and the level of government that receives the revenue raised by the tax.

After noting that state and territory level governments should ‘avoid tax bases with high interjurisdictional mobility’ he said:

It is usually the case that whoever controls the policy and administration will also receive the revenue – and it is important that governments have some capacity to alter revenue consistent with their marginal expenditure choices.

But it is also usually the case in federal systems that there is an imbalance between the revenue that each level of government raises and its expenditure requirements. For some taxes, therefore, part or all of the revenue may be given to another level of government.

Then there is the question of how this revenue is distributed among governments at the same level and with what conditions.

There are trade-offs to be made in this three-dimensional assignment task. The more the policy and administration of the tax system is centralised at the national level, the greater the opportunity to develop a less complex and more efficient tax system.

However, centralisation obviously also means that sub-national governments have a greater reliance on revenue from the national government. And this may influence their spending decisions.

So the issue could ultimately boil down to:

1. Should taxes be levied by:

(a) the entity responsible for the expenditure; or

(b) the entity that can most conveniently and efficiently collect the revenue.

And, if the answer is (usually) the feds:

2. How much of a policy say should they have over the way in which the money they have collected is spent.

Following the High Court decision in Pape, the debate that will follow release of the Henry Review is probably the right time to realign who does what within the Australian federation, and then determine how those functions should be funded.

A win of sorts for Federalism - Pape v. Commissioner of Taxation

On 7 July the High Court handed down a decision called Pape v. Commissioner of Taxation.

In a narrow sense, it decided that the decision to pay the tax bonus to eligible Australians earlier in the year was constitutional.

However, it is a decision that could have significant ramifications on the federal structure.

The Australian Parliament has increasingly appropriated money to directly fund projects and schemes using the so-called executive power of the Commonwealth without regard to whether the thing being funded is relevant to one of the areas for which the Commonwealth has constitutional responsibility.

This proposition did not receive total High Court support.

The general direction of the Court is contained in this paragraph of the joint judgement of Justices Hayne and Kiefel:

In the end the Commonwealth's submissions about the executive and incidental powers came down to the proposition that the Commonwealth's power to spend is limited only by the need to obtain parliamentary approval for the proposed expenditure. That contention should be rejected. The matters of history
described earlier in these reasons do not require its acceptance. Its acceptance would not be consistent with what Mason J referred to as "the broad division of responsibilities between the Commonwealth and the States achieved by the distribution of legislative powers" and would, by "enabling the Commonwealth to carry out within Australia programmes standing outside the acknowledged heads of legislative power merely because these programmes can be conveniently formulated and administered by the national government", effect a radical transformation in what has hitherto been thought to be the constitutional structure of the nation. To hold that the Commonwealth power to spend does not extend so far is consistent with what was decided in the Pharmaceutical Benefits Case and, after the AAP Case, in Davis v The Commonwealth.

Sadly, it will require more litigation to work out with greater certainty what is ‘good’ direct Commonwealth expenditure and what is ‘bad’ direct expenditure, although it would appear that things that are clearly Commonwealth responsibilities will still be okay.

Leaving aside the mechanism of section 96 tied grants, the States could be liable to fund a greater range of activities. Could they even if they wanted to? This is discussed in the next article.

COAG Meets in Darwin and Paul Everingham scrubs the States

COAG met in Darwin on July 2.

The previous day – Territory Day - the NT News reported comments from the ‘father of Self Government’ Paul Everingham which said that states and territories were a waste of taxpayer money and that the Northern Territory should be run out of Canberra.

He was reported as saying that when self-government for the NT was granted 31 years ago:

‘Back then people were still getting telegrams…but communication has improved. It is the internet age. People can also fly everywhere on relatively cheap airlines'.

This is a more earthy way in expressing something we have mentioned in an earlier article:

Many will say the Seamless Economy Project is good idea - Australia is an integrated common market, with people and companies commonly undertaking activities across state borders.

Moreover, Australia exists in a globalised world, with the complication of different rules in different states a reason not
to come to Australia.Regulatory difference is nothing more than a mere compliance cost that distort allocative efficiency with no public benefit.

The majority of the COAG decisions appear to underline the Everingham view of the world.

Those decisions include:

1. the development of a national regulatory body for vocational education and training;
   
2. the development of a unified national system of child care licensing;
   
3. the Coordinator-General mechanisms set up by the Commonwealth to take responsibility for Nation Building programs and projects funded by the Commonwealth and delivered by the States under the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund;
   
4. the creation of national regulation for maritime safety, rail safety and heavy vehicles, including the appointment of the Australian Maritime Safety Authority as the national safety regulator for all commercial shipping in Australian waters and a single national heavy vehicle regulator; and
   
5. the development of national performance measures for development applications (DA).
   

Quite a list really for one COAG, really.

And there are other Ministerial Councils working on uniform legislation.

For instance, the Standing Committee of Attorney-Generals (SCAG) is working on the issue of whether there should be a national regulator for the legal profession, as well as on uniform succession laws on administration of estates of deceased persons.

This followed a debate immediately before the Darwin COAG as to whether the Federal Government should take over the administration of the hospitals system.

The time is coming where an overt (rather than a covert) decision should be made as to whether Australia is to be a federation or a unitary nation.

A new Australian Consumer Law

On 24 June the Government introduced amendments to the Trade Practices Act 1974.

It is the first step towards bringing together 13 consumer (fair trading) laws that operate in Australia within the TPA.

The Bill is called the Trade Practices Amendment (Australian Consumer Law) Bill 2009.

Generally based on Victorian legislation, the most important aspect of the legislation is to create a mechanism to void ‘unfair’ standard form contracts involving ‘an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption’.

It was expected that the reach of this legislation would include business to business transactions.

However, as Consumer Affairs Minister Emerson said in his second reading speech:

The unfair contract terms law reforms were agreed by COAG in October 2008 and were based on the extensive consultation undertaken by the Productivity Commission.

These reforms are based on the extensive practical experience of the Victorian government in implementing and enforcing similar laws.

Since then the government has sought views on both the reforms more generally in February and on an exposure draft of the unfair contract terms provisions in May. In response to these consultations the Treasury received just under 200 submissions from many consumers, businesses and other stakeholders.

The government has also had numerous meetings with key stakeholders about these changes. And I understand that the Treasury has met and spoken with a wide range of people about these provisions.

We have consulted, and we have listened. And this is reflected in the provisions set out in this bill, which differ in key respects from those that the government exposed in May, particularly in respect of the exclusion of business-to-business transactions.

In relation to the question of whether business-to-business contracts—and particularly those involving small businesses—should be included under the unfair contract terms provisions, the government is currently reviewing both the unconscionable conduct provisions of the Trade Practices Act and also the
Franchising Code of Conduct.

It would appear that the Franchise Council of Australia, satisfied with the protection contained in its sector specific legislation (principally the Trade Practices (Industry Codes – Franchising) Regulations 1998, had an excellent lobbying win.

However, smaller businesses who perceive they face unequal bargaining power when seeking goods and services from larger suppliers could feel less sanguine.

Larger businesses will undoubtedly be happy that business to business transactions have been removed from the ambit of the legislation.

However, they could still be concerned that aggressive use of the legislation will remove the certainty that standard form contractual documentation offers the market place.

On 25 June the Senate referred the Bill to the Senate Economics Committee for report by 7 September.

The closing date for submissions is 31 July.

As the Minister said in his second reading speech:

The government has also indicated its intention that this bill should be referred to a senate committee, and this issue will—no doubt—be further considered as part of that process.

No doubt.


It is finally noted that COAG signed off on an Intergovermental Agreement to underpin a uniform Australian Consumer Law at its Darwin meeting on 2 July.

Harmonising Australia's OH&S law - the next step

On 10 June the new Safe Work Australia Council held its first meeting.

One of the first things it was charged with was to give effect to the decisions of the Workplace Relations Ministerial Council (the WMRC) made on 18 May 2009 as to how model occupational health and safety legislation should be framed, following consideration of the two volume National Review Into Model Occupational Health and Safety Laws prepared by a committee chaired by Robin Stewart-Compton.

It decided it would release the model occupational health and safety legislation (and accompanying regulatory impact statement) during September.

The legislation is broadly based on the Victorian model.

The general test for liability will be whether it is ‘reasonably practicable’ to avoid a hazard in a particular workplace.

However, there is no longer a concept of ‘employers’ having duties to ‘employees’.

Indeed, the objective is to move away from the traditional emphasis on the employment relationship when working out whether a duty of care is owed; rather, the intention is to provide greater health and safety protection for all persons involved in, or affected by, work activity.

Company officers will be have a duty to exercise ‘due diligence’ to ensure that workplace hazards are reduced or removed.

The new legislation will also capture independent contractors as well as people working from home.

One significant change is the expansion of the duty of care imposed by OHS legislation owed by a business to anyone who is ‘in or adjacent to’ a workplace.

Whilst the Ministerial Council did say in its consideration of the Stewart-Compton report:

Care needs to be taken during drafting to ensure that the scope of the duty is limited to matters of occupational health and safety and does not further extend into areas of public safety not related to the workplace activity

this will be a tricky drafting job.

Done poorly, it could impact broadly on the general law relating to occupiers liability and negligence.

It remains open how uniform OH&S legislation will be.

As we have remarked earlier, paragraph 5.1.8 of the COAG agreement on OHS reform says:

The adoption and implementation of model OHS legislation is not intended to prevent jurisdictions from enacting or otherwise giving effect to additional provisions, provided these do not materially affect the operation of the model legislation, for example, by providing for a consultative mechanism within a jurisdiction.

And as we remarked earlier:

And so in this case legislation will be uniform – unless it isn’t.

As part of the WMRC decision, unions will not be able to commence prosecutions, and prosecutors must prove OHS offences beyond reasonable doubt – the Council expressly voted down the current position in NSW – making union stakeholders quite cross.

WA declined to sign the communiqué as they were unhappy about the use of conciliation to resolve OHS issues, the low standard of proof for workplace discrimination claims, union right of entry to workplaces and the level of gaol terms.

It remains a question how much of the national model each jurisdiction takes into its own law, although it is noted that uniform OHS laws are one of those things for which states and territories receive ‘reward payments’ under the National Partnership to Deliver a Seamless Economy.

So money may ultimately speak in favour of uniformity.

National Registration of Health Professionals - the next step

In a previous article we noted that a national scheme for the regulation of health professionals was being developed.

We said:

An intergovernmental agreement (IGA) to establish a scheme of national registration for health professionals was signed on 26March 2008.It is designed to establish a single national registration and accreditation scheme for the nine currently regulated medical professions ranging from doctors to osteopaths.

We also noted:

To allow the national scheme to commence on time (1 July 2010), the Queensland Parliament has passed the Health Practitioner Regulation (Administrative Arrangements) National Law Act 2008,which establishes the a single registration board for each of the nine professions as well as an Australian Health Practitioner Regulation Agency as (effectively) a company under Queensland law, that will support the various boards.

However, the finer details of the scheme are still being developed.

Another piece of legislation now being developed will fill these in.

It is intended to introduce the relevant Bill into the Queensland Parliament before the end of the year.

However, there is concern as to what sort of parliamentary oversight the Agency will be subject to once it commences operation – it is nominally an entity created by the Queensland Parliament, but exercises legal powers in all Australian states and territories.

There is also concern that the Australian Health Ministers Council rather than specialist professional boards can make the standards that health practitioners must meet – instruments not subject to parliamentary disallowance by any legislature. (UPDATE: the new legislation (discussed below) vests the making of accreditation standards with national registration boards)

It would appear that this issue in particular will not be subject to change because it is a structure that has been decided by COAG.

That said, the Senate Community Affairs Committee has decided to inquire into the proposed national registration scheme.The timing is a bit odd – well after the IGA that set the ball rolling, but only just before a draft of the proposed Bill setting out the nuts and bolts of the national scheme is released.

However, it is nevertheless a review.

The exposure draft of the legislation designed to introduce a national scheme of registration for health information (called the Health Practitioner Regulation National Law) has now been released, with the Committee (thankfully) extending its report date 16 August, so comments on the legislation can be taken.

One of criticisms we have with the executive federalism model of developing regulations (encapsulated by the COAG process) is the absence of parliamentary oversight of subordinate regulatory instruments made under the scheme.

Unlike its interim predecessor, the proposed final law allows for parliamentary disallowance of regulations.

This is good, but disallowance is not extended to registration standards, accreditation standards and codes of practice that go to who can (or cannot) practise as a health professional as well the guts of the detail as to how the professions will be regulated.

The issue of the level parliamentary oversight in the COAG regulatory model still requires to be worked through – hopefully this is where the working through will happen.

Harmonised occupational regulations for specified occupations - the next step

On 30 April COAG signed the Intergovernmental Agreement for a National Licensing System for Specified Occupations.

The national system will regulate a mish-mash of occupational areas.

The nominated occupation areas are: air conditioning and refrigeration mechanics;, building and building related occupations; electrical; land transport (passenger vehicle and dangerous good drivers); maritime; plumbing and gasfitting; and property agents.

As expected, COAG followed the advice of the decision regulatory impact statement and adopted a ‘national delegated agency’ model of licensing.

A national licensing board will head a national licensing body charged to develop national licensing policy.

This will enable the body to develop rules in areas including licence eligibility and maintenance requirements, licence classes, compliance and enforcement standards, disciplinary arrangements and licence fees.

The body will be aided by specific occupational licence advisory committees, who will provide ‘the principal source of advice’ on licensing policy.

Existing jurisdictional regulators will be expected to continue performing current registration/enforcement functions.

Victoria is the host jurisdiction for the proposed legislation. Other states will pick up the Victorian law by reference.

It is proposed to expose a draft of the proposed legislation in October with a view of introducing legislation into the Victorian Parliament in the second quarter of 2010.

It is an interesting licensing model.

Decision makers framing the laws governing what a particular trade can or can't do should have some background in the area so what is done is both workable and appropriate.

The National Licensing Board (which presumably will make rules such as licence standards) will constitute an independent chairman and up to eight other people, including two ‘regulators’ appointed on a rotating basis.

It is difficult to see how such a board (or the bureaucracy that supports it) would have the capacity to have a genuine understanding of, and thus make optimal regulations for, sparkies and realos and some classes of truckies….and air conditioner mechanics (amongst others).

One imagines the specialist subcommittees will be the real decision makers.

That is probably why the IGA requires a representative of the committee to ‘attend the board meeting to discuss (the measure to be enacted)’.

The proposed national legislation will need close examination to see whether this structure is genuinely workable.

To that extent, now that a host jurisdiction has been identified (Victoria), it is hoped that the parliament of that state will establish some form of committee structure to test the quality of the policy – and not just assess something against how well the wishes of an unelected COAG council has been given effect.

This includes appropriate measures to allow parliamentary scrutiny of rules that will govern who can enter the various trades and professions, and how they will be subsequently regulated.