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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