In his Challenges of Federation speech we referred to in a previous article, Prime Minister’s Department Secretary Terry Moran said:
There are business leaders who hold the view that Australia can’t work well unless states cede regulatory authority to the Commonwealth, and that as much as possible affairs should be run from the centre. Proponents of this view often see government as a giant corporation, where everything is subject to the power of the CEO. This is not an arrangement for stable and effective democratic government. It is a recipe for authoritarianism, and would be a long way from the liberal democratic ethos we now enjoy.
Yet this is how the Australian federal model operates.
In an earlier article we referred to Peter Phelps’ maiden speech to the NSW Legislative Council.
In another part of the speech he said:
The problem (with the Australian federal structure) is compounded by vertical fiscal imbalance or, to put it in the language of humans rather than economists, the States have the attitude of teenagers:
"Come on, dad, give us some more money.""Why don't you just get a job, son?""Aw, dad, now you're just being mean".
This puts the situation well.
The Intergovernmental Agreement on Federal Financial Relations provides:
The Commonwealth will provide National Partnership payments to the States and Territories to support the delivery of specified outputs or projects, to facilitate reforms or to reward those jurisdictions that deliver on nationally significant reforms or service delivery improvements.
The National Policy and Reform Objectives underwriting the Federal Financial Relations IGA reads:
National Partnership incentive payments will be provided to reward the States and Territories which deliver reform progress or continuous improvement in service delivery.
These payments will be structured in a way that encourages the achievement of ambitious milestones or performance benchmarks.
Graduated benchmarks may be specified in National Partnership agreements to provide that States receive some proportion of funding for activity that has not fully achieved the reform or service delivery objectives but has resulted in partial attainment of the agreed outcomes.
The achievement of milestones and performance benchmarks will be assessed by the independent COAG Reform Council, in order to provide transparency and enhance accountability in the performance assessment process.
National Partnerships should set out clear, mutually agreed and ambitious performance benchmarks that can be assessed by the COAG Reform Council. These should be structured in a way that encourages the achievement of ambitious reform targets and continuous improvement in service delivery, and provide better outcomes than would otherwise be expected.
A practical example of a ‘reward payment is clause 32 of the National Partnership Agreement to Deliver a Seamless National Economy which provides:
32. The Commonwealth will provide reward payments to the States and Territories following CRC advice as to the achievement of key milestones, as set out in the Implementation Plan for the 27 deregulation priorities. The maximum distribution of funds to be paid is set out in Table 1 above.
And as we referred to in an earlier article, the NSW Parliament passed reforms relating to directors liability because they were reforms as they were COAG reforms for which reward payments were payable for ‘meeting key milestones’ - and the NSW Government was keen to secure passage to win ‘brownie points’ for making the necessary changes to the law.
If the state’s play up the Feds won’t pay up.
And, despite the wishes of Terry Moran the Commonwealth is hardly slowing down the areas of public administration in which it wishes to become involved.
The last article discussed the grand bargain that never was.
It was a pity a succession struggle within the federal ALP derailed an attempt of a grand bargain.
We remain of the view there should be a grand bargain establishing:
1. which level of government should have responsibility for particular public policy areas;
2. what taxation bases should be assigned to the states and territories; and
3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:
(a) indirectly, through an agreement made under section 96 of the Constitution; or
(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.
Clearly, the proposed tax forum to discuss the Henry Tax Review to be held on 4 and 5 October 2011 would be the perfect opportunity
Except it won’t happen.
The forum will apparently:
....continue the decade-long conversation we started with the release of Australia's Future Tax System (AFTS) Review last year. It will focus on the broad sweep of topics in the Review, with sessions to discuss personal tax, transfer payments, business tax, state taxes, environmental and social taxes, and system governance.
But won’t discuss the GST, areas of the Henry Review the Government has already indicated it won’t implement and most importantly what elements of the federation will perform which function.
This is a wasted opportunity.
Showing posts with label COAG reform. Show all posts
Showing posts with label COAG reform. Show all posts
28 June 2011
The Challenges of Federalism
As a broad policy issue federalism is bubbling away.
One bubble about the burst is the decision of the Government to impose a minerals mining resource tax.
The tension arises because one element of the scheme is the provision of a full credit for state royalties paid by a miner.
To limit this exposure, the Feds have been stepping up the pressure on states not to increase royalty rates payable on the extraction of minerals – one of the few ‘own source’ revenues remaining to state level governments.
This is irksome to Western Australia, which relies heavily on royalties revenue.
As Ken Wilshire said in a recent opinion piece:
This is no way to run a federation. Ask the Canadians, who have long faced the challenge of maintaining balance between their resource-rich western provinces and Ottawa. The difference there is that the provinces have a clear and appropriate taxation base. In Canada, as in every federation in the world except Australia, the states have full income taxation powers. (Resource-rich Alberta, home of Prime Minister Stephen Harper, has often had the lowest income taxes made possible by resources taxes.) And progressive federations such as Germany have tax sharing arrangements of a rational nature.
All this points to the way forward for Australia. The forthcoming tax summit must discuss federal finances and especially the hopeless vertical financial imbalance because of the dominance of the national government in taxation. This will forever divide the nation if not corrected. It is badly distorting the accountability of all governments to their electors.
Henry Ergas has said similar things:
The states' abject financial dependence on the commonwealth causes constant conflicts and inefficiencies, while the redistribution of tax revenues from richer to poorer states has reduced the states' incentive and ability to adjust to changing circumstances.
On 8 June 2011 the Secretary of the Prime Minister’s Department (Terry Moran) gave a speech called the Challenges of Federalism.
He largely lauded the 2008 Intergovernmental Agreement on Federal Financial Relations which established an institutional framework as the basis to establish jurisdictional cooperation.
He then listed three things the States could do:
First, the states should continue to work with the Commonwealth to ensure the Intergovernmental Agreement achieves its goal of focused, incentive-based program delivery.
This is especially important in health, education, skills and workforce development, disability services, affordable housing and indigenous reform.
Second, the states should engage seriously with the review of Horizontal Fiscal Equalisation, and ensure the incentives in the arrangements are consistent with good governance and continuing reform.
And, third, the states should deliver on the promise they made when the GST was introduced, to reform their own tax bases in return for the stability of funding it provides.
Unless the states can rise to these challenges, there is a risk that the public will expect the Commonwealth to be more assertive in dealing with them – and that poses the risks of weakening the connection between government and citizens at the local level.
He then listed three things the Feds could do:
First, the Commonwealth must continue to restrain its tendency to control an excessive number of inputs on national Specific Purpose Payments.
Second, the Commonwealth should allow for and support localised approaches to reform, and rely less on all-embracing boilerplate policies and programs once the basic system architecture is agreed.
And, third, the Commonwealth should move towards strategic partnerships with the states and territories where it makes sense to share accountability for outcomes.
Moran finally mentioned a concept of the ‘grand deal’.
The concept of a grand bargain has an interesting history. In 1976, Malcolm Fraser sought to counter what he saw as the excesses of the Whitlam years with a proposal to share the income tax base, providing the states with a more reliable source of revenue. Bob Hawke tried again in 1990 and 1991 with a different proposal: taxation powers would be reallocated in return for the states taking clear responsibility for particular areas of policy, including some areas within the Commonwealth’s authority. That proposal was fateful – or should I say fatal, at least for Bob Hawke, after Paul Keating used it as a weapon in his fight with Hawke for the prime ministership.
There is indeed a history to the ‘grand bargain’. It is reviewed in the next article, followed by an article that proposes how the federalism debate can advance.
One bubble about the burst is the decision of the Government to impose a minerals mining resource tax.
The tension arises because one element of the scheme is the provision of a full credit for state royalties paid by a miner.
To limit this exposure, the Feds have been stepping up the pressure on states not to increase royalty rates payable on the extraction of minerals – one of the few ‘own source’ revenues remaining to state level governments.
This is irksome to Western Australia, which relies heavily on royalties revenue.
As Ken Wilshire said in a recent opinion piece:
This is no way to run a federation. Ask the Canadians, who have long faced the challenge of maintaining balance between their resource-rich western provinces and Ottawa. The difference there is that the provinces have a clear and appropriate taxation base. In Canada, as in every federation in the world except Australia, the states have full income taxation powers. (Resource-rich Alberta, home of Prime Minister Stephen Harper, has often had the lowest income taxes made possible by resources taxes.) And progressive federations such as Germany have tax sharing arrangements of a rational nature.
All this points to the way forward for Australia. The forthcoming tax summit must discuss federal finances and especially the hopeless vertical financial imbalance because of the dominance of the national government in taxation. This will forever divide the nation if not corrected. It is badly distorting the accountability of all governments to their electors.
Henry Ergas has said similar things:
The states' abject financial dependence on the commonwealth causes constant conflicts and inefficiencies, while the redistribution of tax revenues from richer to poorer states has reduced the states' incentive and ability to adjust to changing circumstances.
On 8 June 2011 the Secretary of the Prime Minister’s Department (Terry Moran) gave a speech called the Challenges of Federalism.
He largely lauded the 2008 Intergovernmental Agreement on Federal Financial Relations which established an institutional framework as the basis to establish jurisdictional cooperation.
He then listed three things the States could do:
First, the states should continue to work with the Commonwealth to ensure the Intergovernmental Agreement achieves its goal of focused, incentive-based program delivery.
This is especially important in health, education, skills and workforce development, disability services, affordable housing and indigenous reform.
Second, the states should engage seriously with the review of Horizontal Fiscal Equalisation, and ensure the incentives in the arrangements are consistent with good governance and continuing reform.
And, third, the states should deliver on the promise they made when the GST was introduced, to reform their own tax bases in return for the stability of funding it provides.
Unless the states can rise to these challenges, there is a risk that the public will expect the Commonwealth to be more assertive in dealing with them – and that poses the risks of weakening the connection between government and citizens at the local level.
He then listed three things the Feds could do:
First, the Commonwealth must continue to restrain its tendency to control an excessive number of inputs on national Specific Purpose Payments.
Second, the Commonwealth should allow for and support localised approaches to reform, and rely less on all-embracing boilerplate policies and programs once the basic system architecture is agreed.
And, third, the Commonwealth should move towards strategic partnerships with the states and territories where it makes sense to share accountability for outcomes.
Moran finally mentioned a concept of the ‘grand deal’.
The concept of a grand bargain has an interesting history. In 1976, Malcolm Fraser sought to counter what he saw as the excesses of the Whitlam years with a proposal to share the income tax base, providing the states with a more reliable source of revenue. Bob Hawke tried again in 1990 and 1991 with a different proposal: taxation powers would be reallocated in return for the states taking clear responsibility for particular areas of policy, including some areas within the Commonwealth’s authority. That proposal was fateful – or should I say fatal, at least for Bob Hawke, after Paul Keating used it as a weapon in his fight with Hawke for the prime ministership.
There is indeed a history to the ‘grand bargain’. It is reviewed in the next article, followed by an article that proposes how the federalism debate can advance.
19 February 2011
Forget What We Said Earlier: COAG, Still the Fourth Tier of Government
We have previously noted that some people such as WA Premier Colin Barnett have suggested that COAG is becoming another tier of government.
The content of the COAG communiqué of 13 February 2011 suggests the tendency is continuing.
The main event was the signing of the Heads of Agreement on National Health Reform
However, other matters were dealt with.
A National Vocational Education and Training Regulator is to be established to ‘drive better quality standards and regulation across the Australian VET sector'.
This new body will join the Australian Health Practitioners Regulatory Agency, the National Occupational Licensing Authority and the Australian Curriculum Assessment and Reporting Authority as brand new national bodies to drive and determine a single set of national standards.
Another decision was to speed up the Seamless National Economy from June 2013 to December 2012, with options to be developed for a further wave of regulatory and competition reforms.
This will undoubtedly lead to the development of more national regulation.
However, the most interesting development was the establishment of Standing Councils to operate under COAG, designed to:
The idea is to:
However, this classic ‘executive federalism’ model of governance suffers from one significant deficiency – ‘democratic deficit’.
The somewhat murky structure of the proposed new ministerial council process makes it difficult to see how anyone interested in a policy matter (other than larger players with the capacity to maintain a Canberra presence) will have the capacity to adequately participate in the regulation development process.
More particularly, once a COAG Council has ‘undertaken a legislative function’ (which presumably means approving a draft national law to be passed by (usually) state parliaments) one fears the opportunity to amend what could be a bad law will be limited because as COAG (or, in this case, a National Council of COAG) said a law has to pass, and so it will.
We harbour sincere doubts that this manner of rule making will necessarily lead to better laws.
However, one thing illustrated by the COAG communiqué is that even though Council membership may no longer be wall to wall Labor, the introduction of non-Labor members has not changed the function of COAG as another tier of government determining the rules of the Australian federation without any parliamentary oversight.
Plus ca change, plus c'est la meme chose.
The content of the COAG communiqué of 13 February 2011 suggests the tendency is continuing.
The main event was the signing of the Heads of Agreement on National Health Reform
However, other matters were dealt with.
A National Vocational Education and Training Regulator is to be established to ‘drive better quality standards and regulation across the Australian VET sector'.
This new body will join the Australian Health Practitioners Regulatory Agency, the National Occupational Licensing Authority and the Australian Curriculum Assessment and Reporting Authority as brand new national bodies to drive and determine a single set of national standards.
Another decision was to speed up the Seamless National Economy from June 2013 to December 2012, with options to be developed for a further wave of regulatory and competition reforms.
This will undoubtedly lead to the development of more national regulation.
However, the most interesting development was the establishment of Standing Councils to operate under COAG, designed to:
undertake legislative and governance functions relevant to their scope, and provide an annual report to COAG which includes an overview of the decisions made by the Council. (our emphasis)
The idea is to:
….(provide) a clear role for Ministers from all jurisdictions to support COAG in tackling 21st century policy challenges. There will be sustained collaborative effort on the long-term reform agenda while allowing for the flexibility needed to address more urgent challenges.
However, this classic ‘executive federalism’ model of governance suffers from one significant deficiency – ‘democratic deficit’.
The somewhat murky structure of the proposed new ministerial council process makes it difficult to see how anyone interested in a policy matter (other than larger players with the capacity to maintain a Canberra presence) will have the capacity to adequately participate in the regulation development process.
More particularly, once a COAG Council has ‘undertaken a legislative function’ (which presumably means approving a draft national law to be passed by (usually) state parliaments) one fears the opportunity to amend what could be a bad law will be limited because as COAG (or, in this case, a National Council of COAG) said a law has to pass, and so it will.
We harbour sincere doubts that this manner of rule making will necessarily lead to better laws.
However, one thing illustrated by the COAG communiqué is that even though Council membership may no longer be wall to wall Labor, the introduction of non-Labor members has not changed the function of COAG as another tier of government determining the rules of the Australian federation without any parliamentary oversight.
Plus ca change, plus c'est la meme chose.
03 February 2011
2011 - The Year Ahead
The 2011 political year is now beginning. Here are some of the issues that will influence how it pans out.
The upcoming NSW Drubbing
It will not be an issue of whether NSW Labor will lose government on 26 March.
Rather, given that that the ALP primary vote is as low as 24% the question will be by how far.
The Hunter and the Illawarra no longer have the industrial bases of times of yore, making it more receptive to the very small ‘c’ conservatism of the Coalition, whilst the inner city is turning Green.
The glue that bound the labour movement – a wish to express solidarity with the working class – has lost its power to bind.
This reality, together with the poor condition of ‘brand Labor’ means that this could be a ‘transformational election’ – where tribal voters irrevocably change allegiance.
This could have federal ramifications as the NSW model has been the model of governance has been the template for Federal Labor.
Massively reject NSW Labor, the question of ‘what does Labor mean in the 21st century mean?’ will more broadly resonate.
Then there is the next challenge:
The Greens
The new Senate is sworn in on 1 July. From that date the dynamics of the chamber changes. All it needs is for the Government and Greens to vote together to enable matters to pass.
How will Labor handle this? Will it be like Tasmania or the ACT in which the parties act more like a coalition presenting to the chamber pre-agreed outcomes, or will there be an attempt of product differentiation between them?
Following the Queensland floods, the Prime Minister has announced the abolition, deferral or capping of a number of carbon abatement schemes, including the Green Car Innovation Fund, Cleaner Car Rebate Scheme, the Carbon Capture and Storage Flagships and Solar Flagships, the Solar Hot Water Rebate, Green Start Program, Solar Homes and Communities Plan and the Global Carbon Capture and Storage Institute – policy outcomes that will clearly rile the Greens.
However, at the same time she proposes retaining a price on carbon, something to the Prime Minister apparently akin to the floating of the dollar (as she told the National Press Club) or a driver of ‘another technological revolution like Information Technology did in the 1980s and 90s’ (as she told a recent CEDA luncheon).
Two lessons flowed from the Victorian election.
The first was that in deciding not to provide the Greens any preferences, the Victorian Libs proved that you can take on the Greens without being seen as anti-environmentalist and suffer an electoral backlash.
The second lesson was that suburbia is feeling the pinch of high utility prices.
This will be an increasing factor to take into account when ‘putting a price on carbon’ is ultimately unambiguously translated as being ‘increasing electricity costs’ as the carbon debate comes to a climax during 2011.
The Government’s attempts to balance its environmental credentials will be interesting.
Then there is:
Dealing with the States
We have commented before about the need for the Government to fund the social democratic project.
And so the Commonwealth is seeking to claw back some GST payments to the states to pay for hospital reform, whilst the current minerals resource rent tax will be used to (ultimately) increase superannuation payments to employees and ‘build essential infrastructure’.
The Commonwealth also wants to impose ‘pre-commitment’ technology on poker machines, in an endeavour to reduce problem gambing – and to give effect to a major policy concern of Andrew Wilkie, one of those on whom the Government is relying to maintain government.
However, the states are most unhappy.
Queensland’s Anna Bligh was reported as saying that ‘we are very clear here in Queensland that constitutionally as a sovereign state in our own right, we reserve the right to set appropriate royalties which are returned to Queenslanders for the minerals that are taken out of our state’.
The Victorian Coalition government's Resources Minister, Michael O'Brien, said he would not allow his state's taxpayers to "fill the federal Labor government's budget black hole", insisting royalties had always been a state right.
Finally, WA Premier Colin Barnett said his state would not hand over GST revenues.
Then there is the gambling issue, with some states concerned of (amongst other things) impact on gambling revenues – one of the few own source revenue streams left to the states,
Given that it appears the ‘tax summit’ to discuss the proposals contained in the Henry review is intended to be not much more than a talkfest, COAG will be a forum where the issue of dealing with vertical fiscal imbalance and the role of the states in the 21st century Australia will be a major issue – particularly as there are two (and very shortly, probably three) states with non-Labor governments this year.
This is before dealing with policy changes necessary to bring the budget back to surplus by 2013.
2011 will be one of the more interesting political years.
The upcoming NSW Drubbing
It will not be an issue of whether NSW Labor will lose government on 26 March.
Rather, given that that the ALP primary vote is as low as 24% the question will be by how far.
The Hunter and the Illawarra no longer have the industrial bases of times of yore, making it more receptive to the very small ‘c’ conservatism of the Coalition, whilst the inner city is turning Green.
The glue that bound the labour movement – a wish to express solidarity with the working class – has lost its power to bind.
This reality, together with the poor condition of ‘brand Labor’ means that this could be a ‘transformational election’ – where tribal voters irrevocably change allegiance.
This could have federal ramifications as the NSW model has been the model of governance has been the template for Federal Labor.
Massively reject NSW Labor, the question of ‘what does Labor mean in the 21st century mean?’ will more broadly resonate.
Then there is the next challenge:
The Greens
The new Senate is sworn in on 1 July. From that date the dynamics of the chamber changes. All it needs is for the Government and Greens to vote together to enable matters to pass.
How will Labor handle this? Will it be like Tasmania or the ACT in which the parties act more like a coalition presenting to the chamber pre-agreed outcomes, or will there be an attempt of product differentiation between them?
Following the Queensland floods, the Prime Minister has announced the abolition, deferral or capping of a number of carbon abatement schemes, including the Green Car Innovation Fund, Cleaner Car Rebate Scheme, the Carbon Capture and Storage Flagships and Solar Flagships, the Solar Hot Water Rebate, Green Start Program, Solar Homes and Communities Plan and the Global Carbon Capture and Storage Institute – policy outcomes that will clearly rile the Greens.
However, at the same time she proposes retaining a price on carbon, something to the Prime Minister apparently akin to the floating of the dollar (as she told the National Press Club) or a driver of ‘another technological revolution like Information Technology did in the 1980s and 90s’ (as she told a recent CEDA luncheon).
Two lessons flowed from the Victorian election.
The first was that in deciding not to provide the Greens any preferences, the Victorian Libs proved that you can take on the Greens without being seen as anti-environmentalist and suffer an electoral backlash.
The second lesson was that suburbia is feeling the pinch of high utility prices.
This will be an increasing factor to take into account when ‘putting a price on carbon’ is ultimately unambiguously translated as being ‘increasing electricity costs’ as the carbon debate comes to a climax during 2011.
The Government’s attempts to balance its environmental credentials will be interesting.
Then there is:
Dealing with the States
We have commented before about the need for the Government to fund the social democratic project.
And so the Commonwealth is seeking to claw back some GST payments to the states to pay for hospital reform, whilst the current minerals resource rent tax will be used to (ultimately) increase superannuation payments to employees and ‘build essential infrastructure’.
The Commonwealth also wants to impose ‘pre-commitment’ technology on poker machines, in an endeavour to reduce problem gambing – and to give effect to a major policy concern of Andrew Wilkie, one of those on whom the Government is relying to maintain government.
However, the states are most unhappy.
Queensland’s Anna Bligh was reported as saying that ‘we are very clear here in Queensland that constitutionally as a sovereign state in our own right, we reserve the right to set appropriate royalties which are returned to Queenslanders for the minerals that are taken out of our state’.
The Victorian Coalition government's Resources Minister, Michael O'Brien, said he would not allow his state's taxpayers to "fill the federal Labor government's budget black hole", insisting royalties had always been a state right.
Finally, WA Premier Colin Barnett said his state would not hand over GST revenues.
Then there is the gambling issue, with some states concerned of (amongst other things) impact on gambling revenues – one of the few own source revenue streams left to the states,
Given that it appears the ‘tax summit’ to discuss the proposals contained in the Henry review is intended to be not much more than a talkfest, COAG will be a forum where the issue of dealing with vertical fiscal imbalance and the role of the states in the 21st century Australia will be a major issue – particularly as there are two (and very shortly, probably three) states with non-Labor governments this year.
This is before dealing with policy changes necessary to bring the budget back to surplus by 2013.
2011 will be one of the more interesting political years.
10 November 2010
COAG - Quo Vadis?
We have previously indicated it is time to decide:
1. which level of government should have responsibility for particular public policy areas;
2. what taxation bases should be assigned to the states and territories; and
3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:
(a) indirectly, agreements made under section 96 of the Constitution; or
(b) a reference of power by the states to the Commonwealth or directly by the states or by constitutional amendment.
The political class really must come out one way or another and declare whether Australian States are either:
1. ‘incubators of innovation’ within a country where there is genuine ‘competitive federalism’ –where different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is ‘best practice’ or face the loss of people and investment; or
2. effectively English style County Councils providing a narrow range of services within an Australia with a single seamless economy with a centrally set of rules and taxation levels in force uniformly throughout the country.
The Senate has quietly formed a Select Committee on the Reform of the Australian Federation.
Only constitutional (and parliamentary) savants would have known that the Committee existed.
It would appear that some respondents are disposed towards something called a ‘Convention for the Federation’.
Others submissions are keen to ensure that the position of COAG within the federation is either formalised or, at the very least, clarified.
The Select Committee is currently to report by 17 November 2010.
In our view the work of:
(a) the Select Committee (and its submitters);
(b) the Henry Review on Taxation;
(c) the treasury heads report to be prepared for COAG; and
(d) a ‘Domesday Book’ which would look something like the List of Australian Government Bodies and Governance Relationships, and would assist in identifying what governments actually do and what duplications exist
would both form the basis of developing suitable terms of reference of a ‘Convention for the Federation’ as well as commence the conversation that would accompany the creation of such a body.
It will be interesting to see how reform of the federation will fare within Canberra’s ‘new political paradigm’.
1. which level of government should have responsibility for particular public policy areas;
2. what taxation bases should be assigned to the states and territories; and
3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:
(a) indirectly, agreements made under section 96 of the Constitution; or
(b) a reference of power by the states to the Commonwealth or directly by the states or by constitutional amendment.
The political class really must come out one way or another and declare whether Australian States are either:
1. ‘incubators of innovation’ within a country where there is genuine ‘competitive federalism’ –where different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is ‘best practice’ or face the loss of people and investment; or
2. effectively English style County Councils providing a narrow range of services within an Australia with a single seamless economy with a centrally set of rules and taxation levels in force uniformly throughout the country.
The Senate has quietly formed a Select Committee on the Reform of the Australian Federation.
Only constitutional (and parliamentary) savants would have known that the Committee existed.
It would appear that some respondents are disposed towards something called a ‘Convention for the Federation’.
Others submissions are keen to ensure that the position of COAG within the federation is either formalised or, at the very least, clarified.
The Select Committee is currently to report by 17 November 2010.
In our view the work of:
(a) the Select Committee (and its submitters);
(b) the Henry Review on Taxation;
(c) the treasury heads report to be prepared for COAG; and
(d) a ‘Domesday Book’ which would look something like the List of Australian Government Bodies and Governance Relationships, and would assist in identifying what governments actually do and what duplications exist
would both form the basis of developing suitable terms of reference of a ‘Convention for the Federation’ as well as commence the conversation that would accompany the creation of such a body.
It will be interesting to see how reform of the federation will fare within Canberra’s ‘new political paradigm’.
The slow breakdown of COAG – Part 2
Gerry Gleeson formally ran the NSW Public Service.
He said in a recent speech:
A review of the COAG process is to be conducted by the heads of Australian treasuries.
The review will look at how well the interlocking COAG agreements are operating as well as whether there is a need for clearly specified responsibilities for governments as well as the development of sufficient performance benchmarks.
Unfortunately, one thing not reviewed is the overall capacity of the states and territories to fund any identified ‘clearly specified responsibilities’.
In that context it is interesting to see the emergence of the relationship between the payment of the proposed mineral resources rent tax (MRRT) and state based royalties as an issue.
According to the mining companies (BHP Billiton, Rio Tinto and Xstrata) a term of the document that allowed the ALP to say there was an ‘agreement’ about a mining tax before the election was a promise the Commonwealth would refund the value of state and territory royalties paid by the mining industry.
The Feds now claim that refunds will be paid on the basis of the relevant formula (or any announced variations) in force as at 2 May 2010 - the day the agreement was made was made.
This poses the question of what happens if a state increases a royalty amount.
The Sydney Morning Herald reports that the Government may withhold transfer payments to the States such as the GST if they effectively challenge the collection rate from the mining tax by increasing royalties.
We had anticipated this probable outcome:
Whatever the merits of having the Commonwealth regulate gambling, the decision again attacks the capacity of states and territories to make spending decisions confident that there is a stream of ‘own source’ income available to support the decision.
Whilst it may not be immediately apparent to the players, the issues of who does what in the Australian federation and how states should receive the funds to discharge ‘allocated responsibilities’ are now coming to a head.
He said in a recent speech:
Gleeson implicitly gives COAG the status of a parliament – something the political players have now tumbled to:Both parties, nationally, seem determined to diminish and erode the powers of the states.
State governments must accept that the Council of Australian Governments will play an increasingly important role in formulating national policies. NSW must not abdicate policy development. We must be leaders and not followers. NSW must be represented at COAG by highly talented officers with passion, purpose and policies to ensure the state gets a fair go.
Critics of COAG have included Mr Barnett, who has said that COAG has become almost a new tier of government and lacks accountability and transparency. Mr Barnett has said that with 43 ministerial councils, it was too much....
A review of the COAG process is to be conducted by the heads of Australian treasuries.
The review will look at how well the interlocking COAG agreements are operating as well as whether there is a need for clearly specified responsibilities for governments as well as the development of sufficient performance benchmarks.
Unfortunately, one thing not reviewed is the overall capacity of the states and territories to fund any identified ‘clearly specified responsibilities’.
In that context it is interesting to see the emergence of the relationship between the payment of the proposed mineral resources rent tax (MRRT) and state based royalties as an issue.
According to the mining companies (BHP Billiton, Rio Tinto and Xstrata) a term of the document that allowed the ALP to say there was an ‘agreement’ about a mining tax before the election was a promise the Commonwealth would refund the value of state and territory royalties paid by the mining industry.
The Feds now claim that refunds will be paid on the basis of the relevant formula (or any announced variations) in force as at 2 May 2010 - the day the agreement was made was made.
This poses the question of what happens if a state increases a royalty amount.
The Sydney Morning Herald reports that the Government may withhold transfer payments to the States such as the GST if they effectively challenge the collection rate from the mining tax by increasing royalties.
We had anticipated this probable outcome:
The fact is the federal government requires a lot of money to fund the broad ‘social democratic project’ established by pl.51(xxiii) and (xxiiiA) of the Constitution –income transfer payments, health, hospitals and (undoubtedly in the immediate future) disability support and will need more money (and not less) as an increasing number of worthy needs are identified as requiring support in a country with an aging population and an atomising society.As The Australian reported, the WA Premier has made his views clear:
A simple illustration: an portion of the proposed RRT is to help ‘build the roads, rail, ports, electricity and water supply, and other facilities needed to unlock Australia’s resource wealth’.Like housing, health and education, these are subject matters formally considered to be largely state responsibilities increasingly falling under Commonwealth control.
The Feds will increasingly need tax revenues to fund their projects in these areas on their terms. Then there is the ‘seamless economy’ and the wish to remove duplication.
Currently, the Government proposes that miners pay both royalties and the RRT, with royalty payments a claimable tax rebate. But it won’t be too long before calls are made that this is an inefficient way of doing things – only one tax should be levied (in this case) on the extraction of minerals. There isn’t much doubt which tax will go. (our emphasis)
In its 28 October letter to the Policy Transition Group (the Committee assisting the Government in implementing the MRRT) the Chamber of Minerals and Energy of Western Australia’s (CME) makes some pretty obvious points:
Referring to the Rudd government's initial resource super-profits tax, Barnett says: ‘With 65 per cent of this revenue coming from Western Australia, it was seen as an attack on the mining industry and on our resource income base. People talk about these resources belonging to all Australians. Well, constitutionally, they don't. They belong to the people of each state.
In relation to state royalties, CME has always maintained a strong preference for retention of the current state regime, administered by the state government and with revenues flowing to the state. The state has prime responsibility for resource project approvals and the provision of non-privately owned infrastructure. As such, it is imperative the state government maintains and receives a dividend for WA resources.It is now reported in The Age that the Treasury ‘is considering using its tax power in the constitution to 'pursue unilateral legislation’ for poker machine reforms.’
Whatever the merits of having the Commonwealth regulate gambling, the decision again attacks the capacity of states and territories to make spending decisions confident that there is a stream of ‘own source’ income available to support the decision.
Whilst it may not be immediately apparent to the players, the issues of who does what in the Australian federation and how states should receive the funds to discharge ‘allocated responsibilities’ are now coming to a head.
The Slow Breakdown of COAG - Part 1
The slow breakdown of COAG – Part 1
NSW Labor leader Kristina Keneally is leading the most unpopular Labor Government in the history of Newspoll.
To stay relevant, she is playing to her core constituencies.
One of the ways she is trying to ‘save the furniture’ is to renege on promises made to accept changes to the NSW occupational health and safety (OHS) issue to permit OHS to be harmonised around Australia.
This is an interesting development. As we said at the time the OHS intergovernmental agreement was made:
As the Sydney Morning Herald said on 14 May 2009:
As one would nearly expect the Prime Minister has threatened NSW its ‘reward payments', with the Prime Minister reported as saying that 'the Council of Australian Governments must work on the basis that jurisdictions honour their commitments.'
This yet again raises the issue of the proper function of COAG within the Australian federation.
This will be discussed in the next couple of articles.
NSW Labor leader Kristina Keneally is leading the most unpopular Labor Government in the history of Newspoll.
To stay relevant, she is playing to her core constituencies.
One of the ways she is trying to ‘save the furniture’ is to renege on promises made to accept changes to the NSW occupational health and safety (OHS) issue to permit OHS to be harmonised around Australia.
This is an interesting development. As we said at the time the OHS intergovernmental agreement was made:
It is disingenuous for Keneally to argue her position on not agreeing to harmonised OHS provisions is the same as WA. At least WA refused to sign the agreement. NSW folded.As part of the (Workplace Relations Ministerial Council) 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
As the Sydney Morning Herald said on 14 May 2009:
(Then Minister) Mr Tripodi said NSW was committed to harmonisation of legislation, and he was disappointed that NSW laws allowing unions to prosecute for safety breaches were not adopted.
As one would nearly expect the Prime Minister has threatened NSW its ‘reward payments', with the Prime Minister reported as saying that 'the Council of Australian Governments must work on the basis that jurisdictions honour their commitments.'
This yet again raises the issue of the proper function of COAG within the Australian federation.
This will be discussed in the next couple of articles.
16 October 2009
When Should Legislation be Federalised?
Safe Work Australia has now published an exposure draft of occupational health and safety legislation to be largely adopted by Australian jurisdictions.
It was accompanied by a consultation regulatory impact statement prepared by Access Economics, which proves again that the ‘seamless economy’ agenda is for the big end of town.
As it says in the part of the RIS dealing with impact on businesses:
As various pieces of economic literature have suggested, state level governments within a federation should minimise taxing highly mobile tax bases.
Using similar logic, perhaps there should be a threshold test applied when redesignating responsibilities within the Australian federation so that if the thing being regulated is either fixed in one spot (in particular, anything fixed to the land), or happens at a particular spot (for example, law and order issues, or the provision of services to residents) it is appropriate for legislation to be state or territory based.
However, if it is genuinely something that is mobile - for instance either the trade of goods (particularly consumer goods) capable of easy movement across state borders or the setting of performance standards for such moveable goods - it is more appropriate for national regulation.
This would appear to maximise economic efficiency, without overly forfeiting all the advantages of competitive federalism, or, if in particular if the outcome is government by COAG committee, of democracy itself.
It was accompanied by a consultation regulatory impact statement prepared by Access Economics, which proves again that the ‘seamless economy’ agenda is for the big end of town.
As it says in the part of the RIS dealing with impact on businesses:
Access says in its conclusion:While dealing with multiple OHS regimes does impose significant costs on a number of businesses, only a small proportion of businesses are affected.
Not only are the vast majority of Australian businesses small, but
the Productivity Commission (2004) estimated that 99% of Australian businesses only operated within one jurisdiction in 1998.
Of the businesses that do operate in multiple jurisdictions, nearly two-thirds (65%) only operate in one other jurisdiction than their home one (ABS, 2007).
Even for large businesses with over 200 employees, the Productivity Commission (2004) reported that the majority (58%) still only operate within one jurisdiction.However, of the remaining large businesses that operate across jurisdictions, they tend to have operations in around five jurisdictions on average (ABS,2007).
These ratios are somewhat different if weighted by employees. While only 0.3% of businesses have more than 200 employees, according to the Productivity Commission, these businesses accounted for 44% of private sector employment. Because of large businesses’ higher propensity to operate across borders, and large employment share, this means that an estimated 28.5% of private sector workers are employed in businesses that operate in multiple jurisdictions.
An ‘overall marginal to small net benefit seems a small reason to change the legislative requirements for 99% of the regulated cohort – not to mention the loss of clear political responsibility for the development of OHS law in Australia as it passes from parliaments to an unelected COAG ministerial council.The costs and benefits of the model Act are small and not readily quantifiable.
The qualitative assessment so far suggests that the model Act is expected to bring medium sized benefits for business, principally in reduced red tape for multi-jurisdiction operations. These will be partially offset by a small increase in adjustment costs…. There will probably be some small safety benefits for workers, with no significant offsetting costs to workers. There will be a small increase in adjustment costs for government (relative to such ongoing costs in the counterfactual); partly offset by some marginal benefits in improved compliance efficiency.
Combining these effects, Access Economics expects that the model Act will confer an overall marginal to small net benefit.
As various pieces of economic literature have suggested, state level governments within a federation should minimise taxing highly mobile tax bases.
Using similar logic, perhaps there should be a threshold test applied when redesignating responsibilities within the Australian federation so that if the thing being regulated is either fixed in one spot (in particular, anything fixed to the land), or happens at a particular spot (for example, law and order issues, or the provision of services to residents) it is appropriate for legislation to be state or territory based.
However, if it is genuinely something that is mobile - for instance either the trade of goods (particularly consumer goods) capable of easy movement across state borders or the setting of performance standards for such moveable goods - it is more appropriate for national regulation.
This would appear to maximise economic efficiency, without overly forfeiting all the advantages of competitive federalism, or, if in particular if the outcome is government by COAG committee, of democracy itself.
16 April 2009
The Seamless Economy Regulatory Project - Some Reforms
This series of articles illustrate that the manner by which Australian legislation is made is changing.
The articles show that whilst some consultation is undertaken at the margins, in many circumstances once something forms part of an intergovernmental agreement (an IGA) or is contained in a COAG resolution, it is next to cast in stone.
This leads to an undesirable democracy deficit.
A parliamentary process allowing the review of decisions emanating from the COAG process should be formalised.
In June 2008 the House of Representatives Standing Committee on Legal and Constitutional Affairs published a paper discussing constitutional reform.
The sole recommendation contained in the paper is that intergovernmental agreements should be automatically referred to a parliamentary committee for scrutiny and report to the Parliament.
This idea should be adopted.
It should also apply to draft bills that flow from an IGA.
IGAs and draft bills should also be referred to relevant committees of state and territory parliaments such as the Western Australian Uniform Legislation and Statutes Review Committee.
There should also be some capacity to permit parliamentary review where some COAG recognised body such as a Ministerial Council can make rules and regulations having the full force of law, such as the capacity to make standards for the national scheme for health professionals referred to in an earlier article in this series.
Thus, if a parliament of a participating jurisdiction disallows a subordinate instrument made by a ministerial council within the period of time that state or territory law permits the disallowance of subordinate instruments, the instument should be taken not to be in force anywhere in Australia.
In this way, the interests of all stakeholders can be heard, better legislation developed and the protections of a federal system of government retained whilst allowing the development of harmonised regulations that are seen as necessary to allow the Seamless Economy to efficiently function.
Decision makers in companies and industry associations will have to establish strategies to ensure their interests are protected as the new regulations underpinning the Seamless Economy develop.
The articles show that whilst some consultation is undertaken at the margins, in many circumstances once something forms part of an intergovernmental agreement (an IGA) or is contained in a COAG resolution, it is next to cast in stone.
This leads to an undesirable democracy deficit.
A parliamentary process allowing the review of decisions emanating from the COAG process should be formalised.
In June 2008 the House of Representatives Standing Committee on Legal and Constitutional Affairs published a paper discussing constitutional reform.
The sole recommendation contained in the paper is that intergovernmental agreements should be automatically referred to a parliamentary committee for scrutiny and report to the Parliament.
This idea should be adopted.
It should also apply to draft bills that flow from an IGA.
IGAs and draft bills should also be referred to relevant committees of state and territory parliaments such as the Western Australian Uniform Legislation and Statutes Review Committee.
There should also be some capacity to permit parliamentary review where some COAG recognised body such as a Ministerial Council can make rules and regulations having the full force of law, such as the capacity to make standards for the national scheme for health professionals referred to in an earlier article in this series.
Thus, if a parliament of a participating jurisdiction disallows a subordinate instrument made by a ministerial council within the period of time that state or territory law permits the disallowance of subordinate instruments, the instument should be taken not to be in force anywhere in Australia.
In this way, the interests of all stakeholders can be heard, better legislation developed and the protections of a federal system of government retained whilst allowing the development of harmonised regulations that are seen as necessary to allow the Seamless Economy to efficiently function.
Decision makers in companies and industry associations will have to establish strategies to ensure their interests are protected as the new regulations underpinning the Seamless Economy develop.
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