Research Paper no. 36 2008–09
Does the Commonwealth have constitutional power to take over
the administration of public hospitals?
Sharon Scully
30 June 2009
Contents
-
Executive Summary
- The funding and administration of public hospitals is an
enduring area of controversy in Australian politics.
- In recent years, the idea of a Commonwealth takeover of public
hospitals has been floated at different times by both major
political parties.
- Prior to the 2007 federal election, the Labor Party made the
commitment that, should it be elected to government, it would seek
a mandate from the public at the following election for the
Commonwealth to ‘assume full funding responsibilities’
for public hospitals if the states and territories have not begun
to engage in national health reform by mid 2009.
- However, more recently, the Federal Government appears to be
backing away from a complete takeover of public hospitals. The
Minister for Health and Ageing, Nicola Roxon, has stated that the
Federal Government has always preferred the idea of working with
the states rather than a complete takeover of public hospitals. She
has also said that the Federal Government would examine the
recommendations of the National Health and Hospitals Reform
Commission at the end of June 2009 before deciding what action to
take.
- This continues to raise the question of whether the
Commonwealth would have constitutional power to take over and
regulate the administration of public hospitals.
- This research paper finds that, despite the absence of an
explicit public hospitals power in section 51 of the Constitution,
several factors may enable the Commonwealth to do so; in
particular, the continuing fiscal dominance of the Federal
Government.
|
Introduction
This research paper addresses the
question of whether the Commonwealth has the constitutional power
to take over and regulate the administration of public hospitals
(with or without the agreement of state governments).
There is a complex division of responsibility for health care
services in Australia, with many types of providers and a range of
funding and regulatory mechanisms. Generally speaking, in the area
of public hospitals, although the states and Commonwealth are
jointly responsible for funding public hospitals, the states are
responsible for administering public hospitals.[1] This division of responsibilities
has created the potential for federal-state tensions with cost
shifting between the different levels of government and frequent
claims of blame shifting and buck passing.[2]
As a consequence of federal-state tensions, as well as
increasing pressure on hospitals from rising demand, an ageing
population, the increasing cost of medical care and high profile
cases of systemic failure (such as the Jayant Patel case in
Queensland[3] and the
Jana Horska case in Sydney[4]), public hospital reform has well and truly been on the
political agenda. In this context, various political leaders and
commentators have argued that the Commonwealth should take over
public hospitals from the states. From the Commonwealth
perspective, the former Health Minister, Tony Abbott, floated the
idea of a Commonwealth takeover of public hospitals in 2004 before
subsequently arguing that major reform was neither possible nor
desirable.[5] Prior
to the federal election in November 2007, the then Leader of the
Opposition, Kevin Rudd, announced that he would seek to reform the
public hospital system to the effect that:
if by the middle of 2009 the State and
Territory (sic) have not begun implementing a national reform plan,
a Rudd Labor Government will seek a mandate from the Australian
people at the following election for the Commonwealth to assume
full funding responsibility for the nation s public hospitals
...[6]
The phrase assume full funding responsibility for the nation s
public hospitals suggests various scenarios in which the
Commonwealth may seek to take over public hospitals, for example,
by:
- simply providing all funding, without actual acquisition of
property
- providing all funding and regulation, without any actual
acquisition of property or
- a complete takeover, including acquisition of property.[7]
While it is noted that the Federal Government has more recently
expressed its preference to work in co-operation with the states,
rather than to take over public hospitals entirely, it has,
arguably, left the door open for future consideration of a public
hospital takeover.[8]
Consequently, the question of whether the Commonwealth would have
constitutional power to take over and regulate the administration
of public hospitals remains one to be addressed.
In the absence of an explicit public hospitals power in the
Constitution, an examination of several powers in the Constitution,
as well as the High Court s tendency in more recent times to give a
broad interpretation of the Constitution, suggests that there are
various constitutional powers that may support the Commonwealth s
takeover and regulation of public hospital administration in each
scenario.[9]
Federalism has been defined as:
a system of governance which provides for
action by a national or central government for certain common
functions together with independent actions by sub-national units
of government, with each level of government accountable to its own
electorate.[10]
Essential features of a federal system are:
- a minimum of two levels of government national and state (or
provincial) governments
- independent action by each level of government and
- functions and powers assigned to each level of
government.[11]
Australia s federal system reflects these essential features and
consists of:
- the Commonwealth
- state governments and territory governments (with state-like
powers) and
- local government authorities.[12]
However, only the federal and state governments are mentioned in
the Constitution.
The Commonwealth s legislative powers are generally limited to
matters contained in the text of the Constitution.[13] Notably, that there is no
explicit power in the Constitution for the Commonwealth to make
laws regarding public hospitals.
There are only a few matters for which the Commonwealth has
exclusive legislative power. These are:
- determining rates of customs and excise duties
- national defence and
- legislation for the territories and Commonwealth public
service.[14]
Most Commonwealth legislative powers are concurrent; that is,
shared between the federal and state governments.[15] If a state law is inconsistent
with a valid federal law, the federal law prevails to the extent of
the inconsistency.[16]
The Constitution does not specify matters about which the states
can make laws the states powers to make laws are residuary.[17]
At this point, it is worth noting that the Constitution does
allow the states to refer their powers to the Commonwealth.[18] However, this research
paper is concerned with situations where the Commonwealth may take
over the administration of public hospitals in the absence of such
referral of power or agreement by the states.
The Australian Labor Party s (ALP s) pre-election plans
regarding public hospitals, as mentioned above, are outlined in it
s pre-election policy statement New Directions For Australian
Health and involve the following.[19]
First, a Rudd Labor Government
will invest $2 billion in a National Health and Hospitals Reform
Plan to provide assistance for immediate reforms to reduce blame
and cost shifting and improve health services for Australians.
...
It will
include additional funding to state and territory governments if
they achieve agreed reform milestones similar to the system of
competition policy payments designed to reward those States that
improve their performance. This will introduce a significant change
and incentive to our health system rewarding states and territories
for reforms based on improved health outcomes not simply
inputs.
Second, within the first one
hundred days of its election, a Federal Labor Government, through
COAG, will establish a National Health and Hospitals Reform
Commission to develop a long-term health reform plan for the
nation.
Third, if by the middle of
2009 the State and Territory (sic) have not begun implementing a
national reform plan, a Rudd Labor Government will seek a mandate
from the Australian people at the following election for the
Commonwealth to assume full funding responsibility for the nation s
public hospitals.[20]
It is noted that the Labor Party did state, as part of its
policy statement, [u]nder Labor s proposal, no public hospitals
would be managed directly from Canberra. [21]
As one of the first steps in implementing its pre-election
promises, the Rudd Government established the National Health and
Hospitals Reform Commission (the Commission) on 25 February
2008[22] with the
aim to develop a national blueprint for health reform.[23] On 16 February 2009,
the Commission released its interim report, which contained several
policy proposals for health care services reform.[24]
In addition, the Council of Australian Governments (COAG) met
several times during 2008 and focused on several issues, one of
which was health.[25] At the COAG meeting on 29 November 2008, agreement was
reached on several points relating to health, including:
- the Commonwealth would provide funding of $64.4 billion dollars
over five years for state health systems[26]
- health reform, including a new Intergovernmental Agreement
(IGA),[27]
accompanied by a rationalisation of the number of SPPs to
states[28] and
- a new National Partnership Payment, funding specific projects
and encouraging state governments to deliver on
nationally-significant reforms .[29]
Following the Commission s final report in mid 2009, COAG will
consider additional health reform for the longer term.[30]
Mersey Hospital
The Mersey Hospital in Devonport is a fairly recent example of
the Federal Government assuming ownership of a public hospital,
albeit with the Tasmanian Government s co-operation.[31]
In August 2007, John Howard, then Prime Minister, spoke in terms
of Commonwealth intervention by way of underwriting a
community-based proposal to keep the Mersey Hospital running, after
the Tasmanian Government decided to downgrade hospital
services.[32]
Following the ALP s election in November 2007, the new Federal
Government took over the Mersey Hosipital. However, it continued to
be managed and operated by the Tasmanian Government as licensee,
under an agreement signed by both governments on 27 August 2008
(the 2008 Agreement).[33]
Under the 2008 Agreement, which varied the agreement proposed by
the Howard Government, the Federal Government agreed to pay up to
$180 million over three years to the Tasmanian Government to
continue providing existing services, including:
a High Dependency Unit, a 24-hour emergency
service, medical and surgical services (both day surgery and in
patient), low-risk obstetric services, low-risk inpatient
paediatrics, and low complexity inpatient acute medical
services.[34]
Commonwealth funding also provided for expanding services,
including: renal dialysis, more elective surgery, a regional
rehabilitation unit for the North West, and transition care for
older patients .[35]
Regardless of original events under the Howard government, the
Mersey Community Hospital, as it now operates, involves a situation
where the Federal Government owns and funds the hospital with the
Tasmanian Government having resumed managing and operating the
hospital since 1 September 2008.[36]
As outlined above, there could be various possible scenarios in
which the Federal Government would seek to regulate the
administration of public hospitals.[37]
First, the Federal Government may simply provide all the funding
for public hospitals, without any acquisition of property (Scenario
1). In this case, the states would continue to own and administer
the public hospitals, with the Commonwealth allocating funds to the
states with conditions on such matters as priorities and
performance standards.[38]
Second, the Federal Government may provide all funding and
administer public hospitals without any acquisition of property
(Scenario 2). In this case, the states would still own the public
hospitals but the Federal Government may employ the staff and
oversee the administration of the public hospitals itself or,
possibly, do this by setting up regional boards. This would have
the effect of the state retaining ownership of such matters as
public hospital property and equipment, and the Federal Government
being a tenant providing health care services.
Third, the Federal Government may seek to completely take over
public hospitals, including acquiring property (Scenario 3). In
this case, the Federal Government would acquire hospital property,
employ staff, take over the day-to-day administration of the public
hospitals, as well as becoming liable for all debts, contracts and
other obligations associated with the running of public
hospitals.
Regardless of the type of scenario, the ALP s policy position
had been that:
- any plan by the Federal Government to regulate the
administration of public hospitals would only be implemented as the
last resort of an overall plan to reform health services and
- any such takeover would involve preserving local interests and
needs in the provision of health services.[39]
Arguably, this policy position has been
strengthened in light of the Health Minister s recent comments that
the Federal Government would prefer to work co-operatively with the
states.[40]
Referendums aside,[41] each of the possible scenarios raises the question of
would the Commonwealth have constitutional power to take over and
regulate the administration of public hospitals to the extent
necessary in each scenario?
As previously noted, there is no explicit power in the
Constitution for the Commonwealth to make laws regarding public
hospitals.
Other likely powers that will be explored in
this research paper include:
- trade and commerce[42]
- corporations[43]
- external affairs[44]
- the provision of maternity allowances, widows' pensions, child
endowment, unemployment, pharmaceutical, sickness and hospital
benefits, medical and dental services (but not so as to authorise
any form of civil conscription), benefits to students and family
allowances[45]
- quarantine[46]
- powers associated with the acquisition of places by the
Commonwealth for public purposes[47]
- appropriations[48] and
- financial assistance.[49]
According to section 51 of the Constitution, the Commonwealth
may make laws regarding Trade and commerce with other countries,
and among the States.
The trade and commerce[50] power allows the Commonwealth to
enact legislation regulating interstate and overseas trade.[51] However, it is
important to note that this power is limited in that the
Commonwealth must not discriminate or adversely affect intrastate
trade,[52] nor give
preference to one state over another state (or parts
thereof).[53]
It has been argued that an example of how the trade and commerce
power has been used in health was the application of both
Commonwealth regulations and state legislation in the slaughter of
stock for export.[54] In the Noarlunga case, Fullagar J stated:
It is true that the Commonwealth possesses no
specific power with respect to slaughter-houses. But it is
undeniable that the power with respect to trade and commerce with
other countries includes a power to make provision for the
condition and quality of meat or of any other commodity to be
exported. Nor can the power, in my opinion, be held to stop there.
By virtue of that power all matters which may affect beneficially
or adversely the export trade of Australia in any commodity
produced or manufactured in Australia must be the legitimate
concern of the Commonwealth How far back the Commonwealth may
constitutionally go is a question which need not now be considered,
and which must in any case depend on the particular circumstances
attending the production or manufacture of particular commodities.
But I would think it safe to say that the power of the Commonwealth
extended to the supervision and control of all acts or processes
which can be identified as being done or carried out for
export.[55]
However, it may be difficult to argue that the provision of
public health services at a hospital, with no intention to charge a
fee for service, would constitute interstate (or overseas) trade
and commerce, thereby attracting this power. Obviously, in some
cases, there may be an interstate element to an arrangement for
instance the provision of in vitro fertilisation services or other
specialist medical services which could constitute a form of trade
or commerce.
According to section 51 of the Constitution, the Commonwealth
may make laws relating to Foreign corporations, and trading or
financial corporations formed within the limits of the
Commonwealth.
A relatively recent and seminal High Court case
involving the corporations power was the WorkChoices case,
in which the High Court determined that the Commonwealth has power
to regulate the industrial rights and obligations of constitutional
companies.[56] In
the WorkChoices case, the majority of the High Court
approved of Gaudron J s statement in Re Pacific Coal Pty. Ltd.;
Ex parte Construction, Forestry, Mining and Energy Union, in
which her Honour stated:
I have no doubt that the power conferred by
s 51(xx) of the Constitution extends to the regulation of the
activities, functions, relationships and the business of a
corporation described in that sub-section, the creation of rights,
and privileges belonging to such a corporation, the imposition of
obligations on it and, in respect of those matters, to the
regulation of the conduct of those through whom it acts, its
employees and shareholders and, also, the regulation of those whose
conduct is or is capable of affecting its activities, functions,
relationships or business.[57]
The effect of the majority decision on hospitals
was discussed by Kirby J, albeit in dissent, who stated:
The States, correctly in my view, pointed to
the potential of the Commonwealth's argument, if upheld, radically
to reduce the application of State laws in many fields that, for
more than a century, have been the subject of the States' principal
governmental activities. Such fields include education ...
Likewise, in healthcare, where hospitals (public and private),
clinics, hospices, pathology providers and medical practices are,
or may readily become, incorporated.[58]
Gaudron J s comments indicate that a public hospital would have
to be a foreign, trading or financial corporation for the
corporations power to apply. It is noted that some public hospitals
are, in fact, incorporated bodies.[59] Examples are:
- South Coast District Hospital, Victor Harbour (South
Australia)[60]
- Inglewood and Districts Health Service (Victoria)[61]
- Bass Coast Regional Health (Victoria)[62] and
- Kyneton District Health Service (Victoria).[63]
However, the question of what type of body
constitutes a constitutional corporation was not conclusively
determined by the High Court in the WorkChoices
case.[64] This is
an important question as it affects the ambit of the corporations
power. The test that the courts have used in distinguishing between
a trading or financial corporation has been to determine a
corporation s character by reference to its activities.[65] In other words, a
trading corporation engages in trading activities and a financial
corporation engages in financial activities.[66]
However, it is not always clear to what extent a
corporation must engage in a particular type of activity in order
for the corporation s character to be ascertained.[67] For the purposes of this
research paper, it is assumed that public hospitals would not
generally be involved in financial activities and, as the paper is
only concerned with public hospitals in Australia, it is not
concerned with whether public hospitals are foreign corporations.
Consequently, this research paper will focus on whether public
hospitals could be regarded as trading corporations, thereby
falling within the scope of the corporations power.
In Adamson s case, Mason J stated:
Not every corporation which is engaged in
trading activity is a trading corporation. The trading activity of
a corporation may be so slight and so incidental to some other
principal activity, viz. religion or education in the case of a
church or school, that it could not be described as a trading
corporation. Whether the trading activities of a particular
corporation are sufficient to warrant its being characterized as a
trading corporation is very much a question of fact and
degree.[68]
Arguably, the exact same words could be applied
to hospitals and health, in place of religion or education
.[69]
According to Mason J, also in Adamson s
case:
"Trading corporation" is not and never has been
a term of art or one having a special legal meaning. Nor, as the
Chief Justice pointed out, was there a generally accepted
definition of the expression in the nineteenth century. Essentially
it is a description or label given to a corporation when its
trading activities form a sufficiently significant proportion of
its overall activities as to merit its description as a trading
corporation. [70]
Murphy J also stated:
A trading corporation may also be a sporting,
religious, or governmental body. As long as the trading is not
insubstantial, the fact that trading is incidental to other
activities does not prevent it being a trading corporation.[71]
There is also Federal Court authority (albeit somewhat dated)
that public hospitals can in fact be trading corporations.[72] In E v Australian
Red Cross Society, Wilcox J stated:
It seems to me that the critical question is
the nature of The Prince Alfred Hospital's activities at the
relevant time. Accepting that its predominant activity was the
provision of medical and surgical care to patients, they were not
objectives antithetical to the notion of trade. Many trading
corporations supply services rather than goods. Many privately
owned hospitals provide medical and surgical care for reward with
the purpose of thereby trading profitably. There was nothing in the
intrinsic nature of The Prince Alfred Hospital's activities to
disqualify it as a trading corporation.[73]
At this point, it is important to note that his Honour thought:
It does not matter that the corporation was incorporated by statute
and publicly-owned. [74]
For those public hospitals that are incorporated and could be
considered to be trading corporations, the corporations power would
assist the Federal Government to take over those hospitals.[75] Else, the corporations
power would be unlikely to assist.[76]
Until the particular question of whether public hospitals could
be regarded as trading corporations is definitively addressed by
the High Court, the possibility of the corporations power being a
source of Commonwealth power to take over and regulate the
administration of public hospitals remains speculative at best.
Section 51(xxix) of the Constitution provides that the
Commonwealth may make laws relating to external affairs.
Members of the High Court have held that the scope of this power
extends to:[77]
- matters or things geographically situated outside
Australia[78]
- Australia s relationships with other countries and
international organisations[79]
- in some cases, matters of international concern[80] and
- implementing treaty obligations.[81]
It is important to note that although section 61
of the Constitution empowers the Executive to ratify international
treaties and that, once a treaty has been ratified, Australia is
bound at international law to observe the terms of a treaty, the
treaty does not become directly enforceable in Australian domestic
law unless and until legislative action is taken to implement it.
In addition, when using the external affairs power, the
Commonwealth would not be able to legislate to simply give effect
to the Federal Government s own policies the legislation
implementing the treaty must be reasonably and appropriately
adapted to the purpose of the instrument.[82]
The external affairs power does have other limits,
including:
- entry into a treaty must be done on a bona fide basis and
- there are limits on the extent to which this power can be used
to undermine express or implied constitutional prohibitions on the
Commonwealth s legislative power.[83]
The precise scope of the external affairs power remains
uncertain, but it would be unlikely that this power, in itself,
would support the Commonwealth taking over the administration of
public hospitals in Australia. However, used in conjunction with
other powers under section 51 of the Constitution, the external
affairs power may support aspects of such a takeover in relation to
implementing treaty obligations and legislating on matters
affecting Australia s relations with other countries and
international organisations.[84]
Section
51(xxiiiA) of the Constitution provides that the Commonwealth can
pass laws for the peace, order and good government of the
Commonwealth with respect to:
The provision of maternity allowances, widows
pensions, child endowment, unemployment, pharmaceutical, sickness
and hospital benefits, medical and dental services (but not so as
to authorize any form of civil conscription), benefits to students
and family allowances.
This power was one of the few successful amendments to the
Constitution since Federation. As previously noted, it was made in
1946 during the term of the Chifley Labor Government and
specifically refers to medical services.[85]
In British Medical Association v Commonwealth,[86] Chief Justice Latham
observed:
The power is not a power to make laws with
respect to, e.g. pharmaceutical benefits and medical services. It
is a power to make laws with respect to the provision of such
benefits and services. A power to make laws with respect to medical
services might well be held to be a power which would authorize a
law providing for the complete control of medical services rendered
by any person to any other person and so would enable the
legislature to control the practice of the medical profession
completely or to such less extent as Parliament might think
proper.
If, as I think should be held, it is the case
that the constitutional provision contained in par. (xxiiiA.)
relates only to the provision of certain benefits by the
Commonwealth, it follows that under this legislative power the
Commonwealth Parliament could not prevent the provision of such
benefits by any other agency, and therefore, for example, could not
prevent the States, through their hospitals or otherwise, supplying
benefits either identical with or different from those which were
included within the Commonwealth scheme , as long as the Federal
and State statutes, each positively providing for such benefits,
were not inconsistent with each other.[87]
Importantly, it is further stated:
the Act does not in any way assume Commonwealth
control of State institutions such as hospitals &c. It only
offers to them an opportunity of coming into the Commonwealth
scheme if they think fit.[88]
It is important to note that Latham CJ s statements were made in
1949 and the High Court s position on constitutional
interpretation, favouring expansion of federal power, has evolved
since that time.[89]
It has been argued that, in relation to medical services:
The Commonwealth is not obliged to provide the
services itself. It can (as it mostly has done) make payments
directly or indirectly to medical practitioners, pharmacists and
nursing homes that provide the services under a
Commonwealth-sponsored program, like Medicare. Regulatory control
can then be imposed upon those bodies as a condition of receiving a
Commonwealth payment ...[90]
This power is limited in that civil conscription in relation to
the provision of medical services is prohibited.[91] It has been argued that civil
conscription generally involves compulsion on a medical
practitioner in relation to the provision of medical
services.[92]
While there continues to be no High Court authority specifically
addressing the question of whether this power would support the
Federal Government taking over the administration of public
hospitals, section 51(xxiiiA) of the Constitution remains a
potentially important source of Commonwealth constitutional power
in relation to this issue as public hospitals, which, arguably, may
be established by the Commonwealth under the auspice of the
reference to medical services.[93] This power would be particularly relevant to
Scenarios 2 and 3, in that it would enable the Federal Government
to regulate public hospital services by setting up and
administering its own public hospital scheme, which the state-run
public hospitals may join if they so choose.
Section 51(ix) of the Constitution provides that the
Commonwealth can pass laws for the peace, order and good government
of the Commonwealth with respect to quarantine.
The quarantine power has primarily been relied upon in the area
of public health.[94] Public health ranges from the regulation of disease
prevention to the regulation of tobacco and alcohol.[95]
The scope of this power remains uncertain.[96] However, the legislative
definition of quarantine includes:
- the examination, exclusion, detention, observation,
segregation, isolation, protection, treatment and regulation of
vessels, installations, human beings, animals, plants or other
goods or things; or
- the seizure and destruction of animals, plants, or other goods
or things; or
- the destruction of premises comprising buildings or other
structures when treatment of these premises is not practicable; and
- having as their object the prevention or control of the
introduction, establishment or spread of diseases or pests that
will or could cause significant damage to human beings, animals,
plants, other aspects of the environment or economic
activities.[97]
While it is conceivable that the quarantine power may support
particular aspects of the Commonwealth taking over the
administration of public hospitals, such as infection control and
therapeutic medicines in Scenario 3, it would be necessary to also
rely on other heads of power.[98]
There are several other provisions in section 51 of the
Constitution, which may be relevant to the exercise of some of
those powers discussed above.
Section 51(xxxix) of the Constitution provides that the
Commonwealth may make laws that are incidental to executing any of
the powers vested in the Commonwealth.
The incidental power effectively assists in the practical
implementation of each constitutional power vested in the
Commonwealth under section 51.
Section 51 of the Constitution provides that the Commonwealth
make laws with respect to: the acquisition of property on just
terms from any State or person for any purpose in respect of which
the Parliament has power to make laws .
It is important to note that this power to acquire property is
restricted to those purposes in respect of which the Commonwealth
has constitutional power to make laws. In addition, the
Commonwealth must compensate people, whose property has been
acquired by the Commonwealth, on just terms.[99]
Acquisition of property in section 51(xxxi) of the Constitution
has been expansively construed by the High Court.[100]
Using its constitutional powers, the
Commonwealth Parliament has enacted legislation governing the
acquisition of land and interests in land by the Commonwealth the
Lands Acquisition Act 1989. There are provisions in this
Act that set out procedures relating to the acquisition of land by
agreement and by compulsory acquisition.
Assuming that the Commonwealth does have power to make laws in
respect of public hospital services where the Federal Government
acquires a public hospital, including such items as properties;
chattels; interests in contracts; and debts related to that public
hospital, the effect of section 51(xxxi) is that the Federal
Government would have to compensate the state governments on just
terms for those acquisitions.[101] However, the problem of how to value such
property is raised, particularly given the large number of public
hospitals involved. It is expected that acquisition of all public
hospitals would be financially unattractive for the Commonwealth
and that the pursuit of co-operation with the states would be far
more appealing.
On the one hand, it is arguable that section 52(i) of the
Constitution may assist the Commonwealth to take over public
hospitals as places acquired by the Commonwealth for public
purposes.[102]
It has been stated by some judges of the High Court that places
acquired by the Commonwealth refers to places over which the
Commonwealth has some kind of proprietary right through
acquisition,[103]
as opposed to territories surrendered or otherwise acquired under
sections 111 and 122 of the Constitution respectively.[104]
Notably, the term public purposes has been regarded as
encompassing a general and broad scope, not necessarily confined to
those purposes for which the Commonwealth has power to make
laws.[105]
Section 52(i), though uncertain, has been said to apply to laws
that restrict and control the use to which such places are
put.[106]
However, on the other hand, it is important to note that section
52(i) of the Constitution simply gives the Commonwealth power to
make laws in relation to places already acquired by the
Commonwealth for public purposes. Therefore, this provision assumes
that the Commonwealth has already acquired such places under other
provisions in the Constitution that confer acquisitions power onto
the Commonwealth, such as section 51(xxxi), which itself relies on
the application of other powers conferred under section 51.
While section 52 has been referred to in this research paper for
the sake of completeness, it is noted that the law relating to the
scope of this section remains somewhat dated and relatively
unexplored. It is uncertain whether this power would be of use to a
Federal Government interested in taking over public hospitals.
During the first 20 years after Federation, the High Court
interpreted the Constitution in such a way as to limit Commonwealth
power and protect the role of the states through the doctrines of
intergovernmental immunities and reserved powers
respectively.[107] It is argued that after the first 20 years following
Federation, decisions of the High Court have largely favoured the
Commonwealth, contributing to the significant expansion of the
Commonwealth s jurisdiction.[108]
The Engineers case[109] has been widely regarded as pivotal in reflecting a
change in the way the High Court interprets the Constitution. In
that case, the majority of the High Court rejected both the
reserved powers and intergovernmental immunities doctrine and held
that it would not narrowly interpret grants of Commonwealth power
in order to protect the states.[110] Instead, the High Court stated that it would
interpret the Constitution by focusing on the ordinary meaning of
the words.[111]
According to Higgins J:
The fundamental rule of interpretation, to
which all others are subordinate, is that a statute is to be
expounded according to the intent of the Parliament that made it;
and that intention has to be found by an examination of the
language used in the statute as a whole. The question is, what does
the language mean; and when we find what the language means, in its
ordinary and natural sense, it is our duty to obey that meaning,
even if we think the result to be inconvenient or impolitic or
improbable [112]
Since the Engineers case, the High Court s
decisions have generally continued to be influenced by the Court s
decision in that case, with the end result favouring the expansion
of federal constitutional powers.[113]
The WorkChoices decision is a more
recent example of the High Court s willingness for broad
interpretation of the Constitution and expansion of the
Commonwealth s legislative powers. In this case, the majority
stated:
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 character of the law must then be
determined by reference to the rights, powers, liabilities, duties
and privileges which it creates. The practical as well as the legal
operation of the law must be examined ...[114]
Section 81 of the Constitution provides:
All revenues or moneys raised or received by
the Executive government of the Commonwealth shall form one
Consolidated Revenue Fund, to be appropriated for the purposes of
the Commonwealth in the manner and subject to the charges and
liabilities imposed by this Constitution.
This
power is significant because it seems that there are few
limitations on what is considered as being for Commonwealth
purposes, potentially expanding the Commonwealth s power to spend
as it chooses.[115]
According to Gleeson CJ in Combet v Commonwealth:
Section 81 of the Constitution
provides for the Consolidated Revenue Fund "to be appropriated for
the purposes of the Commonwealth". It is for the Parliament, in
making appropriations, to determine what purposes are purposes of
the Commonwealth. It is also for the Parliament to determine the
degree of specificity with which such purposes are
expressed.[116]
This
power would be a powerful tool for the Commonwealth; for example,
in acquiring public hospitals, particularly as there is High Court
authority that ordinarily the validity of an appropriation act may
not be successfully challenged.[117] However, this power to spend money may be
subject to the limitation imposed by the power to compulsorily
acquire property under section 51(xxxi) of the Constitution, as
discussed above.
Section 96 of the Constitution provides:
During a period of ten years after the
establishment of the Commonwealth and thereafter until the
Parliament otherwise provides, the Parliament may grant financial
assistance to any State on such terms and conditions as the
Parliament thinks fit.
This is arguably the most powerful tool
allowing the Commonwealth to regulate, albeit indirectly, many
areas, including those areas in which it does not otherwise have
powers. Section 96 would be extremely relevant in relation to
Scenario 1, where the Federal Government grants financial grants to
the states in relation to public hospitals, setting conditions on
how such financial grants must be used.[118]
To date, there have been two types of financial grants made to
states:
- general revenue (untied) grants a lump sum payment to a state
to be used as the state chooses and
- specific purpose or tied grants the state may only use these
grants in accordance with terms or conditions that the Federal
Government imposes.[119]
Financial power has been increasingly consolidated in the hands
of the Commonwealth. This has given rise to vertical fiscal
imbalance .[120]
Vertical fiscal imbalance is the difference between the revenue
raising capacity and spending responsibilities of the Federal
Government compared with the revenue raising capacity and spending
responsibilities of the states.[121] In Australia, the Federal Government collects
approximately 80 per cent of tax revenue and is responsible for
approximately 54 per cent of own-purpose expenditure .[122] In contrast, states
collect approximately 16 per cent of tax revenue but are
responsible for approximately 40 per cent of own-purpose
expenditure.[123]
The consolidation of financial power in the hands of the
Commonwealth, together with section 96 of the Constitution, has
allowed the Commonwealth to become involved in areas traditionally
the preserve of the states.
Specific purpose payments (SPPs) have often been conditional in
nature and paid either to states, through states or directly to
local governments.[124]
Most SPPs have been paid to states and supplement state funding.
Public hospitals are one area in which such payments have been
made.[125]
Conditions attached to SPPs have included:
- general policy conditions that may be attached to the grant of
money (e.g. that the states provide free public hospital access for
Medicare patients in return for funding under the Health Care
Agreements)
- expenditure conditions (e.g. SPPs for schools to be spent on
teacher salaries and curriculum development)
- input control requirements, in the forms of maintenance of
effort and matching funding arrangements, where the states are
required to maintain funding levels and/or match Commonwealth
funding in a program area
- performance and financial information reporting by the states
and
- due recognition conditions, whereby the states are required to
acknowledge publicly the Commonwealth s funding.[126]
The High Court has interpreted the text of section 96 broadly.
Consequently, the Federal Government may impose any condition of
its choice on a payment.[127]
It is argued that SPPs have effectively expanded the scope of
the Commonwealth s constitutional power in that SPPs have enabled
the Federal Government to become and remain involved in areas
traditionally regarded as belonging to the states.[128] An example of how
an SPP may be used by the Commonwealth under the system to date
would be a condition that the payment be used to build a public
hospital at a certain place.[129]
Consistent with the Rudd Government s commitment to achieving
national health care reform in partnership with state and territory
governments,[130]
COAG agreed to the following general reforms of the SPPs system at
its meetings during 2008:[131]
- there would be a rationalisation of SPPs[132] in other words, the then
current number of 92 payments would be amalgamated into
approximately five or six new national agreements delivering
services, including health services[133] and
- the new agreements would be ongoing with regular reviews
focusing on outcomes and outputs, as well as providing incentives
for reform.[134]
The new form of national agreements, in relation
to health, could mean greater financial control by the Federal
Government over the states administration of public hospitals.
Despite the absence of an explicit public hospitals power in the
Constitution, it is arguable that the following, to varying degrees
and in different combinations, may enable the Commonwealth to take
over and regulate the administration of public hospitals:
- a combination of powers under section 51 (Scenarios 2 and/or
3)
- perhaps, the Federal Government making laws for public
hospitals as places acquired for public purposes under sections
51(xxxi) and 52 (Scenario 3)
- the appropriations power in section 81 (Scenarios 1 3)
- the long-term trend of the High Court to interpret the
Constitution broadly and being open to expanding Commonwealth power
and
- the continuing fiscal dominance of the Federal Government
(Scenario 1).
However, it appears that, after considering the various options
above, the most immediate and effective (albeit indirect) means of
regulating public hospitals would be an approach to which the Rudd
Government appears to remain committed Scenario 1 to rely on the
Commonwealth s financial power under section 96 of the Constitution
and the new national agreements with the states.
Thank you to all my colleagues in the Research Branch of the
Parliamentary Library, as well as my external reader, who
contributed such valuable ideas and comments to this research
paper.
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[89]. See, for example, New South Wales v
Commonwealth; Western Australia v Commonwealth [2006]
HCA 52. See generally L Zines, The High Court and the
Constitution, Fifth Edition, 2008.
discriminates against or between States,
and
threatens a State s existence as an
independent entity).
[126]. S Bennett and R Webb, Specific purpose
payments and the Australian federal system, p. 4. See also V
Koutsogeorgopoulou, Fiscal relations across levels of
government in Australia, p. 15.
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