Federalism Solves Everything

The political right are more at home with the concept of federalism than the left, writes Dr Joseph Clark.

The political right is a broad church by necessity. None of its many strands can stand alone as a mainstream political force.  Breakaway groups languish in political obscurity, hoping for a favourable preference flow that never comes. Political coherence is paramount: If the right is fractured it is impotent. Even if it gains power it will not have sufficient direction to implement substantial reform. We saw this with the late Howard government and we are seeing it with Cameron’s coalition government in Britain.

For some the answer is moderate, compromise driven policy. This answer is wrong. In a battle between inconsistent political and philosophical views, a broad populism almost always wins. Those who are prepared to compromise their ideas to gain power, or those who never had ideas to begin with, will win against idealists, and much more thoroughly if idealists are divided.

There is another solution, one that has the power to unite the right from nationalists to libertarians: Federalism.  Federalism is the idea that political power should be strictly divided between a central government and local regions (states, provinces, cantons, prefectures). This means local regions can set their own laws and charge their own taxes, with the federal government in a limited coordinating role. This is a matter of degree – some federalist systems will have a larger role for the federal government, responsibilities can be divided differently – but the basic principle is of guaranteed and substantial local autonomy.

Federalism is good for many reasons but it is particularly suited as a unifying principle for the political right. This is because federalism allows different ideas to be implemented in different places. One area may allow women to wear burkas, for instance, while they might be banned elsewhere. Different areas would have different levels and types of taxation, regulation, or even immigration.

There are few political arguments amongst the right that cannot be resolved by allowing both sides to legislate towards their preferred world in different geographical areas. The benefits of the diversity are the same as with competition in other spheres: higher efficiency, lower costs, more innovation. Successful experiments can be copied, unsuccessful ones discarded.

Federalism also provides a powerful point of difference to the left. The left has always moved towards centralisation. They see competition as wasteful — why have ten car companies when one would do? Experimentation and innovation are not relevant if a wise central planner already knows all the answers. The right has always placed more trust in individuals, families, and communities to understand their own circumstances. And so the right is more suited to a political system that places power closer to their level.

Joe is a commodities trader for an undisclosed investment fund. He also teaches macroeconomics at the University of Queensland.

Andrew Wilkie Backs Labor And Julia Gillard

The SMH reports:

One of Mr Wilkie's priorities in negotiations was poker machine reform, in particular the introduction of uniform "pre-commitment" smart card technology.

Mr Wilkie said he had a commitment in writing from Ms Gillard that she would ask state governments to adjust their gaming laws to make the changes.

"If states did not agree, she would look for a legislative way to force them," he said,

"This is unprecedented in this country.

via www.smh.com.au

Julia Gillard may seek a legislative avenue for the federal government to control gambling – yet another encroachment on the powers of the states from Canberra. So much for federalism.


Regular Menzies House contributor Senator Cory Bernardi speaks out against the deal - http://www.corybernardi.com/ - click on the audio player. We'll try to embed it shortly if possible.

Bryan Pape: Why I Am Running For The Senate

Bryan Pape, an independent candidate for the Federal Senate, writes why he is running for Parliament

My aim in seeking a seat in the Senate is to ensure that the Commonwealth Parliament makes laws which comply with the Australian Constitution. If necessary, as a Senator, I would bring proceedings in the High Court to have laws struck down which overreached the Parliament’s powers.

Some parliamentarians and citizens misunderstand the role of the Commonwealth Parliament. Asserting that some activity is in the national interest does not attract the lawmaking power of the Parliament. Its powers are limited to those given to it by the Constitution. For too long the Parliament has invaded activities which are the peculiar responsibilities of the States. Prime examples are in education and in health. More recently the Commonwealth has bypassed the States by granting money directly to local councils. There are too many other illustrations to mention. All of this has involved duplication, waste and ineffective implementation of programmes.

It should be not overlooked that most of the day to day domestic governmental activities are the responsibilities of the States. About 90 per cent of the physical assets in Australia, such as schools, universities, hospitals, roads, railways, ports, courts, power stations etc. are owned and operated by the States or their instrumentalities. The major assets owned by the Commonwealth are defence assets, like warships and submarines, aircraft and tanks. On the other hand more than 80 per cent of all taxation in Australia is levied by the Commonwealth. This is a fundamental mismatch of spending and taxing. As Professor Geoffrey Sawer once said: “those who spend, don’t have to justify the taxation and those who tax don’t have to justify the spending”.

These difficulties can be overcome by the States re-entering the field of levying personal income tax. Each State would be responsible for fixing its own rates but the Commonwealth would have the responsibility of collecting the taxes on behalf of the States. This would also work to promote competitive federalism.

The key question more often than not, is not what’s the problem, how do we solve it, but, here’s the problem, there’s the solution, what’s stopping us apply it?

 Last year I sustained what has been called a ‘pyrrhic defeat’ in challenging the validity of the Tax Bonus legislation. The High Court upheld this law by a bare majority of 4:3 which allowed the Rudd Government to supposedly stimulate the economy by paying up to $900 to eligible taxpayers amounting to $7.7 billion. While the Commonwealth was successful in its argument that the use of the so called Executive Power and the Incidental Power supported the legislation, it unanimously lost its primary argument based on the misnamed appropriations power. It is this power which the Commonwealth has been using to usurp the responsibilities of the States, particularly in making direct grants to local councils..

My career has included practice as a barrister at the NSW Bar for over 20 years, practice as a Chartered Accountant for several years and for the last 10 years as a legal academic in the School of Law in the University of New England. I have been a full-time member of an administrative tribunal responsible for adjudicating taxation disputes, namely the Taxation Board of Review No 1 (Cth) and in setting accounting standards as a part-time member of the Australian Accounting Standards Board.

Roughly a quota of 700,000 votes is likely to be needed to be elected to the Senate. For an independent candidate who is listed below the line requiring 84 boxes to be numbered maybe an insurmountable task. My position is akin to that faced by the United States forces in Iraq. To borrow the words of US Commanding General David Petraeus, "that whilst it will be hard, it is not hopeless".

For further information, you can Bryan Pape's website at www.bryanpape.com.au. Menzies House wishes to remind everyone that it does not endorse candidates.

Bryan Pape, Independent Senate Candidate for NSW

I read today on Institutional Economics that:

UNE law lecturer Bryan Pape is an independent Senate candidate for New South Wales in this year’s federal election. He is perhaps best known for his High Court challenge to the constitutional validity of some of the Rudd government’s stimulus spending in Pape v The Commissioner of Taxation. The case was described by George Williams, another law academic and would-be ALP candidate as ‘a major victory for the states in the reasoning, it’s one of those very rare High Court decisions you get that’s going to change the way government operates.

An opportunity to vote for a federalist and champion of states' rights in the Senate.

I can't say I know anything about him or his views in general, but from this he certainly seems like one of the good guys and worthy of a vote or high preference! 

(Posted by TVA)

Additional Mining Imposts Should Remain with States

Cory-Bernardi The states own Australia's mineral resources, not the Commonwealth, writes Senator Cory Bernardi.

Right from the outset I need you to know that I am philosophically opposed to new and higher taxes. Borrowing a line from Kerry Packer's famous dressing down of a Senate committee, "Governments don't spend taxpayers’ money wisely enough to make people pay more."

The wasteful spending has been reinforced many times over the past two years and now there is a proposal to impose a huge new tax on the mining industry to pay for it.

Leaving aside the typical partisanship, this proposed new tax raises some serious questions.

First amongst these is how to get better value for the 'people's resources' as the Government refers to them. It sounds reasonable except for the minor detail that the minerals in the ground aren't the 'peoples'. Constitutionally they belong to the states. That is why the states apply a royalty regime for digging them up and the Commonwealth already applies a profit tax in the form of company tax.

The Commonwealth’s justification that 'they' belong to all of us is a furphy designed to appeal to the patriotic instincts of most Australians.

However, there are many Australians who believe the mining giants should pay more for developing and profiting from our finite resources. There are also those who advocate dumping the royalty regime and moving entirely to a profit-based tax. Included amongst these advocates are some of the big mining interests themselves.

And why wouldn't they? After all, a royalty has to be paid whether or not you make a profit and we all know that company profits can be massaged (reduced) by clever accounting and confusing corporate structures.

Let's remind ourselves what the initial justification for miners to pay more was.

Our mineral wealth is finite and the miners are making super profits from exploiting them. According to Mr Rudd and Labor, these profiteers need to distribute more of this wealth so that Australians get their fair share.

We have been reminded ad nauseam that the proceeds of this new tax are going to fund extra superannuation for all of us. It sounds appealing, but it is a load of codswallop.

The new tax will go straight into general revenue for the Government. After wasting billions on flawed projects, the Government is simply trying to prop up a budget black hole due to their extravagant spending. While they will try to convince you differently, the fact is that businesses, not the Government, will be paying the proposed additional compulsory superannuation levy.

Now back to the taxation regime. If we accept the reasonable proposition that mineral wealth can only be used once and is a finite resource, then the royalty regime is the correct additional impost to apply to those exploiting that resource. It applies based on tonnage of ore removed, irrespective of whether or not  the mining company makes a profit. This is perfectly reasonable as the ore, once mined and processed, can't be replaced.

The royalty regime also allows those who own the resources (the states) to benefit from their extraction by setting an appropriate royalty rate. This can be varied by the states through agreement after considering the international and domestic investment environment. In essence, royalties are an example of our federalist system where those who own the asset actually benefit from them.

Rudd's tax proposal supplants all of that. It concentrates power in the hands of the Commonwealth, a principle that the founding fathers of federation sought to limit. In doing so it raises considerably the risk of doing business in Australia because the predictability of our investment and regulatory regime has been eroded.

Rudd's super tax on mining tax also compromises the concept of state’s rights. It undermines our international standing and enhances central government power. These reasons alone are enough to oppose it.

However, if you believe that miners should be paying more for using our non-renewable resources then the best method of doing that is through the existing royalty regime. The rate of applying and collecting those royalties is a decision for the states – and that is where it should remain.

Senator Cory Bernardi is the Shadow Parliamentary Secretary Assisting the Leader of the Opposition and a Senator for South Australia. This article is courtesy of his personal blog which can be found at http://www.corybernardi.com.

Federalism – When Principles are Forgotten

Michaelia_cash Federalism should once again be a core Liberal Party principle, writes Senator Michaelia Cash.

One of the greatest lessons of history is not to fall into the trap of forgetting your own history. In our case it is the history of the Liberal Party – founded by Sir Robert Menzies in 1944 – and which is based on some important and irrevocable principles.

Sir Robert Menzies was a Federalist.  He believed in the division of power between the Commonwealth and the States stating on many occasions that the continued existence of State governments was critical to the true protection of individual freedom.

As Liberals we must never forget that during the constitutional debates of the 1890s it was the six sovereign States that set down the rules for the establishment of the Commonwealth of Australia.

We must never forget that the Commonwealth of Australia is the creation of the States, on the terms set out and agreed by the States, and not as some centralists would have you believe, that the Commonwealth somehow created the States.

You cannot rewrite history without distorting history!It is clear from the constitutional conference debates, that when the Commonwealth was created in 1901, the States proposed to transfer only limited powers to the Commonwealth, and intended to retain the maximum possible Constitutional powers for themselves.

More than a hundred years later it is fair to say that our founding fathers did not envisage that the passage of time, changing circumstances, and the broad interpretation of the powers of the Commonwealth by the High Court of Australia, would see a profound encroachment by the Commonwealth, on previously intended areas of State responsibility.

Whilst accepting the changing powers of the Commonwealth, due to High Court interpretation, I believe that we, as Liberals must always pay proper regard to the Constitutional compact as it was originally conceived.

There is no doubt that the past 100 years have seen a major shift in power from the States to the Commonwealth. In fact some observers of history have said that the history of the Australian federation is also largely the history of competition between the Federal and State governments.  

Much of this shift can be put down to the financial imbalance between the States and the Commonwealth. Indeed, Australia has the highest degree of vertical fiscal imbalance of any federal political system.

Because of its control over taxation collection, the Federal Government has become the dominant influence in our political system and the States now depend to a large extent on the financial largesse of the Federal Government to carry out their responsibilities.

It is interesting to note that the Commonwealth raises approximately 70 – 80% of total general government revenue, but is responsible for only around 60 per cent of total expenditure on government programs.

Since section 96 of the Constitution allows the Commonwealth to provide financial assistance to the States on whatever terms and conditions the Commonwealth Parliament might set, the Commonwealth can use—and has used—its dominant financial strength to intervene in a range of functions which would otherwise be State responsibilities.

It is not just the financial imbalance between the Commonwealth and the States that has changed over the years but also the use of legislation based on treaty arrangements with other countries as a consequence of a broad interpretation of the foreign affairs provisions in the Constitution and this has the potential of jeopardising the sovereignty of the States.

I am thinking here of the wide powers of the Commonwealth to intervene on environmental and heritage issues and impose conditions on major developments previously the sole purview of the States.

Who can forget the famous Tasmanian Dams case and Attorney-General Gareth Evans’ authorised spy flights by the RAAF over the Franklin River!

An understanding of federalism, or rather what is not federalism, is the key to understanding the Australian political system. I therefore want to mention a so-called form or derivative of Federalism, “Opportunistic Federalism”, that is, the federal government taking action in relation to state issues when “it” alone believes action is required. 

In this regard it was our own John Howard who famously commented in 2005, in an address to the Menzies Research Centre, that he had “little time for state parochialism”.  Federalists would correctly argue, in my view however, that in many areas the issue was not state parochialism, but state responsibility, and there is a world of difference between parochialism and responsibility! 

We will all recall the decision of the Howard Government to invoke section 51(xx) of the Constitution to expand its legislative reach at the expense of the States: a decision which was challenged by State Governments.

Interestingly in the 2006 case of NSW v Commonwealth of Australia (the Work Choices decision), Kirby J, in his dissenting judgment, stated at page 225, that the use of the corporations power in section 51 (xx) of the Constitution in the Workplace Relations Amendment (Work Choices) Act 2005 (Cwth), if found to be valid, carried ‘a very large risk of destabilising the federal character of the Australian Constitution’.

Kirby J elaborated by referring to the danger of “opportunistic federalism” – that is, the Commonwealth using the corporation’s power as a cover to expand its legislative reach into states’ areas of responsibility:

… the risk to which I refer is presented by a shift in constitutional realities from the present mixed federal arrangements to a kind of optional or “opportunistic” federalism in which the Federal Parliament may enact laws in almost every sphere of what has hitherto been a State field of lawmaking by the simple expedient (as in this case) of enacting a law on the chosen subject matter whilst applying it to corporations, their officers, agents, representative, employees, consumers, contractors, providers and others having some postulated connection with the corporation.

My purpose in raising the spectre of “Opportunistic Federalism” in discussing the importance of adherence to the true Liberal principle of Federalism is to demonstrate how far some Central Governments will seek to empower the Commonwealth, at the expense of the States, and deviate from the basic principle that our founder Sir Robert Menzies laid down as a critical tenet of our Party.

Our forefathers set down the rules in the Constitution for the Federal Government and the respective State and Territory Governments to work together in the interests of the nation.

Our forefathers saw the future of Australia based on the benefits that would be derived by the sharing of power, on agreed terms and to this end they allocated various powers the Commonwealth as can be seen, in the main in section 51 of the Constitution with the balance remaining as the residual powers of the States.

How we have deviated from the intent of the 1901 Constitution and the principle of Federalism.

Convenient jingoistic titles such as “Opportunistic Federalism” will never succeed in hiding, disguising or shrouding the fact that we have over time retreated from the principle of Federalism as enunciated by Mr Menzies when he founded the Party.

It is up to us as Liberals to stand up and demand adherence to our Liberal principles if we as a Party are to succeed as the dominant political party in Australia.

Michaelia Cash is a Liberal Senator for Western Australia.