Frequently Asked Questions

Federalism is a system of government in which powers are divided between two or more constituent entities by a written Constitution. A constituent entity often comes in the form of a state, region or province. Many of the largest countries in the world are federations, including the United States, Canada, India, South Africa, Argentina, and Australia. Virtually every large democratic nation has a federal system of government.

Federal structures are capable of varying greatly. Some confer a large amount of power in a central government that regulates the country as a whole, while others grant more autonomy to their constituent entities. Some impose clear divisions in the law-making powers of their constituent entities, while others have overlapping powers. Additionally, they may be administered by parliamentary governments which are led by a Prime Minister, or by Congressional institutions which are led by a President.

However, federal systems also have a number of common characteristics. They all have a central government, a written Constitution and a procedure for resolving constitutional disputes. Also, each order of government possesses some genuine authority. They also have organisations and procedures for facilitating intergovernmental relations.

Strengths

• Flexibility: Federalism allows policy to be customised to meet the particular needs of certain areas and communities. It has the ability to embrace diverse populations in a single political system while also providing a space for cultural differences. As a concept, it can adapt to the unique circumstances of different countries.
• Democratic participation: Federalism creates a system of dual citizenship. For example, in Australia, we are citizens of both the nation and a particular state. We may vote for different political parties at different levels of government. Smaller constituent entities allow citizens to engage with government more directly. Federations are able to do this while maintaining the strength of a larger nation.
• Choice & Competition: Citizens and businesses in a federation have the freedom to move to another state if they are unhappy with the government or the conditions where they currently reside. This provides an incentive for states to improve their services so that they can compete with other jurisdictions.
• Check on government power: The division of power between the constituent entities that make up a federation helps ensure that the national government will not become oppressive or authoritarian. It prevents power from becoming concentrated in a single governing body. Also, the need for cooperation between the levels of government provides greater scrutiny of policy.

Weaknesses

• Intergovernmental conflict: Finding a satisfactory compromise between coordinated policy and the individual needs and objectives of the constituent entities of a federation can be a fraught process. Some of the most significant intergovernmental conflicts in Australia have occurred where the federal government has intervened in areas traditionally belonging to the States. Such conflicts can create an impasse where very little can be achieved.
• Too much bureaucracy: Multiple governments with overlapping responsibilities and powers can create duplication and inconsistency. This can lead to bureaucratisation and increasing costs to businesses. Additionally, it can result in an unproductive lack of coordination in key policy areas, particularly those concerning infrastructure.
• Avoidance of responsibility: Where there are policy failings, the national government may blame its state counterparts and vice versa. This is particularly a problem where it is unclear which level of government is constitutionally responsible for a particular issue.

The original penal colony of New South Wales was established in 1788.  Over the next 70 years a number of colonies, each with their own responsible government, were created. It soon became apparent to the colonies that they shared some common problems, and that inter-colonial cooperation may be desirable with respect to issues such as customs tariffs and immigration. Consequently, the first inter-colonial conference was held in 1863. Later, in 1885, the Federal Council of Australasia was established. It possessed legislative authority over certain specified areas and met sporadically until 1899. New South Wales refused to join the Council.

Over the 1890’s the move towards federation began to gain momentum. The first federation conference was held in 1890. The following year, the National Australasian Convention produced a draft Constitution. The draft failed to gain popular support and was not ratified by the colonies. It was not until 1895 that the Premiers agreed to establish a new Convention created by popular vote. The Australasian Federal Convention met throughout 1897 and 1898, when a final draft Constitution was finally agreed upon after exhaustive negotiations.

The people of the Australian colonies approved the draft Constitution in referenda held from 1898-1900. Britain enacted this approved draft as the Commonwealth of Australia Constitution Act 1900 (Imp). It received the assent of Queen Victoria on 9 July 1900 and came into force on 1 January 1901. The Australian federation was born. It is among the oldest federations in the world.

The Constitution divides law-making powers between the State and federal governments. Most of the Commonwealth’s powers are set out in section 51 – this provision enumerates 39 areas in which the federal Parliament may make laws, including trade and commerce, taxation, immigration and emigration, and external affairs. These 39 law-making powers are held concurrently with the States, meaning that State parliaments can also make laws in these areas. In the event that a Commonwealth law is inconsistent with a State law, section 109 of the Constitution is triggered, and the Commonwealth law prevails to the extent of the inconsistency.

The Constitution also grants the Commonwealth Parliament a small number of exclusive legislative powers. For example, the Commonwealth has exclusive powers to make laws regarding federal departments and places acquired by the Commonwealth for a public purpose (section 52), as well as laws with respect to customs, excise and bounties (section 90).

In contrast to the powers of the Commonwealth, the powers of the States are not enumerated in the text of the Constitution. Instead, the States retain what is known as plenary power, meaning that they can legislate with respect to any matter other than those matters over which the Commonwealth has exclusive power. As noted above, however, State laws will yield to those of the Commonwealth where an inconsistency arises under section 109. In addition, the States’ law-making power is subject to any express or implied limitations within the Constitution – for example, the requirement that laws should not interfere with the freedom of interstate (section 92). Some of the main areas of State law-making power include health and hospitals, primary and secondary education, and roads and transport.

Over the last century, the scope of Commonwealth law-making power has gradually increased, due mainly to High Court decisions that have interpreted its section 51 powers in a broad way. As a result, the Commonwealth is now able to make laws in a whole range of areas that were not open to it at Federation.

One consequence of the sharing of law-making powers between the Commonwealth and State governments is that, on some issues, both tiers of government have to work together to achieve good policy outcomes. This approach to governance is called ‘cooperative federalism’, and can be seen in a range of policy areas, including health, education and rivers management.

Two important mechanisms for fostering intergovernmental relations are the Council of Australian Governments, and the referrals power.

Council of Australian Governments

The Council of Australian Governments(‘COAG’) was established in May 1992.  Its membership comprises the Prime Minister, State Premiers, Territory Chief Ministers and the President of the Australian Local Government Association (‘ALGA’). It is chaired by the Prime Minister. The role of COAG is to facilitate cooperation between all levels of government on policy areas that are of national significance. It initiates, develops and monitors the implementation of reform on shared issues that require collaboration and national agreement. COAG only meets as required rather than at regular intervals. It may also discuss or settle issues by correspondence while out-of-session.

Over the years, COAG has played a pivotal role in implementing policy reforms in a range of areas, including education and training, microeconomic reform, early childhood development and Indigenous reform. It has negotiated many important intergovernmental agreements, including those on Federal Financial Relations, the Murray-Darling Basin, and Gene Technology. At a two-day meeting held from 19-20 April 2010, COAG (with the exception of Western Australia) agreed to sign the National Health and Hospitals Network Agreement on health and hospital reform.

Referrals Power

The referrals power is contained in section 51(xxxvii) of the Constitution. It allows the federal Parliament to make laws with respect to matters referred to it by one or more State governments. The law-making power of the Commonwealth only extends to those States that have referred the matter concerned to the Commonwealth. It is the most important provision in the Constitution with respect to facilitating Commonwealth-State cooperation.

In recent years, the referrals power has been used to support reforms in several important policy areas. State referrals have been critical to the Commonwealth’s ability to implement legislative reforms in the fields of corporations law, industrial relations, terrorism and water management, among others.

A range of proposals have been put forward for the reform of Australia’s federal system.

1. Reallocate of roles and responsibilities

Some commentators argue that Australia’s federal system would operate more effectively if roles and responsibilities were allocated differently between the Commonwealth and the States. They point to the blurring of responsibilities that occurs in some policy areas, such as health care, where Commonwealth and State law-making powers overlap. They also argue that, more than one hundred years since our Constitution was written, it is time to revisit the question of which level of government is best placed to have responsibility for different policy areas.

Any review of Commonwealth and State roles and responsibilities would likely be guided by principles such as subsidiarity, national interest and cooperation. Subsidiarity is an important guiding principle in all federations – it refers to the idea that government functions should be allocated to the lowest level of government practicable unless there is a good reason for a higher level of government to assume them.

1. Enhance Commonwealth-State cooperation

A number of different reform ideas have been put forward with the aim of enhancing the ability of the national and State governments to work together. These include:

• Giving formal legal status to the Council of Australian Governments (COAG), and requiring it to have regular meetings with an agenda that is determined cooperatively, rather than by the Commonwealth alone;
• Amending the Constitution to remove barriers to cooperative legislative schemes, thus allowing the Commonwealth and State governments to enter into joint schemes with a single national regulator and a single body for dispute resolution;
• Amending the Constitution to clarify the operation of the referrals power in section 51(xxxvii), including on whether a State can revoke a reference, and the impact of amending or repealing a Commonwealth law made pursuant to a referral of power;
• Including a provision in the Constitution that supports the creation of intergovernmental agreements;
• Enabling constitutional amendments to be put to referenda where they are supported by at least half of the State Parliaments, representing a majority of the total Australian population, or elected constitutional conventions, rather than only be the Commonwealth Parliament;
• Allowing the States to play a role in appointing Justices of the High Court or establish a Judicial Commission to recommend High Court appointments.
• Restructure Commonwealth-State financial relations

Many commentators have called for reforms aimed at altering the financial relationship between the Commonwealth and the States to achieve a greater fiscal balance. Currently, the Commonwealth raises far more tax revenue than it spends while, conversely, the States are only able to raise a relatively small proportion of revenue that is insufficient to meet its many spending responsibilities. As a result of this ‘vertical fiscal imbalance’ (or VFI), the States have to rely upon grants from the Commonwealth in order to meet their financial obligations. This helps to contribute to ‘blame-shifting’ between governments, where Commonwealth and State governments blame each other for problems in service delivery, with neither tier prepared to take responsibility. One proposal for reform is to give the States a guaranteed share of tax revenue, beyond the GST, to enable them to finance their own spending responsibilities. This could potentially involve restoring to the States the power to collect their own income tax.

1. Strengthen regional governance

Some commentators have proposed that the federal system be restructured to allow for stronger regional governance. This proposal is partly driven by a concern that Australia’s regions are marginalised from political processes and that service delivery in regional areas is inadequate. Proponents also argue that the existing State boundaries do not reflect the geographical, social and cultural diversity of Australia. A common suggestion is that the regions of north Queensland or western New South Wales become their own States, while other proposals suggest having a federal system with as many as 60 regional governments.

A move to institutionalise regional government in Australia’s federal system could occur in a variety of ways:

• Abolish State and local governments and move to a two-tier federal system made up of Commonwealth and Regional governments;
• Institutionalise regional government as part of a move to a four-tier federal system, incorporating Commonwealth, State, Regional and Local governments;
• Retain the existing three-tier federal system, but use the existing constitutional mechanism to create several new States within existing State boundaries. For example, Queensland might be divided into South, Central and North Queensland, thus effectively entrenching a form of regional governance.

Another proposal that is sometimes put forward is to abolish the States altogether and move to a unitary system in which all legislative power is invested in the Commonwealth government.