Election 2010

Labor clearly won the first part of week 1 of the campaign for the 21 August federal election.

They commenced as frontrunners, with publicly available opinion polls suggesting they were ahead 55/45.

They were also aided by a slow start from the Liberals as well as confusion over the Opposition’s industrial relations policy.

The previous Workchoices policy was supposed to be ‘dead buried and cremated’ - however, Liberal spokesmen suggested the legislation could still be ‘tweaked’ (whatever that meant).

The great difference between Workchoices and the current legislation is the primacy of the industrial award as the basis of determining wages and conditions, as opposed Workchoice’s built in bias towards some form of individual contract.

Why they couldn’t say that in Government the coalition would retain the award system and not reintroduce the concept of unfair dismissals (if that’s what they wanted to do) without winding up into knots over whether or not they would touch any sort of legislative instrument related to the Fair Work Act currently in place over the next three years is beyond us.

As for Labor, however repetitious it was, the ‘moving forward’ mantra confirmed the idea that Kevin Rudd was no longer the leader. Noting infrastructure pressures was also a sound message to sell into Middle Australia.

However, things started to slow for them midweek.

Firstly, Kevin Rudd appeared, reminding people he wasn’t dead after all. Focussing on him soaked up around two days of the campaign week.

This took from view promises both sides made on what can be claimed under the education tax refund scheme as well as the Liberal’s re-announcement of its hit list of expenditure savings.

The remainder of the week underlined the difficulty Labor has keeping its bifurcated constituencies of inner urban progressives and outer suburbanites together.

As Bernard Salt said in an Australian article on 13 August 2009, a significant and growing cultural divergence has evolved in Australian cities between different social groups between those who live in the inner city and those who live on the city’s edge.

The traditional ALP voting coalition has generally consisted of self identifying members of the labour movement, people with English as a second language, welfare recipients, public sector workers, the arts sector and high income professionals who are secularist and internationalist in orientation.

On one analysis, Julia Gillard is well placed to keep this disparate coalition together.

In the Weekend Australian on 16 February 2002, Matt Price described Julia Gillard as someone with the cheese-grater voice of a Footscray fishwife and a the multi-shaded hairstyle of a Toorak trendoid.

At a memorial service held on 14 December 2007 after Price’s death, Gillard indicated she had corrected Price, claiming she had the cheese-grater voice of an Altona fishwife and the multi-shaded hair of a Fitzroy trendoid.

Altona fishwife and Fitzroy trendoid. This sums up the disparate nature of the ALP constituency.

The danger for Labor is that they have the problem that in trying to straddle both sides of the fence they will satisfy neither trendy nor burby.

A confusing message could mean they don’t stand for anything or anyone.

For example, during the week the Prime Minister claimed that the whilst she believed in global warming and the price of inaction about it was ‘too high a price to pay’, promising an emission trading scheme some day – something for Fitzroy.

However, the political process has to be tied to a ‘community consensus’.

The result a review of the proposed ETS during 2012 – but not before a ‘citizens’ assembly’ debates the issue over 12 months to assist in building community consensus (slowing the introduction of the ETS and thus a price on carbon, with its inherently higher consumer costs that it imposes) – something for Altona.

This idea (particularly the ‘citizens’ assembly’) was universally panned – in trying to please everyone they pleased nobody.

Promising offshore processing of asylum seekers arriving by boat (something for Altona) but not at Nauru (as it hadn’t signed the UN Refugees Convention – something for Fitzroy) similarly appeared to please no-one.

A final example was where the Prime Minister argued that the population debate she commenced was less about immigrant numbers but rather where skilled migrants were going to live.

However, as ex-leader Mark Latham said, it was a phoney debate. He went on to say:

If it's not an immigration debate, it's no debate…………and I'll tell you what it is, it's a fraud. It's an attempt to con people in western Sydney that she's going to do something about congestion.

Nevertheless, these problems ultimately didn’t alter Labor’s frontrunning position.

By weeks end, the Morgan poll still showed the ALP with a 54/46 margin (with a high number of women indicating they will vote Labor), although the last Newspoll had it 52/48.

The Liberals were aided by a ‘nothing to see here move along’ debate between the two leadership contenders (which really was a joint news conference) in which Abbott won by not losing to Gillard (the more accomplished public speaker) and Abbott getting through a 7.30 Report interview unscathed.

And so the second stanza commences with the challenge for the Liberals is whether an Abbott led party can be plausibility regarded as The Champion of Suburbia as well as getting over a perceived problem with women voters.

As frontrunners, it is Labor’s challenge to show that it is not trying to be too clever by half.

Are All These Leadership Changes Healthy?

Labor has replaced Kevin Rudd with Julia Gillard.

Others have commented on the machinations leading to the change, so we will leave it to others to comment on its political benefits to the ALP, whilst history can decide whether stories of temper outbursts and dysfunctional decision making will mean Rudd will be regarded as Labor’s Billy McMahon.

We will examine matters from another angle: the parliamentary parties of the 42nd Parliament have functioned as they should have - as representatives of the constituencies they represent.

The Liberals have seen four leaders (Costello (very nominally), Nelson, Turnbull and Rudd) and the ALP two (Rudd and Gillard).

For the Liberals, the retiring Costello was replaced by Nelson, who was the most attractive ‘not Malcolm Turnbull’ candidate standing as leader.

This was appropriate for a party room not totally sharing the inner urban policy priorities that Turnbull represented – from things like placing a greater weight on the environment as an abstract issue through support of policies such as the Emission Trading Scheme (ETS) to possessing less hawkish view on boat arrivals, and so forth.

Nelson was then removed for simply not cutting it. This is rational behaviour for a parliamentary party aiming for early return to government. The party turned to Turnbull – the only candidate making himself available.

Turnbull was replaced in turn by Abbott, largely over the ETS.

It will be remembered that Turnbull staked his leadership on the policy.

He didn’t make the argument well enough to persuade the majority of the party room to abandon the views of core supporters – those who were genuinely climate sceptics or believed in the low taxation and limited government participation in the economy, as well as those for whom the fear of increased costs and possible loss of employment opportunities as a result of the introduction of the ETS trumped general concerns about ‘the environment’.

The net result is an Opposition Leader running a traditional platform for a centre right party, with its emphasis on opposing ‘great big new taxes’ on everything, preserving national security and so forth.

The Rudd/Gillard change illustrates the same dynamic.

Rudd announced so many policy initiatives to solve The Greatest Moral Threat of our Time (or similar rhetoric) in so many areas the view was formed that he overpromised and underdelivered.


The ALP (particularly the NSW Right) see themselves as the guardian of the various programmes incrementally introduced by Labor over the course of time, doing (to coin a phrase) whatever it takes – to the point of appearing nihilistic – to ensure electoral success.

Rudd’s lack of programmatic specificity in speech left this at risk.

The ALP also remains part of the overall union movement.

As Paul Howes said on Lateline on 23 June 2010:

TONY JONES, PRESENTER: One of the key moments of tonight's extraordinary developments was the announcement that the Australian Workers Union had lost
confidence in Kevin Rudd and was backing a move to Julia Gillard. Well the national secretary of the AWU is Paul Howes. He joins us in the studio. Why did you do that?

PAUL HOWES, NATIONAL SECRETARY, AUSTRALIAN WORKERS' UNION: Well we've been looking at what's in the best interests of the members of our union. We know that if Tony Abbott is elected as a prime minister of Australia, Work Choices will be back, the legislation which ripped away fairness from our workplaces will be reinstituted on our members, reimposed on our members, and we know that Labor's message had been lost for the last few weeks, and in fact months, under the Prime Minister's leadership. We have to look at what's in the best interests of our members of our union to ensure fairness remains in our member workplaces and we think that Julia Gillard is the best option to lead Labor to victory at the upcoming election.

Given the relative influence of the factions and unions over the parliamentary ALP, Caucus elected a new Prime Minister who said in her first public statement after taking the job:

And….I believe fundamentally that the basic education and health services that Australians rely on and their decent treatment at work is at risk at the next election.

I love this country and I was not going to sit idly by and watch an incoming Opposition cut education, cut health and smash rights at work.

A very traditional Labor platform.

So, there it is.

After some policy deviations the two major parties have come up with leaders reflecting their traditional values – all as a result of the parliamentary parties acting more proactively against decisions made by the executives of the parties than Australians have become accustomed.

It is now up to the electorate to decide who will form the new government.

A Parliamentary 'Dialogue' Model to Protect Human Rights

The Government has introduced the Human Rights (Parliamentary Scrutiny) Bill proposing a parliamentary joint committee on human rights.

The Committee is to examine compliance of all forms of legislation with international instruments purporting to capture the rights and freedoms of people.

They include the:

International Convention on the Elimination of All Forms of Racial Discrimination;

International Covenant on Economic, Social and Cultural Rights;

International Covenant on Civil and Political Rights;

Convention on the Elimination of All Forms of Discrimination Against Women;

Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment;

Convention on the Rights of the Child; and

Convention on the Rights of Persons with Disabilities.

The intention behind both the committee and a requirement for administrators to prepare statements of compatibility when introducing legislative instruments is the creation of a human rights ‘dialogue’.

Time will tell whether this form of ‘dialogue’ is accepted by the advocates of ‘dialogue’ between courts and the parliaments created by the human rights charters in force in the ACT and Victoria. Somehow one doubts it will.

The bona fides of government will be tested by both the time and resources the committee will be given to examine every legislative instrument prepared by government.

There are lots of legislative instruments prepared and the seven international agreements purport to confer an extremely wide range of rights.

They range from from (for example) Article 9 of the International Covenant on Economic, Social and Cultural Rights, which requires consideration of the ‘right of everyone to social security’to Article 25(a) of the Convention on the Rights of Persons with Disabilities, which requires signatories to ‘(p)rovide persons with disabilities with the same range, quality and standard of free or affordable health care and programmes as provided to other persons, including in the area of sexual and reproductive health and population-based public health programmes’.

So if this is a fair dinkum committee, it will require fair dinkum resources.

The other issue relates to the compatibility statements to accompany legislative instruments.

Subclause 9(2) of the Bill requires ‘an assessment of whether the legislative instrument is compatible with human rights’ with the explanatory memorandum to the Bill suggesting the statements are to be ‘succinct assessments aimed at informing Parliamentary debate and containing a level of analysis that is proportionate to the impact of the proposed legislation on human rights’.

Frankly, despite all the training that will (perhaps) be offered, we doubt that most ‘rule makers’ making legislative instruments would have the background to know their instrument may require consideration of one of the widely drawn rights contained in instruments listed in the Bill let alone the tricky question of determining whether an instrument is ultimately ‘compatible’ with human rights.

The jury is well and truly out as to whether this is a serious attempt at ‘dialogue’ or a mere fig leaf to cover what some may regard as another area where the government has overpromised and underdelivered.

Funding the Social Democratic Project (and the Federal Structure)- comments on the Henry Review

The Report on Australia’s Future Tax System (the Henry Report) has finally been released by the Government.

As expected from his various speeches, the Review canvasses a number of different policy areas.

It will be a smorgasbord of policy options that will be dined on over the years as was the 1975 Asprey Report.

We will satisfy ourselves with two observations.

The first is what constitutes a ‘super profit’. It would appear the starting point of what constitutes a ‘super profit’ is the ten year government bond rate (currently averaging 5.7%) – the figure identified as the ‘risk free return benchmark’.[1]

We would hope that any return above the risk free return benchmark would not become the standard benchmark for ‘super’ profits made in the (insert here the industry to be picked off) whenever government requires extra revenue.

By definition it would discourage risk taking – the very thing that keeps the economy advancing.

The second relates to the fiscal federal structure.

Economists tend to think that a federal structure is an anathema to their guide star of allocative efficiency.

Whilst begrudgingly acknowledging that Australia will have three levels of government ‘at least for the foreseeable future’[2], the Review nevertheless acknowledged that as long as State governments have significant expenditure responsibilities they should have access to significant and sustainable tax revenue with a residual own source taxation capacity to finance marginal expenditure decisions.[3]

However, the Review nevertheless recommended on efficiency grounds that a resource rent tax (RRT) replace state based royalties as the way to bring mineral extraction to taxation - with the Australian and State Governments to ‘negotiate an appropriate allocation of the revenues and risks from the resource rent tax’.[4]

The report also suggests the abolition of a slew of State based taxes.[5]

In particular, payroll tax would be replaced in favour of a broad based ‘cash flow tax’ imposed at a uniform rate across Australia (and thus deprive states the further capacity to change the rate to suit the needs of the jurisdiction).[6]

It also suggests that the States and Australian Government could share, in particular, the income tax base.[7]

It is clear that for these reforms to work, the Commonwealth would have to allow the states some access to income tax and a reasonable flow of resource rent tax revenues.

It ain’t going to happen.

The Review adopted the standard view that as the national government is better placed to coordinate actions, taxes used to redistribute income should be levied by the national government.[8]

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.

It is also the fact (undoubtedly assisted by taking in 82 per cent of total tax revenue[9]) that the Feds are assuming more and more state government responsibilities.

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.

Finally, there is the history of Australian federation.

As the report itself says:

Tax sharing of income tax operated in Australia before the Second World War, although there was little coordination between the two levels of government. In 1976, the Australian Government introduced the possibility of the States levying a personal income tax surcharge to replace financial assistance grants. No State took up the option. A key reason for this was that the Australian Government did not reduce its own tax rates to make room for the States.[10]

As the report itself admits, the States are more likely to be tied to the Deakin’s ‘chariot wheels of central government’ tighter than ever before:

The implementation of a number of recommendations related to state taxes would require cooperation between the Australian government and the states. Further, some recommendations related to Australian government taxes would also impact on State taxes……... Depending on when some of the recommendations are implemented, the states may also be subject to losses in revenue that could not easily be made up from other revenue sources (our comment – ask WA about the loss of royalties!) funding from the Australian government may at times be necessary to ensure that the financial position of a state is not adversely affected.[11]

As we have recently said, 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, 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.

The Henry Review advances the discussion.

However, following the firestorm arising from the introduction of the RRT this is a matter that should form part of the discussion at the next election.

[1] See Part C1-1 of Volume 2 of the Report (esp.p.223 and footnote 2 of page 332 of volume 1)
[2] Page 570 of Volume 2
[3] Page 574 of Volume 2
[4] Page 680 of Volume 2
[5] See table on page 680 of Volume 2
[6] Page 681 of Volume 2
[7] Page 682 of Volume 2. The Commonwealth would retain control over the tax base.
[8] Page 673 of Volume 2
[9] Page 676 of Volume 2
[10] Page 682 of Volume 2
[11] Page 684 of Volume 2

The Australian Greens - the new Country Party (or perhaps a bit more?)

Tasmania has just held an election.

After achieving 20% of the popular vote and 5 seats in a 25 seat Assembly, and deciding to prop up a minority Labor administration, the Greens now have a seat in the Tasmanian Cabinet – an Australian first.

This follows an agreement by the Greens Party in the ACT to support a minority Labor Government contained in a document perilously close to looking like an old fashioned coalition agreement.

The Greens there were able to strike their agreement after winning over 15% of the vote and 4 seats in a 17 seat legislature.

Whilst these are outcomes obtained in parliaments elected via proportional representation they could portend the future of legislatures constituted by single seat constituencies.

As demographer Bernard Salt has noted there is a social and economic division between those who live in the inner city and those who live on the city's edge:

…... I am suggesting that there is almost a regionalisation of wealth, income and culture based on urban geography.

Battlers, migrants and assorted low-income earners who formerly lived in the inner city are now being flung out, as if by some centrifugal force, to the city's edge.

What is left in the inner city is an odd coalescence of tribes - namely students, singles, couples, dinks, gays, expats, corporates, divorcees and, most important of all, the professional and entrepreneurial classes.

And to this lot I might add the entertainment, information and media glitterati. As a general principle, none of this class would ever think of living more than 10km from the city centre.

The ALP voting coalition has hitherto consisted of self identifying members of the labour movement, people with English as a second language, income transfer recipients, public sector workers, the arts sector and high income professionals who are both secularist and internationalist in orientation.

However, the Greens message - guided by the so-called ‘four pillars’ (ecological sustainability, social equality and economic justice, grassroots democracy and peace and disarmament and nonviolence,) is apparently more amenable to a ‘progressive’ middle class constituency than one put out by a regimented party with 50% union control designed to represent the ‘labour movement’ and achieving social justice primarily through the improvement of working conditions and changes to the wages and salaries system.

So, why could the Greens be the new Country Party? As the bulk of the Country/National Party votes tend to be geographically clustered, so similarly much of the Green vote is clustered in the inner city.

They are on the cusp of winning seats at state level such as Marrickville and Balmain in NSW; Melbourne, Richmond and Northcote in Victoria; and at federal level, (as Lindsay Tanner is only too well aware) seats such as Melbourne.

Recent opinion polls indicate that at state level (in particular) the ALP primary vote is dropping.

For example, the most recent polling in Victoria suggests that for the first time in a long time the Liberal/National primary vote (38%) is higher than the ALP primary vote (37%).

A hung parliament here is not unthinkable.

The Greens vote is at 14%.

Given the decline of long term state Labor governments and an increasing perception of the Greens as a legitimate party of government many ‘progressive’ voters may consider that a primary vote for the Greens is not wasted and vote for them in such numbers they can break through and win seats.

Now, it must be said it is difficult to believe that Greens rank and file members would endorse an arrangement with the Liberals.

What’s left?

Drawing on the ACT/Tasmanian precedents, a party prepared to prop up a larger party, capable of winning specific concessions for the interests they represent.

Just like the old Country Party.

One final observation.

As the current British elections are demonstrating, the old two party system is breaking down with voters on the ‘progressive’ left prepared to leave Labour for the Liberal Democrats.

Who knows? If the Greens can internally make the jump from party of protest to party of government, perhaps the Greens can assume a similar role in Australian politics.

We live in interesting times.

Government squibs a human rights charter

The Attorney-General was unsuccessful in persuading Federal Cabinet to support a bill of rights.

This is no bad thing.

We are in the camp that says that the terms of a charter cast in vague aspirational language confers too much discretion on an unelected judiciary and takes too much from elected legislatures, particularly when construing provisions such as Article 21 of the International Covenant on Civil and Political Rights (ICCPR):

The right of peaceful assembly shall be recognised. No restrictions may be placed on the exercise of this right other than those imposed in conformity with the law and which are necessary in a democratic society in the interests of national security or public safety, public order (ordre public), the protection of public health or morals or the protection of the rights and freedoms of others.

There is nothing so special about the training of a lawyer or judicial method that would allow a judge to make a value judgement as to what is or isn’t ‘necessary in a democratic society’: in a parliamentary democracy, this is really something only for a Parliament.

There are two interesting elements to the fig leaf of a commitment to human rights agreed to by Cabinet.

The first is the proposed establishment of a new Parliamentary Joint Committee on Human Rights to provide greater scrutiny of legislation for compliance with international human rights obligations.

The second is the requirement that each new Bill introduced into Parliament be accompanied by a statement of compatibility with international human rights obligations.

It is no bad thing for a parliamentary committee to examine whether legislation satisfies the international human rights agreements such as the ICCPR.

Australia has signed these treaties. In much the same way as scrutiny of legislation committees such as the Senate Standing Committee for the Scrutiny of Bills ensure that laws meet particular standards, it is appropriate for Australian parliaments to have some analysis as to whether particular legislation meets these international commitments before it passes legislation, although for the reasons we have expressed it is for the Parliament to ultimately take responsibility for the legislation it passes.

It will be interesting to see how much time this proposed committee will have to construe relevant legislation and whether parliamentary rules of debate will be changed so any report can be properly considered before a particular piece of legislation is passed.

It will also be interesting to see if the Committee will be charged to consider treaties Australia has acceded to such as the International Covenant on Economic, Social and Cultural Rights, which includes provisions such as Article 9:

The States Parties to the present Covenant recognise the right of everyone to social security, including social insurance.

There is then the requirement for the Government to publish a statement of compatibility.

There are two models of statement available.

The first is the ACT model, where the statement is usually as brusque as this:

In accordance with section 37 of the Human Rights Act 2004 I have examined the Crimes (Sentence Administration) Amendment Bill 2010. In my opinion the Bill, as presented to the Legislative Assembly, is consistent with the Human Rights Act 2004.

Somewhat unhelpful.

In Victoria, the statements are relative works of art. For example, the powers of inspectors under prosaic legislation such as the Livestock Management Bill reads:

Section 13: privacy and reputation

Section 13 (of the Victorian Charter of Human Rights and Responsibilities) establishes the right for an individual not to have his or her privacy, family home or correspondence unlawfully or arbitrarily interfered with and the right not to have his or her reputation unlawfully attacked.

The right to privacy concerns a person's 'private sphere', which should be free from government intervention or excessive unsolicited intervention by other individuals.

An interference with privacy will not be unlawful provided it is permitted by law, is certain, and is appropriately circumscribed. An interference would not be arbitrary provided that the restrictions on privacy are reasonable in the particular circumstances and are in accordance with the provisions, aims and objectives of the charter.

Entry and search provisions

Divisions 1 to 4 of part 5 of the bill provide for search and entry powers and as such engage the right to privacy. However, these powers are neither arbitrary nor unlawful for the reasons set out below.

The search and seizure powers granted to inspectors to enter and inspect that are authorised under clause 31 can only be exercised for the clearly stated public purposes of either determining whether the act, regulations, standards or specifics in the letter of approval have been, or are being, complied with or where the inspector has a reasonable belief that there has been non-compliance with the standards, which has resulted in or is likely to result in an emergency that threatens animal welfare, human health or biosecurity.

The bill clearly prescribes the scope of the power to search and inspect. Places of
residence cannot be searched unless the occupier has consented or where a magistrate has issued a warrant or in the emergency situation referred to above.
The bill requires an inspector to inform an occupier of his or her rights in relation to consent before a search and entry power can be exercised. When a warrant has been issued, clause 34 of the bill specifies that an inspector must inform an occupier that he or she is authorised by a warrant to enter a place or vehicle and clause 35 specifies that an inspector must show his or her identity card before exercising any power as well as any time upon request. The bill also specifies the procedures that must be followed in the instance that a premises is entered without the occupier being present.

Under the bill, this will only be applicable under a warrant or in an emergency situation.

To the extent that these provisions relate to private information and permit access to residences, they arise in the controlled and prescribed circumstances set out in the bill and are lawful. Procedural safeguards have been included in the bill in relation to the exercise of these powers. Consequently, I (the Minister of Agriculture) do not consider that these requirements can be described as arbitrary.

Accordingly the provisions are compatible with the right to privacy in section 13 of the charter.

That said, given the presence of the proposed joint parliamentary committee a compatibility statement appears unnecessary.

It is for the Committee to form an opinion as to whether a Bill passes international muster.

One would presume that the Government will implement internal mechanisms such as a suitable amendment to the Legislation Handbook to ensure relevant international commitments are considered when drafting legislation and would be ready to make submissions to the joint committee where there is doubt about compliance.

Finally, the Government may have hoped that Bill of Rights adherents would be a least a little bit satisfied with the Government’s compromise.

However Professor George Williams started an op-ed immediately after the Government made its announcement as follows:

The battle for an Australian charter of rights is the debate that will not die.

Perhaps they won’t be happy, after all.

The Feds Take Hospitals

The Federal Government has published A National Health and Hospitals Network for Australia’s Future, which sets out how it proposes to improve health services provided to Australians.

Others are better placed to discuss whether the plan as a whole will work.

I will concentrate on a few matters.

It is proposed that the Commonwealth will take full policy and funding policy for general practice and primary health care in Australia.

This appears to be a sweeping grab of responsibilities.

However, page 41 of the federal document says:

The detail of what is “in scope” for transfer to the Commonwealth in particular states will be negotiated with the states over the coming months.

If I were a state government I would be disappointed if I were told to ‘get with the program’ without knowing the magnitude of the change.

Take this example. The ACT Government is running a programme to reduce the number of falls amongst the elderly, and thus the level of injuries (and most importantly) hospital admissions.

Does responsibility for ‘primary health care’ mean that all programmes like reducing falls amongst the elderly (or for that matter, stop smoking programmes) will be run exclusively out of Canberra?

One would have thought the ambit of responsibilities to be assumed would have been thought out before expecting others to ‘get with the programme’.

Secondly, it is noted that the general practice sector is hoping to receive more money now the Commonwealth proposes being the sole funder of general practice.

There is a touching view held by some that the Commonwealth will invariably pump in more money than the states simply because they have more access to revenue.

Like any government, the Feds have ‘horror budgets’; the competing priorities that must be managed in any budgetary cycle means that (in this case) general practice won’t receive the money it would like all the time.

In that case, they may regret a political covenant investing in one tier of government all funding and policy responsibility.

Finally, it is noted The Australian has reported:

Kevin Rudd has put the Henry tax review firmly on the backburner, confirming today that his $50 billion public health takeover plan is his top priority.

The Prime Minister said this morning he had not decided on a specific timetable for the release of the review, which was delivered to the Rudd government by Treasury secretary Ken Henry in December.

``I believe what Australian people wanted me to do is to get on with the business of delivering health and hospitals reform. Number one priority,'' he told ABC radio.

``Each thing in its season, we've got to do one thing at a time.

``But in terms of specific timetables for doing it, no, I don't have anything particular in mind.''

The Henry Tax review has as one of its terms of reference:

3.5. Simplifying the tax system, including consideration of appropriate administrative arrangements across the Australian Federation

And as we have observed Ken Henry has said in a 2009 speech that one of the things that the Henry Tax Review was going to do was to consider each tax (except the GST) on its merit and:

only then are we considering the level of government to which different taxes and transfers should be assigned, taking into account the long-term financial needs of each level of government.

He also said:

I mentioned earlier that the revenue assignment of each level of government is dependent on how we view respective long-term financial needs. And this, in turn, depends on what we think is the appropriate role of each level of government in improving the well-being of Australians. Which government is best placed to be the financier of government services? Should a particular government be the sole provider of the service, or one provider amongst many?

I do not anticipate that the Panel will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role of government and the available means of addressing disadvantage.

The Health Minister has not ruled out tax increases to pay for health reforms.

It would be a pity if a systematic review of public administration (including a review of tax and responsibilities) was lapped by a rushed release of something as important as health reform.

There is a sneaking suspicion that the rush is in part to cover for the pink batts fiasco.

That taught us the lesson of what happens when I’s aren’t dotted and T’s are not crossed.

For the sake of the health of both the federation and the individual taxpayer they have been in this important structural reform proposal.

On Dotting I's and Crossing T's: The Pink Batt Fiasco

Some hold a child life belief that the Federal Government invariably do things better than the states.

However, as the Defence Department illustrates, its record with procurements has a bit to be desired.

The failed home insulation (or pink batt) scheme is evidence of a similarly patchy outcome with programme delivery.

The pink batts scheme appears to be one of those ‘wish list programmes’ that Departments submit each budget round, with the hope that one day it will win the funding to implement its wish.

As Peter Costello recently said in the Sydney Morning Herald:

In the dying days of the Howard government, the environment department prepared a list of measures designed to reduce carbon emissions. One was to insulate houses. Back in those days, home insulation was dressed up as a climate-change policy.

I was against it. ……………. I could not see how the Commonwealth could hope to manage a scheme to insulate millions of homes with thousands of private contractors when it had no staff with experience to design and supervise such a scheme.

As we now know, law firm Minter Ellison to the Environment Department said that there was, amongst other problems:

too few auditors and insufficient government resources to manage the scheme were among other serious concerns raised.

It is reasonable for Cabinet to expect that a programme consistently sponsored by a department has a well thought through implementation and management strategy. It can be disappointed with the poor outcome.

That said, as Lindsay Tanner said to Sky News, there was no focus on ‘dotting I’s and crossing T’s’ because of the urgency of putting out stimulus measures to combat the global financial crisis. So the executive government deserved what it got from the affair. Sadly, I’s have be dotted and T’s crossed.

And there have been a number of poor outcomes.

As The Australian editorialised:

It's not just the foil batts that have been a headache for Mr Garrett. His Green Loans program, under which households are assessed for energy and water-saving measures then given zero-level loans to finance the innovations, is under fire.

His solar rebate program reportedly blew out by $850m and is also being blamed for distorting the market for other alternative energy innovations such as wind
power…

Not everything can be solved by the Feds using contract management strategies like performance targets and benchmarks, with risk assigned to the party best assumed to be able to manage it and damages (or withholding funds) the ‘modern’ way to ensure compliance.

If the national government wants to act like a state government and get involved in programme delivery and low level standards setting it must staff itself like a state government and develop inspectorates so as to ensure programmes do not run off track.

Julia Gillard seems to have the right idea. When addressing the National Press Club recently on how to improve underperforming schools she said she would:

………. examine ways to provide the support and scrutiny necessary to drive schools to improve, which could include ''physical inspections'' or ''quality audits''.

''I believe that you've got to have the doors open,'' she said.

''Gone are the days when we could have teachers in classrooms with the door closed. I obviously want to see a debate about what more we need to do.

''This may involve external assessment and inspection of schools, and it will certainly involve strengthening school-based performance management of individual teachers.''

Sometimes the public interest needs a properly resourced inspectorate, with old fashioned enforcement powers. If not, there will be more pink batts episodes as the Commonwealth tries to do everything from Canberra.

Towards a constitutional convention

As we have said previously:

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.

This is because, as Henry Ergas recently observed in the Australian, the reality of vertical fiscal imbalance within the Australian federation means that to use the famous phrase of Deakin, whilst the states were ‘legally free’, fiscal imbalance left them ‘bound to the chariot wheels of central government’.

And as Ken Henry said in a March 2009 speech, one consideration to bear in mind when assigning taxes in a federal system:

……… concerns how the revenue from taxes is distributed between levels of government. 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.

It is the power of the purse that allows the feds to control policy – it has no capacity to simply legislate, or to spend money without constitutional support. As Justices Hayne and Kiefel said in Pape:

.…. it may be accepted that there is some implied legislative power in the Parliament that follows from the existence of the national polity. That power extends to laws putting down subversive activities and endeavours. But that implied legislative power does not extend so far as to encompass the general subject of the "national economy".

Ken Henry said in an August 2009 speech:

.…. I do not anticipate that the (Henry Review) will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role of government and the available means of addressing disadvantage.

This often involved the States receiving grants from the Australian Government to help fund State provision of essential services; for example public hospitals, education and housing. The States built hospitals because people needed health care; they built state schools because people needed an education; and they provided public housing as a safety net for people unable to afford private housing services. That these arrangements still persist relatively unchanged today – despite waves of reforms in other product and labour markets – speaks to their success.

But the strains have been showing for a while. Communities expect higher standards of service than many States say they can deliver. Confused responsibilities make it difficult for governments to be held accountable, with impaired incentives to improve performance. It might be time to look at things from first principles. Perhaps a different tax-transfer architecture could assist meaningful reform in this area.

It is finally noted that earlier in the speech, he said:

Once the Panel has considered each tax on its merits, only then are we considering the level of government to which different taxes and transfers should be assigned, taking into account the long-term financial needs of each level of government.

The Abbott ascendency may have put the federal structure as one of the issues in the upcoming federal election due during 2010.

There should be greater clarity of the roles and responsibilities of the various levels of government of the Australian federation.

This is one method of clarifying it.

Firstly, the report of the Australian Future Taxation System (the Henry Report) should be released right away. A report with its own website and trailed considerably in the media should be immediately released rather than released at a time of the Government’s choosing. The public has paid for it. They should be able to see it.

Secondly there should be a ‘Domesday Book’ published listing, for each Australian state and Territory and the Commonwealth:

1. the programmes that are run by each department and statutory authority;

2. the intention of each programme;

3. the benchmarks used to measure satisfactory progress; and

4. the source of funding for the programme.

The document 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.

(A document like would have arguably have been better prepared prior to, or in conjunction with, the Henry Report. But there you go.)

Then, drawing on the Henry Review recommendations, the Domesday Book and the law as recently declared by the the High Court in a full constitutional convention (and NOT merely a COAG meeting called to consider an intergovernmental agreement prepared by bureaucrats) similar to those conducted during the 1980s should be called.

Its function would be to act as the forum to determine whether states and territories should be able to develop separate policy responses to particular issues (which could lead to them having different rules and regulations and have different levels of taxation) or whether the Australian Government should possess the general power to determine policy direction either generally or in particular areas of public policy.

From there, decisions should be made as to:

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.

This would be a discussion worth having.

The Henry Report Is In

The Government has apparently received the Henry Report.

Whilst perhaps not as radical as originally trailed, it still apparently:

….mix(es) relief for families and individuals and controversial measures covering the taxation of bank savings, superannuation, petrol, resources, companies and federal-state financial relations.

driven by:

……the challenges of an ageing population, the new baby boom, the rise of China and India, globalisation and the environment.

It will be interesting to see what it ultimately says. As we noted earlier, the Review dropped heavy hints suggesting an increased federal role.

As Henry himself indicated in a speech made during 2009 :

I mentioned earlier that the revenue assignment of each level of government is dependent on how we view respective long-term financial needs. And this, in turn, depends on what we think is the appropriate role of each level of government in improving the well-being of Australians. Which government is best placed to be the financier of government services? Should a particular government be the sole provider of the service, or one provider amongst many? I do not anticipate that the Panel will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role ofgovernment and the available means of addressing disadvantage.

Tony Abbott has now become Opposition Leader.

As we have previously remarked, he is a centralist. And we note his party is ‘thinking about’ whether there should be a referendum on who should run hospitals – an idea illustrating a centralist line of thinking.

Some would argue there is a case for the Feds to run hospitals, given the increase in costs in the sector.

As the then NSW Health Minister said on 1 August 2009:

In NSW, health consumes about 30 per cent of the state budget. Australia's Heads of Treasuries have estimated costs in every state are growing at just under 10 per cent. At that, rate the NSW Auditor-General has forecast our entire state budget will be consumed by health by 2033, leaving not a cent for education, roads, transport, police or disability.

And as the Queensland Chief Health Officer said in her 2008 Report:

The health system in Queensland and Australia is not sustainable under these current and growing pressures. Just 15 predominantly chronic diseases drove 56% of the increase in national healthcare expenditure between 1987 and 2000, with 10 of these diseases related to obesity. In fact, in South Australia it is projected that ‘… by 2042, without significant change to the health system the entire state budget could be consumed by the health care sector’. Similar analyses have not been done for Queensland, the overall magnitude of the outcome is likely to be the same.

There is an argument to say that the sector that effectively funds a particular service should have the political responsibility for it. However, others will disagree.

The current Prime Minister campaigned in the last election for ending the blame game between the states and the Commonwealth, whilst the current Opposition leader has said:

My proposal is not to abolish the states but a referendum to give the national parliament the same authority over them that it’s long had over the territories. It’s not a bid for more power to Canberra. Rather, it’s an attempt to establish clear lines of accountability and responsibility.

The Australian federal structure should thus be a significant issue in the upcoming election contest.

The next article contains some ideas that could be adopted.

The High Court Brings Things Together

Over the last couple of years, the High Court has reconfirmed the interpretation of some of the constitutional provisions underpinning the Australian federal structure.

The Workchoices case reconfirmed the principle that the various paragraphs of section 51 of the Constitution (which sets out many of the powers of the Australian Parliament) should be read widely:

The general principles to be applied in determining whether a law is with respect to a head of legislative power are well settled. It is necessary, always, to construe the constitutional text and to do that 'with all the generality which the words used admit'…..

The Court noted the observations of Sir Owen Dixon in the Melbourne Corporation case when he observed that the net effect of this means:

The position of the federal government is necessarily stronger than that of the States. The Comonwealth is a government to which enumerated powers have been affirmatively granted. The grant carries all that is proper for its full effectuation. Then supremacy is given to the legislative powers of the Commonwealth.

However, the Court has equally confirmed that it cannot spend money for any purpose considered politically desirable – an expenditure must be supported by a constitutional provision.

Following Pape v. Commissioner of Taxation, the 2009 High Court case of ICM Agriculture v.the Commonwealth noted:

It is now settled that the provisions…. of s 81 of the Constitution for establishment of the Consolidated Revenue Fund and in s 83 for Parliamentary appropriation, do not confer a substantive spending power and that the power to expend appropriated moneys must be found elsewhere in the Constitution or the laws of the Commonwealth.

This could put at peril a number of spending programmes in the health, education and housing areas – subject areas where Commonwealth participation cannot be immediately identified in the Constitution.

However, given that the Commonwealth collects the vast majority of taxes they have the power of the purse, with section 96 providing the workaround that permits the Commonwealth to set the agenda in areas not expressly dealt with in the Constitution.

Without going as far as Chief Justice Latham, who said in the First Uniform Tax case that the Commonwealth ‘may properly induce a State to exercise its powers ... by offering a money grant', ICM Agriculture confirmed that the Commonwealth has power to grant financial assistance to any State for any purpose on such terms and conditions as the Parliament thinks fit, provided it didn’t contravene perceived constitutional guarantees relating to religion and on the acquisition of property except on just terms.

These reaffirmations of constitutional doctrine are interesting, given the upcoming publication of the Henry Report, as will be discussed in the next article.

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:

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.

Access says in its conclusion:

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.

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.

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.

Lawyers Federalise as Occupational Health and Safety Bickers

There has been movement on two proposed national schemes.

Lawyers will join doctors, plumbers and real estate agents as professions that will operate under one set of rules, following a COAG decision made in February at the request of the Commonwealth.

At a speech in Perth on 17 September, the Attorney-General (Mr McClelland) said:

Australia now operates within a vastly different legal and economic landscape to that under which the present system of legal profession regulation developed.

Australian lawyers and consumers no longer operate in just one State or Territory.

To deliver a seamless national economy we can no longer justify such disparate regulation for just one profession.

If other professions in Australia can be regulated through a simple, unified, national structure there is no reason why the Australian legal profession should be an exception.

A better approach is required if we are to remain successful in the long-term – and given the wide variety of interests involved, we must think creatively about operating together in a Federation.
………

Given the undeniable economic imperative, the collective political will of COAG and good will from all stakeholders, I am sure we will be able to achieve an outcome that will deliver significant tangible benefits to not only the profession, but the Australian community in general.

He inveighed against the fact that consumers, lawyers and firms have to deal with nearly 5,000 pages of regulation, and indicated he hadn’t met one lawyer that has read, let alone digested all of this regulation.

Probably that’s because most practitioners operate in one jurisdiction, and consumers are only concerned about the laws relevant to their state and territory. This is a bit of a straw man, really.

Nevertheless, a National Legal Profession Taskforce has proposed the establishment of a National Legal Services Board – a joint state and territory entity that seems a cross between the proposed National Body anticipated by the IGA for Specified Professions and the National Boards to be established under the national registration and accreditation scheme for health professionals.

The Board would be a single standard-setter for all lawyers in Australia, constituting ‘key experts from differing backgrounds including legal practice, consumer protection (whatever that constitutes!) and the regulation of professions.'

It is to deal with issues relating to admission eligibility, the granting of practising certificates, practising entitlements and conditions, the form and manner in which practise is conducted, complaints handling and discipline,

So they retain their 'relevance', state bodies (including professional bodies) could perhaps be delegated responsibility to determine whether someone was eligible for either admission or a practising certificate.

During his speech, the Attorney said:

In short, in framing new national regulations, we need to keep in mind the experience the average punter has with the system and we need to consider how we can make that better.

A good test is to ask whether lawyers would be willing consumers of legal services.

Currently, I don’t think many would.

Actually, as an ‘average punter’, I don’t think the Australian legal system is operating that badly.

Nevertheless, one set of regulations from a board containing (amongst others) consumer protection experts will undoubtedly change it all.

A national scheme closer to fruition is that dealing with occupational health and safety.

As we noted earlier, WA indicated to the Workplace Ministers Ministerial Council in July that it had problems with penalty levels and right of access granted to unions under the proposed OHS package.

As the Australian reported on 22 September:

Mr Buswell (the WA Treasurer) said he supported elements of the Rudd government's reform agenda, but there was potential for unionists to do backroom deals to change the regulations over time. "Our view is that the changes the commonwealth are trying to implement are not good for Western Australia, not
good for employers nor employees in Western Australia and at this stage we're not going to be supporting it," he said.
"They're changes which we think open us up to a potential where Western Australian occupational safety and health is driven, potentially, by the sorts of backroom meetings and negotiations we've been seeing between the union movement and the government, and that's not good for Western Australia."

As we have also noted earlier, the unions aren’t necessarily thrilled with the proposed OHS package either.

The OHS package is the first real test of how the COAG executive federalism model will have to resolve disputes between stakeholders with clear and legitimate interests to protect. Unfortunately, there is no parliament to break these sort of impass.

It will be interesting to see how this pans out .... and whether the 'collective political will of COAG and good will from all stake holders' will last the distance with the creation of a national legal profession.

Why is crossing the floor such a novelty?

Senator Judith Troeth recently crossed the floor to vote with the Government in support of their plan to stop charging asylum seekers and immigration detainees for their mandatory detention.

Immigration Minister Chris Evans lauded her for her decision.

On the same day, three ALP MPs endorsed a petition calling on the government to retain the prohibition on parallel importation of books.

It will be interesting to see if they cross the floor should the Government decide to remove the ban.

It is not often that ALP members cross the floor. This is because party rules prevent it.

In particular, Rule 5 says (in part):

d. The Federal Parliamentary Labor Party shall have authority in properly constituted Caucus meetings to make decisions directed towards establishing the collective attitude of the Parliamentary Party to any question or matter in the Federal Parliament, subject to:

i. at all times taking such action which may be possible to implement the Party's Platform and Conference decisions;

ii.on questions or matters which are not subject to National Platform or Conference or Executive decisions, the majority decision of Caucus being binding upon all members in the parliament; and

iii. no attitude being expressed which is contrary to the provisions of the Party Platform or any other decision of National Conference or National Executive

The existence of this rule in particular weakens the role of all Australian parliaments.

In Westminster, party whips divide votes into three categories.

In very trite terms:

a ‘one line whip' tells members what the party line is, however, there is a degree of discretion as to whether the line is followed;

a ‘two line whip’ is a debate in which a member is expected to vote in according to the party line, unless there is a strong conscientious objection; and

a ‘three line whip’ is a debate where the member should simply follow the party line.

However, all that said, there are many circumstances in which members of the House of Commons have 'rebelled' from the Whip and voted against party, notwithstanding the declaration of a three line whip.

Ask yourself: how often do you see an ALP member 'cross the floor' in Parliament? The answer is 'seldom' - and when they do, they are usually disciplined.

In that case, it is hardly surprising that the alternative political grouping becomes as rigidly controlled - if they weren’t, common sense tells you they would never win a parliamentary vote.

There are many circumstances where party discipline means that MPs are voting for a proposal against their better judgement.

The best way to ensure that legislation is appropriate is to ensure that there is a properly functioning parliament with members making decisions according to their conscience and not their party whip.

Matters may very well be assisted if the ALP abolished its rule.

Fifield vs. Abbott: the confused state of the Liberal Party on federalism

In a recent article for The Punch, Mitch Fifield wrote a copperplate defence of Australia’s federal model.

The principles of Federalism are timeless. Liberals believe in the principle of subsidiarity: that power, where possible, should be located as close as possible to the people so that it is responsive to their demands. Liberals are wary of concentrating power in the hands of a small number of people. Liberals also believe in checks and balances – abolishing or rendering state governments impotent would leave a federal administration’s power virtually unchallenged.

Liberals also believe in competition. States competing for jobs, investment and talent should lead to lower taxes, lighter regulations and more attractive communities to live in.

He had better have a chat with Tony Abbott, who has different views about the issue:

My proposal is not to abolish the states but a referendum to give the national parliament the same authority over them that it's long had over the territories. It's not a bid for more power to Canberra. Rather, it's an attempt to establish clear lines of accountability and responsibility.

The Liberal Party is the erstwhile party of federalism: it certainly is no longer the ‘states rights’ party, as the Howard Government’s use of the corporations power to federalise Australia’s industrial relations laws illustrates.

The Fifield/Abbott discussion is a healthy one to have whilst a party is in opposition.

However, as we have previously discussed the Henry Review will raise the issue of whether Australia should be viewed as a federation or a single market, whilst in our previous article we noted the idea of whether state parliaments have a role in setting standards will be challenged as interested stakeholders challenge one size fits all legislation designed to bring about a ‘seamless economy’.

Both these developments and the fact that Australia is slowly lurching towards a federal election means that the Liberal Party will need to have some view as to how they see the federation operating – perhaps far sooner than they imagine.

The challenge to the seamless economy commences

The ACTU is commencing a campaign against the harmonised OHS law being developed by Safework Australia on behalf of the Ministerial Council on Workplace Relations.

The Secretary of the ACTU (Mr Lawrence) said ‘the draft legislation was unacceptable and safety standards needed to be ''improved, not reduced in any shape or form''’.

The AMA is equally unhappy with the proposed legislation proposing to introduce a national registration scheme for health professionals, which in its view ‘fails the public interest test’.

These reforms form part of the ‘seamless economy’ agenda, which generally collapses eight laws developed at state or territory level into one law operating throughout Australia.

As we have said earlier:

As a general proposition, the ‘applied model’ of legislation – where one jurisdiction will develop and pass model legislation through its parliament with the remaining states or territories subsequently passing legislation that picks up the model legislation is the favoured way of introducing harmonised
legislation when regulating areas previously the province of states and territories.Whilst nominally capable to amend legislation, state parliaments – including those chambers without government majorities - have typically accepted the national legislation without batting an eyelid, on the grounds that ‘COAG decided’.

The COAG executive federalism model of public administration, in which state parliaments passively pass laws decided by either COAG as a body (or a ministerial council within the COAG structure) is now at an interesting stage of its operation.

This is because the legislation designed to implement the ‘seamless economy’ is now being rolled out - stakeholders are now challenging the merit of the contents of the finalised legislation.

This beggars the question: to which democratically elected body can these stakeholders appeal?

It can hardly be to those legislative chambers where the governments who form COAG have majorities.

So, the interesting thing will be whether the AMA and the ACTUs of the world actively lobby state parliaments for amendments to COAG approved harmonised legislation.

If so, it will be fascinating to see whether those parliamentary chambers where there are government minorities – the Legislative Assemblies of the ACT and the NT, the upper houses of NSW, Victoria, Tasmania and South Australia and both houses of the Western Australian Parliament (if the National Party can be persuaded to side with the ALP on a particular issue) – have the chutzpah to amend COAG legislation – particularly as it could cost their state money.

It will be finally interesting to see what the Liberal Party chooses to do in this situation. In most legislatures, it will be the vote of the Liberals that will determine whether an amendment will pass.

It would therefore be desirable for the Liberal view on the role of COAG and (more generally) the role of state parliaments as standard setters to be clarified. This will be discussed more in the next article.

Unfixing Parliamentary Terms

John Della Bosca has had a fall.

The Sydney Morning Herald has made a call: Nathan Rees should go to the Governor and just go to the polls.

Many hanker for an early election. However, the presence of a fixed four year terms acts as a barrier.

The concept was introduced into NSW following an agreement between Nick Greiner and the independent members of Legislative Assembly following the 1991 election that produced a hung parliament.

The rationale is explained by Clover Moore, one of the independents who negotiated the agreement, where she says on her website:

My work to reform Parliament led to the current four year fixed terms of State Government, reducing the number of elections and the political manipulation of their timing.

The then government acknowledged the idea was one of a number of:

….changes to the framework of Government in New South Wales to respect a strong Parliament and to ensure the accountability of Executive Government to the Parliament are necessary.

The fixed term concept is now washing through the other Australian jurisdictions.

It strikes me the idea works from a wrong premise.

It presumes Australian Parliaments are strong. They are in fact quite weak. Party discipline is so strong that independent action by MPs is almost unheard of. What the Executive wants, the Executive gets.

For all intents and purposes, under NSW law a successful no confidence motion is necessary to bring about an election.

Short of a schism in the ALP, if the NSW Government really decided to bring an election some government members would have to tactically abstain from the vote.

This could be called the ‘Bundestag solution’.

Germany has the same sort of fixed term provisions as NSW.

In 2005, members of the German government abstained from voting in a confidence motion so that an election could be called following increased dissatisfaction with, and instability within, a coalition of the Social Democrats and the Greens.

However, query whether that would look fair dinkum to either the electorate or (for that matter) the Governor.

After all, the intention of fixed four year terms is to reduce the number of elections and the political manipulation of their timing.

And so, it would appear the NSW Government will be with us until 2011.

Fixed four year terms for a parliament weakened by rigid party discipline is poor public policy.

We do not believe in fixed terms.

There are some occasions where the capacity to call an election is desirable. For instance there could an issue that is so big that it is proper to call an election to decide on whether the policy is a good idea – a ‘back me or sack me’ election.

Alternatively, there could be civil unrest of some nature (like a series of strikes) such that it is appropriate to call a ‘who runs the country’ election.

However, you can’t really identify whether an issue is one of these sorts of issues in advance. Everything turns on the political context of the day.

That is not to deny that there is a legitimate expectation that a government will usually run to term, or that there will be parliamentary leaders who will go to the electorate for cynical political reasons.

However, we think the electorate is smarter than many in the political classes think. Anything that is particularly cynical will be punished. The last Western Australian election is probably case in point.

And in any regard, we don’t think that an exercise in democracy is a bad idea at any time.

We also think that 4 years is too long between elections.

It is probably right that 4 years is the common period for a parliament or elected official.

However, demand in many of these jurisdictions there is a capacity to easily call elections should circumstances arise.

In other circumstances, the electoral system is designed to ensure that the system’s overall electoral mandate remains fresh.

For example, Barack Obama is President of the United States for four years. However, the House of Representatives is elected for two years. One-third of the Senate is elected at the same time as the House of Representatives.

It therefore means that whatever Obama does will receive an electoral test every two years, not every four. Any policy overreach can be punished; proper policy rewarded.

If there is to be fixed terms, then a fixed three year term is probably appropriate.

However, we have always supported the erstwhile Australian system of unfixed three year terms.

We have never accepted the argument that four year terms are necessary because it would be too hard for politicians to implement contentious yet necessary policy reforms because of fear of electoral consequences.

The microeconomic reforms generally described as national competition policy (and now the National Reform Agenda) have led to significant changes to the structure of Australian society – all achieved by governments of different persuasions within a political system with unfixed three year terms.

There is also a case for allowing the upper house to block supply.

The NSW Legislative Council has not had the capacity to block supply since 1933.

However, there may be a case to return this power to the upper house so as to force an unpopular government to an election.

Some will reject this idea because of a wish to avoid the controversy that arose in 1975 following the refusal of supply by the Senate that ultimately led that led to the downfall of the Whitlam Government.

That said, the 1975 election led to the Coalition to win a clear parliamentary majority – however, the controversy surrounding the decision to block supply caused will ensure that an upper house would need to think long and hard before it decided to deny the Executive its appropriation.

No-one would want to have a political environment such as that currently operating in NSW.

Yet this is the unintended consequence of a policy design thought to be a good idea by participants in a hung parliament of nearly 20 years ago.

The policy experiment has failed. It must be reformed. We should go back to the future with unfixed three year elections.

The Henry Review and the Australian Federation - Defining the Debate

The previous two articles illustrate the two different ways one can view how Australia, as a federation, should function.

As we said in an earlier article:

Many will say …. 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 costs that distort allocative efficiency with no public benefit.

In this case, there to be only one set of rules (usually encapsulated in legislation), preferably made by one legislative body – in our case, the Australian Parliament.

The states would have the role of (effectively) an English county council, concentrating on service provision based on national standards. However, there are alternative arguments.

The (few) supporters of a federal system argue that citizens benefit where there is genuine "competitive federalism" –the idea that 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.

A similar argument is one holding that States are "incubators of innovation" –a place where different ideas can be tried, with the good ones taken up in the bad ones discarded - and if an idea is really bad, the entire nation doesn’t have to face the consequences.

The contents of the Henry Review means the time is now right for a full political discussion of whether the nation should be viewed as a federation or a single market.

However, the decisions should not be made through the Governor’s Club of COAG.

Whilst a bureaucrat like Henry may see some advantages in going down this route, these massive reforms should be discussed by the elected representatives reflecting the interests of all political interests represented in Australian parliaments – and not just the representatives of the executives that have been drawn from them.

Ideally, early in 2010 there should be a full constitutional convention, drawn from the Australian legislatures in a manner similar to the conventions convened in the 1980’s by the Hawke Government, to fully discuss the issue of what is the role of state government of the 21st century, to flesh out the issues of the structure of the Australian federation.

From there, each of the major political parties should then set out policies that set out the appropriate role of a state in a 21st century federation (including the role of a state parliament) and the role of COAG within the Australian federation.

The winner of the 2010 election should then put their preferred view to another constitutional convention, from which appropriate constitutional amendments (that may not go as far as Tony Abbott is advocating) could be prepared for the consideration of the Australian people.

The Henry Review will be an important reference document as this debate proceeds. It will be interesting to see how the argument will pan out.

The Henry Review and the Federation - a Constitutionalist's View

The previous article set out parts of a speech given by Ken Henry, the Secretary to the Australian Treasury and chairman of the Future Tax System Review.

Henry looked at the issue of fiscal federalism through the prism of Australia as a single market, with taxes and allocation of responsibilities ‘assigned’ to the appropriate level of government through the operation of an intergovernmental agreement.

Kenneth Wiltshire from the University of Queensland Business School responded to the contents of the speech in the Australian on 24 August.

He said:

If Australia had a unitary system of government, some of (the observations of Henry) might be appropriate. Even then, a tax review ought to begin with the time-honoured principles of taxation, including that taxes should be fair and equitable, efficient, appropriate, certain, non-distorting, easy to administer and transparent. It would also begin by acknowledging that Australia is generally too dependent on direct taxes, which are often higher than our competitors', and that the tax system has too much vertical imbalance in its federal-financial relations.

But Australia is not unitary; it is a federation and any tax review of this kind should begin from the premise that states are sovereign partners. They do not need to be "empowered"; they already have sovereign powers, including in taxation, and they had them before the commonwealth was created.

He went on to say that the units of a federation can have different tax bases that can give rise to diversity, choice and competition – and also different tax rates in different jurisdictions.

Wiltshire then noted:

Henry is correct about two things: (a) the present state tax bases serve to distort economic behaviour by industry and individuals, and (b) the blame game is all about dollars. But both these features are caused by the commonwealth's intrusion into the states' constitutional powers, and the conditions it attaches to the majority of funding it gives to the states. Henry's proposals would exacerbate this situation. Clearly, asking the head of the federal Treasury to design a fiscal framework for the federation is like putting a fox in charge of the chicken coop.

Wiltshire suggests that the States should surrender their rights to the GST and instead recommence levying income tax, with the role of the Commonwealth Grants Commission of ensuring horizontal fiscal equity between the states ‘to ensure that no state is penalised for financial circumstances over which it has no control’ continuing.

He finally said:

Contrary to Henry's recently stated views, this is meant to be a tax review, not an expenditure review. If there is to be any decision about realignment of government functions in the light of the tax arrangements, that should be done by elected representatives of the states, not by bureaucrats. If he is not careful, he will certainly end the blame game between the commonwealth and the states, because all of them will blame him for the ensuing mess.

This all sets up an economist vs. constitutionalist debate on the structure of the Australian federation. My observations are set out in the next article.