The State of Play in Australian Politics

The tax forum as a platform for a grand bargain?

2011-06-28T16:24:00.004+10:00

In his Challenges of Federation speech we referred to in a previous article, Prime Minister’s Department Secretary Terry Moran said:

There are business leaders who hold the view that Australia can’t work well unless states cede regulatory authority to the Commonwealth, and that as much as possible affairs should be run from the centre. Proponents of this view often see government as a giant corporation, where everything is subject to the power of the CEO. This is not an arrangement for stable and effective democratic government. It is a recipe for authoritarianism, and would be a long way from the liberal democratic ethos we now enjoy.

Yet this is how the Australian federal model operates.

In an earlier article we referred to Peter Phelps’ maiden speech to the NSW Legislative Council.

In another part of the speech he said:

The problem (with the Australian federal structure) is compounded by vertical fiscal imbalance or, to put it in the language of humans rather than economists, the States have the attitude of teenagers:

"Come on, dad, give us some more money.""Why don't you just get a job, son?""Aw, dad, now you're just being mean".

This puts the situation well.

The Intergovernmental Agreement on Federal Financial Relations provides:

The Commonwealth will provide National Partnership payments to the States and Territories to support the delivery of specified outputs or projects, to facilitate reforms or to reward those jurisdictions that deliver on nationally significant reforms or service delivery improvements.

The National Policy and Reform Objectives underwriting the Federal Financial Relations IGA reads:

National Partnership incentive payments will be provided to reward the States and Territories which deliver reform progress or continuous improvement in service delivery.

These payments will be structured in a way that encourages the achievement of ambitious milestones or performance benchmarks.

Graduated benchmarks may be specified in National Partnership agreements to provide that States receive some proportion of funding for activity that has not fully achieved the reform or service delivery objectives but has resulted in partial attainment of the agreed outcomes.

The achievement of milestones and performance benchmarks will be assessed by the independent COAG Reform Council, in order to provide transparency and enhance accountability in the performance assessment process.

National Partnerships should set out clear, mutually agreed and ambitious performance benchmarks that can be assessed by the COAG Reform Council. These should be structured in a way that encourages the achievement of ambitious reform targets and continuous improvement in service delivery, and provide better outcomes than would otherwise be expected.

A practical example of a ‘reward payment is clause 32 of the National Partnership Agreement to Deliver a Seamless National Economy which provides:

32. The Commonwealth will provide reward payments to the States and Territories following CRC advice as to the achievement of key milestones, as set out in the Implementation Plan for the 27 deregulation priorities. The maximum distribution of funds to be paid is set out in Table 1 above.

And as we referred to in an earlier article, the NSW Parliament passed reforms relating to directors liability because they were reforms as they were COAG reforms for which reward payments were payable for ‘meeting key milestones’ - and the NSW Government was keen to secure passage to win ‘brownie points’ for making the necessary changes to the law.

If the state’s play up the Feds won’t pay up.

And, despite the wishes of Terry Moran the Commonwealth is hardly slowing down the areas of public administration in which it wishes to become involved.

The last article discussed the grand bargain that never was.

It was a pity a succession struggle within the federal ALP derailed an attempt of a grand bargain.

We remain of the view there should be a grand bargain establishing:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, through an agreement made under section 96 of the Constitution; or

(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.

Clearly, the proposed tax forum to discuss the Henry Tax Review to be held on 4 and 5 October 2011 would be the perfect opportunity

Except it won’t happen.

The forum will apparently:

....continue the decade-long conversation we started with the release of Australia's Future Tax System (AFTS) Review last year. It will focus on the broad sweep of topics in the Review, with sessions to discuss personal tax, transfer payments, business tax, state taxes, environmental and social taxes, and system governance.

But won’t discuss the GST, areas of the Henry Review the Government has already indicated it won’t implement and most importantly what elements of the federation will perform which function.

This is a wasted opportunity.

Bob Hawke and Nick Greiner's grand bargain

2011-06-28T16:15:00.005+10:00

A grand bargain realigning state and federal taxation streams and responsibilities was mooted during the early 1990s.

The history was set out in the Victorian Parliament’s Federal-State Relations Committee Inquiry Into Overlap and Duplication of Roles and Responsibilities Between the Commonwealth and the State; and Areas of Responsibility for Which the States Should Have an Enhanced Role for the Benefits of the Federation:

6.22 The impetus for change to Australia’s federal system arose from a conjunction of political conditions. Bob Hawke, a Labor Prime Minister, and Nick Greiner, a Liberal Premier, shared common goals of microeconomic liberalisation and Commonwealth-State relations reform, as well as a common managerialist perspective on government. The fact that all the other State Premiers were Labor reduced differences among them over the agenda for change. The combination of a strong leader among the Premiers and a consensus oriented Prime Minister led to the adoption of a collaborative, consensual approach. This bipartisan, Commonwealth-State political commitment to the creation of a truly integrated national economy, and to the rationalisation of government roles, ensured momentum at the early stage.

6.23 The Hawke-Greiner partnership is symbolic of an implied comprehensive exchange. The microeconomic liberalisation that the Commonwealth was seeking would lead to uniformity of regulation, and a lessening of State intervention in the economy. In return for this reduction in their power, a realignment of roles and responsibilities, in combination with fiscal reform, would grant the States revenue and autonomy adequate to their expenditure responsibilities. The agenda was broader under Hawke than at any subsequent stage, and this comprehensive exchange seemed a real possibility.

6.24 This potential exchange collapsed in late 1991, with Paul Keating’s challenge to the Labor leadership. Keating sensed that Hawke did not have the support of the Labor caucus for fiscal and program devolution, and proceeded from late October 1991 to challenge Hawke largely on these grounds.

Keating's action dismayed the premiers. They read out consistent statements in their respective state parliaments.

For instance Wayne Goss told the Queensland Parliament:

……Twelve months ago (in 1990), a new process for reforming the Australian Federation was commenced in Brisbane. That process sought to rationalise the financial relationship between the Commonwealth and the States, to rationalise functional responsibilities between the various levels of Government in order to minimise duplication and to improve the economic efficiency of the country through the implementation of wide-ranging micro-economic reforms.

As the Prime Minister and the Premiers agreed in the Sydney communique, the Perth conference would— “consider the crucial and interrelated issues of reform of Commonwealth/State financial arrangements including reviewing the distribution of taxation powers to reduce vertical fiscal imbalance and a clearer definition of the roles and responsibilities of the respective Governments in the areas of program and service delivery . . .”

In preparation for the Perth conference the States, large and small, Labor and conservative, developed a position paper containing a range of proposed reforms. First and foremost, the States agreed on a shared national income tax proposal whereby an agreed percentage of national income tax receipts would be returned to the States. This was to be achieved by a parallel reduction in financial assistance grants to the States and a reduction by the same percentage in the Commonwealth income taxation rate. This meant no increased taxation burden for Australian taxpayers. This meant providing the States with access to a growing source of revenue capable of guaranteeing our delivery of crucial services into the future. This also meant no diminution in the Commonwealth’s capacity to manage the national economy.

Secondly, the States advocated the establishment of a council of the Australian Federation comprised of the heads of Government of the Commonwealth and the States. This body was to provide a continuing mechanism through which the range of micro-economic reforms already initiated in this process could be sustained in the future.

It was also to provide a means by which rational decisions could be taken on the future delineation of functional responsibilities between the two levels of Government. Most critically, this proposed council was to assist in lifting the vision of both the Commonwealth and the States above their own narrow and immediate interests and to concentrate instead on the pursuit of the national interest.

Yesterday in the Commonwealth Parliament the Prime Minister stated that the Commonwealth Government could not support the States’ “shared national income tax proposal”. However, in rejecting this option, the Commonwealth Government has not advanced any sound policy reason as to why this proposal is unacceptable. Indeed, a joint report prepared by the Commonwealth and State Treasuries indicated that proposals such as the one advocated by the States would result in a significant reduction in vertical fiscal imbalance without compromising the Commonwealth’s legitimate requirement to maintain macro-economic control and without violating the principles of fiscal equalisation.

Furthermore, the same Treasuries’ report notes that other successful federations, for example, the United States,Canada and West Germany, are able to manage their national economies with markedly lower levels of vertical fiscal imbalance than Australia.

Regrettably, my colleagues—the other Premiers—and I have concluded that the States’ taxation reform proposal has been jettisoned for reasons other than those of a policy nature. Notwithstanding last-minute discussions late yesterday and again today, it appears that the Commonwealth is immoveable on this point. Given this position, and given that the reform of Commonwealth/State financial relations is fundamental to the whole reform of Australian federalism, the States reluctantly concluded that it was impossible to proceed with the Perth conference. To do so would have been to yield sound policy to the requirements of political expediency. …..

Whilst the discussions that led to the implementation of the 1995 competition policy agreements continued, the opportunity of a ‘grand bargain’ was lost.

The Challenges of Federalism

2011-06-28T16:08:00.002+10:00

As a broad policy issue federalism is bubbling away.

One bubble about the burst is the decision of the Government to impose a minerals mining resource tax.

The tension arises because one element of the scheme is the provision of a full credit for state royalties paid by a miner.

To limit this exposure, the Feds have been stepping up the pressure on states not to increase royalty rates payable on the extraction of minerals – one of the few ‘own source’ revenues remaining to state level governments.

This is irksome to Western Australia, which relies heavily on royalties revenue.

As Ken Wilshire said in a recent opinion piece:

This is no way to run a federation. Ask the Canadians, who have long faced the challenge of maintaining balance between their resource-rich western provinces and Ottawa. The difference there is that the provinces have a clear and appropriate taxation base. In Canada, as in every federation in the world except Australia, the states have full income taxation powers. (Resource-rich Alberta, home of Prime Minister Stephen Harper, has often had the lowest income taxes made possible by resources taxes.) And progressive federations such as Germany have tax sharing arrangements of a rational nature.

All this points to the way forward for Australia. The forthcoming tax summit must discuss federal finances and especially the hopeless vertical financial imbalance because of the dominance of the national government in taxation. This will forever divide the nation if not corrected. It is badly distorting the accountability of all governments to their electors.

Henry Ergas has said similar things:

The states' abject financial dependence on the commonwealth causes constant conflicts and inefficiencies, while the redistribution of tax revenues from richer to poorer states has reduced the states' incentive and ability to adjust to changing circumstances.

On 8 June 2011 the Secretary of the Prime Minister’s Department (Terry Moran) gave a speech called the Challenges of Federalism.

He largely lauded the 2008 Intergovernmental Agreement on Federal Financial Relations which established an institutional framework as the basis to establish jurisdictional cooperation.

He then listed three things the States could do:

First, the states should continue to work with the Commonwealth to ensure the Intergovernmental Agreement achieves its goal of focused, incentive-based program delivery.

This is especially important in health, education, skills and workforce development, disability services, affordable housing and indigenous reform.

Second, the states should engage seriously with the review of Horizontal Fiscal Equalisation, and ensure the incentives in the arrangements are consistent with good governance and continuing reform.

And, third, the states should deliver on the promise they made when the GST was introduced, to reform their own tax bases in return for the stability of funding it provides.

Unless the states can rise to these challenges, there is a risk that the public will expect the Commonwealth to be more assertive in dealing with them – and that poses the risks of weakening the connection between government and citizens at the local level.

He then listed three things the Feds could do:

First, the Commonwealth must continue to restrain its tendency to control an excessive number of inputs on national Specific Purpose Payments.

Second, the Commonwealth should allow for and support localised approaches to reform, and rely less on all-embracing boilerplate policies and programs once the basic system architecture is agreed.

And, third, the Commonwealth should move towards strategic partnerships with the states and territories where it makes sense to share accountability for outcomes.

Moran finally mentioned a concept of the ‘grand deal’.

The concept of a grand bargain has an interesting history. In 1976, Malcolm Fraser sought to counter what he saw as the excesses of the Whitlam years with a proposal to share the income tax base, providing the states with a more reliable source of revenue. Bob Hawke tried again in 1990 and 1991 with a different proposal: taxation powers would be reallocated in return for the states taking clear responsibility for particular areas of policy, including some areas within the Commonwealth’s authority. That proposal was fateful – or should I say fatal, at least for Bob Hawke, after Paul Keating used it as a weapon in his fight with Hawke for the prime ministership.

There is indeed a history to the ‘grand bargain’. It is reviewed in the next article, followed by an article that proposes how the federalism debate can advance.

OHS and NOLS - a rockier passage for seamless economy national schemes?

2011-06-12T19:18:00.007+10:00

As we have previously discussed, the COAG process is an exercise in ‘executive federalism’.

When it comes to 'seamless economy' national schemes, the relevant Ministerial Council signs off on legislation that is then usually rubber stamped by state parliaments with nary a change, because ‘COAG said’.

However there have been some signs that state parliaments may be less inclined to acquiese.

States and territories are introducing legislation that broadly introduces the model Work Health and Safety Act agreed by the Workplace Relations Ministerial Council (the WMRC).

We have previously noted the relevant intergovernmental agreement permitted some variation from the model legislation provided it doesn't ‘materially affect the operation of the model legislation’.

A major commitment of the incoming NSW Government was to implement the model law as agreed.

This meant not re-enacting some current NSW provisions, including the ability of unions commencing OHS prosecutions, hearing OHS cases in specialist industrial courts rather than courts of general jurisdiction, the reversal of the onus of proof and the effective imposition of absolute liability on employers.

However, the Shooters and Fishers Party were successful in moving some amendments in the Legislative Council.

As the party’s leader said:

If politics is the art of the achievable this is the best that we believe could be achieved in terms of a middle ground between both starting positions, that is, what the Government, farmers and business wanted and what the unions wanted. A number of issues raised with us have been considered by our party in coming to our position.

The Shooters and Fishers Party supports the concept of harmonising occupational health and safety laws in New South Wales with those in the rest of Australia. This gives effect to a Council of Australian Governments [COAG] agreement signed on 3 July 2008, when each State and Territory agreed to develop and implement uniform national occupational health and safety laws by December 2011.

At the same time we recognise that there will be minor differences between States and Territories. I believe that most members of this House and the Legislative Assembly would acknowledge the unique position of the New South Wales economy in the Commonwealth, and it is imperative for all of us to maintain and develop the competitive position of New South Wales in respect of other States and Territories.

In the event, unions will be able to prosecute in some circumstances (but not claim a moiety or bounty) and some prosecutions will still be heard in the Industrial Court rather than the Local and District courts.

In South Australia, the model bill was introduced and then withdrawn by the Government in the Legislative Council.

This was because there was some dissention about the ambit of the primary duty of care imposed by the legislation.

The model bill imposes a general duty on people conducting a business or undertaking to take all reasonable steps to ensure health and safety.

However, some argue this duty should be restricted to duty holders who have ‘control' over the relevant workplace.

It is understood the Government may not have got the bill as introduced through the Council.

However, an unamended bill was reintroduced into the House of Assembly on 19 May 2011.

So it will be interesting to see if the opposition to the terms of the model law will be sustained.

Western Australia is considering the Occupational National Law Bill 2011.

This is an ‘applied’ law - where one jurisdiction passes a 'template’ law (in this case, Victoria), and the others adopt that law as a law of the jurisdiction.

Sadly, the WA Legislative Council Uniform Legislation and Statutes Review Committee hated the law, saying:

1.2 The Bill does not introduce national occupational licensing. It proposes a process for developing a national licensing system. Other than that, it largely consists of a list of matters about which regulations may be made. It is not uncommon for uniform legislative schemes to leave detail to regulations. However, the Bill goes beyond this. It requires the substance of the licensing scheme to be in regulations.

1.3 Given this, it is particularly important that the Bill meet minimum standards for good legislation. It should provide a reasonable degree of certainty and coherence as to the legislative framework , to which the regulation-making powers relate. The Bill does not meet this standard. It lacks clarity. Too often the Bill is silent. Too much is still to be developed. Too many options are left open. Too much is left to regulations. The Bill is not clear on what is permitted and what is not, what is to occur and what is not.

1.4 As a result, it is not clear whether the Bill asks Parliament to delegate its legislation making power (to a Ministerial Council) in respect of the proposed licensing system or abrogate it.

Other jurisdictions have passed the law, although in most the law has yet to be proclaimed – that is, it is not in operation.

Proposed draft occupational licensing regulations for the occupations regulated by the so-called NOLS scheme (ranging from real estate agents to refrigeration mechanics) are about to be released.

It will be interesting to see that whether, following consideration of the regulations stakeholders and governments will be happy to see NOLS continue as proposed.

It is finally noted the South Australian House of Assembly has been given notice to consider providing the parliament’s Legislative Review Committee a reference to develop a process to consider ‘the issue of sovereignty separate to any other debate on a bill, thereby avoiding unnecessary debate on this issue in parliament and instead enabling the debate to focus on the purposes and content of a bill.’

This is because:

(o)n many an occasion when a bill has sought to apply a law scheme from another jurisdiction—the most recent example I am aware of is the Controlled Substances (Therapeutic Goods and Other Matters) Amendment Bill—the issue of sovereignty is raised and an unnecessary amount of time is spent debating constitutional law issues instead of debating the purposes and content of the bill.

During the debate on that piece of legislation, and one other, I said to the member for Morphett—because I understand the issues being raised by the opposition in terms of sovereignty—'How about we refer the matter to the Legislative Review Committee to see if it can come up with an appropriate way of dealing with these types of measures so that we can reach some consensus about how to do it?' So, that is what I seek to do. The I advice I have is that, given the nature of what I am asking the Legislative Review Committee to do, it has to go through both houses of parliament, so I commend this motion to the house.

Unfortuately the reference lacks clarity.

The issue of whether a state should yield (or if a European Union fanatic, 'pool') sovereignty with other jurisdictions is a threshold issue when considering whether a particular Bill has merit. It is difficult ot divorce this consideration from others.

Perhaps the question is whether the South Australian Parliament should either create, or clothe the Legislative Review Committee with responsibility for, the functions discharged by the WA Legislative Council’s Uniform Legislation and Statutes Review Committee.

It would be appropriate to have the matter clarified, as this reference could play an important national role as a mechanism that can assess the appropriateness of the model law and applied law models of implementing ‘seamless economy’ national legislative schemes.

Is harmonisation a euphemism for subjugation of the states?

2011-06-12T16:56:00.008+10:00

Peter Phelps is a new member of the NSW Legislative Council.

As is the wont of maiden (or, as they are now grandly called, so as not to offend maidens, inaugural) speeches, the new member canvassed a number of different issues.

Perhaps unusually for a state MP making his first speech, he wondered about the point of maintaining the concept of provincial government, making some of the usual observations:

What relevance do the States then have? Not much by any assessment. They are too small to encompass the cultural and too large to encompass genuine communities of interest. To that end, Alex Hawke, who is in the public gallery today, kindly faxed me a copy of Jack Lang's 1930 Abolition Bill, with the suggestion that it would be an excellent first private member's bill for me to introduce. I doubt whether I will be taking him up on that offer at this time.

But if we are just going to be a way station for the Federal Government and its dictat, then why not? Why not abolish the Legislative Council and the Legislative Assembly. Why not abolish the State Government entirely? What purpose do we serve if we are straight-jacketed within federally mandated systems of education, water, land use, fishing, and environmentalism? Since the engineers case, the High Court has permitted a gradual accretion of power and interference in State matters.

Harmonisation has become a euphemism for subjugation. What is the use of this? Are we simply an imperial bauble perched atop a colonial anachronism, the errand boys of the Federal Government? If States are to remain relevant we must fight for real competitive federalism—not cooperative federalism—with genuine competition between the States, not this collectivist begging bowl approach. If you want to be a pot smoking Mullumbimby hippie, fine—but do not expect me to subsidise your lifestyle. Similarly, if a State has resources that are left unused, why should it expect us to subsidise a lifestyle for which it is unwilling to pay? If the distribution of revenue to the States was done on the basis of direct parity with its collection, then fine. It is not perfect but at least it would be a just outcome. But at this time horizontal fiscal equalisation, as it is called, is just an excuse to rob the productive to pay the lazy.

Whether through grand design or humorous coincidence the very next business in the Council was the thrillingly named Miscellaneous Acts Amendment (Director’s Liability) Bill 2011

The reason for introducing the legislation was because:

(t)hese amendments will ensure that New South Wales legislation imposing this type of liability accords with the set of principles agreed by the Council of Australian Governments [COAG] to guide the reform and harmonisation of directors' liability across Australian law.

As the Attorney-General said in the Legislative Assembly:

I thank honourable members for their contributions to the debate. In particular I thank the member for Liverpool, who said the Opposition does not oppose the legislation, which we are pleased about because it is important Council of Australian Governments [COAG] legislation. In response to the member for Liverpool, these reforms are part of a COAG National Partnership Agreement under which there are reward payments to the States for achieving key milestones.

One of these key milestones was for legislation implementing these reforms by December 2010. The Liberal-Nationals Government was not in office at that time. However, perhaps we can get some brownie points, because these milestones may be reviewed by COAG and there may be a second tranche of reforms at a later stage.....

Somewhat proves Phelps’ point, really.

There have been some developments in the federalism debate recently. They are discussed in the next couple of articles.

The ALP after the NSW election - facing the Canadian conundrum?

2011-06-12T15:18:00.005+10:00

Faulkner's thesis centres on a belief that the reason Labor's membership has disappeared was not only as a result of the cancerous machine-dominated process of preselections but because they failed to engage on left issues, causing a leakage of future Labor activists to fringe organisations like Get Up…….

If Labor had not been afraid to embrace Left-wing issues before the election, people would not have voted Green.

That is one view. Benson himself thought the real problem for the ALP was:

….the political dead weight of the trade union movement.

When they represented the bulk of the workforce they had legitimacy in the ALP. At their current 15 per cent - the majority of which are in public sector unions - they have a diminished legitimacy.

Another view.

As Peter Hartcher said in an opinion piece following Faulkner’s speech:

Labor is now in an existential crisis. For the first time, it has a serious political challenger capable of taking seats from its left, as well as the traditional enemy on the right, the Coalition.

If an elector wants to vote for a conservative party, she can vote for a real conservative party, the Liberals. If an elector wants to vote for a progressive party, he can vote for a real progressive party, the Greens.

Why vote for the one in the middle? Only 31 per cent of voters would bother, according to the latest Herald Nielsen poll, and that's about 9 percentage points fewer than Labor needs if it hopes to stand for election as a party capable of governing in its own right.

The worst case scenario is that Labor will face the ‘Canadian conundrum’.

For many years the Canadian Liberals acted as the dominant ‘brokerage’ party, with long periods of government. By monopolising the centre (and centre left) it usually pushed the conservative parties (as constituted from time to time) to the extremes.

However, following a loss of government the Liberals became increasingly trapped between a successful Conservative Party and the New Democrats, a progressive party perhaps best described as what a combination of the ALP left and the Greens would look like.

The Liberals suffered the worst outcome imaginable:

Then came the unexpected surge of the NDP, and Conservative Leader Stephen Harper’s eleventh-hour appeal to Liberal voters with economically conservative leanings, often called blue Liberals. “Let me speak very clearly to traditional Liberal voters: I know many of you do not want NDP policies. That you do not want NDP tax hikes,” Mr. Harper said on Sunday.

The message: Only we can protect your prosperity.

The result is that the Conservatives were able to achieve in 2011 what eluded them in 2008, a coalition of economically conservative-minded voters who cast their ballots based on pocketbook issues rather than concerns over cultural issues, including the Tories’ supposed leanings toward social conservatism.

Those blue Liberals were the missing element in the Conservative coalition. In the 1990s, they were the foundation of the successive Liberal sweeps of Ontario. So long as they remained with the Liberals, Mr. Harper would be shut out of the urban heart of most big Canadian cities.

But the rise of the NDP, which siphoned off progressive-minded Liberals, clearly spooked a sizable number of blue Liberals, causing them to bolt to Mr. Harper in the last weekend of campaigning...

This could be the federal fate of the ALP if Tony Abbott commences to concentrate on values than being the party of ‘no’ and if the Labor fails to reform itself.

The question is – can Labor?

The (second most) recent appointment to the NSW Legislative Council was Walt Secord.

As the Sun Herald reports:

After he left Carr's office, Hawker gave Secord work at his Labor-aligned lobbyist firm Hawker Britton before parachuting him into Rudd's office in Canberra 12 months before the Kevin07 campaign. Straight after the historic win for Labor, Secord was moved (some say shafted) to the office of Justine Elliot, the then minister for ageing, before returning to Sydney in 2009 to work briefly for treasurer Eric Roozendaal and then Keneally.

Keneally describes Secord as ''among Australia's best'' political and media operators but also ''policy smart''....

and:

Liberals are happy to see Secord in the upper house where he will be joined by the former primary industries minister Steve Whan, who lost his seat of Monaro but will be parachuted into the Legislative Council to raise the ALP's leadership stocks.

“Having Walt Secord and Steve Whan taking up seats is just more proof that Labor talks about renewal but still hasn't acted upon the talk,'' says the Liberal source.

In NSW at least, until Labor change the view that the best government is drawn from from a parliament of the nomenklatura they face a long time in the wilderness

Further reflections on the NSW election

2011-06-12T15:12:00.003+10:00

The Greens subsequently won the seat of Balmain following the publication of the previous article.

However, ultimately the coalition now holds 42 seats on margins above 20%, with the ALP requiring a swing of 16.5% to win next time.

The Libs now hold some extraordinary seats by extraordinary margins. They include Londonderry (13.1%), Penrith (16.3%), Riverstone (20.3%) and, even more remarkably, seats like Campbelltown (3.4%) and Smithfield (4.8%).

They highlight the dilemma the ALP has in trying to square representing both working people and the inner urban ‘progressive’ professionals.

John Faulkner recently had (another) go at prescribing a solution when he delivered the Wran lecture.

As Simon Benson observed in the Daily Telegraph:

Faulkner's thesis centres on a belief that the reason Labor's membership has disappeared was not only as a result of the cancerous machine-dominated process of preselections but because they failed to engage on left issues, causing a leakage of future Labor activists to fringe organisations like Get Up…….

If Labor had not been afraid to embrace Left-wing issues before the election, people would not have voted Green.

That is one view. Benson thought the real problem for the ALP was:

….the political dead weight of the trade union movement.

When they represented the bulk of the workforce they had legitimacy in the ALP. At their current 15 per cent - the majority of which are in public sector unions - they have a diminished legitimacy.

Another view.

As Peter Hartcher said in an opinion piece following Faulkner’s speech:

Labor is now in an existential crisis. For the first time, it has a serious political challenger capable of taking seats from its left, as well as the traditional enemy on the right, the Coalition.

If an elector wants to vote for a conservative party, she can vote for a real conservative party, the Liberals. If an elector wants to vote for a progressive party, he can vote for a real progressive party, the Greens.

Why vote for the one in the middle? Only 31 per cent of voters would bother, according to the latest Herald Nielsen poll, and that's about 9 percentage points fewer than Labor needs if it hopes to stand for election as a party capable of governing in its own right.

The worst case scenario is that Labor will face the ‘Canadian conundrum’.

For many years the Canadian Liberals acted as the dominant ‘brokerage’ party, with long periods of government. By monopolising the centre (and centre left) it usually pushed the conservative parties (as constituted from time to time) to the extremes.

However, following a loss of government the Liberals became increasingly trapped between a successful Conservative Party and the New Democrats, a progressive party perhaps best described as what a combination of the ALP left and the Greens would look like.

The Liberals suffered the worst outcome imaginable:

Then came the unexpected surge of the NDP, and Conservative Leader Stephen Harper’s eleventh-hour appeal to Liberal voters with economically conservative leanings, often called blue Liberals. “Let me speak very clearly to traditional Liberal voters: I know many of you do not want NDP policies. That you do not want NDP tax hikes,” Mr. Harper said on Sunday.

The message: Only we can protect your prosperity.

The result is that the Conservatives were able to achieve in 2011 what eluded them in
2008, a coalition of economically conservative-minded voters who cast their ballots based on pocketbook issues rather than concerns over cultural issues, including the Tories’ supposed leanings toward social conservatism.

Those blue Liberals were the missing element in the Conservative coalition.

In the 1990s, they were the foundation of the successive Liberal sweeps of Ontario. So long as they remained with the Liberals, Mr. Harper would be shut out of the urban heart of most big Canadian cities.

But the rise of the NDP, which siphoned off progressive-minded Liberals,clearly spooked a sizable number of blue Liberals, causing them to bolt to Mr.Harper in the last weekend of campaigning....

This could be the fate of the ALP if Tony Abbott commences to concentrate on values than being the party of 'no and if Labor fails to reform itself.

The question is – can Labor?

The (second most) most recent Labor appointment to the NSW Legislative Council was Walt Secord.

As the Sun Herald reports:

After he left Carr's office, Hawker gave Secord work at his Labor-aligned lobbyist firm Hawker Britton before parachuting him into Rudd's office in Canberra 12 months before the Kevin07 campaign. Straight after the historic win for Labor, Secord was moved (some say shafted) to the office of Justine Elliot, the then minister for ageing, before returning to Sydney in 2009 to work briefly for treasurer Eric Roozendaal and then Keneally.

Keneally describes Secord as ''among Australia's best'' political and media operators but also ''policy smart''

and:

Liberals are happy to see Secord in the upper house where he will be joined by the former primary industries minister Steve Whan, who lost his seat of Monaro but will be parachuted into the Legislative Council to raise the ALP's leadership stocks.

“Having Walt Secord and Steve Whan taking up seats is just more proof that Labor talks about renewal but still hasn't acted upon the talk,'' says the Liberal source.

Quite.

UPDATE

Antony Green has conducted an analysis on the NSW election which includes observations such as:

- the Coalition's 2-party preferred vote was 75.7% in country NSW, 62.0% in Sydney and even 53.9% in the industrial seats of the Hunter and Illawarra;

- in the Hunter Valley, Labor's primary vote was 32.9%, against 33.1% for the Liberal Party and 2.1% for the Nationals;

- the Liberal Party polled 50.6% of the first preference vote in greater a Sydney as opposed to 28.3% for Labor;.

- the Liberal Party even won a majority of the vote in Western Sydney, a first preference vote of 43.5% to 36.6% for Labor, a Liberal 2-party vote of 53.8%; and

- the Labor first preference vote was in single figures in seven electorates.
Truly a terrible result.

The NSW Election and the ALP

2011-06-11T13:57:00.009+10:00

This article was originally published at On Line Opinion on 31 March 2011.

A follow up article will discuss developments since the NSW election.

The NSW ALP has just received its anticipated thumping at the polls, creating a real Quo Vadis moment for both it and the ALP more generally.

This may well have been a ‘transformational election’ – where tribal voters irrevocably change allegiance.

The NSW ALP gamebook (copied in other states) was set out by Bruce Hawker from Hawker Britton in a Sydney Morning Herald article of 14 September 2006:

When state Labor governments began being re-elected from 1995, the public gave them qualified endorsement. In almost every instance they were elected with the bearest of margins and had to prove they were solid, conservative managers of the economy. When they did move it was usually to the centre on their traditionally weak areas, such as law and order and encouraging development. Premiers such as Bob Carr and Mike Rann were also able to woo the green vote with environmental measures the conservatives could never match, saddled as they are to the Nationals. This political dexterity effectively gave Labor's opponents nowhere to move. The result has been a long run of election wins, each one as good or better than the last. However, this clever positioning in the middle that has worked for the last 15 years has now run its race.

Demographer Bernard Salt has noted a social and economic division between those who live in the inner city and those who live on the city's edge:

…... I am suggesting that there is almost a regionalisation of wealth, income and culture based on urban geography.Battlers, migrants and assorted low-income earners who formerly lived in the inner city are now being flung out, as if by some centrifugal force, to the city's edge. What is left in the inner city is an odd coalescence of tribes - namely students, singles, couples, dinks, gays, expats, corporates, divorcees and, most important of all, the professional and entrepreneurial classes. And to this lot I might add the entertainment, information and media glitterati. As a general principle, none of this class would ever think of living more than 10km from the city centre.

The ALP voting coalition has hitherto consisted of self identifying members of the working class, people with English as a second language, income transfer recipients, public sector workers, the arts sector and progressive middle class professionals who are both secularist and internationalist in orientation.

However, the Greens message - guided by the so-called ‘four pillars’ (ecological sustainability, social equality and economic justice, grassroots democracy and peace and disarmament and nonviolence,) is apparently more amenable to a ‘progressive’ middle class constituency than one put out by a 50% union controlled cadre party designed to represent the ‘labour movement’, achieving progressive change primarily through improvements to working conditions and changes to the wages and salaries system.

Although the Greens failed to make their anticipated breakthrough win in the lower house they are the second most popular party in a number of Sydney electorates, they still won 10% of the vote and the clustered nature of its vote certainly requires the ALP to use a lot of ammunition in seats such as Marrickville and Balmain so Labor can remain competitive in these seats.

On the other side of the coin, the ‘lifestyle’ values of these voters, such as placing a premium on environmental issues, may not be necessarily shared by those in the outer suburbs and industrial regions more interested in more utilitarian issues that are part of living in suburbia – being able to run the car, keep the mortgage paid, and so forth.

The party of organised labour also faces the problem that the larger manufacturing operations employing thousands of unionised workers are being replaced by smaller less unionised service industries, breaking the nexus between worker and union and thus the broader ‘labour movement’.

Finally, in the land of the Macmansion and the self-employed tradie, ‘working class’ identity is being replaced by ‘aspirational’ ideals, creating an environment in which the centre-right message of financial prudence, self-help and independence is receptive.

And so it showed in Newcastle seats such as Charlestown (24.8% swing) and Campbelltown (20.5% swing) amongst others.

The Hunter and the Illawarra no longer have the industrial bases of times of yore, making it more receptive to the safe conservatism of Barry O’Farrell whilst the inner city is turning Green.

The glue that bound the ‘labour movement’ – a wish to express solidarity with the working class – has lost its power to bind, as ‘progressive’ voters become more interested in more abstract concerns such as ‘social justice’ and the erstwhile members of the working class no longer feel…..well…..working class.

This massive rejection of 26 March means the question of ‘what does Labor mean in the 21st century mean?’ will broadly resonate, with possible federal ramifications.

The Prime Minister attempted to set a new middle ground on which to establish the ALP In her Don Dunstan Foundation speech of 16 March 2011.

In the immediate context of arguing why its carbon reduction policies are important, she framed Labor as being between the coalition and the greens:

Neither of the extremes in Australian politics can deliver this reform (carbon reduction). The Coalition has surrendered itself to fear-mongering and denying the power of markets.The Greens are not a party of government and have no tradition of striking the balance required to deliver major reform.

She went on to say:

Like the economic transformation of the 1980s, this is a reform that can only be handled in the progressive Labor tradition…… In all of this, we draw strength from enduring Labor values - protecting jobs – always our first commitment; a sustainable environment for future generations – an environment with less carbon pollution; reform with equity, looking after those who need a helping hand; and accepting a scientific world - view in a community of reason.

For the sake of her party, this restatement of the ALP as the brokerage party of Australian politics had best resonate with sufficient numbers of electors.

Otherwise, it will face a slow descent into irrelevance, stuck between two world views based more on lifestyle than anything else, better reflecting the binary political divide of this century’s Australia than the labour/capital divide of the last.

The Mugging of Bruce Baird (and the Carbon Tax) Shows Why a Tax Summit is Needed Now

2011-03-08T13:25:00.010+11:00

It is a shame that political reality has forced NSW Shadow Treasurer Mike Baird stop thinking about imposing a profits based tax on mining, rather than the current royalties system of taxing an amount for each tonne of mineral extracted.

It probably is a more efficient way to bring mining to taxation.

We hope Baird isn't forced to drop the other parts of his observations made to The Australian:

A NSW Coalition government would push for radical reform of federal-state relations at the looming tax summit by demanding the states directly receive a greater share of overall taxes. NSW opposition Treasury spokesman Mike Baird said that, if elected on March 26, he would use the federal government's promised summit to address the imbalance in state and federal taxation powers and spending needs.

States were responsible for 40 per cent of service delivery, but raised only 16 per cent of taxes, he said, adding that NSW would operate more efficiently if it had greater responsibility for raising revenue.

We have previously noted the recommendations contained in the Henry Review, and, like Baird hopes that the proposed summit will determine:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, through an agreement made under section 96 of the Constitution; or

(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.

The importance of getting the taxation mix right is now more important than ever should the the God Knows What It Will Look Like Carbon Tax ever get up, discussed in our previous post.

Efficient public administration deserves nothing less.

Of disability, carbon and terrorism - new entitlements for a new century

2011-03-03T13:31:00.001+11:00

Three interesting things happened this week.

The Productivity Commission draft report on disability care and support, proposing a number of new assistance programmes, was released.

It proposed a National Disability Insurance Scheme (NDIS) to provide disability-related services and supports to the community at large, with a particular emphasis on funded support for people with significant disabilities and their carers.

People with a ‘permanent disability’ will receive ‘reasonable and necessary’ support free of any income or assets test, determined on the basis of satisfying criteria contained in ‘assessment tools’ which are ‘relatively easy to administer and exhibit low susceptibility to gaming’.

It also proposed a National Injury Insurance Scheme (NIIS). Building from existing schemes, it is to provide lifetime care and support to those suffering catastrophic injuries from accidents, such as quadriplegia, acquired brain injuries, severe burns and multiple amputations, administered under consistent ‘state-based, no-fault arrangements.’

The report notably suggested ‘common law rights to sue for long-term care and support should be removed’.

The House of Representatives debated Tony Abbott’s private members bill creating an entitlement for people (or families of people) injured or killed overseas as a result of ‘terrorist acts’ under a Assisting Australian Victims of Overseas Terrorist Scheme Framework operating under guidelines prepared by the Attorney-General.

Finally, the carbon tax, was imposed on all carbon emitting sectors except (apparently) agriculture and (depending on the time of day) those using petrol, with ‘every cent raised’ to (amongst other things) ‘ assist families with household bills’ was (again) proposed by the Prime Minister.

Each proposal incorporates the payment of new entitlements to particular classes of people satisfying particular criteria.

And they are all dear.

Abbott is silent as to where the money for his proposed entitlement comes from – undoubtedly consolidated revenue.

The Productivity Commission proposes NDIS be funded by direct payments from consolidated revenue, with an alternative option being a levy on personal income (a national disability insurance premium) to be imposed so as to allow the scheme to operate.

The NIIS is to be funded from third party insurance premiums and state based property taxes.

The carbon tax of course, pays for allowances to families to compensate the effect of…well….the carbon tax.

This is odd.

One reason to bring something to tax is to encourage change in behaviour.

In this case, you would have thought the intention of the carbon tax is to get across to the ordinary family the idea that ‘turn on the air conditioner and you will receive a painful smack in the hip pocket. Don’t do it!’

Compensating for the increased cost of electricity arising from the imposition of a tax from its proceeds is….a little circular, really.

There are other concerns with these proposals.

The first is, as many small businesses who geared up to provide to supply pink batts and solar panels for now reduced or removed government programmes (and those people who have, or intended, to change behaviour on the basis of the programmes) know, what the Lord giveth, the Lord can taketh away.

People can, in good faith, organise their affairs on the basis of the conditions of programmes or ‘relatively easy to administer assessment tools’ and find that all of a sudden the rules have changed, with great personal cost.

The second is the increase of the role of government.

For example, when the Prime Minister announced the carbon tax, the Sydney Morning Herald reported that:

Together with the Climate Institute, (Independent MP Tony) Windsor says more than 30,000 jobs are waiting to be created in the transition to environmentally
friendly electricity generation.

However, the report went on to say:

The institute’s chief executive officer John Conor said the net figure of 30,000 jobs would be impacted by challenges in the coal-rich Hunter Valley and Victoria's La Trobe.

"If you manage this problem you can grow opportunities," Mr Conor said.

You have to hope that the outcomes to be achieved by imposing the carbon tax are so whizzer that it’s worth having the lives of Hunter and La Trobe valley residents turned upside down – and that the residents of those areas will enjoy having changes to lifestyles ‘managed’.

The final concern is the possibility that a culture of dependency can be developed.

An example is the proposed entitlement right to be created if someone is identified as being ‘disabled’ under the proposed NDIS.

There is no particular argument about the appropriateness of providing government support to those with catastrophic illnesses or injuries.

Moreover, there is substance to the proposal of creating an entitlement right on the basis of an objective level of disability rather than the current multiple pathways to, and different levels of, entitlement depending on circumstance.

However, if the threshold level of eligibility is cast too low, there can be circumstances where a person could become eligible to receive a benefit because something objectively identified as a disability is simply part of getting old – a reasonably foreseeable circumstance that an individual could plan for.

The mere knowledge that there is a ‘right’ that will accrue in due course can mean that many will simply not prudently plan for the future, ensuring that future generations will have to ensure that this scheme (and all the others, like Abbott’s proposal and compensation to ensure families are not impacted on carbon taxes etc) are fully funded or face the electoral fury of the entitlement class and its supporters.

Tax levels will need to reflect this.

Finally, as we have previously discussed, the quality of the services provided will vary depending on the competing pressures on the budget at any given time.

Many will simply be stuck with whatever the government dishes up…….which may not be much at all.

The increasing temperature of the debate in Canberra illustrates that people are slowly becoming aware that this Parliament could really make decisions that influencing the structure of Australian society in the 21st century.

Better buckle up for the ride.

Forget What We Said Earlier: COAG, Still the Fourth Tier of Government

2011-02-19T17:54:00.003+11:00

We have previously noted that some people such as WA Premier Colin Barnett have suggested that COAG is becoming another tier of government.

The content of the COAG communiqué of 13 February 2011 suggests the tendency is continuing.

The main event was the signing of the Heads of Agreement on National Health Reform

However, other matters were dealt with.

A National Vocational Education and Training Regulator is to be established to ‘drive better quality standards and regulation across the Australian VET sector'.

This new body will join the Australian Health Practitioners Regulatory Agency, the National Occupational Licensing Authority and the Australian Curriculum Assessment and Reporting Authority as brand new national bodies to drive and determine a single set of national standards.

Another decision was to speed up the Seamless National Economy from June 2013 to December 2012, with options to be developed for a further wave of regulatory and competition reforms.

This will undoubtedly lead to the development of more national regulation.

However, the most interesting development was the establishment of Standing Councils to operate under COAG, designed to:

undertake legislative and governance functions relevant to their scope, and provide an annual report to COAG which includes an overview of the decisions made by the Council. (our emphasis)

The idea is to:

….(provide) a clear role for Ministers from all jurisdictions to support COAG in tackling 21st century policy challenges. There will be sustained collaborative effort on the long-term reform agenda while allowing for the flexibility needed to address more urgent challenges.

However, this classic ‘executive federalism’ model of governance suffers from one significant deficiency – ‘democratic deficit’.

The somewhat murky structure of the proposed new ministerial council process makes it difficult to see how anyone interested in a policy matter (other than larger players with the capacity to maintain a Canberra presence) will have the capacity to adequately participate in the regulation development process.

More particularly, once a COAG Council has ‘undertaken a legislative function’ (which presumably means approving a draft national law to be passed by (usually) state parliaments) one fears the opportunity to amend what could be a bad law will be limited because as COAG (or, in this case, a National Council of COAG) said a law has to pass, and so it will.

We harbour sincere doubts that this manner of rule making will necessarily lead to better laws.

However, one thing illustrated by the COAG communiqué is that even though Council membership may no longer be wall to wall Labor, the introduction of non-Labor members has not changed the function of COAG as another tier of government determining the rules of the Australian federation without any parliamentary oversight.

Plus ca change, plus c'est la meme chose.

2011 - The Year Ahead

2011-02-03T12:10:00.003+11:00

The 2011 political year is now beginning. Here are some of the issues that will influence how it pans out.

The upcoming NSW Drubbing

It will not be an issue of whether NSW Labor will lose government on 26 March.
Rather, given that that the ALP primary vote is as low as 24% the question will be by how far.

The Hunter and the Illawarra no longer have the industrial bases of times of yore, making it more receptive to the very small ‘c’ conservatism of the Coalition, whilst the inner city is turning Green.

The glue that bound the labour movement – a wish to express solidarity with the working class – has lost its power to bind.

This reality, together with the poor condition of ‘brand Labor’ means that this could be a ‘transformational election’ – where tribal voters irrevocably change allegiance.

This could have federal ramifications as the NSW model has been the model of governance has been the template for Federal Labor.

Massively reject NSW Labor, the question of ‘what does Labor mean in the 21st century mean?’ will more broadly resonate.

Then there is the next challenge:

The Greens

The new Senate is sworn in on 1 July. From that date the dynamics of the chamber changes. All it needs is for the Government and Greens to vote together to enable matters to pass.

How will Labor handle this? Will it be like Tasmania or the ACT in which the parties act more like a coalition presenting to the chamber pre-agreed outcomes, or will there be an attempt of product differentiation between them?

Following the Queensland floods, the Prime Minister has announced the abolition, deferral or capping of a number of carbon abatement schemes, including the Green Car Innovation Fund, Cleaner Car Rebate Scheme, the Carbon Capture and Storage Flagships and Solar Flagships, the Solar Hot Water Rebate, Green Start Program, Solar Homes and Communities Plan and the Global Carbon Capture and Storage Institute – policy outcomes that will clearly rile the Greens.

However, at the same time she proposes retaining a price on carbon, something to the Prime Minister apparently akin to the floating of the dollar (as she told the National Press Club) or a driver of ‘another technological revolution like Information Technology did in the 1980s and 90s’ (as she told a recent CEDA luncheon).

Two lessons flowed from the Victorian election.

The first was that in deciding not to provide the Greens any preferences, the Victorian Libs proved that you can take on the Greens without being seen as anti-environmentalist and suffer an electoral backlash.

The second lesson was that suburbia is feeling the pinch of high utility prices.

This will be an increasing factor to take into account when ‘putting a price on carbon’ is ultimately unambiguously translated as being ‘increasing electricity costs’ as the carbon debate comes to a climax during 2011.

The Government’s attempts to balance its environmental credentials will be interesting.

Then there is:

Dealing with the States

We have commented before about the need for the Government to fund the social democratic project.

And so the Commonwealth is seeking to claw back some GST payments to the states to pay for hospital reform, whilst the current minerals resource rent tax will be used to (ultimately) increase superannuation payments to employees and ‘build essential infrastructure’.

The Commonwealth also wants to impose ‘pre-commitment’ technology on poker machines, in an endeavour to reduce problem gambing – and to give effect to a major policy concern of Andrew Wilkie, one of those on whom the Government is relying to maintain government.

However, the states are most unhappy.

Queensland’s Anna Bligh was reported as saying that ‘we are very clear here in Queensland that constitutionally as a sovereign state in our own right, we reserve the right to set appropriate royalties which are returned to Queenslanders for the minerals that are taken out of our state’.

The Victorian Coalition government's Resources Minister, Michael O'Brien, said he would not allow his state's taxpayers to "fill the federal Labor government's budget black hole", insisting royalties had always been a state right.

Finally, WA Premier Colin Barnett said his state would not hand over GST revenues.

Then there is the gambling issue, with some states concerned of (amongst other things) impact on gambling revenues – one of the few own source revenue streams left to the states,

Given that it appears the ‘tax summit’ to discuss the proposals contained in the Henry review is intended to be not much more than a talkfest, COAG will be a forum where the issue of dealing with vertical fiscal imbalance and the role of the states in the 21st century Australia will be a major issue – particularly as there are two (and very shortly, probably three) states with non-Labor governments this year.

This is before dealing with policy changes necessary to bring the budget back to surplus by 2013.

2011 will be one of the more interesting political years.

2010 - the year behind

2010-12-31T17:19:00.002+11:00

2010 was one of the more interesting years in Australian politics as one prime minister was removed and the successor failed to seal her legitimacy in the subsequent general election.

The beginning of the end of the Kevin Rudd era was deciding not to create either a tax or market mechanism to regulate carbon emissions (or call a double dissolution election to create a ‘mandate’ to do so) to deal with the ‘greatest moral, economic and environmental challenge of our generation’ following the failure of international talks in Copenhagen the previous December.

Kicking the ‘greatest moral challenge’ into the long grass established a meme of a government that overpromised and underdelivered, something exacerbated by problems with rolling out the ‘Building the Education’ revolution school building programme and the ‘pink batts’ debacle.

The Government’s problems were heightened by the proposed imposition of a tax on mining profits without following the usual protocols of fully informing affected taxpayers of the proposed change prior to announcing the proposed change.

This led to a highly aggressive attack on the Government by the mining industry and a broad view of a government in panic mode adopting populist policies without a full assessment of outcomes.

When all this was coupled with increasing discontent about a dictatorial Prime Ministerial style and a dysfunctional office, ‘the faceless men’ of the ALP backrooms moved to replace Rudd with Julia Gillard to improve a government that had ‘lost its way’.

An early election intended to cash in on the ‘honeymoon’ of Australia’s first woman prime minister was called. But there was no honeymoon.

The legitimacy of Gillard’s ascension weighed heavily on the campaign.

Moreover, the ALP always had an ‘upside down’ coalition of inner urban progressives who were increasingly supporting the Australian Greens.

They were challenged by an Opposition who had reduced their campaign to bite size slogans, such as: ‘we’ll end the waste. Pay back the debt. Stop new taxes. Help families. Stop the boats. Do the right thing’.

This led to a string of two bob each way policies that appeared to be designed by focus group – yes to an ETS….but only after input from a ‘citizens assembly’; offshore processing of refugees……but in East Timor and not Nauru; immigration was not about numbers coming into the country………..but merely where they lived. And so on.

Labor were finally buffeted by unprecedented leaks about Gillard’s position on issues such as paid parental leave.

Ultimately, the ALP steadied but the damage was done. It became a minority government reliant on the support of country and regional independents as well as the first Australian Green elected to the House of Representatives.

Having got to Christmas, the Government has tried to frame the debate by nominating that 2011 is the year of delivery and decision.

Labor hopes to deliver on broadband and health reform and make decisions on issues such as fiscal consolidation (bringing the budget into balance) building capacity on the supply side with tax, superannuation, infrastructure and skills initiatives and extending market-based reforms to health and education, carbon (despite promising not to during the election) and water.

It will be the ALP’s burden to ensure that ‘moving forward’ with this agenda will lead to policy and electoral success.

The Liberals had a reasonably good 2010. Largely through implosion of the opponent, it was able to get within touching distance of government on the basis of stringent opposition of government proposals and making its own pitch at a (very) high level.

It will be interesting to see how much policy meat is added to the slogan like bones offered up in the election.

The final point of interest was the Liberal Party (as part of a coalition with the National Party) winning its first state or territory election in 27 attempts when it won in Victoria.

The result appeared largely to be an ‘it’s time’ result. However, there were two federal lessons to be learnt.

The first was that in deciding not to provide the Greens any preferences, the Victorian Libs proved that you can take on the Greens without being seen as anti-environmentalist and suffer an electoral backlash.

The second lesson was that suburbia is feeling the pinch of high utility prices. This will be an increasing factor to take into account when ‘putting a price on carbon’ is ultimately unambiguously translated as being ‘increasing electricity costs’ as the carbon debate comes to a climax during 2011.

Something for the Feds to consider during the year of decision and delivery.

Labor's Growing Schism

2010-12-10T15:35:00.004+11:00

The concept of the ‘labour movement’ is in trouble in Australia.

At the start of December the political wing of the movement has had a lousy fortnight.

The Victorian Government fell.

The NSW Labor Party had to sack its party president when his union’s journal suggested it would support individual candidates from all political persuasions.

The South Australian Premier needed armed police protection to enter his own state conference to defend a union sponsored motion to dump his leadership and to defend the State Budget

Finally, a union affiliated with the Queensland ALP is thinking about standing candidates against Labor because of anger about the privatisation of assets such as Queensland Rail.

These states have (or had) long term Labor governments operating as being solid, conservative managers of the economy that moved to the centre on traditionally weak areas such as law and order and encouraged development whilst showing concern for the environment.

However, this model appears to have reached in use-by date, with the greatest pressure being placed on it by the ALP’s labour movement partner – the unions.

ACTU President Ged Kearney has publicly suggested that unions be prepared to criticise Labor publicly and be more independent of its traditional ally and her executive has endorsed a paper suggesting it be on a permanent campaign footing in a bid to advance an independent political agenda.

During the 20th century, There was a time that ‘the labour movement’ – the concept that permitted the representatives of labour and those who wished to express solidarity with the working class to operate within one political party – worked satisfactorily.

This meant in practice a coalition of employed workers and a professional class generally residing in the inner city.

However, the Greens ‘four pillars’ (ecological sustainability, social equality and economic justice, grassroots democracy and peace and disarmament and nonviolence) is an agenda increasingly appealing to a ‘progressive’ middle class constituency than one put out by a regimented party with 50% union control designed to achieve social justice primarily through the improvement of working conditions through the wages and taxation system.

At the same time both state and federal ALP governments are making decisions designed to introduce a ‘seamless economy’, including reforms designed to increase productivity – and as recent ructions illustrate, not every reform will be fully supported by unions as jobs and conditions come under threat.

The net result of trying to satisfy the social goals of the progressive professional classes and the industrial goals of the unions means that the ALP is not satisfying either part of its traditional disparate coalition.

Earlier in the year Dean Mighell openly questioned whether affiliation with the ALP remains in the strategic interests of the union movement whilst Michael Costa has again called for reform to remove the power of the union bosses.

In much the same way as there has been a ‘structural separation’ of the wholesale and retail arms of Telstra, any review of what constitutes ‘the labour movement’ may mean a structural separation of the movement’s erstwhile industrial and political arms.

As the traditional fault lines of labour vs. capital have blur to the point of being non-existent the unions can then prosecute the interests of members as they see fit, whilst the ALP can, should it choose, develop into a modern social democratic party so it can best compete in the Australian political market place of the 21st century.

COAG - Quo Vadis?

2010-11-10T09:26:00.004+11:00

We have previously indicated it is time to decide:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, agreements made under section 96 of the Constitution; or

(b) a reference of power by the states to the Commonwealth or directly by the states or by constitutional amendment.

The political class really must come out one way or another and declare whether Australian States are either:

1. ‘incubators of innovation’ within a country where there is genuine ‘competitive federalism’ –where different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is ‘best practice’ or face the loss of people and investment; or

2. effectively English style County Councils providing a narrow range of services within an Australia with a single seamless economy with a centrally set of rules and taxation levels in force uniformly throughout the country.

The Senate has quietly formed a Select Committee on the Reform of the Australian Federation.

Only constitutional (and parliamentary) savants would have known that the Committee existed.

It would appear that some respondents are disposed towards something called a ‘Convention for the Federation’.

Others submissions are keen to ensure that the position of COAG within the federation is either formalised or, at the very least, clarified.

The Select Committee is currently to report by 17 November 2010.

In our view the work of:

(a) the Select Committee (and its submitters);

(b) the Henry Review on Taxation;

(c) the treasury heads report to be prepared for COAG; and

(d) a ‘Domesday Book’ which would look something like the List of Australian Government Bodies and Governance Relationships, and would assist in identifying what governments actually do and what duplications exist

would both form the basis of developing suitable terms of reference of a ‘Convention for the Federation’ as well as commence the conversation that would accompany the creation of such a body.

It will be interesting to see how reform of the federation will fare within Canberra’s ‘new political paradigm’.

The slow breakdown of COAG – Part 2

2010-11-10T08:59:00.004+11:00

Gerry Gleeson formally ran the NSW Public Service.

He said in a recent speech:

Both parties, nationally, seem determined to diminish and erode the powers of the states.

State governments must accept that the Council of Australian Governments will play an increasingly important role in formulating national policies. NSW must not abdicate policy development. We must be leaders and not followers. NSW must be represented at COAG by highly talented officers with passion, purpose and policies to ensure the state gets a fair go.

Gleeson implicitly gives COAG the status of a parliament – something the political players have now tumbled to:

Critics of COAG have included Mr Barnett, who has said that COAG has become almost a new tier of government and lacks accountability and transparency. Mr Barnett has said that with 43 ministerial councils, it was too much....

A review of the COAG process is to be conducted by the heads of Australian treasuries.

The review will look at how well the interlocking COAG agreements are operating as well as whether there is a need for clearly specified responsibilities for governments as well as the development of sufficient performance benchmarks.

Unfortunately, one thing not reviewed is the overall capacity of the states and territories to fund any identified ‘clearly specified responsibilities’.

In that context it is interesting to see the emergence of the relationship between the payment of the proposed mineral resources rent tax (MRRT) and state based royalties as an issue.

According to the mining companies (BHP Billiton, Rio Tinto and Xstrata) a term of the document that allowed the ALP to say there was an ‘agreement’ about a mining tax before the election was a promise the Commonwealth would refund the value of state and territory royalties paid by the mining industry.

The Feds now claim that refunds will be paid on the basis of the relevant formula (or any announced variations) in force as at 2 May 2010 - the day the agreement was made was made.

This poses the question of what happens if a state increases a royalty amount.

The Sydney Morning Herald reports that the Government may withhold transfer payments to the States such as the GST if they effectively challenge the collection rate from the mining tax by increasing royalties.

We had anticipated this probable outcome:

The fact is the federal government requires a lot of money to fund the broad ‘social democratic project’ established by pl.51(xxiii) and (xxiiiA) of the Constitution –income transfer payments, health, hospitals and (undoubtedly in the immediate future) disability support and will need more money (and not less) as an increasing number of worthy needs are identified as requiring support in a country with an aging population and an atomising society.

A simple illustration: an portion of the proposed RRT is to help ‘build the roads, rail, ports, electricity and water supply, and other facilities needed to unlock Australia’s resource wealth’.Like housing, health and education, these are subject matters formally considered to be largely state responsibilities increasingly falling under Commonwealth control.

The Feds will increasingly need tax revenues to fund their projects in these areas on their terms. Then there is the ‘seamless economy’ and the wish to remove duplication.

Currently, the Government proposes that miners pay both royalties and the RRT, with royalty payments a claimable tax rebate. But it won’t be too long before calls are made that this is an inefficient way of doing things – only one tax should be levied (in this case) on the extraction of minerals. There isn’t much doubt which tax will go. (our emphasis)

As The Australian reported, the WA Premier has made his views clear:

Referring to the Rudd government's initial resource super-profits tax, Barnett says: ‘With 65 per cent of this revenue coming from Western Australia, it was seen as an attack on the mining industry and on our resource income base. People talk about these resources belonging to all Australians. Well, constitutionally, they don't. They belong to the people of each state.

In its 28 October letter to the Policy Transition Group (the Committee assisting the Government in implementing the MRRT) the Chamber of Minerals and Energy of Western Australia’s (CME) makes some pretty obvious points:

In relation to state royalties, CME has always maintained a strong preference for retention of the current state regime, administered by the state government and with revenues flowing to the state. The state has prime responsibility for resource project approvals and the provision of non-privately owned infrastructure. As such, it is imperative the state government maintains and receives a dividend for WA resources.

It is now reported in The Age that the Treasury ‘is considering using its tax power in the constitution to 'pursue unilateral legislation’ for poker machine reforms.’

Whatever the merits of having the Commonwealth regulate gambling, the decision again attacks the capacity of states and territories to make spending decisions confident that there is a stream of ‘own source’ income available to support the decision.

Whilst it may not be immediately apparent to the players, the issues of who does what in the Australian federation and how states should receive the funds to discharge ‘allocated responsibilities’ are now coming to a head.

The Slow Breakdown of COAG - Part 1

2010-11-10T08:51:00.003+11:00

The slow breakdown of COAG – Part 1

NSW Labor leader Kristina Keneally is leading the most unpopular Labor Government in the history of Newspoll.

To stay relevant, she is playing to her core constituencies.

One of the ways she is trying to ‘save the furniture’ is to renege on promises made to accept changes to the NSW occupational health and safety (OHS) issue to permit OHS to be harmonised around Australia.

This is an interesting development. As we said at the time the OHS intergovernmental agreement was made:

As part of the (Workplace Relations Ministerial Council) decision, unions will not be able to commence prosecutions, and prosecutors must prove OHS offences beyond reasonable doubt – the Council expressly voted down the current position in NSW – making union stakeholders quite cross.
WA declined to sign the communiqué as they were unhappy about the use of conciliation to resolve OHS issues, the low standard of proof for workplace discrimination claims, union right of entry to workplaces and the level of gaol terms. It remains a question how much of the national model each jurisdiction takes into its own law, although it is noted that uniform OHS laws are one of those things for which states and territories receive ‘reward payments’ under the National Partnership to Deliver a Seamless Economy

It is disingenuous for Keneally to argue her position on not agreeing to harmonised OHS provisions is the same as WA. At least WA refused to sign the agreement. NSW folded.

As the Sydney Morning Herald said on 14 May 2009:

(Then Minister) Mr Tripodi said NSW was committed to harmonisation of legislation, and he was disappointed that NSW laws allowing unions to prosecute for safety breaches were not adopted.

As one would nearly expect the Prime Minister has threatened NSW its ‘reward payments', with the Prime Minister reported as saying that 'the Council of Australian Governments must work on the basis that jurisdictions honour their commitments.'

This yet again raises the issue of the proper function of COAG within the Australian federation.

This will be discussed in the next couple of articles.

What Does the 'Labour Movement' Actually Mean?

2010-11-10T08:36:00.007+11:00

NSW Left winger Senator Doug Cameron made an interesting intervention when he claimed being in the ALP under the final months of Kevin Rudd was like having a ‘political lobotomy’, with MHRs and Senators allegedly acting like ‘zombie MPs’.

Like Greg Combet, who has called for Labor to ‘redefine itself as progressive with the core value of equity, social justice and compassion’ Cameron is concerned the party is losing ground to the Greens.

He called for the Left in the party to be able to ‘speak effectively to progressive people who are looking for a vision and a strong strategy for progressive policies.’

However, as reported by the Sydney Morning Herald:

New party rules introduced by Mr Rudd, which were designed to present a united front by stopping MPs from speaking against a Caucus position, worked in the government's favour early on but ended up costing the party.

‘There are many people within the Labor Party holding strong progressive points of view and progressive voters don't know this,’ he said.

‘The pledge system and the party system just puts a blanket over every different point of view.‘Everything is focused on the spin and on the take of the day and long
term strategic policy decisions suffer because of that.’

Prime Minister Julia Gillard said in response to the Senator's comments that she made it clear to Caucus she wanted more debate and new ideas about policy direction. But the pledge system would stay, Ms Gillard said.

One of the reasons that Australian politics is the most rigid in the world is the because of ‘the pledge’: the promise that ALP members make to uphold the party platform and to follow decisions made by Caucus.It is this practice that has provided Australia with the most rigid party system in the Westminster world.

This may have been appropriate once upon a time where one centre left party opposed a single coalition of the centre right, but may be less appropriate now.

As we have previously observed:

The ALP voting coalition has hitherto consisted of self identifying members of the labour movement, people with English as a second language, income transfer recipients, public sector workers, the arts sector and high income professionals who are both secularist and internationalist in orientation.However, the Greens message - guided by the so-called ‘four pillars’ (ecological sustainability, social equality and economic justice, grassroots democracy and peace and disarmament and nonviolence) is apparently more amenable to a ‘progressive’ middle class constituency than one put out by a regimented party with 50% union control designed to represent the ‘labour movement’ and achieving social justice primarily through the improvement of working conditions and changes to the wages and salaries system.

Despite winning the federal election, the ALP looks like they are going through the introspection usually undertaken by the losing side.

Eyes now turn to Victoria, where the Greens could get up to 19% of the vote and a number of seats in the Legislative Assembly – possibly even holding the balance of power.

This will mean the ‘quo vadis’ question being asked with increased vigour.

As Labor voters from the ‘moral middle class’ feel able to vote Green the traditional ALP ‘upside down coalition’ of social progressives and the traditional ‘working class’ is now under great strain.

Rather than claiming to be in favour of ‘equity, social justice and compassion’ (which sounds as meaningful as being in favour of ‘truth, justice and the American way’) Labor will need to redefine what ‘the labour movement’ – the concept that permitted the representatives of labour and those who wished to express solidarity with the working class to operate within one political party - means in the 21st century.

This would be advanced by open public discussion of policy and political options – the idea of smothering debate may not be helpful.

Antony Green has observed that the NSW ALP now has the same voter share as the party had in 1904, with the current mob possibly being the last ‘in its own right’ Labor government in the state.

If the Party gets the redefinition of what the ‘labour movement’ means wrong, this could be their fate everywhere.

Feisty Overseas Advocacy - But Only If I Hafta

2010-10-11T16:56:00.004+11:00

In an interesting 7.30 Report interview following her first overseas trip, Julia Gillard said:

KERRY O'BRIEN: This is your first overseas trip as Prime Minister. There must be something of a sharp learning curve in all this for you. All domestic portfolios until now; suddenly you're meeting 11 world leaders in a day. Have you found your comfort zone yet?
JULIA GILLARD: Oh, look, Kerry, I'm obviously working my way through. Kerry, I'm just going to be really upfront about this: foreign policy is not my passion. It's not what I've spent my life doing. You know, I came into politics predominantly to make a difference to opportunity questions, particularly make a difference in education. So, yes, if I had a choice I'd probably more be in a school watching kids learn to read in Australia than here in Brussels at international meetings. That's what took me into politics, that kind of education work. But obviously in this role I will serve as Prime Minister doing the full job, and the full job includes coming to places like Brussels to be a feisty advocate for Australia's national interest. And that's what I will do. It's what I'm doing here.

This is no surprise to us. As we said earlier:

Gillard is very much, as Trevor Cook put it, one of Whitlam’s grandchildren:

Throughout his political career, Whitlam pursued a philosophy of “positive equality”, and he sought to change the national debate and the role of the national parliament.
Positive equality is not about the old battles between capital and labour; it is about removing barriers to self‐improvement and overcoming disadvantage and deprivation through national approaches to policy areas like health, education and transport that emphasise universal access. For Whitlam, positive equality was also about community‐building and social cohesion. In many ways it is a middle‐class and gradualist reform agenda which envisages the use of government to ensure the benefits of economic prosperity are used to create better opportunities for individuals and communities.

The interview followed a mini-spat as to whether Tony Abbott should have accompanied Gillard to a trip to Afghanistan on his way to the British Conservative Party conference.

In the event, he was going to visit on the way back - although his excuse that he didn’t accompany the Prime Minister because he would be ‘jetlagged’ for the Conference looked and sounded dopey.

This, together with Liberal allegations the government displayed ‘low bastardry’ in allegedly leaking the fact he knocked back accompanying the PM was a fascinating scandalette.

Only one thing was missing – a treatment of the appropriate role of Australian forces in Afghanistan as well as the standard of their kit.

Both leaders are clearly at home dealing with domestic issues.

The concern we have is that when you have leaders who think government is a glorified state government – a mere service provider – and who place their policy emphasis in areas like education (important as that is) and deal with other issues such as defence and foreign affairs only when they really, really ‘gotta’ means that these issues don’t get the attention they deserve.

All the benefits of a federal system are lost – and the Australian national interest suffers.

Pairing the Speaker

2010-09-25T17:36:00.002+10:00

The debate on whether the Speaker of the House of Representatives should be ‘paired’ to compensate for the fact that the Speaker only has a casting vote continues appears to have been settled.

The Australian Constitution anticipates that sometimes ties will happen, and when they do the Speaker will break the vote - and that is the designated role of the position.

As the bible of the British Parliament, Erskine May, says:

‘If the numbers in a division are equal…the Speaker, who otherwise never votes, must give the casting voice. In performance of this duty, he is at liberty to vote like any other member, according to his conscience, without assigning a reason: but, in order to avoid the least imputation upon his impartiality, it is usual for him, where practicable, to vote in such a manner as not to make the reason of the House final and to explain his reasons….’

As they did in NSW, if you want to change the voting power of the Speaker you really do have to change the Constitution.

The NSW Constitution only gave the Speaker only had a casting vote until 2007.

To accommodate the wish of an Independent Member of Parliament encouraged by the NSW ALP to become Speaker to participate in debates and vote when an issue important to his electorate came up (much like what Rob Oakeshott appeared to want to do federally) the law was changed.

Now, so long as the Speaker is not presiding, he can participate in debate and vote.

However, the Constitution had to change to allow this to happen.

As the Solicitor-General’s advice makes clear, the agreement of parliamentary reform sealed with a ‘man hug’ during the discussions to form a government can be honoured - it is quite possible for a party to organise for one of its own to abstain to ‘match’ the vote of the otherwise non-voting speaker if they want, thus creating a constitutional ‘work around’.

That said, the question of whether ‘pairing’ the Speaker is a good idea remains.

For better or worse, Australians returned an equally balanced parliament. Sometimes, ties will happen. And the Speaker will have to make a casting vote.

Had the Liberals stuck to the ‘pairing agreement’ they would have explain to the millions of people who voted for it that where otherwise the vote in the House would be tied, in the name of ‘stability’ one of its members abstained from voting - thus allowing through something contrary to its constituent’s interests like a mining tax or carbon tax or any other controversial measure that will invariably come up - in a circumstance where otherwise, if custom was followed by the Speaker, the matter would not have passed but rather stayed in the House for further consideration.

The ALP would of course have been in the same conundrum if they were in Opposition.

The result of the election will therefore be properly reflected in the votes of the House.

Strap in for a wild three years.

A kinder, warmer Parliament?

2010-08-27T12:53:00.003+10:00

With an apparently hung Parliament, calls have been made for a more ‘consensual’ Australian legislature.

One of the reasons that Australian politics is the most rigid in the world is the because of ‘the pledge’: the promise that ALP members make to uphold the party platform and to follow decisions made by Caucus.

It is this practice that has provided Australia with the most rigid party system in the Westminster world.

If there is to be a truly consensual brand new political world, this is a practice wel worth reviewing.

We discussed this issue in a post dated 14 September 2009. It is republished below:

Senator Judith Troeth recently crossed the floor to vote with the Government in support of their plan to stop charging asylum seekers and immigration detainees for their mandatory detention.

Immigration Minister Chris Evans lauded her for her decision.

On the same day, three ALP MPs endorsed a petition calling on the government to retain the prohibition on parallel importation of books.It will be interesting to see if they cross the floor should the Government decide to remove the ban.

It is not often that ALP members cross the floor. This is because party rules prevent it.

In particular, Rule 5 says (in part):

d. The Federal Parliamentary Labor Party shall have authority in properly constituted Caucus meetings to make decisions directed towards establishing the collective attitude of the Parliamentary Party to any question or matter in the Federal Parliament, subject to:

i. at all times taking such action which may be possible to implement the Party's Platform and Conference decisions;

ii.on questions or matters which are not subject to National Platform or Conference or Executive decisions, the majority decision of Caucus being binding upon all members in the parliament; and

iii. no attitude being expressed which is contrary to the provisions of the Party Platform or any other decision of National Conference or National Executive

The existence of this rule in particular weakens the role of all Australian parliaments.

In Westminster, party whips divide votes into three categories.

In very trite terms:

a ‘one line whip' tells members what the party line is, however, there is a degree of discretion as to whether the line is followed;

a ‘two line whip’ is a debate in which a member is expected to vote in according to the party line, unless there is a strong conscientious objection; and

a ‘three line whip’ is a debate where the member should simply follow the party line.

However, all that said, there are many circumstances in which members of the House of Commons have 'rebelled' from the Whip and voted against party, notwithstanding the declaration of a three line whip.

Ask yourself: how often do you see an ALP member 'cross the floor' in Parliament?

The answer is 'seldom' - and when they do, they are usually disciplined.

In that case, it is hardly surprising that the alternative political grouping becomes as rigidly controlled - if they weren’t, common sense tells you they would never win a parliamentary vote.

There are many circumstances where party discipline means that MPs are voting for a proposal against their better judgement.

The best way to ensure that legislation is appropriate is to ensure that there is a properly functioning parliament with members making decisions according to their conscience and not their party whip.

Matters may very well be assisted if the ALP abolished its rule.

End Game?

2010-08-24T11:53:00.003+10:00

The election is over. The likely result is a hung parliament.

As we said previously:

The presence or absence of a national broadband network, an absence of a mining tax, temporary protection visas and the extension of unfair contract laws to small business are the only real areas of difference – most other things are differences in emphasis and timing.

(Although more on the NBN, anon.)

For all of that, both Abbott and Gillard are representatives of their respective strands of thought.

Gillard is very much, as Trevor Cook put it, one of Whitlam’s grandchildren:

Throughout his political career, Whitlam pursued a philosophy of “positive equality”, and he sought to change the national debate and the role of the national parliament. Positive equality is not about the old battles between capital and labour, it is about removing barriers to self‐improvement and overcoming disadvantage and deprivation through national approaches to policy areas like health, education and transport that emphasise universal access. For Whitlam, positive equality was also about community‐building and social cohesion. In many ways it is a middle‐class and gradualist reform agenda which envisages the use of government to ensure the benefits of economic prosperity are used to create better opportunities for individuals and communities.

Hence, however constitutionally iffy the proposals are in a post Pape world without a section 96 agreement with the States, Gillard was always at her strongest when she was ‘educational Julia’ promising improved teaching and schooling standards.

Conversely, Abbott is very much from the ‘Christian democrat’ (or Catholic Liberal) wing of the Liberals, with a focus on traditional social values and a respect for individual effort, whilst mindful for the need of social solidarity and more comfortable with a greater level of regulation of market forces than some of his colleagues – hence support for things like substantial tax rebates for education expenses and paid parental scheme paid for by big business whilst wanting to ‘stop the boats’ and remove ‘big new taxes’ (etc).

It was therefore unsurprising when Abbott said in his last address to the National Press Club for the election that he wanted to ‘transform Australia from ‘welfare state to opportunity society’ by linking new workforce initiatives to his economic agenda:

My ambition is for us to make the journey from welfare state to opportunity society ... which preserves the comprehensive safety net but which eliminates the cancer of passive welfare.

(Why this wasn’t said by him more often when the Liberal campaign was criticised for having nothing to say in the middle weeks of the campaign is beyond us.)

However, that said, despite different starting points the practical end point is that the policies of the two parties constitute a welfarism that differs only in emphasis as to the manner of implementing outcomes in broadly agreed areas.

This absence of shade and light led to state issues (particularly relating to government competence in NSW and Queensland) having disproportionate influence in the election.

The net result: a draw in the number of seats.

It may well be that the ALP will form government.

However, the large Greens vote could mean that they become Labor’s ‘new Country Party’, pushing them leftwards and away from the ‘Sussex Street’ Labor model of representing the ALP as being solid, conservative managers of the economy, moving to the centre on traditionally weak areas such as law and order and encouraging development whilst evincing a general (but not overwhelming) concern for the environment.

This leftward push could be paradoxically assisted by having to deal with the ‘Old Country Party’ – the three independent country members holding (at time of writing) the balance of power, with views on issues such as transfer payments to ‘worthy’ recipients being surprisingly similar to city progressives.

It would be something if perhaps the only significant difference between the parties – the national broadband network – is the thing that will settle who will form government.

This Parliament could inadvertently mark the commencement of the political paradigm of the 21st Century, as the ‘labour/capital’ divide of the 20th century is replaced by one block representing a ‘secular humanism’ (typically found in voters in inner urban Australia), balanced by a block representing small ‘n’ nationalist and ‘aspirational’ values found more commonly in suburban and provincial Australia.

We live in interesting times.

Election 2010 - the half way point

2010-08-10T16:06:00.005+10:00

The Australian election is now half over.

Following the ‘leaders debate’ the major parties started the process of making, as they always do, targeted promises to win specific constituencies as the ‘momentum’ magically builds one way or another.

And so the ALP made promises in areas such as hospital staffing, suicide prevention, water harvesting from stormwater drains, a disability strategy….… and a rail link to Redcliffe (met and matched by the Opposition, to the surprise of the local candidate).

The Liberals made promises on slowing the growth of marine parks, a ring road for Cairns, an education card for disabled students and their version of hospital funding, with their largest promise being a promise to reduce company tax to the general level promised by the ALP…..a bit of a surprise given the Leader had previously said ‘no one much is going to notice a 2 per cent cut in company tax’.

However, the Kevin Rudd issue – how he was dumped and what he would do in the future – as well as strategic leaks about what Julia Gillard may or may not have thought about pension increases and paid maternity leave dominated the second week, leading to a dysfunctional looking ALP and polls showing the Liberals either tied with or just ahead of Labor at the end of week 2.

And so week 3 began with the ‘old’ Julia Gillard becoming ‘feisty Julia’, taunting Abbott to debate her on economics as well as doing wild and risky things like riding on the campaign media bus (!) whilst Tony Abbott continued to campaign in the restrained manner of the front runner, concluding with a policy launch long on contrasts with Labor but short of policy specifics.

The reason why cosmetic issues like the ‘old Julia’ has changed into the ‘new Julia’ is so newsworthy is because there are few massive differences between the parties.

The presence or absence of a national broadband network, an absence of a mining tax, temporary protection visas and the extension of unfair contract laws to small business are the only real areas of difference – most other things are differences in emphasis and timing.

This should be expected because of the way Australian politics is structured.

There are two main reasons for this.

Compulsory voting means that so called ‘rusted on’ voters can be overlooked.

This leads to a practical exercise of what is called Hotelling’s Law, which presumes that the optimal place for a business (or political party) to focus its attention is the perceived half way point of its target market.

Thus in this context everything is aimed at the ‘swinging voter’ in the middle of the political spectrum.

Moreover, it is our experience that many (if not the majority) of people involved in parliamentary politics could just as easily work for the other side.

This is because those who choose to participate in politics are generally middle class tertiary educated people who are vaguely socially progressive, and whilst not anti-market nevertheless possess a belief in an activist government that can intervene to improve the lot of society, usually through the continued creation of entitlements to ‘worthy’ recipients falling within targeted eligibility grounds.

It is also the case that they are overwhelmingly young and with little experience in small business (in particular) or in broader community life.

The result is that parliamentary government is in the hands of a narrow political class with an equally narrow world view.

Little wonder that this election is one of the most soulless ever conducted.

For all of that, we are now in the second half of the campaign. The ‘new Julia’ appears to have steadied the ALP ship and is segueing towards her preferred battleground of eduction.

Conversely, the coalition campaign appears to have remained still for the better part of week 3, as Labor went through their woes.

However, they may have played it too safe.

Despite all the tremors within Labor, attacks on Abbott’s economic credentials and readiness for government and an absence of strong coalition positives may have had an effect - the ALP is now marginally in front.

Gillard’s incessant requests for a debate on economics may also have had some effect, as both she and Abbott are to front the same public meeting at the delightfully named Rooty Hill, in Western Sydney.

This will undoubtedly be the starting platform for the last stanza of election 2010.

Election 2010 - Small Business Policies

2010-08-03T13:30:00.002+10:00

One area of the 2010 election campaign that hasn’t been particularly discussed thus far has been election policies specifically addressing small business to be implemented over the next parliament.

This is a brief review.

The ALP

The ALP is generally standing on what it has done for small business in the life of this parliament – things such as a superannuation clearance house within the ATO, the creation of a small business advisory committee and a handbook to assist independent contractors.

Prospectively, the ALP proposes giving small business the ability to instantly write off assets costing up to $5,000 and cut the corporate tax rate from 30 per cent to 29 per cent as from 1 July 2012 - one year earlier than larger companies.

However, this would appear to be subject to the passage of what is now called the Mineral Resource Rent Tax applicable to iron ore and coal projects.

Moreover, another part of the suite of measures to be funded by the MMRT is an increase in the superannuation guarantee from 9% to 12%.

The supporting documentation indicates the increase in superannuation will ‘affect… wage negotiations between employers and employees’, an observation implicitly recognising that employers are ultimately responsible for funding superannuation.

If it comes to pass, it will be interesting to see how much of the reduction in the tax rate will be retained in the business if during these negotiations the reduction is identified as a source supporting an increase in overall employee remuneration (including the rise in superannuation).

However, reductions in company tax rates will be of little interest if a business is caught up by a possible change to personal services income laws.

Personal services income

On 19 December 2009 the Assistant Treasurer (Senator Sherry) received a Board of Taxation review on the area.

Releasing the report, he said the Board had found:

‘a low level of compliance and a degree of uncertainty or ‘greyness’
around the rules, such that it has found the alienation of personal services income rules in their current form do not provide acceptable levels of integrity and equity…. This means that ordinary workers may be missing out on proper pay, proper super entitlements and a range of other employment conditions such as long-service and other leave entitlements.

It concluded:

The use of sham contractors is a threat to the integrity of the taxation system and a threat to working conditions of employees – and the Rudd Government is determined to see an end to its inappropriate use.

The Government decided it would wait for the final report of the Henry Review into taxation before deciding what to do.

Recommendation 10 of the Henry Review was:

Consideration should be given to a revised regime to prevent the alienation of personal services income that would extend to all entities earning a significant proportion of their business income from the personal services of their owner-managers, whether in employee-like or non-employee-like cases. This regime may also apply an arm’s length rule to deductions arising from payments to associates to ensure deductions reflect the value of services provided.

This would appear to require businesses to distinguish between income earned from capital as opposed to labour, adversely affecting all ‘knowledge professionals’ from consultants to barristers, and from accountants to computer consultants.

It would certainly appear capture most home based micro businesses – which many in the bureaucracy have never accepted as ever being ‘real’ businesses.

In our experience its view is if you can’t see stock or staff you are not in business but either (depending on your taste) a ‘true’ employee in an arrangement to rort the tax system or a simpleton ripe for exploitation.

The Coalition has said that it will not change the current personal service income laws as ‘no case has been made or evidence provided to justify changes to force independent contractors and self employed people into more ‘employee-like’ arrangements’.

This appears to be a solid commitment. However they are also considering how they are going to respond to the Henry Review.

It would therefore remove all doubt if the Coalition would expressly confirm that Recommendation 10 will not be considered as part of the response to Henry Review.

Otherwise be interesting to see if it will get new life once the Treasury starts providing them with advice, should they win.

Gotta protect the integrity of the tax base y’know. And so forth.

It will be interesting if the ALP will make any commitments about its treatment of PSI during the election.

The Coalition

The Coalition have countered Labor’s proposed company tax cut with a 1.5 per cent cut in the company tax rate from company tax from 30% to 28.5% on July 1 2013.

It is to be hoped that this commitment can be afforded, and is not a cynical ‘meet and beat’ commitment to retain the mantle of being ‘the party of small business’ during the election campaign, to be discarded in the name of fiscal responsibility once in government.

The Coalition has made a number of other commitments.

Proposed coalition changes to government structure

There will be a cabinet level ‘small business’ minister. This is symbolically important although the more valuable component of this promise is the requirement for cabinet submissions to address how proposals impact small business.

The mere fact of having to write something requires those having to prepare ‘cab subs’ to at least think about the issue.

A proposed ‘small business’ representative on the Taxation Board of Review is also symbolically important, although it will be interesting to see how the impact of having this proxy representation can be measured in practice.

Government agencies will have to use procedures and practices to ‘that do not disadvantage small business participation and instead, actively encourage it.’
Governments of all persuasions promise this.

However, in many circumstances public servants involved in letting tenders have neither the information to make informed decisions in favour of selecting smaller businesses nor the time to gather it. And you can never be blamed for anything if you’ve ‘bought IBM’.

Public sector procurement and prudential rules, which are costly to comply with in their own way for both contract manager and service provider are also unlikely to be loosened.

So it will be interesting to see what will be different this time.

Businesses will also be able to charge interest if payments for any service provided are late - although whether the costs involved (particularly in time) in chasing up the interest amounts that can be charged may make this right somewhat problematic.

A Small Business and Family Enterprise Ombudsman is to be created to ‘provide an advocacy, dispute resolution and support role for the sector’ across the government.

Given that every small business in Australia could contingently be a ‘client’ of this proposed agency, the indicator of how committed the Opposition is to this initiative will be how well the Office will be funded.

It is noted that whilst the Victorian Small Business Commissioner is reasonably well funded, equivalent offices in the ACT and SA were early sacrifices to budget savings.

It will also publish with a series of ‘better practice guidelines’ to explain and encourage’ fair commercial conduct’.

‘Guidelines’ to become a ‘better corporate citizen’ are all well and good, but mere publication aren’t much practical help to a shopkeeper having a dispute with a supplier or landlord if they have little actual effect, particularly if the proposed Ombudsman is ill-equipped to provide much more than moral support.

It may be better if these proposed guidelines had some legal effect.

The proposed Australian Consumer Law to commence operation on 1 January 2011 will permit small businesses can take action where there has been ‘unconscionable conduct’ in trade or commerce.

The relevant provision sets out things to take into account when considering whether unconscionable conduct has taken place.

It would be better if any proposed guidelines must be taken into account when considering whether unconscionable conduct has been displayed.

This would increase the impact of any guidelines that might be issued.

Changes to trade practices law

The Coalition has promised it will to extend the unfair contracts protections available to consumers to small business.

This will mean that small business will be able to avoid ‘unfair’ standard form contracts in the same way ordinary consumers can under the proposed Australian Consumer Law to commence operation on 1 January 2011 – something the current government removed from legislation immediately prior to its introduction into Parliament.

Finally, the Coalition promises another review of the Trade Practices Act – soon to be called the Competition and Consumer Act - which is to be focussed on ‘giving small business a fair go’.

As The Australian noted on 21 July 2010 there have been 59 different reviews of the old Trade Practices Act in the past decade.

It is difficult to see what will be achieved here that wasn’t achieved by the Trade Practices Act review that gave rise to what was known as the Dawson Report which had terms of reference that included examining whether there was ‘an appropriate balance of power between competing businesses, and in particular businesses competing with or dealing with businesses that have larger market concentration or power’.

This is particularly the case, given that shadow Treasurer said of the review in his budget reply to the National Press Club:

There may not be a need to dramatically change our competition policy and regulatory frameworks, but there is a need to consider what changes could be made so that market efficiencies and productivity enhancements are maximised.

The Australian reports that Bruce Bilson, the relevant Shadow Minister, is ‘keen for it to go along the lines of a Productivity Commission review’.

If the matter goes to the Productivity Commission, there is unlikely to be any real change to the current legislation.

This is because it has consistently confirmed the importance of ensuring that allocative efficiency is maintained – any changes that it considers may affect innovation or market dynamism such as for instance, changing the test that allows a harsh contract to be reviewed from ‘unconscionable conduct’ to ‘unfair conduct’ (as is the test in the Independent Contractors Act) may not win favour.

The Coalition has always had to square the competing interests within its electoral coalition of the Big End of Town, with its eyes on ensuring they maintain the scale to compete internationally with the Small End of Town, which perceives the need for some protection against larger corporations because of inequality of bargaining power – hence the somewhat tortuous drafting of current trade practices law.

The Coalition therefore really needs to indicate whether they are being ‘fair dinkum’ in giving small business a ‘fair go’ in this context.

Election 2010

2010-07-27T14:39:00.004+10:00

Labor clearly won the first part of week 1 of the campaign for the 21 August federal election.

They commenced as frontrunners, with publicly available opinion polls suggesting they were ahead 55/45.

They were also aided by a slow start from the Liberals as well as confusion over the Opposition’s industrial relations policy.

The previous Workchoices policy was supposed to be ‘dead buried and cremated’ - however, Liberal spokesmen suggested the legislation could still be ‘tweaked’ (whatever that meant).

The great difference between Workchoices and the current legislation is the primacy of the industrial award as the basis of determining wages and conditions, as opposed Workchoice’s built in bias towards some form of individual contract.

Why they couldn’t say that in Government the coalition would retain the award system and not reintroduce the concept of unfair dismissals (if that’s what they wanted to do) without winding up into knots over whether or not they would touch any sort of legislative instrument related to the Fair Work Act currently in place over the next three years is beyond us.

As for Labor, however repetitious it was, the ‘moving forward’ mantra confirmed the idea that Kevin Rudd was no longer the leader. Noting infrastructure pressures was also a sound message to sell into Middle Australia.

However, things started to slow for them midweek.

Firstly, Kevin Rudd appeared, reminding people he wasn’t dead after all. Focussing on him soaked up around two days of the campaign week.

This took from view promises both sides made on what can be claimed under the education tax refund scheme as well as the Liberal’s re-announcement of its hit list of expenditure savings.

The remainder of the week underlined the difficulty Labor has keeping its bifurcated constituencies of inner urban progressives and outer suburbanites together.

As Bernard Salt said in an Australian article on 13 August 2009, a significant and growing cultural divergence has evolved in Australian cities between different social groups between those who live in the inner city and those who live on the city’s edge.

The traditional ALP voting coalition has generally consisted of self identifying members of the labour movement, people with English as a second language, welfare recipients, public sector workers, the arts sector and high income professionals who are secularist and internationalist in orientation.

On one analysis, Julia Gillard is well placed to keep this disparate coalition together.

In the Weekend Australian on 16 February 2002, Matt Price described Julia Gillard as someone with the cheese-grater voice of a Footscray fishwife and a the multi-shaded hairstyle of a Toorak trendoid.

At a memorial service held on 14 December 2007 after Price’s death, Gillard indicated she had corrected Price, claiming she had the cheese-grater voice of an Altona fishwife and the multi-shaded hair of a Fitzroy trendoid.

Altona fishwife and Fitzroy trendoid. This sums up the disparate nature of the ALP constituency.

The danger for Labor is that they have the problem that in trying to straddle both sides of the fence they will satisfy neither trendy nor burby.

A confusing message could mean they don’t stand for anything or anyone.

For example, during the week the Prime Minister claimed that the whilst she believed in global warming and the price of inaction about it was ‘too high a price to pay’, promising an emission trading scheme some day – something for Fitzroy.

However, the political process has to be tied to a ‘community consensus’.

The result a review of the proposed ETS during 2012 – but not before a ‘citizens’ assembly’ debates the issue over 12 months to assist in building community consensus (slowing the introduction of the ETS and thus a price on carbon, with its inherently higher consumer costs that it imposes) – something for Altona.

This idea (particularly the ‘citizens’ assembly’) was universally panned – in trying to please everyone they pleased nobody.

Promising offshore processing of asylum seekers arriving by boat (something for Altona) but not at Nauru (as it hadn’t signed the UN Refugees Convention – something for Fitzroy) similarly appeared to please no-one.

A final example was where the Prime Minister argued that the population debate she commenced was less about immigrant numbers but rather where skilled migrants were going to live.

However, as ex-leader Mark Latham said, it was a phoney debate. He went on to say:

If it's not an immigration debate, it's no debate…………and I'll tell you what it is, it's a fraud. It's an attempt to con people in western Sydney that she's going to do something about congestion.

Nevertheless, these problems ultimately didn’t alter Labor’s frontrunning position.

By weeks end, the Morgan poll still showed the ALP with a 54/46 margin (with a high number of women indicating they will vote Labor), although the last Newspoll had it 52/48.

The Liberals were aided by a ‘nothing to see here move along’ debate between the two leadership contenders (which really was a joint news conference) in which Abbott won by not losing to Gillard (the more accomplished public speaker) and Abbott getting through a 7.30 Report interview unscathed.

And so the second stanza commences with the challenge for the Liberals is whether an Abbott led party can be plausibility regarded as The Champion of Suburbia as well as getting over a perceived problem with women voters.

As frontrunners, it is Labor’s challenge to show that it is not trying to be too clever by half.

Are All These Leadership Changes Healthy?

2010-07-01T18:46:00.005+10:00

Labor has replaced Kevin Rudd with Julia Gillard.

Others have commented on the machinations leading to the change, so we will leave it to others to comment on its political benefits to the ALP, whilst history can decide whether stories of temper outbursts and dysfunctional decision making will mean Rudd will be regarded as Labor’s Billy McMahon.

We will examine matters from another angle: the parliamentary parties of the 42nd Parliament have functioned as they should have - as representatives of the constituencies they represent.

The Liberals have seen four leaders (Costello (very nominally), Nelson, Turnbull and Rudd) and the ALP two (Rudd and Gillard).

For the Liberals, the retiring Costello was replaced by Nelson, who was the most attractive ‘not Malcolm Turnbull’ candidate standing as leader.

This was appropriate for a party room not totally sharing the inner urban policy priorities that Turnbull represented – from things like placing a greater weight on the environment as an abstract issue through support of policies such as the Emission Trading Scheme (ETS) to possessing less hawkish view on boat arrivals, and so forth.

Nelson was then removed for simply not cutting it. This is rational behaviour for a parliamentary party aiming for early return to government. The party turned to Turnbull – the only candidate making himself available.

Turnbull was replaced in turn by Abbott, largely over the ETS.

It will be remembered that Turnbull staked his leadership on the policy.

He didn’t make the argument well enough to persuade the majority of the party room to abandon the views of core supporters – those who were genuinely climate sceptics or believed in the low taxation and limited government participation in the economy, as well as those for whom the fear of increased costs and possible loss of employment opportunities as a result of the introduction of the ETS trumped general concerns about ‘the environment’.

The net result is an Opposition Leader running a traditional platform for a centre right party, with its emphasis on opposing ‘great big new taxes’ on everything, preserving national security and so forth.

The Rudd/Gillard change illustrates the same dynamic.

Rudd announced so many policy initiatives to solve The Greatest Moral Threat of our Time (or similar rhetoric) in so many areas the view was formed that he overpromised and underdelivered.

The ALP (particularly the NSW Right) see themselves as the guardian of the various programmes incrementally introduced by Labor over the course of time, doing (to coin a phrase) whatever it takes – to the point of appearing nihilistic – to ensure electoral success.

Rudd’s lack of programmatic specificity in speech left this at risk.

The ALP also remains part of the overall union movement.

As Paul Howes said on Lateline on 23 June 2010:

TONY JONES, PRESENTER: One of the key moments of tonight's extraordinary developments was the announcement that the Australian Workers Union had lost
confidence in Kevin Rudd and was backing a move to Julia Gillard. Well the national secretary of the AWU is Paul Howes. He joins us in the studio. Why did you do that?

PAUL HOWES, NATIONAL SECRETARY, AUSTRALIAN WORKERS' UNION: Well we've been looking at what's in the best interests of the members of our union. We know that if Tony Abbott is elected as a prime minister of Australia, Work Choices will be back, the legislation which ripped away fairness from our workplaces will be reinstituted on our members, reimposed on our members, and we know that Labor's message had been lost for the last few weeks, and in fact months, under the Prime Minister's leadership. We have to look at what's in the best interests of our members of our union to ensure fairness remains in our member workplaces and we think that Julia Gillard is the best option to lead Labor to victory at the upcoming election.

Given the relative influence of the factions and unions over the parliamentary ALP, Caucus elected a new Prime Minister who said in her first public statement after taking the job:

And….I believe fundamentally that the basic education and health services that Australians rely on and their decent treatment at work is at risk at the next election.

I love this country and I was not going to sit idly by and watch an incoming Opposition cut education, cut health and smash rights at work.

A very traditional Labor platform.

So, there it is.

After some policy deviations the two major parties have come up with leaders reflecting their traditional values – all as a result of the parliamentary parties acting more proactively against decisions made by the executives of the parties than Australians have become accustomed.

It is now up to the electorate to decide who will form the new government.

A Parliamentary 'Dialogue' Model to Protect Human Rights

2010-06-19T18:27:00.006+10:00

The Government has introduced the Human Rights (Parliamentary Scrutiny) Bill proposing a parliamentary joint committee on human rights.

The Committee is to examine compliance of all forms of legislation with international instruments purporting to capture the rights and freedoms of people.

They include the:

International Convention on the Elimination of All Forms of Racial Discrimination;

International Covenant on Economic, Social and Cultural Rights;

International Covenant on Civil and Political Rights;

Convention on the Elimination of All Forms of Discrimination Against Women;

Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment;

Convention on the Rights of the Child; and

Convention on the Rights of Persons with Disabilities.

The intention behind both the committee and a requirement for administrators to prepare statements of compatibility when introducing legislative instruments is the creation of a human rights ‘dialogue’.

Time will tell whether this form of ‘dialogue’ is accepted by the advocates of ‘dialogue’ between courts and the parliaments created by the human rights charters in force in the ACT and Victoria. Somehow one doubts it will.

The bona fides of government will be tested by both the time and resources the committee will be given to examine every legislative instrument prepared by government.

There are lots of legislative instruments prepared and the seven international agreements purport to confer an extremely wide range of rights.

They range from from (for example) Article 9 of the International Covenant on Economic, Social and Cultural Rights, which requires consideration of the ‘right of everyone to social security’to Article 25(a) of the Convention on the Rights of Persons with Disabilities, which requires signatories to ‘(p)rovide persons with disabilities with the same range, quality and standard of free or affordable health care and programmes as provided to other persons, including in the area of sexual and reproductive health and population-based public health programmes’.

So if this is a fair dinkum committee, it will require fair dinkum resources.

The other issue relates to the compatibility statements to accompany legislative instruments.

Subclause 9(2) of the Bill requires ‘an assessment of whether the legislative instrument is compatible with human rights’ with the explanatory memorandum to the Bill suggesting the statements are to be ‘succinct assessments aimed at informing Parliamentary debate and containing a level of analysis that is proportionate to the impact of the proposed legislation on human rights’.

Frankly, despite all the training that will (perhaps) be offered, we doubt that most ‘rule makers’ making legislative instruments would have the background to know their instrument may require consideration of one of the widely drawn rights contained in instruments listed in the Bill let alone the tricky question of determining whether an instrument is ultimately ‘compatible’ with human rights.

The jury is well and truly out as to whether this is a serious attempt at ‘dialogue’ or a mere fig leaf to cover what some may regard as another area where the government has overpromised and underdelivered.

Funding the Social Democratic Project (and the Federal Structure)- comments on the Henry Review

2010-05-11T16:19:00.004+10:00

The Report on Australia’s Future Tax System (the Henry Report) has finally been released by the Government.

As expected from his various speeches, the Review canvasses a number of different policy areas.

It will be a smorgasbord of policy options that will be dined on over the years as was the 1975 Asprey Report.

We will satisfy ourselves with two observations.

The first is what constitutes a ‘super profit’. It would appear the starting point of what constitutes a ‘super profit’ is the ten year government bond rate (currently averaging 5.7%) – the figure identified as the ‘risk free return benchmark’.[1]

We would hope that any return above the risk free return benchmark would not become the standard benchmark for ‘super’ profits made in the (insert here the industry to be picked off) whenever government requires extra revenue.

By definition it would discourage risk taking – the very thing that keeps the economy advancing.

The second relates to the fiscal federal structure.

Economists tend to think that a federal structure is an anathema to their guide star of allocative efficiency.

Whilst begrudgingly acknowledging that Australia will have three levels of government ‘at least for the foreseeable future’[2], the Review nevertheless acknowledged that as long as State governments have significant expenditure responsibilities they should have access to significant and sustainable tax revenue with a residual own source taxation capacity to finance marginal expenditure decisions.[3]

However, the Review nevertheless recommended on efficiency grounds that a resource rent tax (RRT) replace state based royalties as the way to bring mineral extraction to taxation - with the Australian and State Governments to ‘negotiate an appropriate allocation of the revenues and risks from the resource rent tax’.[4]

The report also suggests the abolition of a slew of State based taxes.[5]

In particular, payroll tax would be replaced in favour of a broad based ‘cash flow tax’ imposed at a uniform rate across Australia (and thus deprive states the further capacity to change the rate to suit the needs of the jurisdiction).[6]

It also suggests that the States and Australian Government could share, in particular, the income tax base.[7]

It is clear that for these reforms to work, the Commonwealth would have to allow the states some access to income tax and a reasonable flow of resource rent tax revenues.

It ain’t going to happen.

The Review adopted the standard view that as the national government is better placed to coordinate actions, taxes used to redistribute income should be levied by the national government.[8]

The fact is the federal government requires a lot of money to fund the broad ‘social democratic project’ established by pl.51(xxiii) and (xxiiiA) of the Constitution –income transfer payments, health, hospitals and (undoubtedly in the immediate future) disability support and will need more money (and not less) as an increasing number of worthy needs are identified as requiring support in a country with an aging population and an atomising society.

It is also the fact (undoubtedly assisted by taking in 82 per cent of total tax revenue[9]) that the Feds are assuming more and more state government responsibilities.

A simple illustration: an portion of the proposed RRT is to help ‘build the roads, rail, ports, electricity and water supply, and other facilities needed to unlock Australia’s resource wealth’.

Like housing, health and education, these are subject matters formally considered to be largely state responsibilities increasingly falling under Commonwealth control.

The Feds will increasingly need tax revenues to fund their projects in these areas on their terms.

Then there is the ‘seamless economy’ and the wish to remove duplication. Currently, the Government proposes that miners pay both royalties and the RRT, with royalty payments a claimable tax rebate.

But it won’t be too long before calls are made that this is an inefficient way of doing things – only one tax should be levied (in this case) on the extraction of minerals. There isn’t much doubt which tax will go.

Finally, there is the history of Australian federation.

As the report itself says:

Tax sharing of income tax operated in Australia before the Second World War, although there was little coordination between the two levels of government. In 1976, the Australian Government introduced the possibility of the States levying a personal income tax surcharge to replace financial assistance grants. No State took up the option. A key reason for this was that the Australian Government did not reduce its own tax rates to make room for the States.[10]

As the report itself admits, the States are more likely to be tied to the Deakin’s ‘chariot wheels of central government’ tighter than ever before:

The implementation of a number of recommendations related to state taxes would require cooperation between the Australian government and the states. Further, some recommendations related to Australian government taxes would also impact on State taxes……... Depending on when some of the recommendations are implemented, the states may also be subject to losses in revenue that could not easily be made up from other revenue sources (our comment – ask WA about the loss of royalties!) funding from the Australian government may at times be necessary to ensure that the financial position of a state is not adversely affected.[11]

As we have recently said, it is time to decide

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, through an agreement made under section 96 of the Constitution; or

(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.

The Henry Review advances the discussion.

However, following the firestorm arising from the introduction of the RRT this is a matter that should form part of the discussion at the next election.

[1] See Part C1-1 of Volume 2 of the Report (esp.p.223 and footnote 2 of page 332 of volume 1)
[2] Page 570 of Volume 2
[3] Page 574 of Volume 2
[4] Page 680 of Volume 2
[5] See table on page 680 of Volume 2
[6] Page 681 of Volume 2
[7] Page 682 of Volume 2. The Commonwealth would retain control over the tax base.
[8] Page 673 of Volume 2
[9] Page 676 of Volume 2
[10] Page 682 of Volume 2
[11] Page 684 of Volume 2

The Australian Greens - the new Country Party (or perhaps a bit more?)

2010-04-29T15:18:00.002+10:00

Tasmania has just held an election.

After achieving 20% of the popular vote and 5 seats in a 25 seat Assembly, and deciding to prop up a minority Labor administration, the Greens now have a seat in the Tasmanian Cabinet – an Australian first.

This follows an agreement by the Greens Party in the ACT to support a minority Labor Government contained in a document perilously close to looking like an old fashioned coalition agreement.

The Greens there were able to strike their agreement after winning over 15% of the vote and 4 seats in a 17 seat legislature.

Whilst these are outcomes obtained in parliaments elected via proportional representation they could portend the future of legislatures constituted by single seat constituencies.

As demographer Bernard Salt has noted there is a social and economic division between those who live in the inner city and those who live on the city's edge:

…... I am suggesting that there is almost a regionalisation of wealth, income and culture based on urban geography.

Battlers, migrants and assorted low-income earners who formerly lived in the inner city are now being flung out, as if by some centrifugal force, to the city's edge.

What is left in the inner city is an odd coalescence of tribes - namely students, singles, couples, dinks, gays, expats, corporates, divorcees and, most important of all, the professional and entrepreneurial classes.

And to this lot I might add the entertainment, information and media glitterati. As a general principle, none of this class would ever think of living more than 10km from the city centre.

The ALP voting coalition has hitherto consisted of self identifying members of the labour movement, people with English as a second language, income transfer recipients, public sector workers, the arts sector and high income professionals who are both secularist and internationalist in orientation.

However, the Greens message - guided by the so-called ‘four pillars’ (ecological sustainability, social equality and economic justice, grassroots democracy and peace and disarmament and nonviolence,) is apparently more amenable to a ‘progressive’ middle class constituency than one put out by a regimented party with 50% union control designed to represent the ‘labour movement’ and achieving social justice primarily through the improvement of working conditions and changes to the wages and salaries system.

So, why could the Greens be the new Country Party? As the bulk of the Country/National Party votes tend to be geographically clustered, so similarly much of the Green vote is clustered in the inner city.

They are on the cusp of winning seats at state level such as Marrickville and Balmain in NSW; Melbourne, Richmond and Northcote in Victoria; and at federal level, (as Lindsay Tanner is only too well aware) seats such as Melbourne.

Recent opinion polls indicate that at state level (in particular) the ALP primary vote is dropping.

For example, the most recent polling in Victoria suggests that for the first time in a long time the Liberal/National primary vote (38%) is higher than the ALP primary vote (37%).

A hung parliament here is not unthinkable.

The Greens vote is at 14%.

Given the decline of long term state Labor governments and an increasing perception of the Greens as a legitimate party of government many ‘progressive’ voters may consider that a primary vote for the Greens is not wasted and vote for them in such numbers they can break through and win seats.

Now, it must be said it is difficult to believe that Greens rank and file members would endorse an arrangement with the Liberals.

What’s left?

Drawing on the ACT/Tasmanian precedents, a party prepared to prop up a larger party, capable of winning specific concessions for the interests they represent.

Just like the old Country Party.

One final observation.

As the current British elections are demonstrating, the old two party system is breaking down with voters on the ‘progressive’ left prepared to leave Labour for the Liberal Democrats.

Who knows? If the Greens can internally make the jump from party of protest to party of government, perhaps the Greens can assume a similar role in Australian politics.

We live in interesting times.

Government squibs a human rights charter

2010-04-29T14:36:00.004+10:00

The Attorney-General was unsuccessful in persuading Federal Cabinet to support a bill of rights.

This is no bad thing.

We are in the camp that says that the terms of a charter cast in vague aspirational language confers too much discretion on an unelected judiciary and takes too much from elected legislatures, particularly when construing provisions such as Article 21 of the International Covenant on Civil and Political Rights (ICCPR):

The right of peaceful assembly shall be recognised. No restrictions may be placed on the exercise of this right other than those imposed in conformity with the law and which are necessary in a democratic society in the interests of national security or public safety, public order (ordre public), the protection of public health or morals or the protection of the rights and freedoms of others.

There is nothing so special about the training of a lawyer or judicial method that would allow a judge to make a value judgement as to what is or isn’t ‘necessary in a democratic society’: in a parliamentary democracy, this is really something only for a Parliament.

There are two interesting elements to the fig leaf of a commitment to human rights agreed to by Cabinet.

The first is the proposed establishment of a new Parliamentary Joint Committee on Human Rights to provide greater scrutiny of legislation for compliance with international human rights obligations.

The second is the requirement that each new Bill introduced into Parliament be accompanied by a statement of compatibility with international human rights obligations.

It is no bad thing for a parliamentary committee to examine whether legislation satisfies the international human rights agreements such as the ICCPR.

Australia has signed these treaties. In much the same way as scrutiny of legislation committees such as the Senate Standing Committee for the Scrutiny of Bills ensure that laws meet particular standards, it is appropriate for Australian parliaments to have some analysis as to whether particular legislation meets these international commitments before it passes legislation, although for the reasons we have expressed it is for the Parliament to ultimately take responsibility for the legislation it passes.

It will be interesting to see how much time this proposed committee will have to construe relevant legislation and whether parliamentary rules of debate will be changed so any report can be properly considered before a particular piece of legislation is passed.

It will also be interesting to see if the Committee will be charged to consider treaties Australia has acceded to such as the International Covenant on Economic, Social and Cultural Rights, which includes provisions such as Article 9:

The States Parties to the present Covenant recognise the right of everyone to social security, including social insurance.

There is then the requirement for the Government to publish a statement of compatibility.

There are two models of statement available.

The first is the ACT model, where the statement is usually as brusque as this:

In accordance with section 37 of the Human Rights Act 2004 I have examined the Crimes (Sentence Administration) Amendment Bill 2010. In my opinion the Bill, as presented to the Legislative Assembly, is consistent with the Human Rights Act 2004.

Somewhat unhelpful.

In Victoria, the statements are relative works of art. For example, the powers of inspectors under prosaic legislation such as the Livestock Management Bill reads:

Section 13: privacy and reputation

Section 13 (of the Victorian Charter of Human Rights and Responsibilities) establishes the right for an individual not to have his or her privacy, family home or correspondence unlawfully or arbitrarily interfered with and the right not to have his or her reputation unlawfully attacked.

The right to privacy concerns a person's 'private sphere', which should be free from government intervention or excessive unsolicited intervention by other individuals.

An interference with privacy will not be unlawful provided it is permitted by law, is certain, and is appropriately circumscribed. An interference would not be arbitrary provided that the restrictions on privacy are reasonable in the particular circumstances and are in accordance with the provisions, aims and objectives of the charter.

Entry and search provisions

Divisions 1 to 4 of part 5 of the bill provide for search and entry powers and as such engage the right to privacy. However, these powers are neither arbitrary nor unlawful for the reasons set out below.

The search and seizure powers granted to inspectors to enter and inspect that are authorised under clause 31 can only be exercised for the clearly stated public purposes of either determining whether the act, regulations, standards or specifics in the letter of approval have been, or are being, complied with or where the inspector has a reasonable belief that there has been non-compliance with the standards, which has resulted in or is likely to result in an emergency that threatens animal welfare, human health or biosecurity.

The bill clearly prescribes the scope of the power to search and inspect. Places of
residence cannot be searched unless the occupier has consented or where a magistrate has issued a warrant or in the emergency situation referred to above.
The bill requires an inspector to inform an occupier of his or her rights in relation to consent before a search and entry power can be exercised. When a warrant has been issued, clause 34 of the bill specifies that an inspector must inform an occupier that he or she is authorised by a warrant to enter a place or vehicle and clause 35 specifies that an inspector must show his or her identity card before exercising any power as well as any time upon request. The bill also specifies the procedures that must be followed in the instance that a premises is entered without the occupier being present.

Under the bill, this will only be applicable under a warrant or in an emergency situation.

To the extent that these provisions relate to private information and permit access to residences, they arise in the controlled and prescribed circumstances set out in the bill and are lawful. Procedural safeguards have been included in the bill in relation to the exercise of these powers. Consequently, I (the Minister of Agriculture) do not consider that these requirements can be described as arbitrary.

Accordingly the provisions are compatible with the right to privacy in section 13 of the charter.

That said, given the presence of the proposed joint parliamentary committee a compatibility statement appears unnecessary.

It is for the Committee to form an opinion as to whether a Bill passes international muster.

One would presume that the Government will implement internal mechanisms such as a suitable amendment to the Legislation Handbook to ensure relevant international commitments are considered when drafting legislation and would be ready to make submissions to the joint committee where there is doubt about compliance.

Finally, the Government may have hoped that Bill of Rights adherents would be a least a little bit satisfied with the Government’s compromise.

However Professor George Williams started an op-ed immediately after the Government made its announcement as follows:

The battle for an Australian charter of rights is the debate that will not die.

Perhaps they won’t be happy, after all.

The Feds Take Hospitals

2010-03-11T11:41:00.006+11:00

The Federal Government has published A National Health and Hospitals Network for Australia’s Future, which sets out how it proposes to improve health services provided to Australians.

Others are better placed to discuss whether the plan as a whole will work.

I will concentrate on a few matters.

It is proposed that the Commonwealth will take full policy and funding policy for general practice and primary health care in Australia.

This appears to be a sweeping grab of responsibilities.

However, page 41 of the federal document says:

The detail of what is “in scope” for transfer to the Commonwealth in particular states will be negotiated with the states over the coming months.

If I were a state government I would be disappointed if I were told to ‘get with the program’ without knowing the magnitude of the change.

Take this example. The ACT Government is running a programme to reduce the number of falls amongst the elderly, and thus the level of injuries (and most importantly) hospital admissions.

Does responsibility for ‘primary health care’ mean that all programmes like reducing falls amongst the elderly (or for that matter, stop smoking programmes) will be run exclusively out of Canberra?

One would have thought the ambit of responsibilities to be assumed would have been thought out before expecting others to ‘get with the programme’.

Secondly, it is noted that the general practice sector is hoping to receive more money now the Commonwealth proposes being the sole funder of general practice.

There is a touching view held by some that the Commonwealth will invariably pump in more money than the states simply because they have more access to revenue.

Like any government, the Feds have ‘horror budgets’; the competing priorities that must be managed in any budgetary cycle means that (in this case) general practice won’t receive the money it would like all the time.

In that case, they may regret a political covenant investing in one tier of government all funding and policy responsibility.

Finally, it is noted The Australian has reported:

Kevin Rudd has put the Henry tax review firmly on the backburner, confirming today that his $50 billion public health takeover plan is his top priority.
The Prime Minister said this morning he had not decided on a specific timetable for the release of the review, which was delivered to the Rudd government by Treasury secretary Ken Henry in December.
``I believe what Australian people wanted me to do is to get on with the business of delivering health and hospitals reform. Number one priority,'' he told ABC radio.
``Each thing in its season, we've got to do one thing at a time.
``But in terms of specific timetables for doing it, no, I don't have anything particular in mind.''

The Henry Tax review has as one of its terms of reference:

3.5. Simplifying the tax system, including consideration of appropriate administrative arrangements across the Australian Federation

And as we have observed Ken Henry has said in a 2009 speech that one of the things that the Henry Tax Review was going to do was to consider each tax (except the GST) on its merit and:

only then are we considering the level of government to which different taxes and transfers should be assigned, taking into account the long-term financial needs of each level of government.

He also said:

I mentioned earlier that the revenue assignment of each level of government is dependent on how we view respective long-term financial needs. And this, in turn, depends on what we think is the appropriate role of each level of government in improving the well-being of Australians. Which government is best placed to be the financier of government services? Should a particular government be the sole provider of the service, or one provider amongst many?
I do not anticipate that the Panel will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role of government and the available means of addressing disadvantage.

The Health Minister has not ruled out tax increases to pay for health reforms.

It would be a pity if a systematic review of public administration (including a review of tax and responsibilities) was lapped by a rushed release of something as important as health reform.

There is a sneaking suspicion that the rush is in part to cover for the pink batts fiasco.

That taught us the lesson of what happens when I’s aren’t dotted and T’s are not crossed.

For the sake of the health of both the federation and the individual taxpayer they have been in this important structural reform proposal.

On Dotting I's and Crossing T's: The Pink Batt Fiasco

2010-03-11T11:20:00.005+11:00

Some hold a child life belief that the Federal Government invariably do things better than the states.

However, as the Defence Department illustrates, its record with procurements has a bit to be desired.

The failed home insulation (or pink batt) scheme is evidence of a similarly patchy outcome with programme delivery.

The pink batts scheme appears to be one of those ‘wish list programmes’ that Departments submit each budget round, with the hope that one day it will win the funding to implement its wish.

As Peter Costello recently said in the Sydney Morning Herald:

In the dying days of the Howard government, the environment department prepared a list of measures designed to reduce carbon emissions. One was to insulate houses. Back in those days, home insulation was dressed up as a climate-change policy.

I was against it. ……………. I could not see how the Commonwealth could hope to manage a scheme to insulate millions of homes with thousands of private contractors when it had no staff with experience to design and supervise such a scheme.

As we now know, law firm Minter Ellison to the Environment Department said that there was, amongst other problems:

too few auditors and insufficient government resources to manage the scheme were among other serious concerns raised.

It is reasonable for Cabinet to expect that a programme consistently sponsored by a department has a well thought through implementation and management strategy. It can be disappointed with the poor outcome.

That said, as Lindsay Tanner said to Sky News, there was no focus on ‘dotting I’s and crossing T’s’ because of the urgency of putting out stimulus measures to combat the global financial crisis. So the executive government deserved what it got from the affair. Sadly, I’s have be dotted and T’s crossed.

And there have been a number of poor outcomes.

As The Australian editorialised:

It's not just the foil batts that have been a headache for Mr Garrett. His Green Loans program, under which households are assessed for energy and water-saving measures then given zero-level loans to finance the innovations, is under fire.
His solar rebate program reportedly blew out by $850m and is also being blamed for distorting the market for other alternative energy innovations such as wind
power…

Not everything can be solved by the Feds using contract management strategies like performance targets and benchmarks, with risk assigned to the party best assumed to be able to manage it and damages (or withholding funds) the ‘modern’ way to ensure compliance.

If the national government wants to act like a state government and get involved in programme delivery and low level standards setting it must staff itself like a state government and develop inspectorates so as to ensure programmes do not run off track.

Julia Gillard seems to have the right idea. When addressing the National Press Club recently on how to improve underperforming schools she said she would:

………. examine ways to provide the support and scrutiny necessary to drive schools to improve, which could include ''physical inspections'' or ''quality audits''.

''I believe that you've got to have the doors open,'' she said.

''Gone are the days when we could have teachers in classrooms with the door closed. I obviously want to see a debate about what more we need to do.

''This may involve external assessment and inspection of schools, and it will certainly involve strengthening school-based performance management of individual teachers.''

Sometimes the public interest needs a properly resourced inspectorate, with old fashioned enforcement powers. If not, there will be more pink batts episodes as the Commonwealth tries to do everything from Canberra.

Towards a constitutional convention

2010-01-11T23:12:00.008+11:00

As we have said previously:

Following the High Court decision in Pape, the debate that will follow release of the Henry Review is probably the right time to realign who does what within the Australian federation, and then determine how those functions should be funded.

This is because, as Henry Ergas recently observed in the Australian, the reality of vertical fiscal imbalance within the Australian federation means that to use the famous phrase of Deakin, whilst the states were ‘legally free’, fiscal imbalance left them ‘bound to the chariot wheels of central government’.

And as Ken Henry said in a March 2009 speech, one consideration to bear in mind when assigning taxes in a federal system:

……… concerns how the revenue from taxes is distributed between levels of government. It is usually the case that whoever controls the policy and administration will also receive the revenue – and it is important that governments have some capacity to alter revenue consistent with their marginal expenditure choices.

But it is also usually the case in federal systems that there is an imbalance between the revenue that each level of government raises and its expenditure requirements. For some taxes, therefore, part or all of the revenue may be given to another level of government. Then there is the question of how this revenue is distributed among governments at the same level and with what conditions.

There are trade-offs to be made in this three-dimensional assignment task. The more the policy and administration of the tax system is centralised at the national level, the greater the opportunity to develop a less complex and more efficient tax system.

However, centralisation obviously also means that sub-national governments have a greater reliance on revenue from the national government. And this may influence their spending decisions.

It is the power of the purse that allows the feds to control policy – it has no capacity to simply legislate, or to spend money without constitutional support. As Justices Hayne and Kiefel said in Pape:

.…. it may be accepted that there is some implied legislative power in the Parliament that follows from the existence of the national polity. That power extends to laws putting down subversive activities and endeavours. But that implied legislative power does not extend so far as to encompass the general subject of the "national economy".

Ken Henry said in an August 2009 speech:

.…. I do not anticipate that the (Henry Review) will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role of government and the available means of addressing disadvantage.

This often involved the States receiving grants from the Australian Government to help fund State provision of essential services; for example public hospitals, education and housing. The States built hospitals because people needed health care; they built state schools because people needed an education; and they provided public housing as a safety net for people unable to afford private housing services. That these arrangements still persist relatively unchanged today – despite waves of reforms in other product and labour markets – speaks to their success.

But the strains have been showing for a while. Communities expect higher standards of service than many States say they can deliver. Confused responsibilities make it difficult for governments to be held accountable, with impaired incentives to improve performance. It might be time to look at things from first principles. Perhaps a different tax-transfer architecture could assist meaningful reform in this area.

It is finally noted that earlier in the speech, he said:

Once the Panel has considered each tax on its merits, only then are we considering the level of government to which different taxes and transfers should be assigned, taking into account the long-term financial needs of each level of government.

The Abbott ascendency may have put the federal structure as one of the issues in the upcoming federal election due during 2010.

There should be greater clarity of the roles and responsibilities of the various levels of government of the Australian federation.

This is one method of clarifying it.

Firstly, the report of the Australian Future Taxation System (the Henry Report) should be released right away. A report with its own website and trailed considerably in the media should be immediately released rather than released at a time of the Government’s choosing. The public has paid for it. They should be able to see it.

Secondly there should be a ‘Domesday Book’ published listing, for each Australian state and Territory and the Commonwealth:

1. the programmes that are run by each department and statutory authority;

2. the intention of each programme;

3. the benchmarks used to measure satisfactory progress; and

4. the source of funding for the programme.

The document would look something like the List of Australian Government Bodies and Governance Relationships, and would assist in identifying what governments actually do and what duplications exist.

(A document like would have arguably have been better prepared prior to, or in conjunction with, the Henry Report. But there you go.)

Then, drawing on the Henry Review recommendations, the Domesday Book and the law as recently declared by the the High Court in a full constitutional convention (and NOT merely a COAG meeting called to consider an intergovernmental agreement prepared by bureaucrats) similar to those conducted during the 1980s should be called.

Its function would be to act as the forum to determine whether states and territories should be able to develop separate policy responses to particular issues (which could lead to them having different rules and regulations and have different levels of taxation) or whether the Australian Government should possess the general power to determine policy direction either generally or in particular areas of public policy.

From there, decisions should be made as to:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, through an agreement made under section 96 of the Constitution; or

(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.

This would be a discussion worth having.

The Henry Report Is In

2010-01-06T14:19:00.006+11:00

The Government has apparently received the Henry Report.

Whilst perhaps not as radical as originally trailed, it still apparently:

….mix(es) relief for families and individuals and controversial measures covering the taxation of bank savings, superannuation, petrol, resources, companies and federal-state financial relations.

driven by:

……the challenges of an ageing population, the new baby boom, the rise of China and India, globalisation and the environment.

It will be interesting to see what it ultimately says. As we noted earlier, the Review dropped heavy hints suggesting an increased federal role.

As Henry himself indicated in a speech made during 2009 :

I mentioned earlier that the revenue assignment of each level of government is dependent on how we view respective long-term financial needs. And this, in turn, depends on what we think is the appropriate role of each level of government in improving the well-being of Australians. Which government is best placed to be the financier of government services? Should a particular government be the sole provider of the service, or one provider amongst many? I do not anticipate that the Panel will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role ofgovernment and the available means of addressing disadvantage.

Tony Abbott has now become Opposition Leader.

As we have previously remarked, he is a centralist. And we note his party is ‘thinking about’ whether there should be a referendum on who should run hospitals – an idea illustrating a centralist line of thinking.

Some would argue there is a case for the Feds to run hospitals, given the increase in costs in the sector.

As the then NSW Health Minister said on 1 August 2009:

In NSW, health consumes about 30 per cent of the state budget. Australia's Heads of Treasuries have estimated costs in every state are growing at just under 10 per cent. At that, rate the NSW Auditor-General has forecast our entire state budget will be consumed by health by 2033, leaving not a cent for education, roads, transport, police or disability.

And as the Queensland Chief Health Officer said in her 2008 Report:

The health system in Queensland and Australia is not sustainable under these current and growing pressures. Just 15 predominantly chronic diseases drove 56% of the increase in national healthcare expenditure between 1987 and 2000, with 10 of these diseases related to obesity. In fact, in South Australia it is projected that ‘… by 2042, without significant change to the health system the entire state budget could be consumed by the health care sector’. Similar analyses have not been done for Queensland, the overall magnitude of the outcome is likely to be the same.

There is an argument to say that the sector that effectively funds a particular service should have the political responsibility for it. However, others will disagree.

The current Prime Minister campaigned in the last election for ending the blame game between the states and the Commonwealth, whilst the current Opposition leader has said:

My proposal is not to abolish the states but a referendum to give the national parliament the same authority over them that it’s long had over the territories. It’s not a bid for more power to Canberra. Rather, it’s an attempt to establish clear lines of accountability and responsibility.

The Australian federal structure should thus be a significant issue in the upcoming election contest.

The next article contains some ideas that could be adopted.

The High Court Brings Things Together

2010-01-06T14:13:00.004+11:00

Over the last couple of years, the High Court has reconfirmed the interpretation of some of the constitutional provisions underpinning the Australian federal structure.

The Workchoices case reconfirmed the principle that the various paragraphs of section 51 of the Constitution (which sets out many of the powers of the Australian Parliament) should be read widely:

The general principles to be applied in determining whether a law is with respect to a head of legislative power are well settled. It is necessary, always, to construe the constitutional text and to do that 'with all the generality which the words used admit'…..

The Court noted the observations of Sir Owen Dixon in the Melbourne Corporation case when he observed that the net effect of this means:

The position of the federal government is necessarily stronger than that of the States. The Comonwealth is a government to which enumerated powers have been affirmatively granted. The grant carries all that is proper for its full effectuation. Then supremacy is given to the legislative powers of the Commonwealth.

However, the Court has equally confirmed that it cannot spend money for any purpose considered politically desirable – an expenditure must be supported by a constitutional provision.

Following Pape v. Commissioner of Taxation, the 2009 High Court case of ICM Agriculture v.the Commonwealth noted:

It is now settled that the provisions…. of s 81 of the Constitution for establishment of the Consolidated Revenue Fund and in s 83 for Parliamentary appropriation, do not confer a substantive spending power and that the power to expend appropriated moneys must be found elsewhere in the Constitution or the laws of the Commonwealth.

This could put at peril a number of spending programmes in the health, education and housing areas – subject areas where Commonwealth participation cannot be immediately identified in the Constitution.

However, given that the Commonwealth collects the vast majority of taxes they have the power of the purse, with section 96 providing the workaround that permits the Commonwealth to set the agenda in areas not expressly dealt with in the Constitution.

Without going as far as Chief Justice Latham, who said in the First Uniform Tax case that the Commonwealth ‘may properly induce a State to exercise its powers ... by offering a money grant', ICM Agriculture confirmed that the Commonwealth has power to grant financial assistance to any State for any purpose on such terms and conditions as the Parliament thinks fit, provided it didn’t contravene perceived constitutional guarantees relating to religion and on the acquisition of property except on just terms.

These reaffirmations of constitutional doctrine are interesting, given the upcoming publication of the Henry Report, as will be discussed in the next article.

When Should Legislation be Federalised?

2009-10-16T09:45:00.004+11:00

Safe Work Australia has now published an exposure draft of occupational health and safety legislation to be largely adopted by Australian jurisdictions.

It was accompanied by a consultation regulatory impact statement prepared by Access Economics, which proves again that the ‘seamless economy’ agenda is for the big end of town.

As it says in the part of the RIS dealing with impact on businesses:

While dealing with multiple OHS regimes does impose significant costs on a number of businesses, only a small proportion of businesses are affected.

Not only are the vast majority of Australian businesses small, but
the Productivity Commission (2004) estimated that 99% of Australian businesses only operated within one jurisdiction in 1998.

Of the businesses that do operate in multiple jurisdictions, nearly two-thirds (65%) only operate in one other jurisdiction than their home one (ABS, 2007).

Even for large businesses with over 200 employees, the Productivity Commission (2004) reported that the majority (58%) still only operate within one jurisdiction.
However, of the remaining large businesses that operate across jurisdictions, they tend to have operations in around five jurisdictions on average (ABS,2007).

These ratios are somewhat different if weighted by employees. While only 0.3% of businesses have more than 200 employees, according to the Productivity Commission, these businesses accounted for 44% of private sector employment. Because of large businesses’ higher propensity to operate across borders, and large employment share, this means that an estimated 28.5% of private sector workers are employed in businesses that operate in multiple jurisdictions.

Access says in its conclusion:

The costs and benefits of the model Act are small and not readily quantifiable.
The qualitative assessment so far suggests that the model Act is expected to bring medium sized benefits for business, principally in reduced red tape for multi-jurisdiction operations. These will be partially offset by a small increase in adjustment costs…. There will probably be some small safety benefits for workers, with no significant offsetting costs to workers. There will be a small increase in adjustment costs for government (relative to such ongoing costs in the counterfactual); partly offset by some marginal benefits in improved compliance efficiency.

Combining these effects, Access Economics expects that the model Act will confer an overall marginal to small net benefit.

An ‘overall marginal to small net benefit seems a small reason to change the legislative requirements for 99% of the regulated cohort – not to mention the loss of clear political responsibility for the development of OHS law in Australia as it passes from parliaments to an unelected COAG ministerial council.

As various pieces of economic literature have suggested, state level governments within a federation should minimise taxing highly mobile tax bases.

Using similar logic, perhaps there should be a threshold test applied when redesignating responsibilities within the Australian federation so that if the thing being regulated is either fixed in one spot (in particular, anything fixed to the land), or happens at a particular spot (for example, law and order issues, or the provision of services to residents) it is appropriate for legislation to be state or territory based.

However, if it is genuinely something that is mobile - for instance either the trade of goods (particularly consumer goods) capable of easy movement across state borders or the setting of performance standards for such moveable goods - it is more appropriate for national regulation.

This would appear to maximise economic efficiency, without overly forfeiting all the advantages of competitive federalism, or, if in particular if the outcome is government by COAG committee, of democracy itself.

Lawyers Federalise as Occupational Health and Safety Bickers

2009-09-23T15:56:00.007+10:00

There has been movement on two proposed national schemes.

Lawyers will join doctors, plumbers and real estate agents as professions that will operate under one set of rules, following a COAG decision made in February at the request of the Commonwealth.

At a speech in Perth on 17 September, the Attorney-General (Mr McClelland) said:

Australia now operates within a vastly different legal and economic landscape to that under which the present system of legal profession regulation developed.

Australian lawyers and consumers no longer operate in just one State or Territory.

To deliver a seamless national economy we can no longer justify such disparate regulation for just one profession.

If other professions in Australia can be regulated through a simple, unified, national structure there is no reason why the Australian legal profession should be an exception.

A better approach is required if we are to remain successful in the long-term – and given the wide variety of interests involved, we must think creatively about operating together in a Federation.
………

Given the undeniable economic imperative, the collective political will of COAG and good will from all stakeholders, I am sure we will be able to achieve an outcome that will deliver significant tangible benefits to not only the profession, but the Australian community in general.

He inveighed against the fact that consumers, lawyers and firms have to deal with nearly 5,000 pages of regulation, and indicated he hadn’t met one lawyer that has read, let alone digested all of this regulation.

Probably that’s because most practitioners operate in one jurisdiction, and consumers are only concerned about the laws relevant to their state and territory. This is a bit of a straw man, really.

Nevertheless, a National Legal Profession Taskforce has proposed the establishment of a National Legal Services Board – a joint state and territory entity that seems a cross between the proposed National Body anticipated by the IGA for Specified Professions and the National Boards to be established under the national registration and accreditation scheme for health professionals.

The Board would be a single standard-setter for all lawyers in Australia, constituting ‘key experts from differing backgrounds including legal practice, consumer protection (whatever that constitutes!) and the regulation of professions.'

It is to deal with issues relating to admission eligibility, the granting of practising certificates, practising entitlements and conditions, the form and manner in which practise is conducted, complaints handling and discipline,

So they retain their 'relevance', state bodies (including professional bodies) could perhaps be delegated responsibility to determine whether someone was eligible for either admission or a practising certificate.

During his speech, the Attorney said:

In short, in framing new national regulations, we need to keep in mind the experience the average punter has with the system and we need to consider how we can make that better.

A good test is to ask whether lawyers would be willing consumers of legal services.

Currently, I don’t think many would.

Actually, as an ‘average punter’, I don’t think the Australian legal system is operating that badly.

Nevertheless, one set of regulations from a board containing (amongst others) consumer protection experts will undoubtedly change it all.

A national scheme closer to fruition is that dealing with occupational health and safety.

As we noted earlier, WA indicated to the Workplace Ministers Ministerial Council in July that it had problems with penalty levels and right of access granted to unions under the proposed OHS package.

As the Australian reported on 22 September:

Mr Buswell (the WA Treasurer) said he supported elements of the Rudd government's reform agenda, but there was potential for unionists to do backroom deals to change the regulations over time. "Our view is that the changes the commonwealth are trying to implement are not good for Western Australia, not
good for employers nor employees in Western Australia and at this stage we're not going to be supporting it," he said.
"They're changes which we think open us up to a potential where Western Australian occupational safety and health is driven, potentially, by the sorts of backroom meetings and negotiations we've been seeing between the union movement and the government, and that's not good for Western Australia."

As we have also noted earlier, the unions aren’t necessarily thrilled with the proposed OHS package either.

The OHS package is the first real test of how the COAG executive federalism model will have to resolve disputes between stakeholders with clear and legitimate interests to protect. Unfortunately, there is no parliament to break these sort of impass.

It will be interesting to see how this pans out .... and whether the 'collective political will of COAG and good will from all stake holders' will last the distance with the creation of a national legal profession.

Why is crossing the floor such a novelty?

2009-09-14T18:12:00.004+10:00

Senator Judith Troeth recently crossed the floor to vote with the Government in support of their plan to stop charging asylum seekers and immigration detainees for their mandatory detention.

Immigration Minister Chris Evans lauded her for her decision.

On the same day, three ALP MPs endorsed a petition calling on the government to retain the prohibition on parallel importation of books.

It will be interesting to see if they cross the floor should the Government decide to remove the ban.

It is not often that ALP members cross the floor. This is because party rules prevent it.

In particular, Rule 5 says (in part):

d. The Federal Parliamentary Labor Party shall have authority in properly constituted Caucus meetings to make decisions directed towards establishing the collective attitude of the Parliamentary Party to any question or matter in the Federal Parliament, subject to:

i. at all times taking such action which may be possible to implement the Party's Platform and Conference decisions;

ii.on questions or matters which are not subject to National Platform or Conference or Executive decisions, the majority decision of Caucus being binding upon all members in the parliament; and

iii. no attitude being expressed which is contrary to the provisions of the Party Platform or any other decision of National Conference or National Executive

The existence of this rule in particular weakens the role of all Australian parliaments.

In Westminster, party whips divide votes into three categories.

In very trite terms:

a ‘one line whip' tells members what the party line is, however, there is a degree of discretion as to whether the line is followed;

a ‘two line whip’ is a debate in which a member is expected to vote in according to the party line, unless there is a strong conscientious objection; and

a ‘three line whip’ is a debate where the member should simply follow the party line.

However, all that said, there are many circumstances in which members of the House of Commons have 'rebelled' from the Whip and voted against party, notwithstanding the declaration of a three line whip.

Ask yourself: how often do you see an ALP member 'cross the floor' in Parliament? The answer is 'seldom' - and when they do, they are usually disciplined.

In that case, it is hardly surprising that the alternative political grouping becomes as rigidly controlled - if they weren’t, common sense tells you they would never win a parliamentary vote.

There are many circumstances where party discipline means that MPs are voting for a proposal against their better judgement.

The best way to ensure that legislation is appropriate is to ensure that there is a properly functioning parliament with members making decisions according to their conscience and not their party whip.

Matters may very well be assisted if the ALP abolished its rule.

Fifield vs. Abbott: the confused state of the Liberal Party on federalism

2009-09-14T17:59:00.003+10:00

In a recent article for The Punch, Mitch Fifield wrote a copperplate defence of Australia’s federal model.

The principles of Federalism are timeless. Liberals believe in the principle of subsidiarity: that power, where possible, should be located as close as possible to the people so that it is responsive to their demands. Liberals are wary of concentrating power in the hands of a small number of people. Liberals also believe in checks and balances – abolishing or rendering state governments impotent would leave a federal administration’s power virtually unchallenged.

Liberals also believe in competition. States competing for jobs, investment and talent should lead to lower taxes, lighter regulations and more attractive communities to live in.

He had better have a chat with Tony Abbott, who has different views about the issue:

My proposal is not to abolish the states but a referendum to give the national parliament the same authority over them that it's long had over the territories. It's not a bid for more power to Canberra. Rather, it's an attempt to establish clear lines of accountability and responsibility.

The Liberal Party is the erstwhile party of federalism: it certainly is no longer the ‘states rights’ party, as the Howard Government’s use of the corporations power to federalise Australia’s industrial relations laws illustrates.

The Fifield/Abbott discussion is a healthy one to have whilst a party is in opposition.

However, as we have previously discussed the Henry Review will raise the issue of whether Australia should be viewed as a federation or a single market, whilst in our previous article we noted the idea of whether state parliaments have a role in setting standards will be challenged as interested stakeholders challenge one size fits all legislation designed to bring about a ‘seamless economy’.

Both these developments and the fact that Australia is slowly lurching towards a federal election means that the Liberal Party will need to have some view as to how they see the federation operating – perhaps far sooner than they imagine.

The challenge to the seamless economy commences

2009-09-14T17:50:00.003+10:00

The ACTU is commencing a campaign against the harmonised OHS law being developed by Safework Australia on behalf of the Ministerial Council on Workplace Relations.

The Secretary of the ACTU (Mr Lawrence) said ‘the draft legislation was unacceptable and safety standards needed to be ''improved, not reduced in any shape or form''’.

The AMA is equally unhappy with the proposed legislation proposing to introduce a national registration scheme for health professionals, which in its view ‘fails the public interest test’.

These reforms form part of the ‘seamless economy’ agenda, which generally collapses eight laws developed at state or territory level into one law operating throughout Australia.

As we have said earlier:

As a general proposition, the ‘applied model’ of legislation – where one jurisdiction will develop and pass model legislation through its parliament with the remaining states or territories subsequently passing legislation that picks up the model legislation is the favoured way of introducing harmonised
legislation when regulating areas previously the province of states and territories.Whilst nominally capable to amend legislation, state parliaments – including those chambers without government majorities - have typically accepted the national legislation without batting an eyelid, on the grounds that ‘COAG decided’.

The COAG executive federalism model of public administration, in which state parliaments passively pass laws decided by either COAG as a body (or a ministerial council within the COAG structure) is now at an interesting stage of its operation.

This is because the legislation designed to implement the ‘seamless economy’ is now being rolled out - stakeholders are now challenging the merit of the contents of the finalised legislation.

This beggars the question: to which democratically elected body can these stakeholders appeal?

It can hardly be to those legislative chambers where the governments who form COAG have majorities.

So, the interesting thing will be whether the AMA and the ACTUs of the world actively lobby state parliaments for amendments to COAG approved harmonised legislation.

If so, it will be fascinating to see whether those parliamentary chambers where there are government minorities – the Legislative Assemblies of the ACT and the NT, the upper houses of NSW, Victoria, Tasmania and South Australia and both houses of the Western Australian Parliament (if the National Party can be persuaded to side with the ALP on a particular issue) – have the chutzpah to amend COAG legislation – particularly as it could cost their state money.

It will be finally interesting to see what the Liberal Party chooses to do in this situation. In most legislatures, it will be the vote of the Liberals that will determine whether an amendment will pass.

It would therefore be desirable for the Liberal view on the role of COAG and (more generally) the role of state parliaments as standard setters to be clarified. This will be discussed more in the next article.

Unfixing Parliamentary Terms

2009-09-03T22:31:00.004+10:00

John Della Bosca has had a fall.

The Sydney Morning Herald has made a call: Nathan Rees should go to the Governor and just go to the polls.

Many hanker for an early election. However, the presence of a fixed four year terms acts as a barrier.

The concept was introduced into NSW following an agreement between Nick Greiner and the independent members of Legislative Assembly following the 1991 election that produced a hung parliament.

The rationale is explained by Clover Moore, one of the independents who negotiated the agreement, where she says on her website:

My work to reform Parliament led to the current four year fixed terms of State Government, reducing the number of elections and the political manipulation of their timing.

The then government acknowledged the idea was one of a number of:

….changes to the framework of Government in New South Wales to respect a strong Parliament and to ensure the accountability of Executive Government to the Parliament are necessary.

The fixed term concept is now washing through the other Australian jurisdictions.

It strikes me the idea works from a wrong premise.

It presumes Australian Parliaments are strong. They are in fact quite weak. Party discipline is so strong that independent action by MPs is almost unheard of. What the Executive wants, the Executive gets.

For all intents and purposes, under NSW law a successful no confidence motion is necessary to bring about an election.

Short of a schism in the ALP, if the NSW Government really decided to bring an election some government members would have to tactically abstain from the vote.

This could be called the ‘Bundestag solution’.

Germany has the same sort of fixed term provisions as NSW.

In 2005, members of the German government abstained from voting in a confidence motion so that an election could be called following increased dissatisfaction with, and instability within, a coalition of the Social Democrats and the Greens.

However, query whether that would look fair dinkum to either the electorate or (for that matter) the Governor.

After all, the intention of fixed four year terms is to reduce the number of elections and the political manipulation of their timing.

And so, it would appear the NSW Government will be with us until 2011.

Fixed four year terms for a parliament weakened by rigid party discipline is poor public policy.

We do not believe in fixed terms.

There are some occasions where the capacity to call an election is desirable. For instance there could an issue that is so big that it is proper to call an election to decide on whether the policy is a good idea – a ‘back me or sack me’ election.

Alternatively, there could be civil unrest of some nature (like a series of strikes) such that it is appropriate to call a ‘who runs the country’ election.

However, you can’t really identify whether an issue is one of these sorts of issues in advance. Everything turns on the political context of the day.

That is not to deny that there is a legitimate expectation that a government will usually run to term, or that there will be parliamentary leaders who will go to the electorate for cynical political reasons.

However, we think the electorate is smarter than many in the political classes think. Anything that is particularly cynical will be punished. The last Western Australian election is probably case in point.

And in any regard, we don’t think that an exercise in democracy is a bad idea at any time.

We also think that 4 years is too long between elections.

It is probably right that 4 years is the common period for a parliament or elected official.

However, demand in many of these jurisdictions there is a capacity to easily call elections should circumstances arise.

In other circumstances, the electoral system is designed to ensure that the system’s overall electoral mandate remains fresh.

For example, Barack Obama is President of the United States for four years. However, the House of Representatives is elected for two years. One-third of the Senate is elected at the same time as the House of Representatives.

It therefore means that whatever Obama does will receive an electoral test every two years, not every four. Any policy overreach can be punished; proper policy rewarded.

If there is to be fixed terms, then a fixed three year term is probably appropriate.

However, we have always supported the erstwhile Australian system of unfixed three year terms.

We have never accepted the argument that four year terms are necessary because it would be too hard for politicians to implement contentious yet necessary policy reforms because of fear of electoral consequences.

The microeconomic reforms generally described as national competition policy (and now the National Reform Agenda) have led to significant changes to the structure of Australian society – all achieved by governments of different persuasions within a political system with unfixed three year terms.

There is also a case for allowing the upper house to block supply.

The NSW Legislative Council has not had the capacity to block supply since 1933.

However, there may be a case to return this power to the upper house so as to force an unpopular government to an election.

Some will reject this idea because of a wish to avoid the controversy that arose in 1975 following the refusal of supply by the Senate that ultimately led that led to the downfall of the Whitlam Government.

That said, the 1975 election led to the Coalition to win a clear parliamentary majority – however, the controversy surrounding the decision to block supply caused will ensure that an upper house would need to think long and hard before it decided to deny the Executive its appropriation.

No-one would want to have a political environment such as that currently operating in NSW.

Yet this is the unintended consequence of a policy design thought to be a good idea by participants in a hung parliament of nearly 20 years ago.

The policy experiment has failed. It must be reformed. We should go back to the future with unfixed three year elections.

The Henry Review and the Australian Federation - Defining the Debate

2009-09-03T22:25:00.006+10:00

The previous two articles illustrate the two different ways one can view how Australia, as a federation, should function.

As we said in an earlier article:

Many will say …. Australia is an integrated common market, with people and companies commonly undertaking activities across state borders.

Moreover, Australia exists in a globalised world, with the complication of different rules in different states a reason not to come to Australia.

Regulatory difference is nothing more than a mere compliance costs that distort allocative efficiency with no public benefit.

In this case, there to be only one set of rules (usually encapsulated in legislation), preferably made by one legislative body – in our case, the Australian Parliament.

The states would have the role of (effectively) an English county council, concentrating on service provision based on national standards. However, there are alternative arguments.

The (few) supporters of a federal system argue that citizens benefit where there is genuine "competitive federalism" –the idea that different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is "best practice" or face the loss of people and investment.

A similar argument is one holding that States are "incubators of innovation" –a place where different ideas can be tried, with the good ones taken up in the bad ones discarded - and if an idea is really bad, the entire nation doesn’t have to face the consequences.

The contents of the Henry Review means the time is now right for a full political discussion of whether the nation should be viewed as a federation or a single market.

However, the decisions should not be made through the Governor’s Club of COAG.

Whilst a bureaucrat like Henry may see some advantages in going down this route, these massive reforms should be discussed by the elected representatives reflecting the interests of all political interests represented in Australian parliaments – and not just the representatives of the executives that have been drawn from them.

Ideally, early in 2010 there should be a full constitutional convention, drawn from the Australian legislatures in a manner similar to the conventions convened in the 1980’s by the Hawke Government, to fully discuss the issue of what is the role of state government of the 21st century, to flesh out the issues of the structure of the Australian federation.

From there, each of the major political parties should then set out policies that set out the appropriate role of a state in a 21st century federation (including the role of a state parliament) and the role of COAG within the Australian federation.

The winner of the 2010 election should then put their preferred view to another constitutional convention, from which appropriate constitutional amendments (that may not go as far as Tony Abbott is advocating) could be prepared for the consideration of the Australian people.

The Henry Review will be an important reference document as this debate proceeds. It will be interesting to see how the argument will pan out.

The Henry Review and the Federation - a Constitutionalist's View

2009-08-31T14:38:00.006+10:00

The previous article set out parts of a speech given by Ken Henry, the Secretary to the Australian Treasury and chairman of the Future Tax System Review.

Henry looked at the issue of fiscal federalism through the prism of Australia as a single market, with taxes and allocation of responsibilities ‘assigned’ to the appropriate level of government through the operation of an intergovernmental agreement.

Kenneth Wiltshire from the University of Queensland Business School responded to the contents of the speech in the Australian on 24 August.

He said:

If Australia had a unitary system of government, some of (the observations of Henry) might be appropriate. Even then, a tax review ought to begin with the time-honoured principles of taxation, including that taxes should be fair and equitable, efficient, appropriate, certain, non-distorting, easy to administer and transparent. It would also begin by acknowledging that Australia is generally too dependent on direct taxes, which are often higher than our competitors', and that the tax system has too much vertical imbalance in its federal-financial relations.

But Australia is not unitary; it is a federation and any tax review of this kind should begin from the premise that states are sovereign partners. They do not need to be "empowered"; they already have sovereign powers, including in taxation, and they had them before the commonwealth was created.

He went on to say that the units of a federation can have different tax bases that can give rise to diversity, choice and competition – and also different tax rates in different jurisdictions.

Wiltshire then noted:

Henry is correct about two things: (a) the present state tax bases serve to distort economic behaviour by industry and individuals, and (b) the blame game is all about dollars. But both these features are caused by the commonwealth's intrusion into the states' constitutional powers, and the conditions it attaches to the majority of funding it gives to the states. Henry's proposals would exacerbate this situation. Clearly, asking the head of the federal Treasury to design a fiscal framework for the federation is like putting a fox in charge of the chicken coop.

Wiltshire suggests that the States should surrender their rights to the GST and instead recommence levying income tax, with the role of the Commonwealth Grants Commission of ensuring horizontal fiscal equity between the states ‘to ensure that no state is penalised for financial circumstances over which it has no control’ continuing.

He finally said:

Contrary to Henry's recently stated views, this is meant to be a tax review, not an expenditure review. If there is to be any decision about realignment of government functions in the light of the tax arrangements, that should be done by elected representatives of the states, not by bureaucrats. If he is not careful, he will certainly end the blame game between the commonwealth and the states, because all of them will blame him for the ensuing mess.

This all sets up an economist vs. constitutionalist debate on the structure of the Australian federation. My observations are set out in the next article.

The Henry Review and the Australian Federation - an Economist's View

2009-08-31T14:21:00.003+10:00

As we said in a previous article:

….the debate that will follow the Henry Review is probably the right time to realign who does what within the Australian federation, and then determine how those functions should be funded.

The debate has begun.

The head of the Future Tax System Review (Treasury Secretary Ken Henry) gave a speech on taxation reform and fiscal federalism in Sydney on 19 August.

It reveals that the Treasury Secretary is very much an economist as he said:

While it is nearly 20 years since the National Competition Policy reform agenda recognised Australia as a single market, rather than a series of state-based markets, no overarching attempt has been made to integrate the federation’s tax-transfer system into a single national system. While the GST replaced some highly inefficient taxes at both the Commonwealth and State levels, those reforms did not attempt to integrate the federation’s tax system.

My fellow panellists and I are well aware of the significant opportunity that the review provides to articulate a truly integrated, coherent tax-transfer system within the federation. Having said that, we are under no illusion that such a task will be easy. But if Australia is to meet the challenges and make the most of the opportunities of the 21st Century, then the federation’s tax-transfer system also needs a 21st Century architecture.

He is clearly of the view that tax revenue should be centrally collected….

Centralisation would also make it transparent that Australian governments use many taxes to raise revenue from the same tax base. For example, tax is levied on labour income through the personal income tax ($126 billion), payroll tax ($16 billion), fringe benefits tax ($4 billion) and superannuation funds ($12 billion). And there are eight different governments levying payroll tax. It is questionable whether such arrangements are the best way to levy taxes on labour income.

….although this does pose problems in a federation:

The Panel will also be mindful of how raising tax revenue affects incentives on the spending side. In particular, how can the balance between a simpler tax system administered centrally be squared with the need for the States to be accountable by having to raise their own revenue to finance their marginal spending?

One way to deal with the issue is to change the structure of the federation:

I mentioned earlier that the revenue assignment of each level of government is dependent on how we view respective long-term financial needs. And this, in turn, depends on what we think is the appropriate role of each level of government in improving the well-being of Australians. Which government is best
placed to be the financier of government services? Should a particular government be the sole provider of the service, or one provider amongst many?

I do not anticipate that the Panel will be recommending that the
Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role of
government and the available means of addressing disadvantage.

He goes on to say:

This highlights that the nature of fiscal federalism is changing. The financial, informational and institutional advantages of the Commonwealth have seen it assume an increasing role in addressing perceptions of horizontal inequity and as a social insurer against disadvantage. On the other hand, there appears to be at least a tenuous consensus that the States have distinct advantages over the Commonwealth in supplying front line services. They are closer to their own communities and have been doing it for years. Recently, other providers of such
services have emerged; especially in the not-for-profit sector. Social housing services are a case in point. This seems to be a form of ‘good’ competition.

So it is clear that Henry sees some change in the federal structure – to be determined by (another) intergovernmental agreement:

Finally, designing an improved tax-transfer system for the federation is not enough. The Panel is also aware that the implementation and maintenance of a package of reforms is a difficult task in our federation. A new intergovernmental agreement (IGA) would be necessary.
A broad based reform agenda, rather than a series of stand alone reforms, increases the likelihood that the gains from wide ranging reforms can be enjoyed by the community at large – even if some changes might be portrayed as not being in the interests of particular groups of people. By setting out and agreeing these reforms in an IGA, governments will send a strong message to the public that all of the reforms will be delivered. This should provide additional comfort to those who will benefit from future reforms that they will actually be delivered.

As the next article shows, not everybody agrees with this view.

Putting the unions back into government

2009-08-17T15:35:00.005+10:00

The Australian has reported the recent ALP National Conference decided that:

…unions will be appointed to federal government boards,, committees and advisory bodies in a move that will increase their influence over critical national policies.

The decision, negotiated as part of a workforce package by Julia Gillard and senior union leaders at the ALP national conference [on July 31] follows increasing anger at their exclusion from some of the Rudd Government’s key advisory bodies, including the Henry tax review.

The Review of the Corporate Governance of Statutory Authorities and Office Holders, usually called the Uhrig Review was published in 2003.

It is the template guiding how government boards and other administrative structures are established that has been broadly been followed by governments of both persuasions.

Whilst at page 93 of the Review suggests representational appointments are ‘entirely appropriate’ for advisory committees it says at pages 98 - 99:

The review does not support representational appointments to governing boards as representational appointments can fail to produce independent and objective view. There is the potential for these appointments to be primarily concerned with the interests of those they represent, rather than the success of the entity they are responsible for governing. While it is possible to manage conflicts of interest, the preferred position is to not create circumstances where they arise.

At page 100, Uhrig suggests that ‘better practice’ means that:

In getting the best from boards, appropriately experienced directors are critical to good governance

and

Representational appointments to boards have the potential to place the success of the entity at risk.

It would be unfortunate if government boards and committees of inquiry charged to investigate specific policy issues requiring technical expertise were again weighed down with people who are ‘the honourable member’ for a specific sectoral interest.

That runs the risk of decisions made by these bodies being captured by those interests.

The public interest is not served.

This is one decision of the ALP National Conference that requires review.

Tony Abbott sets the battlelines for the federalism debate

2009-08-17T12:41:00.006+10:00

Tony Abbott has written an article in The Australian that confirms his preference for what is effectively unitary government for Australia.

He first expressed this view in his book Battlelines.

In his newspaper article Abbott says:

My proposal is not to abolish the states but a referendum to give the national parliament the same authority over them that it’s long had over the territories. It’s not a bid for more power to Canberra. Rather, it’s an attempt to establish clear lines of accountability and responsibility.

He wants constitutional change so as to permit the Australian Parliament to make laws for the ‘peace, order and good government of the country’ – that is, confer on the national parliament the plenary power to make laws on anything.

Despite what he says, it is a bid for more power to Canberra.

The structure of the Constitution means there are some areas where the Commonwealth cannot legislate. Allowing the Commonwealth Parliament to legislate over any given subject necessarily means the Commonwealth gains power.

A bit of honesty would help debate.

Moreover, even though the travails of the Defence Department chronicled by Malcolm Farr in the Daily Telegraph suggest that not every area of commonwealth administration is an example of perfection, the Australian article gives the clear impression that Abbott thinks that the Feds run things better because, well…. they’re the Feds.

He says:

Similarly, at least since Queensland abolished death duties in the 1970s, there are no discernable examples of good policy adopted by one state and then copied by the others that would render plausible the argument that ‘states area laboratory for policy change’.

Anyone comparing commonwealth government health programs (such as Medicare and the Pharmaceutical Benefits Scheme
delivered by private doctors and pharmacists) with state government ones (such as public hospitals run by giant bureaucracies) would have to conclude that Canberra understands the subsidiarity principle far better than the states.

Taking the last observation first, if you are going to compare things you should compare like with like.

Both Medicare and the PBS are designed from the ground up as subsidy schemes with the intention to reduce the cost of particular goods and services to consumers and no more.

Hospitals provide direct medical services.

It may well be better if public hospitals were privately owned, thus facilitating the creation of a real contestable market in the provision of hospital services.

But comparing the administration of subsidy schemes with the administration of institutions providing services is a false analogy.

That said, there is an absence of modern examples of how the federal system has developed a novel policy development slowly picked up by other jurisdictions.

The development of modern seat belt laws is the usual example trotted out – but that is now nearly 40 years old.

Moreover, as a recent intervention by Queensland Treasurer Andrew Fraser has recently suggested, without own source revenues there are limits to what a state can do as a ‘sovereign’ jurisdiction.

By implication, there is only limited capacity for a state to be a policy ‘laboratory’.

The debate will be assisted if a list of tangible policy initiatives developed in one state and adopted in others can be identified, so a final decision can be made as to whether in the 21st century there are advantages to a genuine federal system, or that in fact Canberra is always right after all.

Pape and Fiscal Federalism

2009-07-15T14:36:00.006+10:00

Having the ability to do things is great if you have the money to do them.

And the States don’t have the dosh to do much.

As Bob Carr has observed, as a result of High Court decisions State Governments have lost the power to (effectively) tax petrol and alcohol – a lot of the capacity for states to raise ‘own source revenue’ has been lost.

The Australian reported a recent appearance of Queensland Treasurer Andrew Fraser at the Toowoomba Chamber of Commerce thusly:

"Without fiscal sovereignty, state sovereignty is illusory," Fraser said, in his unique style. "The sheer imbalance of the fiscal capacities of the states vis-a-vis the commonwealth invites a form of implicit fiscal bullying and tacit mendicancy. It is this dynamic that pervades commonwealth-state financial relations."
……………….
In his speech, Fraser pointed out that, with 45 per cent of all revenues across the states and territories coming from commonwealth grants, his own revenue streams were limited.

"The nature of the state revenue base - dominated as it is by transfer duty, payroll taxes and royalties - is narrow and sectoral," he said. "On the principles of tax design, this is undesirable. The effects of a sectoral decline can quickly tip a state budget in a manner disproportionate to the broader changes in the economic environment."

When all three sectors tip, as has occurred of late in the mining sector, property market, and in employment generally, a state such as Queensland finds itself in huge trouble, now contemplating a budget deficit of more than $3 billion.

The next pivotal part of the play will be the Henry Review of the tax system.

In a speech given on 26 March 2009 review chairman Ken Henry noted that improving the federal structure of the tax transfer system was an one of the important elements of the review.

He said there were three dimensions to this assignment exercise – the level of government responsible for the design of the tax; the level of government responsible for administration and collection of the tax; and the level of government that receives the revenue raised by the tax.

After noting that state and territory level governments should ‘avoid tax bases with high interjurisdictional mobility’ he said:

It is usually the case that whoever controls the policy and administration will also receive the revenue – and it is important that governments have some capacity to alter revenue consistent with their marginal expenditure choices.

But it is also usually the case in federal systems that there is an imbalance between the revenue that each level of government raises and its expenditure requirements. For some taxes, therefore, part or all of the revenue may be given to another level of government.

Then there is the question of how this revenue is distributed among governments at the same level and with what conditions.

There are trade-offs to be made in this three-dimensional assignment task. The more the policy and administration of the tax system is centralised at the national level, the greater the opportunity to develop a less complex and more efficient tax system.

However, centralisation obviously also means that sub-national governments have a greater reliance on revenue from the national government. And this may influence their spending decisions.

So the issue could ultimately boil down to:

1. Should taxes be levied by:

(a) the entity responsible for the expenditure; or

(b) the entity that can most conveniently and efficiently collect the revenue.

And, if the answer is (usually) the feds:

2. How much of a policy say should they have over the way in which the money they have collected is spent.

Following the High Court decision in Pape, the debate that will follow release of the Henry Review is probably the right time to realign who does what within the Australian federation, and then determine how those functions should be funded.

A win of sorts for Federalism - Pape v. Commissioner of Taxation

2009-07-15T14:27:00.005+10:00

On 7 July the High Court handed down a decision called Pape v. Commissioner of Taxation.

In a narrow sense, it decided that the decision to pay the tax bonus to eligible Australians earlier in the year was constitutional.

However, it is a decision that could have significant ramifications on the federal structure.

The Australian Parliament has increasingly appropriated money to directly fund projects and schemes using the so-called executive power of the Commonwealth without regard to whether the thing being funded is relevant to one of the areas for which the Commonwealth has constitutional responsibility.

This proposition did not receive total High Court support.

The general direction of the Court is contained in this paragraph of the joint judgement of Justices Hayne and Kiefel:

In the end the Commonwealth's submissions about the executive and incidental powers came down to the proposition that the Commonwealth's power to spend is limited only by the need to obtain parliamentary approval for the proposed expenditure. That contention should be rejected. The matters of history
described earlier in these reasons do not require its acceptance. Its acceptance would not be consistent with what Mason J referred to as "the broad division of responsibilities between the Commonwealth and the States achieved by the distribution of legislative powers" and would, by "enabling the Commonwealth to carry out within Australia programmes standing outside the acknowledged heads of legislative power merely because these programmes can be conveniently formulated and administered by the national government", effect a radical transformation in what has hitherto been thought to be the constitutional structure of the nation. To hold that the Commonwealth power to spend does not extend so far is consistent with what was decided in the Pharmaceutical Benefits Case and, after the AAP Case, in Davis v The Commonwealth.

Sadly, it will require more litigation to work out with greater certainty what is ‘good’ direct Commonwealth expenditure and what is ‘bad’ direct expenditure, although it would appear that things that are clearly Commonwealth responsibilities will still be okay.

Leaving aside the mechanism of section 96 tied grants, the States could be liable to fund a greater range of activities. Could they even if they wanted to? This is discussed in the next article.

COAG Meets in Darwin and Paul Everingham scrubs the States

2009-07-11T19:01:00.008+10:00

COAG met in Darwin on July 2.

The previous day – Territory Day - the NT News reported comments from the ‘father of Self Government’ Paul Everingham which said that states and territories were a waste of taxpayer money and that the Northern Territory should be run out of Canberra.

He was reported as saying that when self-government for the NT was granted 31 years ago:

‘Back then people were still getting telegrams…but communication has improved. It is the internet age. People can also fly everywhere on relatively cheap airlines'.

This is a more earthy way in expressing something we have mentioned in an earlier article:

Many will say the Seamless Economy Project is good idea - Australia is an integrated common market, with people and companies commonly undertaking activities across state borders.
Moreover, Australia exists in a globalised world, with the complication of different rules in different states a reason not
to come to Australia.Regulatory difference is nothing more than a mere compliance cost that distort allocative efficiency with no public benefit.

The majority of the COAG decisions appear to underline the Everingham view of the world.

Those decisions include:

the development of a national regulatory body for vocational education and training;
the development of a unified national system of child care licensing;
the Coordinator-General mechanisms set up by the Commonwealth to take responsibility for Nation Building programs and projects funded by the Commonwealth and delivered by the States under the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund;
the creation of national regulation for maritime safety, rail safety and heavy vehicles, including the appointment of the Australian Maritime Safety Authority as the national safety regulator for all commercial shipping in Australian waters and a single national heavy vehicle regulator; and
the development of national performance measures for development applications (DA).

Quite a list really for one COAG, really.

And there are other Ministerial Councils working on uniform legislation.

For instance, the Standing Committee of Attorney-Generals (SCAG) is working on the issue of whether there should be a national regulator for the legal profession, as well as on uniform succession laws on administration of estates of deceased persons.

This followed a debate immediately before the Darwin COAG as to whether the Federal Government should take over the administration of the hospitals system.

The time is coming where an overt (rather than a covert) decision should be made as to whether Australia is to be a federation or a unitary nation.

A new Australian Consumer Law

2009-07-11T18:55:00.004+10:00

On 24 June the Government introduced amendments to the Trade Practices Act 1974.

It is the first step towards bringing together 13 consumer (fair trading) laws that operate in Australia within the TPA.

The Bill is called the Trade Practices Amendment (Australian Consumer Law) Bill 2009.

Generally based on Victorian legislation, the most important aspect of the legislation is to create a mechanism to void ‘unfair’ standard form contracts involving ‘an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption’.

It was expected that the reach of this legislation would include business to business transactions.

However, as Consumer Affairs Minister Emerson said in his second reading speech:

The unfair contract terms law reforms were agreed by COAG in October 2008 and were based on the extensive consultation undertaken by the Productivity Commission.

These reforms are based on the extensive practical experience of the Victorian government in implementing and enforcing similar laws.

Since then the government has sought views on both the reforms more generally in February and on an exposure draft of the unfair contract terms provisions in May. In response to these consultations the Treasury received just under 200 submissions from many consumers, businesses and other stakeholders.

The government has also had numerous meetings with key stakeholders about these changes. And I understand that the Treasury has met and spoken with a wide range of people about these provisions.

We have consulted, and we have listened. And this is reflected in the provisions set out in this bill, which differ in key respects from those that the government exposed in May, particularly in respect of the exclusion of business-to-business transactions.

In relation to the question of whether business-to-business contracts—and particularly those involving small businesses—should be included under the unfair contract terms provisions, the government is currently reviewing both the unconscionable conduct provisions of the Trade Practices Act and also the
Franchising Code of Conduct.

It would appear that the Franchise Council of Australia, satisfied with the protection contained in its sector specific legislation (principally the Trade Practices (Industry Codes – Franchising) Regulations 1998, had an excellent lobbying win.

However, smaller businesses who perceive they face unequal bargaining power when seeking goods and services from larger suppliers could feel less sanguine.

Larger businesses will undoubtedly be happy that business to business transactions have been removed from the ambit of the legislation.

However, they could still be concerned that aggressive use of the legislation will remove the certainty that standard form contractual documentation offers the market place.

On 25 June the Senate referred the Bill to the Senate Economics Committee for report by 7 September.

The closing date for submissions is 31 July.

As the Minister said in his second reading speech:

The government has also indicated its intention that this bill should be referred to a senate committee, and this issue will—no doubt—be further considered as part of that process.

No doubt.

It is finally noted that COAG signed off on an Intergovermental Agreement to underpin a uniform Australian Consumer Law at its Darwin meeting on 2 July.

Harmonising Australia's OH&S law - the next step

2009-07-11T18:45:00.004+10:00

On 10 June the new Safe Work Australia Council held its first meeting.

One of the first things it was charged with was to give effect to the decisions of the Workplace Relations Ministerial Council (the WMRC) made on 18 May 2009 as to how model occupational health and safety legislation should be framed, following consideration of the two volume National Review Into Model Occupational Health and Safety Laws prepared by a committee chaired by Robin Stewart-Compton.

It decided it would release the model occupational health and safety legislation (and accompanying regulatory impact statement) during September.

The legislation is broadly based on the Victorian model.

The general test for liability will be whether it is ‘reasonably practicable’ to avoid a hazard in a particular workplace.

However, there is no longer a concept of ‘employers’ having duties to ‘employees’.

Indeed, the objective is to move away from the traditional emphasis on the employment relationship when working out whether a duty of care is owed; rather, the intention is to provide greater health and safety protection for all persons involved in, or affected by, work activity.

Company officers will be have a duty to exercise ‘due diligence’ to ensure that workplace hazards are reduced or removed.

The new legislation will also capture independent contractors as well as people working from home.

One significant change is the expansion of the duty of care imposed by OHS legislation owed by a business to anyone who is ‘in or adjacent to’ a workplace.

Whilst the Ministerial Council did say in its consideration of the Stewart-Compton report:

Care needs to be taken during drafting to ensure that the scope of the duty is limited to matters of occupational health and safety and does not further extend into areas of public safety not related to the workplace activity

this will be a tricky drafting job.

Done poorly, it could impact broadly on the general law relating to occupiers liability and negligence.

It remains open how uniform OH&S legislation will be.

As we have remarked earlier, paragraph 5.1.8 of the COAG agreement on OHS reform says:

The adoption and implementation of model OHS legislation is not intended to prevent jurisdictions from enacting or otherwise giving effect to additional provisions, provided these do not materially affect the operation of the model legislation, for example, by providing for a consultative mechanism within a jurisdiction.

And as we remarked earlier:

And so in this case legislation will be uniform – unless it isn’t.

As part of the WMRC decision, unions will not be able to commence prosecutions, and prosecutors must prove OHS offences beyond reasonable doubt – the Council expressly voted down the current position in NSW – making union stakeholders quite cross.

WA declined to sign the communiqué as they were unhappy about the use of conciliation to resolve OHS issues, the low standard of proof for workplace discrimination claims, union right of entry to workplaces and the level of gaol terms.

It remains a question how much of the national model each jurisdiction takes into its own law, although it is noted that uniform OHS laws are one of those things for which states and territories receive ‘reward payments’ under the National Partnership to Deliver a Seamless Economy.

So money may ultimately speak in favour of uniformity.

National Registration of Health Professionals - the next step

2009-07-11T18:33:00.005+10:00

In a previous article we noted that a national scheme for the regulation of health professionals was being developed.

We said:

An intergovernmental agreement (IGA) to establish a scheme of national registration for health professionals was signed on 26March 2008.It is designed to establish a single national registration and accreditation scheme for the nine currently regulated medical professions ranging from doctors to osteopaths.

We also noted:

To allow the national scheme to commence on time (1 July 2010), the Queensland Parliament has passed the Health Practitioner Regulation (Administrative Arrangements) National Law Act 2008,which establishes the a single registration board for each of the nine professions as well as an Australian Health Practitioner Regulation Agency as (effectively) a company under Queensland law, that will support the various boards.

However, the finer details of the scheme are still being developed.

Another piece of legislation now being developed will fill these in.
It is intended to introduce the relevant Bill into the Queensland Parliament before the end of the year.
However, there is concern as to what sort of parliamentary oversight the Agency will be subject to once it commences operation – it is nominally an entity created by the Queensland Parliament, but exercises legal powers in all Australian states and territories.
There is also concern that the Australian Health Ministers Council rather than specialist professional boards can make the standards that health practitioners must meet – instruments not subject to parliamentary disallowance by any legislature. (UPDATE: the new legislation (discussed below) vests the making of accreditation standards with national registration boards)
It would appear that this issue in particular will not be subject to change because it is a structure that has been decided by COAG.

That said, the Senate Community Affairs Committee has decided to inquire into the proposed national registration scheme.The timing is a bit odd – well after the IGA that set the ball rolling, but only just before a draft of the proposed Bill setting out the nuts and bolts of the national scheme is released.

However, it is nevertheless a review.

The exposure draft of the legislation designed to introduce a national scheme of registration for health information (called the Health Practitioner Regulation National Law) has now been released, with the Committee (thankfully) extending its report date 16 August, so comments on the legislation can be taken.

One of criticisms we have with the executive federalism model of developing regulations (encapsulated by the COAG process) is the absence of parliamentary oversight of subordinate regulatory instruments made under the scheme.

Unlike its interim predecessor, the proposed final law allows for parliamentary disallowance of regulations.

This is good, but disallowance is not extended to registration standards, accreditation standards and codes of practice that go to who can (or cannot) practise as a health professional as well the guts of the detail as to how the professions will be regulated.

The issue of the level parliamentary oversight in the COAG regulatory model still requires to be worked through – hopefully this is where the working through will happen.

Harmonised occupational regulations for specified occupations - the next step

2009-07-11T18:15:00.011+10:00

On 30 April COAG signed the Intergovernmental Agreement for a National Licensing System for Specified Occupations.

The national system will regulate a mish-mash of occupational areas.

The nominated occupation areas are: air conditioning and refrigeration mechanics;, building and building related occupations; electrical; land transport (passenger vehicle and dangerous good drivers); maritime; plumbing and gasfitting; and property agents.

As expected, COAG followed the advice of the decision regulatory impact statement and adopted a ‘national delegated agency’ model of licensing.

A national licensing board will head a national licensing body charged to develop national licensing policy.

This will enable the body to develop rules in areas including licence eligibility and maintenance requirements, licence classes, compliance and enforcement standards, disciplinary arrangements and licence fees.

The body will be aided by specific occupational licence advisory committees, who will provide ‘the principal source of advice’ on licensing policy.

Existing jurisdictional regulators will be expected to continue performing current registration/enforcement functions.

Victoria is the host jurisdiction for the proposed legislation. Other states will pick up the Victorian law by reference.

It is proposed to expose a draft of the proposed legislation in October with a view of introducing legislation into the Victorian Parliament in the second quarter of 2010.

It is an interesting licensing model.

Decision makers framing the laws governing what a particular trade can or can't do should have some background in the area so what is done is both workable and appropriate.

The National Licensing Board (which presumably will make rules such as licence standards) will constitute an independent chairman and up to eight other people, including two ‘regulators’ appointed on a rotating basis.

It is difficult to see how such a board (or the bureaucracy that supports it) would have the capacity to have a genuine understanding of, and thus make optimal regulations for, sparkies and realos and some classes of truckies….and air conditioner mechanics (amongst others).

One imagines the specialist subcommittees will be the real decision makers.

That is probably why the IGA requires a representative of the committee to ‘attend the board meeting to discuss (the measure to be enacted)’.

The proposed national legislation will need close examination to see whether this structure is genuinely workable.

To that extent, now that a host jurisdiction has been identified (Victoria), it is hoped that the parliament of that state will establish some form of committee structure to test the quality of the policy – and not just assess something against how well the wishes of an unelected COAG council has been given effect.

This includes appropriate measures to allow parliamentary scrutiny of rules that will govern who can enter the various trades and professions, and how they will be subsequently regulated.

The Seamless Economy Regulatory Project - Some Reforms

2009-04-16T19:55:00.006+10:00

This series of articles illustrate that the manner by which Australian legislation is made is changing.

The articles show that whilst some consultation is undertaken at the margins, in many circumstances once something forms part of an intergovernmental agreement (an IGA) or is contained in a COAG resolution, it is next to cast in stone.

This leads to an undesirable democracy deficit.

A parliamentary process allowing the review of decisions emanating from the COAG process should be formalised.

In June 2008 the House of Representatives Standing Committee on Legal and Constitutional Affairs published a paper discussing constitutional reform.

The sole recommendation contained in the paper is that intergovernmental agreements should be automatically referred to a parliamentary committee for scrutiny and report to the Parliament.

This idea should be adopted.

It should also apply to draft bills that flow from an IGA.

IGAs and draft bills should also be referred to relevant committees of state and territory parliaments such as the Western Australian Uniform Legislation and Statutes Review Committee.

There should also be some capacity to permit parliamentary review where some COAG recognised body such as a Ministerial Council can make rules and regulations having the full force of law, such as the capacity to make standards for the national scheme for health professionals referred to in an earlier article in this series.

Thus, if a parliament of a participating jurisdiction disallows a subordinate instrument made by a ministerial council within the period of time that state or territory law permits the disallowance of subordinate instruments, the instument should be taken not to be in force anywhere in Australia.

In this way, the interests of all stakeholders can be heard, better legislation developed and the protections of a federal system of government retained whilst allowing the development of harmonised regulations that are seen as necessary to allow the Seamless Economy to efficiently function.

Decision makers in companies and industry associations will have to establish strategies to ensure their interests are protected as the new regulations underpinning the Seamless Economy develop.

The Seamless Economy Regulatory Project and Democracy Deficit Part 2

2009-04-16T18:53:00.007+10:00

There are some signs that state parliaments may be commencing to assert their sovereignty over rule by COAG.

The Queensland Scrutiny of Legislation Committee considered the Health Practitioner Regulation (Administrative Arrangements) National Law Bill 2008, which established the framework to allow for the national scheme of registration for health professionals to commence.

It said:

It is the committee’s practice to draw to the attention of the Parliament any provisions of a bill which are to give effect to national scheme legislation. The committee, in common with the legislative scrutiny committees of the Parliaments of other Australian States and the Commonwealth, has identified concerns that elements of intergovernmental legislative schemes might undermine the institution of Parliament. The committees’ concerns relate to the potential for the executive to formulate, manage and possibly alter such schemes to the exclusion of legislatures. The committee has also warned against a perception of a reduced need for legislative scrutiny of an intergovernmental agreement proposed for ratification.

……

In The Constitutional Systems of the Australian States and Territories, Professor Gerard Carney provides a summary of concerns regarding the legislative scrutiny of national scheme legislation:

A risk of many Commonwealth and State cooperative schemes is ‘executive federalism’; that is, the executive branches formulate and manage these schemes to the exclusion of the legislatures. While many schemes require legislative approval, the opportunity for adequate legislative scrutiny is often lacking, with considerable executive pressure to merely ratify the scheme without question.
Thereafter, in an extreme case, the power to amend the scheme may even rest entirely with a joint executive authority. Other instances of concern include,for example, where a government lacks the authority to respond to or the capacity to distance itself from the actions of a joint Commonwealth and State regulatory authority. Public scrutiny is also hampered when the details of such schemes are not made publicly available. For these reasons, a recurring criticism, at least since the Report of the Coombs Royal Commission in 1977, is the tendency of cooperative arrangements to undermine the principle of responsible government. A further concern is the availability of judicial review in respect of the decisions and actions of these joint authorities.

Certainly, political responsibility must still be taken by each government for both joining and remaining in the cooperative
scheme. Some blurring of accountability is an inevitable disadvantage of cooperation – a disadvantage usually outweighed by the advantages of entering this scheme. But greater scrutiny is possible by an enhanced and investigative
role for all Commonwealth, State and territory legislatures.

Drawing from some specific criticisms made by the Committee, the Queensland Opposition said this when debating the Bill:

From the outset, it is important to note that there is broad support for national registration for health practitioners. Again, I repeat that there is broad support for national registration for the health professions.

There is overwhelming consensus of the need for consistently high standards and portability of registration of health practitioners across Australia. However, the problem lies with the national law that will establish an unaccountable political institution that will not only control and influence what health practitioners are taught but also how to treat and help sick people while following orders from politicians and bureaucrats without reproach.
The bill before this House is a sugar-coated toxic blend of important and required reform for a national health practitioner registration scheme with an accreditation and training proposal that threatens Australia’s envied position as having one of the best and most comprehensive professional standards of training and practice for our medical practitioners.

There is a need for a greater capacity for public involvement in the development of the regulatory structure of the Seamless Economy evolves is required. This is dealt with in the final article of this series.

The Seamless Economy Regulatory Project and Democracy Deficit Part 1

2009-04-16T18:45:00.009+10:00

As a general proposition, the ‘applied model’ of legislation – where one jurisdiction will develop and pass model legislation through its parliament with the remaining states or territories subsequently passing legislation that picks up the model legislation is the favoured way of introducing harmonised legislation when regulating areas previously the province of states and territories.

Whilst nominally capable to amend legislation, state parliaments – including those chambers without government majorities - have typically accepted the national legislation without batting an eyelid, on the grounds that ‘COAG decided’.

This system can give rise to what can be called a ‘democracy deficit’, as can be seen in this example.

During 2008 the Australian Parliaments considered the Australian Gas Law, which instituted a single law for the Australian natural gas market.

South Australia was the lead jurisdiction. The Greens wanted to move an amendment to the legislation in the Legislative Council.

However, as the Greens Member said:

We are going through the motions here. We are able to ask some questions; I guess there is a democratic exercise there but, in terms of amendments, the pressure is very much on legislators here not to propose or to accept any amendments. Really, if we were honest, we are not the lead legislative jurisdiction; we are not the lead legislator: we are the lead rubber stamp. I think that is an outrageous way to pass laws in this country. Having got that off that my chest, I will move my amendments when we get to them.

As an Opposition member (and former Minister) explained:

The only other point I would make is that I doubt very much whether minister Conlon and indeed probably all the other ministers at the moment actually understand the legislation that is going through the council. It is actually only being driven by hard-working and very competent officers who work on this
as their livelihood, and the point that the Hon. Mr Holloway made is almost entirely accurate.

It is certainly my experience that, in trying to debate some of these issues as they were, not in relation to national gas but national electricity, and have a debate with some ministers in the past, they had no comprehension at all of the details of the legislation. Ministers get a summary brief from their office which says 'here is what has been arrived at. These are the major issues.'

The Green member continued:

There were no meritorious reasons that these ought not be accepted. However, as the Hon. Rob Lucas says, we are all in a difficult position, because our various executives have got together and decided what our laws should be, and here we are effectively being invited to rubber-stamp them.

Whilst supportive of uniform national approaches, I for one am not prepared to be a rubber stamp to the extent that I turn my back on sensible amendments that incorporate into our legislation recognised environmental and social principles. It just makes sense that we do it, and I do not think that it undermines the uniform national legislation.

In the ACT Legislative Assembly, when discussing the same legislation, the Green member said:

The reform or harmonisation of the national electricity market, as agreed at COAG's Ministerial Council on Energy meetings, has been happening steadily in the background without much, if any, input by state and territory governments.

Especially now that Australia has Labor governments across all states and federally, an ever-increasing number of decisions are being made at COAG level, meaning that decisions are not subject to the usual scrutiny that parliaments would otherwise have.

This means that these decisions can be made by ministers and their advisers without any public or stakeholder input and without any community consultation; we should be satisfied if they take external views into account at all. It seems that COAG is the new government that counts. It is appointed by premiers and chief ministers, not elected by people.

She also said:

Given the process through which this legislation has been developed, it is a farce to even discuss the matter here in this chamber. The agreements have already been made at the ministerial council level; even though the states and territories are going through the motions of debating the bill in each place, in actual fact the bill that just passed in South Australia is the only one that counts.

A colleague in South Australia, Mark Parnell, put some amendments forward which would take social and environmental aspects into account. However, these were defeated by the two major parties as there was significant pressure there in South Australia not to make any changes at all. Mr Parnell is concerned that the South Australian government is not the lead legislator but the lead rubber stamp for the energy reforms.

She concluded:

Due to the ambulatory forces, whenever South Australia amends its schedules, our legislation is automatically updated. This puts a lot of pressure on our minister for energy, the Chief Minister, to be alert and fully engaged in the COAG processes, where ultimately all decisions about our energy markets are decided—not here in the Assembly. It also leaves the Chief Minister with the responsibility for informing the rest of the Assembly when there are significant updates, as the schedules are inbuilt and not disallowable or even notifiable.

Thus, up until now it has been the case that ‘COAG says’. However as the next article shows, this could be changing.

The Seamless Economy Project - Is it a Good Idea?

2009-04-16T18:42:00.005+10:00

The previous four articles illustrate how the regulations are made in an Australia with a seamless economy.

Many will say the Seamless Economy Project is good idea - Australia is an integrated common market, with people and companies commonly undertaking activities across state borders.

Moreover, Australia exists in a globalised world, with the complication of different rules in different states a reason not to come to Australia.

Regulatory difference is nothing more than a mere compliance costs that distort allocative efficiency with no public benefit.

In this case, there to be only one set of rules (usually encapsulated in legislation), preferably made by one legislative body – in our case, the Australian Parliament.

The states would have the role of (effectively) an English county council, concentrating on service provision based on national standards.

However, there are alternative arguments.

The (few) supporters of a federal system argue that citizens benefit where there is genuine "competitive federalism" –the idea that different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is "best practice" or face the loss of people and investment.

A similar argument is one holding that States are "incubators of innovation" –a place where different ideas can be tried, with the good ones taken up in the bad ones discarded - and if an idea is really bad, the entire nation doesn’t have to face the consequences.

To that extent, it is noted that in February 2009 the Standing Committee of Officials on Consumer Affairs have developed a discussion paper An Australian Consumer Law – Confident Consumers to assist in the development of a single national consumer law that will generally replace state based fair trading legislation.

Part III of the paper is entitled Consumer Law Reforms Based on Best Practice in Existing State and Territory Laws.

The Paper identifies a number of areas where activities (such as door to door sales, or lay-bys) are regulated in different ways (or not at all) and then asks for comments on what is ‘best practice’.

By definition, a single Australian consumer law would preclude this capacity to trial different forms of legislation.

Another danger is the development of a ‘democracy deficit’. This is discussed in the next article.

The Seamless Economy Regulatory Project - an Australian Consumer Law

2009-04-16T18:11:00.010+10:00

On 2 October 2008, COAG adopted a recommendation from the Australian Council of Consumer Affairs Ministers to implement a national consumer law, based on the consumer provisions of the Trade Practices Act 1974.

The proposal is for current state based fair trading legislation to be replaced by agreed amendments to the Trade Practices Act, which will be picked up by state legislatures through the applied law model.

State based fair trading law will largely be repealed, with significant responsibility for consumer protection vested in the ACCC.

A discussion paper has been released seeking a degree of input into the structure of the IGA.

However, the input sought is limited. As pages 1 and 2 of the Discussion Paper says:

The purpose of this information and discussion paper is to:

Explain how the national consumer law will be developed; and

Explain the nature and scope of COAG's agreed reforms to create the national consumer law, and, in some limited circumstances, seek views on specific aspects of those reforms.

For example, COAG has decided that the law will provide consumers relief from an ‘unfair contracts’ contained within standard form contracts such as hire purchase agreements.

The ‘unfair contract’ provision proposed to be used is drawn from the law currently in force in Victoria.

The Discussion Paper seeks comment on whether small businesses should also be able to get relief from ‘unfair’ standard form agreements. However, relief from other forms of ‘unfair contracts’ appear to be ruled out because COAG has so decided.

That would appear to (notionally, at least) close off consideration of some of the recommendations of the Senate Standing Committee on Economics relating to relief from ‘unfair contracts’.

At page 49 of a report dealing generally with the unconscionable conduct provisions contained in Part IVA of the Trade Practices Act, non-government senators said:

We (the non government Senators) believe that the current Victorian legislative framework for dealing with unfair contract terms in consumer transactions should be extended to cover business to business relationships involving small business.

It will be interesting to see if the COAG decision will mean that it will be argued that this recommendation can’t be considered – simply because COAG has considered the matter and has made a decision.

The question of whether uniform legislation through the COAG process is a good idea or not is discussed in the next few articles.

The Seamless Economy Regulatory Project - National Licensing for Specifed Occupations

2009-04-16T17:51:00.007+10:00

COAG has decided to harmonise the regulation of a number of trades and professions.

So as to improve efficiency and labour mobility, it is proposed to remove overlapping and inconsistent occupational licensing regulations.

The list of affected trades and professions is an eclectic one, constituting air conditioning and refrigeration mechanics, building and building-related tradesmen, electricians, land transport passenger vehicle and dangerous goods drivers, participants in the maritime industry, plumbers and gasfitters and property agents.

A regulatory impact statement (RIS) was prepared seeking comment on a number of issues.

However, as page 15 of the RIS makes clear, irrespective of comments received from stakeholders, it is proposed that a single national body will be responsible for ‘setting licence policy and a framework for operations’.

As with the registration of health professionals, there is no indication as to:

1. which parliament would have specific oversight of the single national body; and

2. whether it is anticipated that there is any parliamentary involvement in the development of ‘licence policy’.

COAG will sign an Intergovernmental Agreement (IGA) which will reflect the agreement between jurisdictions as to how the various trades and professions will be regulated at the proposed meeting on 30 April.

The next article looks at the development of a single Australian consumer law.

The Seamless Economy Regulatory Project - Occupational Health and Safety

2009-04-16T17:19:00.009+10:00

On 3 July 2008 an intergovernmental agreement (IGA) was signed, which records a COAG agreement to introduce harmonised occupational health and safety laws.

It is proposed to implement harmonised OHS laws through the model legislation method, where a model principal Act supported by model OHS regulations and model codes of practice will be prepared.

Each jurisdiction would then give effect to the laws in as uniform a manner possible after having regard to the drafting protocols in each jurisdiction.

Unlike other national schemes, this agreement anticipates a capacity for some differences between states and territories.

Paragraph 5.1.8 of the Agreement says:

The adoption and implementation of model OHS legislation is not intended to prevent jurisdictions from enacting or otherwise giving effect to additional provisions, provided these do not materially affect the operation of the model legislation, for example, by providing for a consultative mechanism within a jurisdiction.

And so, in this case legislation will be uniform….unless it isn’t.

The Workforce Ministers Ministerial Council have agreed to resolve outstanding policy issues by May 2009, prior to the publication of an exposure draft in August.

There is no particular indication as to what policy issues are ‘outstanding’ between the jurisdictions.

The next article looks at the proposed national licensing scheme for specified professions.

The Seamless Economy Regulatory Project - National Registration of Health Professionals

2009-04-16T16:54:00.014+10:00

An intergovernmental agreement (IGA) to establish a scheme of national registration for health professionals was signed on 26 March 2008.

It is designed to establish a single national registration and accreditation scheme for the nine currently regulated medical professions ranging from doctors to osteopaths.

The intention is to establish a scheme of national registration so health professionals can practise across State and Territory borders without having to re-register.

The national registration and accreditation scheme has at its apex the Australian Health Minister’s Council, assisted by an independent Australian Health Workforce Advisory Council.

A national agency is to provide assistance and guidance to the nine profession-specific boards, who will (amongst other things) make decisions relating to the registration of health professionals.

The scheme is to be implemented using the applied law model.

Queensland is the lead jurisdiction.

To allow the national scheme to commence on time (1 July 2010), the Queensland Parliament has passed the Health Practitioner Regulation (Administrative Arrangements) National Law Act 2008,which establishes the a single registration board for each of the nine professions as well as an Australian Health Practitioner Regulation Agency as (effectively) a company under Queensland law, that will support the various boards.

However, the finer details of the scheme are still being developed. Another piece of legislation now being developed will fill these in. It is intended to introduce the relevant Bill into the Queensland Parliament before the end of the year.

There has been significant consultation about various elements of the scheme.

However, there is concern as to what sort of parliamentary oversight the Agency will be subject to once it commences operation – it is nominally an entity created by the Queensland Parliament, but exercises legal powers in all Australian states and territories.

There is also concern that the Australian Health Ministers Council rather than specialist professional boards can make the standards that health practitioners must meet – instruments not subject to parliamentary disallowance by any legislature.

It would appear that this issue in particular will not be subject to change because it is a structure that has been decided by COAG.

That said, the Senate Community Affairs Committee has decided to inquire into the proposed national registration scheme.

The timing is a bit odd – well after the IGA that set the ball rolling, but only just before a draft of the proposed Bill setting out the nuts and bolts of the national scheme is released.

However, it is nevertheless a review.

The next article discusses the proposed harmonisation of occupational health and safety legislation.

The Seamless Economy Regulatory Project - How Regulations are Developed

2009-04-16T16:36:00.008+10:00

In 21st century Australia, regulations identified for reform as part of the Seamless Economy agenda are made in this way.

An area for reform is identified by either COAG or one of its working groups.

In most (although not all) circumstances, the most appropriate of the 31 ministerial councils and committees will develop an intergovernmental agreement, which forms in effect the drafting instructions for the national legislation.

The Agreement is then usually put to COAG for ratification.

A process is then put in place to develop the harmonised legislation identified in the agreement.

One of three legislative models is usually used to capture the policy agreed by the participants in the COAG process:

1. the 'applied law' model – where one jurisdiction passes a 'template law, and the others adopt that law as a law of the jurisdiction;

2. the'national model legislation' model - where legislation is essentially the same, but allows for some jurisdictional variation; or

3. the 'reference' model – giving the Commonwealth the power to legislate in the relevant area, with the States leaving the field. This was the option taken for non-bank deposit making institutions as part of the Seamless Economy process.

Varying levels of public participation are offered in the IGA/legislation formulation process.

Ultimately, harmonised legislation is produced, with the product going to the relevant legislature(s) for passage.

The next four articles discuss how the harmonised legislation process of some of the identified regulatory hot spots are developing.

The Seamless Economy Regulatory Project - the Commonwealth Buy In

2009-04-16T15:59:00.009+10:00

A National Partnership Agreement to Deliver a Seamless National Economy has been signed to encourage the development of the seamless economy.

It is part of an Intergovernmental Agreement on Federal Financial Arrangements, which aims to:

reduc(e) the costs of regulation and enhancing productivity and workforce mobility in areas of shared Commonwealth, State and Territory responsibility

through:

deliver(ing) more consistent regulation across jurisdictions and address unnecessary or poorly designed regulation, to reduce excessive compliance costs on business, restrictions on competition and distortions in the allocation of resources in the economy.

The areas where harmonisation was regarded as being desirable are listed in paragraph 21 of the Agreement.

The paragraph also says:

The States and Territories will have responsibility to work together, and for many specific reforms to work jointly with the Commonwealth, to implement a coordinated national approach….

Paragraph 22 continues:

The states and territories will also have shared responsibility with the Commonwealth for regulatory reform.

Finally, the ultimate Commonwealth weapon: there are ‘reward components’ payable under the National Partnership Agreement by the Commonwealth to states and territories in two tranches from 2011-12, with paragraph 32 of the agreement providing:

The Commonwealth will provide reward payments to the States and Territories following CRC (COAG Reform Council) advice as to the achievement of key milestones, as set out in the Implementation Plan for the 27 deregulation priorities.

So there is a significant Commonwealth buy-in of areas of traditional state responsibility.

The article discusses how regulations develop in the seamless economy.

The Seamless Economy Regulatory Project - Overview

2009-04-16T12:24:00.014+10:00

On 15 May 2008, Brendan Nelson made his one and only Address in Reply to the Budget as Opposition leader.

One issued raised was the condition of the Australian federation.

He said:

It is very important for every one of us to ask ourselves in this the 21st century: how can we make the Federation work more effectively for our country in the interest of Australians? It will require all of us, in a mature and sober way, to examine the constitutional arrangements and responsibilities of the three tiers of government—who is responsible for what, how the money is raised and then how it is distributed.

However, those who are interested in the debate will have to hurry, or it will be too late - Australia will effectively be a unitary state.

Writing in The Australian on 10 June 2008, the federal Minister for Finance and Deregulation Lindsay Tanner said:

Across Australia there is recognition that our federation is a mess. We have this system because of how we started: a collection of separate entities, joined together to form a federation. In the intervening period, technological change and an increasingly global economy have transformed Australia in ways our colonial forebears could not have imagined.

He went on to say:

I no longer think that abolition of the states is the most practical or desirable reform option. But I do want to create a much clearer delineation of the roles and responsibilities of the different levels of government.

This is the prevailing view amongst Australian public policy makers.

In March 2008, the Council of Australian Government (COAG)

identified 27 areas where there was need for regulatory reform.

It called for the Commonwealth to take responsibility for non-bank lending institutions.

Other areas where harmonisation was considered desirable include occupational health and safety, environmental assessment and approvals, payroll tax, electronic conveyancing, licensing of tradespeople, registration of health professionals, rail safety, consumer law, a national construction code to ensure consistency in on-site building and plumbing regulation, maritime safety regulation and wine labelling –areas largely the responsibility of states and territories.

Progress in implementing the Seamless Economy agenda is tracked by COAG’s Business Regulation and Competition Workgroup.

The Commonwealth now has an additional weapon to drive the process, as will be discussed in the next article.