The High Court and the Federal Balance essay

The Australian Constitution vests the judicial power of the Commonwealth of Australia in the High Court (s 71). In ss 75 and 76, it is given the power to adjudicate in disputes between States and the Federal government, as well as in issues arising from the interpretations of the Constitution and Federal law. According to Greg Craven, constitutional lawyer and the current Vice Chancellor of the Australian Catholic University, the High Court was intended by the writers of the Constitution to protect the rights of the States, ensuring that the powers of the Commonwealth were limited. However, the High Court has effectively discharged this function; instead of maintaining the balance of power between State and Federal governments, the High Court has been the main cause tipping the balance in favour of the Federal government. Whilst High Court decisions are not the only factor, it is valid to propose that the High Court has had the most significant impact. Other factors, such as referendums, referral of powers and unchallenged legislation, are insignificant compared to the impact the High Court has had on altering the federal balance.

 

The impact of the decisions of the High Court can be best seen in three main areas: industrial relations, external affairs, and finances. Initially, the High Court fulfilled its ‘intended purpose’ as the States’ protector, especially in industrial relations. The Justices, Griffith CJ, Barton and O’Connor JJ, were all heavily involved in the writing of the Constitution and were familiar with the intent of the Founding Fathers for the role of the High Court. This was evident in D’Emden v Pedder 1904, where the Court upheld the doctrine of ‘implied immunities’ and ‘implied prohibitions’, preventing intergovernmental interference. The government of Tasmania wanted to impose stamp duty on the salary of a Federal official; the HC ruled this as invalid.

 

The doctrine of ‘implied immunities’ was further upheld in Federated Amalgamated Government Railway Service Association v NSW Railway Traffic Employees Association 1906, more commonly known as the Railway Servants case. This ruling prevented the Commonwealth Conciliation and Arbitration Act from having any effect on State government employees. Under s 51 xxxv, the C’th is able to legislate in that area, but the HC held that the Act could not apply to the States.

 

However, the ‘implied immunities’ doctrine was soon overturned, and the decision in the Railway Servants case reversed. In Amalgamated Society of Engineers v. Adelaide Steamship Co. 1920, aka the Engineers case, the HC (now made up of an entirely new bench) allowed the C’th to legislate in State businesses, pursuant to s 51 xxxv of the Constitution, but only when these businesses extended beyond the State. It decided that the aforementioned Act can apply to these businesses, thus beginning to encroach on the powers of the States. The Engineers case marked the beginning of the upsetting of the balance of power. The High Court, interpreting the Constitution in a legalist manner, would continue to alter the balance to the detriment of the States.

 

The power of the Commonwealth to legislate in industrial relations increased even more in Strickland v Rocla Concrete Pipes Ltd 1971. The decision in the Concrete Pipes effectively allowed the Federal gov’t to legislate, under s xx of the Constitution, for all corporations when their activities involved transactions with the public. The C’th government passed the Trade Practices Act 1974 as a direct result of this decision.

 

More recently, the Howard Government’s Workplace Relations Amendment Act 2005 (WorkChoices) sought to strip the States of all remaining powers concerning workplace relations. The subsequent HC challenge, NSW v Commonwealth 2006, resulted in a Commonwealth victory, under the corporations power in s 51 xx. The ruling resulted in the C’th’s IR legislation overriding any that the States had made prior to 2005. It can be seen that the High Court had played an instrumental part in giving the Federal gov’t the power to legislate in the industrial relations of the States, contrary to the intentions of the Founding Fathers.

 

In the realm of external affairs, that is, regarding s 51 xxix of the Constitution, the HC decisions have been equally significant in altering the balance of power. One of the first interpretations of external affairs was in R v Burgess 1936. With the advent of air travel, the HC interpreted ‘external affairs’ to include air regulations. This quite broad definition paved the way for more activist definitions of external affairs.

 

The most recent definition of external affairs was given in Koowarta v Bjelke-Peterson 1982, in which the Queensland government was found by the HC to be in breach of the C’th’s Racial Discrimination Act 1975. The majority ruled that Queensland could not prevent the Koowarta peoples from leasing land as it contradicted Federal law, and under s 109, was invalid. The Act itself was upheld, as the Court interpreted external affairs power very broadly – any international treaty ratified by the Commonwealth parliament under s 51 xxix of the Constitution was binding on the States.

 

This definition was further upheld in Commonwealth v Tasmania 1983. The Tasmanian gov’t wanted to build a dam in a UNESCO World Heritage area. The Federal gov’t, who had passed the World Heritage Properties Conservation Act 1983 ratifying a UN treaty, forced Tasmania to stop the project, as a result of the HC definition of ‘external affairs’. This broad definition laid the foundation for the encroachment of State powers by the Commonwealth – all that the C’th needs to do to override the States is sign an international treaty.

 

Perhaps the most significant way in which the High Court has altered the balance of power is its contribution to vertical fiscal imbalance. Currently, the Federal gov’t raises 80% of total government revenue, but spends only 50%. In contrast, the States raise just 20% but spend 50%. The resulting difference in spending and revenue is overcome through the use of s 96 to distribute funding. However, this means the Federal government may attach conditions to the money it gives, allowing it to effectively control State policy. Vertical fiscal imbalance can, in part, be attributed to the decisions of the High Court.

 

In NSW v Commonwealth 1908, barely 7 years after Federation, the States lost a large part of their revenue. S 94 of the Constitution stated that all surplus revenue collected by the Commonwealth must be distributed amongst the States. The Deakin government bypassed this section by appropriating the surplus revenue into what were effectively special holding funds. Since the funds were duly appropriated, s 94 did not apply. The sum in question, according to the October 14, 1908 version of Adelaide’s the Advertiser was 120 000 pounds, equivalent to $250 million in today’s currency. The Surplus Revenue case took away a significant source of revenue from the States, helping to create vertical fiscal imbalance.

 

Under s 96, the Federal Government is able to attach conditions to the money it grants to the States. However, this power was not used until 1923, when the Bruce government passed the Main Roads Development Act 1923. The States, fearing that this could lead to the potential misuse of s 96 by the C’th to influence policy outside of its powers, launched a HC challenge in Victoria v Commonwealth 1926. However, the HC upheld the C’th government’s right to attach conditions under s 96. This paved the way for the Federal government to control how the States used the revenue, creating the problem of vertical fiscal imbalance. The number of grants under s 96 bloomed to over 55 in the Whitlam government, and it has become a tool used to coerce the States into supporting government policy.

 

Other decisions that have asserted Commonwealth financial dominance over the States are the Uniform Tax cases – SA v Commonwealth 1942 and Victoria v Commonwealth 1957. During World War 2, the Federal gov’t was struggling to pay its costs. Making an agreement with the States, it passed the Uniform Income Tax Agreement Act 1942 allowing the Federal government to impose and collect a single income tax, with State income taxes made obsolete, for the duration of the war. The Federal government would distribute funds to the States under s 96. However, when the States saw that this power would not be transferred back to them after the war, the States challenged the validity of the legislation. However, the HC held that under s 51 ii, taxation was a concurrent power. The States could raise an income tax on top of the federal one, but this would be politically unfeasible. Thus, these cases removed a very large part of the State’s revenue raising capabilities, and increasing their reliance on Federal grants.

 

Interestingly, the States partially relied on the argument in the Surplus Revenue case: if the HC allows this fiscal imbalance to occur, the Commonwealth could potentially influence policies outside their constitutional limits under s 96. As before, this argument was rejected, with Latham CJ even saying that solving the imbalance of powers was a political matter, not a judicial one, completely subverting the original intentions of the Constitution’s writers. According to a 1998 paper written by Professor Black of Curtin University entitled ‘Federation Issues’, the Federal government went from raising 16% of total revenue before the war to 45% after it, showing a very distinct increase in federal revenue-raising capacity to the detriment of the States.

 

Another decision that increased the level of VFI is the Ha v NSW 1997 case. In 1987, the NSW government passed the Business Franchises Licences Tobacco Act, which requires businesses to purchase a licence to sell tobacco. According to Prof Black’s previously mentioned paper, the States raised 20% of their revenue on such licences on tobacco and other products. However, in the Ha case, the definition of excise, as per s 90 of the constitution, was interpreted very broadly. The majority held that an excise was any tax on a good or service prior to consumption, thus, these licence fees were excises and thus unconstitutional, since s 90 states that excises are exclusive powers of the Commonwealth. This decision severely hampered the revenue raising capabilities of the States, decreasing State revenue by 20%. Subsequent licence fees were paid to the Commonwealth, which went from raising 70% of total government income to 80% as a consequence of the decision.

 

Although HC decisions have impacted the balance of power, other factors have also done so. One of these is through referenda. Changing the Constitution can alter the balance of power. This, however, has had a very small impact on Federal-State relations. The only referenda that have affected it are: State Debts 1928inserting s 105A and allowing the Commonwealth to take on State debts; and Social Services 1946, inserting s 51 xxiiiA, which gives the C’th power to legislate in the area of pensions and welfare payments. None of these significantly alter the balance of power. In addition, any referendum proposing to limit the States’ power is very unlikely to succeed: under s 128, a double majority is needed to pass the referendum, which is very unlikely if the States campaign against it.

 

A second factor is referral of powers. Pursuant to s 51 xxxvii, States are able to ask the Commonwealth to take over areas of policy. In reality, the States are not likely to refer any important powers, such as Health or Law and Order. The only powers that have been referred are those that are too expensive for the States to maintain (SA and Tasmanian railways in 1974; Victoria IR in 1996) and those in the natural interest (such as counter-terrorism laws 2003). Hence, referral of powers has very little significance in changing the balance of power.

 

Another factor is unchallenged legislation. The Commonwealth may legislate ultra vires. The States do not challenge this legislation, since it is not in the national interest, or because they have an agreement with the C’th. Because the HC cannot declare it invalid unless a party disputes it, and since the only parties involved are the States and the C’th, the legislation remains in force. Alternatively, State governments will pass an exact replica of the federal legislation in their own parliaments, called mirror legislation. Examples include the setting up of the CSIRO, the Snowy Mountains Hydroelectric Scheme, and the Uniform Gun laws 1997. However, this has had very little impact on Federal-State relations: the States are very unlikely to leave unchallenged or pass legislation that limits their own power.

 

It is clear that High Court decisions have had the largest impact on the imbalance of power between Federal and State governments. Taking decisions on Industrial Relations as an example, the balance has been slowly tipping towards the Commonwealth ever since Federation. Initially, the HC upheld the intentions of the Constitutional writers in the first IR cases, the D’Emden and Railway Servants cases in 1904 and 1906. However, this was reversed in the Engineers case 1920. C’th power was further expanded in the Concrete pipes case 1971, before the WorkChoices Act and case 2006 effectively shifted IR from being a concurrent power to an exclusive one. Similarly, in external affairs, HC interpretations have allowed the Federal gov’t to legislate extensively in areas outside of their constitutional limits using the external affairs power. HC decisions have also led to greater fiscal imbalance, reducing the revenue raising capabilities of the States and increasing their reliance on the Federal gov’t. In contrast, other influences are not very significant. Referenda, referral of powers, and unchallenged/mirror legislation have not made very large impacts in altering the balance of powers, especially when considering the HC’s facilitation of Commonwealth financial dominance. As Alfred Deakin recognised in 1902, the Constitution “left [the States] legally free but financially bound to the chariot wheels of the Central Government.” It seems that the largest chain that binds the States to the Commonwealth is the High Court.

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