SUMMARY

This briefing paper looks at the intergovernmental mechanisms by which federalism operates in Australia, notably the Council of Australian Governments (COAG).

In reality there are many issues at play here and countervailing forces at work. Taking a broad view, what seems to be developing is a form of federalism that is regulatory, conditional and prescriptive in nature, at least in the formulation of performance goals and reporting requirements.

Managerial federalism: The paper starts by characterising the COAG process as a form of ‘managerial federalism’. This is defined to be administrative in its mode of operation, pragmatic in orientation, concerned with the effective and rational management of human and other resources, and rich in policy goals and objectives. The States play a creative and proactive part but are, to a substantial degree, service providers whose performance is subject to continuous scrutiny and oversight. Typically, the financially dominant Commonwealth Government plays the manager’s role. [2]

Council of the Australian Federation: In a report prepared by John Wanna and others for the Council of the Australian Federation (CAF) in May 2009 titled, Common Cause: Strengthening Australia’s Cooperative Federalism, it was explained that cooperative federalism can operate either horizontally, by the States and Territories acting together without reference to the Commonwealth, or vertically, in those policy areas where the Commonwealth involvement is required. The main institution of ‘horizontal cooperation’ is CAF, established in 2006. CAF’s website includes a report card on its activities. [3.2]

COAG: The main institution of ‘vertical cooperation’ is COAG, established in 1992. The landmarks in COAG’s history include the National Competition Policy, agreed to in April 1995. The terrorist attacks in the United States in September 2001, followed by the Bali bombings in 2002, acted as a spur to the COAG process, as the Howard Government sought to involve the States in a national counter-terrorism strategy. In 2006 COAG agreed to a new National Reform Agenda which merged human capital and regulation as priority areas for reform alongside competition. Then in 2008 the new Intergovernmental Agreement on Federal Financial Relations placed financial issues firmly at the centre of the COAG stage. This development received added impetus from the Global Financial Crisis, with the announcement in February 2009, following a Special COAG meeting, of the Nation Building and Jobs Plan​ to introduce education and housing programs and support major infrastructure investments. [4.2]

The COAG reform process is based primarily on intergovernmental agreements, signed by all heads of government. These agreements signify the commitment of jurisdictions to implement decisions that have been either reached or confirmed by COAG. In many instances, agreements have been the precursor to the passage of legislation. Sometimes this has been Commonwealth legislation, while on other occasions joint Commonwealth and State and Territory legislation has been enacted. [4.2]

Ministerial Councils: The COAG process is assisted by a range of institutional structures, including (as at October 2009) 31 ministerial councils, plus another three ‘ministerial fora’, which comprise councils with ministerial representatives from only two, three or four jurisdictions. The 31 ministerial councils illustrate the range of policy areas which, to some degree, are no longer exclusive to single jurisdictions but are, rather, the subject of a national cooperative strategy. [4.3]

COAG Working Groups: At its 20 December 2007 meeting, COAG established seven working groups. Each was to be overseen by a Commonwealth Minister, with deputies at a senior departmental level, nominated by the States and Territories. These groups also include senior officials from all jurisdictions. [4.4]

COAG Reform Council: In 2006 a new National Reform Agenda was agreed to by COAG, including the creation of a non-statutory body called the COAG Reform Council. The Council, which was established in April 2007, reports to the Prime Minister as Chair of COAG. The Council’s stated aims are to strengthen accountability for the achievement of results through independent and evidenced-based monitoring, assessment and reporting of the performance of all governments. [4.5]

Fiscal federalism: The fiscal reality underlying Australian federalism is the financial power of the Commonwealth over the States, a phenomenon that goes by the name of ‘vertical fiscal imbalance’. Currently, the Commonwealth provides three broad types of payments to the States: National Specific Purpose Payments (SPPs); three types of National Partnership payments – project payments, facilitation payments and reward payments; and general revenue assistance, consisting mainly of GST payments. [5.1]

Intergovernmental Agreement on Federal Financial Relations: The current arrangements are based on the Intergovernmental Agreement on Federal Financial Relations, which came into effect on 1 January 2009. The Commonwealth Government’s 2009-10 Budget Paper No 3 commented that a ‘new federal financial framework’ was in place, one that would provide a ‘robust foundation for collaboration between the Commonwealth and the States’. It went on to say:

The framework commenced on 1 January 2009 and involves a significant rationalisation of the number of payments made to the States, while increasing the overall quantum of payments. The framework provides clearer specification of the roles and responsibilities of each level of government, so that the appropriate government is accountable to the community. [5.4]

However, while the National Specific Purpose Payments do provide the States with greater financial flexibility, the comment is made by Anne Twomey that the National Partnership Payments seem to point back towards the micro-management of the federal reform agenda by the Commonwealth, where payments may be withheld or reduced if the States fail to meet agreed conditions or benchmarks. [5.10]


Case studies: The case studies that presented do not claim to be representative of COAG agreements generally. They do, however, present contrasting examples of more ‘centralist’ and ‘federalist’ models respectively: the National Water Initiative Agreement and the Murray-Darling Basin Agreement concentrate power in the hands of Commonwealth statutory authorities; while the Health Professions Agreement establishes a cross-jurisdictional Ministerial Council as the peak administrative body. [6.2 and 6.3]

Concluding comments: For all participating governments, the COAG process offers important opportunities to engage in national or other intergovernmental projects, with a view to achieving better standards and regulations, greater uniformity and the more efficient delivery of services and infrastructure. The new system is all about performance reporting by governments, a system founded on accountability and designed to achieve transparency. All of which appears to be as sensible as it is desirable, and consistent with popular recognition of the need for structural reform of Australia’s federal system. [4.6]

For the States, these developments present concerns as well as opportunities. It can be argued that, for the Parliaments of the States, they represent a weakening of control over major areas of constitutional jurisdiction. It may be that, under the managerial model of federalism that is now emerging, based largely on cross-jurisdictional decision making bodies, traditional constitutional relationships are rendered less robust.

For the State Executives and bureaucracies, on the other hand, the advent of managerial federalism can be painted in a more positive light, as presenting new challenges and avenues of intergovernmental cooperation, in the myriad of committees and other institutional structures established by this process, or else at the peak meetings of Ministerial Councils or at COAG itself. As the establishment of the Council of the Australian Federation and other developments show, the COAG process is not the whole story of present day Australian federalism. It is however the leading player in that story. [7]