“The mere fact that the Constitution is amended to permit the Commonwealth to make grants directly to local government, rather than through the States, does not in any way guarantee that it will give more money, or indeed, any money.” (University of Sydney Constitutional Reform Unit Report No 3, January 2013, p.88)
As well as voting Gillard or Abbott into power this September, Australian voters will also be asked to change the constitution. This is the first time people have voted on the constitution in 14 years and despite recent politicking there is not much excitement about it. Yet as Attorney-General Nicola Roxon said in a 2012 speech “constitutional reform is a high stakes contest”.
This contest is about recognition of local government in the federal constitution something that failed in 1974 and 1988. According to Roxon this is the last opportunity for change and to proceed and lose would be a death knell for local government recognition. “Future governments would just not waste the time and effort on a fourth attempt,” Roxon said.
The change is a legal one not quickly understood and Roxon’s government has not invested much time in helping people understand. What is at stake is a change to Section 96 of the constitution.
Section 96 (“Financial assistance to States”) currently reads:
During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.
The change to be voted on in the referendum is twofold.
The name of S96 will change from “Financial assistance to States” to “Financial assistance to States and local government bodies”.
The text of S96 will change to: “the Parliament may grant financial assistance to any State and any local government body formed by the law of the state on such terms and conditions as the Parliament thinks fit.”
There doesn’t seem anything obviously wrong about Section 96 under than the pointless referral to the “ten years after the establishment” which expired in 1911. This section gives the Commonwealth carte blanche to fund the states under any conditions it desires. So why is it important to include “any local government body formed by the law of the state”?
What Section 96 does not give is the right for the Commonwealth to fund the third level of government, local councils. Australia is a classic “dualist federal system” and local councils are not mentioned in the Federal Constitution. In 1901, municipalities were considered a subsidiary body with no status or powers of their own.
Councils were creations of the state, and the states retain the right (as specified in Part 2 of the Queensland constitution) to fire them. This has happened, usually on financial or amalgamation grounds – even though Councils have been compulsorily voted in by the people.
The federal referendum cannot address that injustice; that would require referendums in each state. But it can give Councils freedom to secure funding directly from the Commonwealth by making Section 96 of Constitution more specific.
Councils have a narrow range of powers confined to property services and rely on the property tax commonly called “rates” to fund services. The problem is they are also responsible for capital expenditure and maintenance of local roads, well outside the capability of property taxes.
This problem was recognised in 1922 when the Commonwealth first funded roads on a 50:50 basis with the states. In 1923 the Main Roads Development Act relied on Section 96 of the constitution to provide money to the states on the condition some of it would be passed on to councils to build roads, especially in remote areas.
Road expenditure increased dramatically after World War II as the Commonwealth became more prescriptive about what the money could be used for. The Whitlam Government took over in 1972 with a strong aversion to the conservative-ruled states. It encouraged councils to form regional groups and poured money into regional development schemes by-passing the states. The Commonwealth took on full responsibility for “national highways” and insisted States run their own roads program by Federal guidelines.
In 1974 Whitlam held a referendum to give local government representation on the Australian Loan Council and to allow the Commonwealth to lend money to them. The states were furious and saw it as an attempt to by-pass them. The ‘No’ case stressed grants to local government would allow “Canberra’s bureaucratic fingers” into every Australian municipalities. The referendum failed nationally by half a million votes, and in all states except NSW.
A second referendum failed in 1988. The Hawke Government asked “Do you approve of an Act to alter the Constitution to recognise local government?” This question was more symbolic than 1974 and was a sweetener for other referendum questions by harnessing the campaigning power of local government. It fell after initial bipartisan support was lost. The referendum failed in all states and territories and failed overall by three million votes.
The Hawke Goverment also changed the Fraser Government initiative which gave the states a share of income tax. This was handy in good times but difficult to bear in recessions. Hawke removed the tax and replaced it with FAGs – Financial Assistance Grants. FAGs had the political benefit of improving the budget bottom line by more directly targeting funds where needed, but created inequalities across the system.
John Howard cut out the FAGs and introduced the GST in 1998 to fund the states. However the deal he struck with the Democrats meant the tax did not raise what was expected and the Commonwealth still needed to top up funding. In 2002 Howard directly funnelled money to councils Whitlam-style in the Roads to Recovery program. Originally due to last four years, it proved popular and still exists. The problem was how equitable these arrangements were, particularly in consequential impact, though there was not much will to change.
In 2006 the federal parliament adopted a resolution recognising local government which was a token gesture but acknowledged a reality not expressed in the constitution. The Rudd/Gillard government continued the commitment to roads. From 2009-10 to 2013-14 the Government is providing $1.75 billion ($373.5 million in 2013-14) under Roads to Recovery.
Rudd also established the Australian Council of Local Government in 2008 in the name of ‘partnership building’. After the 2010 election, Julia Gillard promised the Greens and Independents a referendum to recognise local government in the constitution. An impetus for constitutional change came in the Pape case. Law lecturer Bryan Pape told the High Court the $900 Rudd stimulus payments were a gift and not supported by the taxation powers of the constitution. The Government won the case on a narrow interpretation of its “nationhood powers” in the constitution. The High Court deemed the Government had the right to give away money, but only in a “national emergency”.
Waters were further muddied by a second case in 2012 Williams v the Commonwealth. Ronald Williams was a parent opposed to Commonwealth funding of the school chaplaincy program. The High Court agreed with Williams the Commonwealth did not have the authority to exercise the expenditure under its constitutional powers and shut down the program.
The Government ignored the Pape decision because it won but Williams was different. To fix the chaplaincy issue, they rushed through the Financial Framework Legislation Amendment Act (No 3) 2012 “to make, vary or administer arrangements under which public money is or may become payable, or to make grants of financial assistance.” However this new law is subject to constitutional challenge to find the head of power that authorises it.
Roads to Recovery and the National Disaster Relief and Recovery Arrangements are similarly challenged. Funding and repairing local roads are not a corporation power or a nationhood power, the two most likely constitutional defences. They are hardly “national emergency” programs either. They are vulnerable to constitutional challenge from anyone with standing and motivation.
Hence the referendum. The problem is a lack of knowledge and lack of trust from a disengaged electorate. In 2011 a local government Expert Panel found a successful referendum must have bipartisan support, make a practical difference and resonate with the public. Unless its supporters start quickly making a compelling case known, this referendum seems doomed to the same failure that has plagued 36 of the 44 referendums since Federation.