The government’s Reform of the Federation White Paper process is now in full swing. With the Green Paper due soon and the White Paper possibly by the end of the year, this post offers two contributions to the debate. The first is to analyse the role that the principle of subsidiarity might usefully play in federalism reform. Second, informed by the principle, and against the background of a generally pessimistic historical record, I will identify certain necessary conditions for fundamental and effective federalism reform that can be gleaned from comparative experience.
1. The Principle of Subsidiarity
For some time now, the principle of subsidiarity has figured prominently in discussion of the reform of Australia’s federal system. The Reform of the Federation White Paper documents identify subsidiarity, along with several other principles, as providing crucial guidance for how Australia’s federal system can best be reformed. In those documents subsidiarity is defined as the principle that government functions ‘should be performed by the lowest level of government competent to do so effectively’.
Subsidiarity is a very worthy principle. A higher authority does not show respect for a particular group of people if it intervenes in their affairs by doing for them what they can already do for themselves. The principle of subsidiarity acknowledges that people are best able to participate in their own self-government at a local level, for individuals have a greater prospect of democratic participation when governments are not too large and not too distant from them. The principle of subsidiarity recognises that when localities, regions or states have primary responsibility for regulating their own affairs, political competition encourages each local or state government to provide public goods in accord with local preferences and needs as efficiently and effectively as possible. Subsidiarity also enables localities and states to undertake policy experimentation: under such conditions, policy successes are likely to be emulated, while policy failures will be confined to particular jurisdictions.
The principle of subsidiarity also affirms that there are benefits in having a federal layer of government. This is because there is a temptation for local jurisdictions to free ride on public goods provided by other jurisdictions (for example, defence), to tax activities the benefits of which are enjoyed in other jurisdictions (for example, protectionism), and to under-regulate activities the costs of which are borne by other jurisdictions (for example, pollution). Local and state governments may also lack resources, capacity or expertise to address certain issues. According to the principle of subsidiarity, federal governments are sometimes better situated to address such issues by virtue of their larger resources, economies of scale, and the like. There are also some issues on which uniformity of regulation and maintenance of common standards may be beneficial.
A note of caution about subsidiarity
Nonetheless, we have to be careful about what we mean by subsidiarity. This is because the principle, as usually formulated, assumes that there is a hierarchy between two or more levels of government. Some orders of government are ‘higher’ and some are ‘lower’. The principle of subsidiarity correctly places the onus of proof on those who would defend the transfer of particular responsibilities from a lower to a higher level of government. In order to justify such a transfer of functions they must show that those responsibilities can more effectively be performed by the higher level of government. However, when put this way the principle of subsidiarity still conceives the relationship between the two levels government as hierarchical. One level of government is higher than, and therefore superior to, the other.
Thinking about federalism in terms of a hierarchy is highly problematic. Federations are best understood, not as hierarchies, but as matrices in which each order of government fulfils certain functions, some of them exclusive to a particular government, some of them shared among the governments. When it comes to the reform of the Australian federal system, the really important question concerns, not merely what responsibilities are to be performed by each order of government, but also who will decide the question. Is it from the point of view of the lower levels of government, the higher level of government, or the federal system as a whole? Who will decide for whom?
The Australian federal system is not hierarchical. It is true that under s 109 of the Constitution, when there is an inconsistency between a Commonwealth law and a State law, the Commonwealth law will prevail. But the Commonwealth’s power to make laws is limited by those powers set out in ss 51 and 52 of the Constitution and cannot be increased simply because the Commonwealth thinks this should occur. For such a change to occur, either the States must voluntarily refer powers to the Commonwealth (under s 51(xxxvii) of the Constitution) or a majority of the people—of the Commonwealth and the States—must give their approval in a referendum pursuant to the procedure in s 128. The reason for this is that Australia is a federation founded upon a covenant among the peoples of the Australian States and the people and governments of the States, together with the Commonwealth, remain in control of its fundamental features and constitutional destiny.
Refining the principle of subsidiarity for the Australian federation
On this view, the principle of subsidiarity should be understood as embodying a principle of non-centralisation rather than decentralisation. The Australian federal system is not one of devolution of responsibilities from the Commonwealth to the States, but the other way round. Accordingly, the standpoint from which allocations of responsibility should be assessed ought to incorporate the perspectives of the States, and the Commonwealth, as equal partners. Federal systems are too complex for responsibility for their reform to be controlled by the Commonwealth alone or the States alone.
As far as intergovernmental relations are concerned, only the States and Territories understand adequately well the performance of their many and varied governing functions under their respective constitutions. Only the Commonwealth understands adequately well the problems of coordinating its own operations with those of the States and the Territories in the context of the federal system as a whole. And only the people and citizens understand adequately well the impact of government policies on their daily lives, bearing in mind the many and varied ways the people organise themselves, as individuals, as associations, as corporations, and so on. The reform of the Australian federal system needs to be understood as a collaborative enterprise among all stakeholders.
The Federalism White Paper Processes
Do the White Paper processes envisage sufficiently inclusive and well-structured deliberation, debate and negotiation between the Commonwealth and the States as active and equal participants? The publicly available documents indicate a process involving four very broad elements. First, the terms of reference were developed by the Commonwealth in collaboration with the States and the Territories. Second, the process is being overseen by a steering committee comprising the secretaries and chief executives of the Prime Minister’s Department, the Premiers’ and First Ministers’ departments and the Australian Local Government Association. Third, the White Paper is being developed by a task force established by the Department of Prime Minister and Cabinet and will present the Commonwealth’s position on the issues raised by the terms of reference. Fourth, the White Paper will be developed with extensive consultation with business, non-government experts, and the community, with the Prime Minister’s Business Advisory Council playing a key advisory role.
Is this a recipe for success? Much will depend, not only on the principles, but also on the processes that shape the deliberation, discussion and debate.
2. Successful federalism reform processes
Here a comparison with other federations that have recently reformed their systems of governance is instructive. These other federations face much the same problems as we do, although their severity differs from one country to another.
In 2008 Switzerland implemented a comprehensive reform of its federal system involving major readjustment of intergovernmental fiscal relations and extensive reallocation of responsibilities between the federation and the cantons. The issues addressed were similar to those encountered in Australia, as was the scope and ambition of the reform. Switzerland has a similarly structured referendum requirement for formal amendment of the Constitution, so its experience is especially relevant to Australia. Although the reform was complex and far-reaching, it was approved by 65 per cent of the population and 23 of the 26 cantons. Around the same time, Germany and Austria also engaged in ambitious reform processes but these, especially the Austrian attempt, were much less successful.
Conditions for successful federalism reform
Several studies have analysed the reasons for the difference, and they suggest that successful reform is most likely to occur when the following conditions exist.
First, the time horizon must be adequate. The Swiss reform took some 14 years to be completed, whereas the Austrians tried, unsuccessfully, to secure a very ambitious set of reforms within the space of only 18 months. In Switzerland, there was a persistent commitment to the reform process, effectively led by the federal government, engaged in by the cantons as equal partners in the deliberations, and held together by Switzerland’s consensus-oriented politics, where the overall balance of party-political power at each level of government is relatively stable. Here, in Australia, politics is much more oppositional and polarised, alternating periodically from one government to another. Is it realistic to expect that in Australia we can reform the federation within a relatively short period of time, that is, within the life of a particular government? If, as is likely, more time is necessary, will successive governments (at a state and federal level) be willing to continue a process begun and shaped by their political opponents? Will they be able to build on what occurred before, or will they always want to ‘start anew’?
Second, the process must be structured in a way that encourages consensus and agreement. Happily, the Issues Papers prepared for the Australian White Paper suggest an engagement of the Commonwealth, the States, the Territories and local government in a shared project in which each makes a significant contribution. There also appears to be a willingness of the Commonwealth to recognise that it has dominated the States in various ways and that this is not necessarily a good thing. However, it is difficult to be sure about how much the States, the Territories and local government are actively shaping the process. Former NSW Premier Nick Greiner has expressed concern that the process ‘is being run by the federal bureaucracy, principally through the Prime Minister’s department’. It is also a good thing that the Council of Australian Governments (COAG) is playing a key role. COAG has the potential to be a venue within which genuine deliberation and negotiation occurs. However, this will only be the case if the Commonwealth resists the temptation to overbear the States by threatening them with financial consequences.
Third, the process must be structured in a way that encourages consensus and agreement. In Switzerland, the deliberative process was structured so that the parties first agreed upon general principles and broad theoretical perspectives, and only then turned to the negotiation of particular distributional consequences. Happily, the documents prepared for the Australian White Paper process open up discussion about the principles, values and theories that should shape and guide the reform. However, they also very quickly turn to questions of specific implementation. Indeed, the questions raised in the Issues Papers are overwhelmingly mechanical questions in the sense that they seek particular suggestions for how the principles, values and goals on the reform can be practically implemented. We are a pragmatic people, but is this pragmatism premature?
Australia’s poor record in these matters may make us pessimistic about whether the current process will achieve much. If fundamental and effective federalism reform is to occur, it is necessary for the Commonwealth, State, Territory and local governments to commit themselves to an open-ended process of deliberation the ultimate results of which they cannot predict or control with certainty. Australian politics needs to transcend the game, at least enough to rewrite the rules to achieve better outcomes for all concerned. The question is whether our politics can overcome its tendency to polarising partisanship in order to secure long-term benefits for the federation as a whole.
Nicholas Aroney is a Professor of Constitutional Law and Australian Research Council Future Fellow, School of Law, University of Queensland.
A fuller version of this paper is available at: http://ssrn.com/abstract=2604783. The paper was first presented at the Australian Attorney-General’s Department Constitutional Law Symposium, Canberra, 1 May 2015. The support of ARC grant FT100100469 is gratefully acknowledged.
Suggested citation: Nicholas Aroney, ‘Federalism Reform: Pathways and Obstacles’ on AUSPUBLAW (16 June 2015) <https://auspublaw.org/2015/06/federalism-reform-pathways-and-obstacles/>
 Daniel J. Elazar, Exploring Federalism (University of Alabama Press, 1987) 64.
 Nathalie Behnke, ‘Towards a New Organization of Federal States? – Lessons from the Processes of Constitutional Reform in Germany, Austria, and Switzerland’, Polis Nr. 66/2009 (Institut für Politikwissenschaft, FernUniversität in Hagen, 2009); Dietmar Braun, ‘Constitutional Change in Switzerland’ (2009) 39(2) Publius: The Journal of Federalism 314; Manuel Fischer, Pascal Sciarini and Denise Traber, ‘The Silent Reform of Swiss Federalism: The New Constitutional Articles on Education’ (2010) 16 Swiss Political Science Review 747; Arthur Benz and Felix Knüpling (eds), Changing Federal Constitutions: Lessons from International Comparison (Barbara Budrich Publishers, 2012); Fabio Cappelletti, Manuel Fischer and Pascal Sciarini, ‘‘Let’s Talk Cash’: Cantons’ Interests and the Reform of Swiss Federalism’ (2013) 24(1) Regional & Federal Studies 1.