Wednesday 1 October 2014

White Paper on Reform of the Federation - what's in it for the States?

Australians want good services and infrastructure with minimal red tape, but accountability is important, and dividing up responsibilities and duties in our constitutional system isn't always easy. While the States have significant responsibilities for service delivery, the Commonwealth is more able to raise revenue to pay for those services. 

There are some areas that are better dealt with locally. There are other areas where a coordinated national approach is appropriate. But which approach is best and when? What does our constitutional system allow? 

The White Paper on Reform of the Federation will hopefully shed some light on these questions.

Just what is a white paper anyway?

A white paper is a report or guide helping stakeholders understand an issue, solve a problem, or make a decision. White papers tend to present a finished outcome, and so there are often green papers along the way. Green papers are usually more open-ended, presenting a range of options to facilitate consultation and help government reach a decision. And before the green papers, there may be issues papers as high level backgrounders on discrete topics. 

What's happening when?

The terms of reference for the White Paper on the Reform of the Federation were released on 30 June 2014. The first Issues Paper, "A Federation for our Future", was released 12 September 2014, and includes a detailed history of Australia's federal system. 

The Commonwealth will prepare further Issues Papers on health, education, housing and homelessness. The White Paper process will also consider transport and infrastructure, Indigenous affairs, justice, disability, welfare services, settlement services, family and parental support, disaster recovery, environmental regulation, adult and community education, and youth transitions. 

A Green Paper setting out options for reform will be released during the first half of 2015. The final White Paper setting out the Commonwealth's position is to be released by the end of 2015.

Why is the White Paper on Reform of the Federation important?

The White Paper has lofty aims: to clarify the roles and responsibilities of each level of government, to improve fiscal sustainability, and in turn help the public understand the federal system better and make interacting with government easier. 

In recent years there has been an accelerating trend towards centralisation of policy and funding in many areas, due in part to the High Court's broad interpretation of Commonwealth powers under the Constitution. 

The Commonwealth has indicated an intention to apply the principle of "subsidiarity" (or decentralisation), whereby responsibility for government services lie with the lowest possible level of government, closest to the beneficiaries of the services. 

How this might happen in practice is where it gets interesting. Under the Constitution, the Commonwealth has limited power over subject matters but broad power to tax. The States have been left with few independent revenue sources but have broad responsibilities, meaning that they are reliant on Commonwealth funding for key areas of service delivery. With funding comes the need for accountability.

As part of the White Paper process, the 2008 Inter-Governmental Agreement on Federal-Financial Relations will be revisited. That Agreement was executed with the intention to improve autonomy for States, but over time, funding agreements with restrictive conditions (also known as "tied grants") have increased. 

This time around revenue will also be on the agenda, with the White Paper on the Reform of the Federation to be closely aligned with the White Paper on the Reform of Australia’s Tax System (for which the terms of reference are yet to be released).

Will the Commonwealth propose constitutional reform? If it doesn’t, how will the Commonwealth resist the urge to impose restrictive conditions on the States receiving federal funds, just as it has since 2008? If it does, will there be bipartisan support for the proposal so that it stands a chance of satisfying our rigorous constitutional amendment process?

Where to from here? 

A Steering Committee will oversee the White Paper process, chaired by the Commonwealth and with representation from the State and Territory representatives First Ministers’ departments and the Australian Local Government Association. It will be a standing item on the COAG agenda. Details on the public consultation process to be released soon on the website at

VGSO's experts in constitutional law and intergovernmental relations can help Victorian government bodies if you require advice on engaging with the White Paper process. 

VGSO contacts:

Managing Principal Solicitor
 t 8684 0220

Managing Principal Solicitor
t 8684 0899

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