A key issue in Australia's model of federation is its capacity to
respond to the jurisdictional difficulties that arise when issues affect the
powers and interests of the different levels of government.
Relationships between federal, state and territory governments have fluctuated
over time as indicated by Hollander and Patapan.
Menzies' emphasis on the individual and his suspicion of ‘big
government’ inclined him towards a federalist position that was articulated in the
party's platform. On the other hand, the Menzies government's adherence to
federalist principles in practice was patchy. It never considered handing back
the income taxing powers it had inherited, and was happy to expand the
Commonwealth's role in a range of policy areas such as education and
infrastructure. This weak centralism of the 1950s and early 1960s contrasted
with Prime Minister Gorton's enthusiasm for a more definite centralist approach
in the late 1960s...The Fraser government's New Federalism...explored the
potential for reinvigorating Australian federalism. While the plan to hand some
taxing powers back to the states was never realised, Fraser did cut back on the
use of tied grants that had ballooned under Whitlam.
More recently, federalism continues to be characterised as suffering
from conflict and buck passing between different levels of government. Whilst
some aspects of Australian federalism are subject to quite legitimate criticism
in this regard, Twomey and Withers emphasise that the extent of cooperation which
is achieved every day in the Australian federal system is immense, but that it
is 'just not sufficiently newsworthy.'
They argue that conflict is not necessarily bad, as it can lead to vigorous
debates about, and greater public scrutiny of, policy.
The issue for Twomey and Withers is the 'poor implementation of
federalism in Australia, rather than the existence of the federal system
Co-operative federalism as it currently operates is not always effective because
its processes can be 'bogged down by delay and neglect.' The capacity of the
current system for continuing economic reform has been run down which is why
'competition remains important.'
There are vertical and horizontal mechanisms currently in place which
are intended to foster co-operation between levels of government.
The Council of Australian
The creation of the Council of Australian Governments (COAG) had its
origins in 1990 in a 'new federalism' initiative designed to promote national
cooperation in relation to microeconomic reform built on four principles:
The first recognised Australia’s nationhood and the
importance of working co-operatively to ensure that national interests are
resolved in the interests of Australia as a whole. The second was the
subsidiarity principle, that ‘responsibilities for regulation and for
allocation of public goods and services should be devolved to the maximum
extent possible consistent with the national interest, so that government is accessible
and accountable to those affected by its decisions’. The third principle
concerned structural efficiency and the need for increased flexibility and
competitiveness in the Australian economy, and the fourth concerned the
accountability of government to the electorate.
Since its creation in 1992, COAG has been the peak intergovernmental
forum in Australia. The Council comprises the Prime Minister, state premiers, territory
chief ministers and the president of the Australian Local Government Association
Over the years, a wide range of issues has been discussed at COAG, including events
such as the Bali bombings and the global financial crisis. All these discussions
have highlighted the need for effective intergovernmental operations and they have
strengthened the role of COAG.
COAG's function is to:
initiate, develop and monitor the implementation of policy
reforms that are of national significance and which require cooperative action
by Australian governments
Issues considered by COAG may be drawn from such things as Ministerial
Councils, international treaties that impact on States and Territories, or
initiatives of one government (particularly the Commonwealth Government) which
impact on other governments or require the cooperation of other governments.
COAG meets on an as needed basis, and can operate out-of-session via
correspondence. The outcomes of COAG meetings are contained in communiqués
released at the end of each meeting. Where formal agreements are reached, these
may be embodied in Intergovernmental Agreements.
(Intergovernmental agreements and the issues they present are discussed in more
detail in the next chapter.) The COAG mechanism has been characterised as
[L]egally and administratively the COAG process involves complex
arrangements, founded on intergovernmental agreements, and delivered by new
legislative initiatives and bureaucratic structures.
COAG Working Groups
In December 2007, COAG established seven working groups led by ministers
and comprising senior officials. Each of the working groups was charged with
developing Commonwealth-State implementation plans for the COAG reform agenda
agreed in February 2006. Therefore they reflect that agenda. They were the:
Working Group on Health and Ageing;
Working Group on Productivity Agenda: Education, Skills, Training
and Early Childhood Development;
Working Group on Climate Change and Water;
Infrastructure Working Group;
Business Regulation and Competition Working Group;
Housing Working Group; and the
Working Group on Indigenous Reform.
Of these, only the working groups on Business Regulation and
Competition, Infrastructure and Indigenous Reform are still operating. The
remainder were disbanded when their planning task was completed, and
responsibility for monitoring the implementation of those plans now falls to
the COAG Reform Council (see below). Of the three operating working groups, the
Infrastructure working group is expected to be wound up in the next year or two,
the Business Regulation and Competition working group is being reassessed in
2012, and the Indigenous Reform working group is ongoing.
The most significant of COAG's decisions in 2008 was to implement the
new Intergovernmental Agreement on Federal Financial Relations. The new
financial framework commenced on 1 January 2009.
COAG Reform Council
Independent monitoring and reporting of progress against the agreement
is undertaken by the COAG Reform Council, established in February 2006. The
Council is independent of individual governments. It reports directly to COAG
on, amongst other matters, the performance of the Commonwealth and states and territories
in fulfilling their obligations relating to the financial framework including Specific
Purpose Payments (SPPs) and National Partnership (NP) payments.
The new financial framework is based on five elements:
1. Rationalisation of SPPs: Under the reform plan, the
90 or more current SPPs have been rationalised into five new SPPs supported by
new national agreements in the areas of health; schools; skills; disabilities
services; and affordable housing.
2. Greater flexibility: the Commonwealth committed to
removing the prescriptive conditions contained in SPPs which inhibited State
and Territory service delivery and priority setting. The States and Territories
now have greater flexibility to direct resources to areas they believe will
produce the best results. The focus has shifted from inputs to the achievement
3. Funding: funding under the new SPPs is ongoing,
subject to periodic reviews...In a significant departure, the SPP agreements
and new National Partnership (NP) payments have been negotiated (and funding
provided) as a single package and paid directly to the Treasury Departments of
each jurisdiction (rather than to line agencies). This should reduce
administrative costs and aims to encourage line agencies to focus on service delivery
and policy development rather than on securing funding.
4. Accountability: performance accountability is the
bedrock of the new framework, granting the States and Territories greater
flexibility in policy and spending decisions, in return for open scrutiny of
5. National Partnership Payments: a new form of
payment, NPs are now available to States and Territories, over and above
existing funding through SPPs, to support specific projects and to facilitate
and reward reform. The NPs are of three types:
First, some existing payments for specific purposes will become
National Partnership project payments to support the delivery of specific
Second, National Partnership facilitation payments may be used to
assist a State to undertake policy reform in an area of national priority...
Third, National Partnership reward payments are provided to those
States and Territories which deliver reform progress, as measured by the
achievement of performance benchmarks. Achievement of benchmarks is assessed by
the independent COAG Reform Council in order to provide transparency and
enhance accountability in the performance assessment process.
The Council has published a number of reports, including its 2010
COAG Reform Council Report: Report to the Council of Australian Governments on the
COAG Reform Agenda;
and other reports for individual National Agreements.
A Ministerial Council is:
a formal meeting of Ministers of the Crown from more than
four jurisdictions, usually including the Commonwealth, the States and
Territories of the Australian Federation, which meets on a regular basis.
The work of Ministerial Councils underpins COAG. There are presently
over 40 Ministerial Councils and forums coordinating government activity on
specific policy areas. In addition to resolving jurisdictional service delivery
and policy issues, councils develop policy reforms for consideration by COAG,
and oversee the implementation of COAG policy reforms.
Individual Ministerial Councils make the decision whether to include the
Australian Local Government Association, except in cases where ALGA membership
is required by statute or agreement.
In October 2009, local government was represented on ten Ministerial Councils,
though only as a voting member on four. Such facts confirm inconsistencies in
the treatment of local government as already noted in respect to funding. 
At its meeting on 13 February 2011, COAG agreed to make
significant reforms to the ministerial council system by
30 June 2011.
The reforms are intended:
to focus on strategic national priorities and new ways for
COAG and its councils to identify and address issues of national significance.
Under the new system, enduring issues of national
significance will be addressed through Standing Councils, while critical and
complex issues will be addressed through limited life Select Councils.
The Treaties Council was established in 1996 to consider treaties or
other sensitive international instruments which may impact on states and territories.
The council has published an agreed set of principles and procedures for
Commonwealth-State consultation on treaties.
The council is comprised of the Prime Minister, premiers and chief ministers
and, where appropriate, the foreign minister. The council normally convenes in
conjunction with COAG meetings, and has only met once in its own right, in
Australian Loan Council
The Australian Loan Council was established in 1927 to coordinate
Commonwealth and state borrowing. All governments submit their estimated
borrowing requirements for the coming financial year, and the council ensures
that they are 'consistent with sound macroeconomic policy', and that borrowing
plans by each government are 'consistent with a sustainable fiscal strategy'.
In addition to scrutinising and regulating government borrowing practices, the
council is increasingly concerned with improving the transparency and
accountability of public finances.
Membership of the Australian Loan Council is nominally the Prime
Minister, premiers and chief ministers, though in practice representation is
usually delegated to treasurers.
The Intergovernmental Agreement on
local government matters
A common criticism of Australian Federalism is that local government is
not formally recognised in the Australian Constitution. There has been some
debate about the extent to which the Commonwealth is able to provide funding
directly to local governments under s. 96 of the Constitution, or whether it
must make payments via State and Territory governments. As well, it is argued
that local governments are being asked by other levels of government to take on
greater responsibility for service delivery and regulation, but that these
functions are not adequately funded.
(Matters relating to local government are discussed in more detail in Chapter
In April 2006 the Inter-Governmental Agreement Establishing
Principles Guiding Inter-Governmental Relations on Local Government Matters
was signed by the Commonwealth, State and Territory ministers with
responsibility for local government, and the president of the Australian Local
Government Association. This agreement attempts to address the concerns of
local governments by requiring adequate consultation prior to making decisions
on service delivery, and by setting standards for financial management and
The Australian Council of Local
The Australian Council of Local Government (ACLG) was established in
September 2008 to ' forge a new cooperative engagement between the Commonwealth
and local governments', and give local governments a forum to talk directly
with the Commonwealth Government on local government issues.
The ACLG comprises representatives from local, state and territory
levels of government and from the Commonwealth Government. The council has met
only twice in its life, most recently on 18 June 2010. The meeting took the
form of a community cabinet discussion where a panel of ministers and
parliamentary secretaries took questions from the floor.
The Australian Local Government Association takes a coordination and leadership
role for the ACLG on behalf of local governments.
Other Local-State government forums
There are a myriad of forums in States and Territories which aim to
facilitate cooperation between local and State governments. These are discussed
in more detail in Chapter 6 (Local Government) of this report.
While there are a range of mechanisms that promote cooperation within
each level of government, the evidence to the committee was that these
mechanisms are a relatively underdeveloped aspect of the Australian Federation.
Council for the Australian
The Council for the Australian Federation (CAF) is 'an institutional
forum for state and territory leaders', comprising premiers and chief ministers.
The CAF emerged in October 2006 out of the Leaders' Forum, which was the
previous forum for meetings of state and territory leaders. 
CAF has its own administrative support structures, and provides regular
opportunities for state and territory leaders to discuss issues of mutual
interest related to the COAG agenda, but also to inter-jurisdictional issues
which may have little or no relevance to the Commonwealth.
CAF has met seven times in the three and a half years since its inauguration,
most recently in November 2009. The group issues communiqués from each of its
meetings which detail the issues discussed and decisions taken by the
The Australian Local Government
The Australian Local Government Association (ALGA) is a federation of
560 Australian local government bodies (including, since 2001, the ACT). ALGA
represents the interests of local government to other levels of government
through such forums as COAG and Ministerial Councils, and pursues a policy
agenda for improving local government practice across a range of areas,
including governance, finance, regional development and infrastructure.
ALGA was founded in 1947, and has a permanent secretariat based in Canberra.
ALGA policies are determined by the ALGA Board, comprising two members from
each of its member associations.
Regional Organisations of Councils
Regional Organisations of Councils (ROCs) are voluntary collaborations
between local government bodies which come together on matters of common
interest. There are 59 ROCs in Australia. They vary greatly but essentially
are voluntary bodies which make a formal commitment to each other to advance
their common interests. Chapter 7 will more fully explain their functions.
Submitter views on intergovernmental mechanisms
The establishment of COAG was part of an evolutionary process through
which the Commonwealth and state and territory governments could find ways to work
together more effectively to address complex policy issues.
Twomey and Withers endorse the Keating and Wanna view of the COAG
process 'as developing a more co-operative institutional relationship.'
Under the COAG process, there was recognition of the need to
facilitate agreement on policy frameworks of joint interest. Not only were the
states recognised as significant players whose policy input was crucial, but
the Commonwealth also accepted that policy by unilateral decree was ineffective
and that it had to work through the states to achieve many of its policy goals.
COAG has been largely successful in promoting national cooperation
The most notable COAG success has been implementing the National Competition
Policy, described as a 'landmark achievement in nationally coordinated economic
In discussions with the Committee, representatives of the Department of
the Prime Minister and Cabinet, where the secretariat for COAG is currently
located, indicated how some of the COAG processes functioned. They confirmed
that the Prime Minister, as Chair of COAG, determines the timing and agenda of
meetings after consultation with states and territories. The officers noted
that these and other COAG processes do have the advantage of ensuring 'that
COAG's work is inherently connected across the business of government and
across the priorities of the Prime Minister in her domestic agenda.' The
officer went on to add that:
The experience of the 20 or 30 years of this brand of
federalism we have been under suggests that you have a structure that evolves
with the priorities facing COAG, and that works pretty well.
COAG was described as 'nimble footed':
When we encountered the global financial crisis, at several
days notice we brought on a COAG meeting in February of 2009 to consider the
Nation Building and Jobs Plan. Then after the London transport bombings in 2005
it was the Victorian government that actually suggested to the then Prime
Minister that we should have a COAG meeting to reconsider our counterterrorism
arrangements and, again, that was brought on at very short notice.
Whilst COAG has served an important purpose, many submitters pointed to
the need for reform. As Premier of Victoria, John Brumby, spoke
enthusiastically of COAG's potential but also pointed out the potential for
COAG is an increasingly important decision-making body that
drives the reform process, makes collective decisions and resolves deadlocks.
The fact that COAG has ceased the practice of always sitting in Canberra has
changed the dynamic. But Australia needs COAG to become an enduring institution
that rises above the ebb and flow of governments.
There are also significant concerns around the way COAG operates. Dr
Zimmermann and Mrs Finlay argue that:
While there have been some significant reforms delivered
through COAG, its achievements have been “sporadic and unreliable” and “its effectiveness
has waxed and waned depending upon personalities and political events” There is, however, a clear need for better
co-operative mechanisms both to deal with areas of shared responsibility in the
federal system and to encourage a co-operative form of federalism.
The Business Council of Australia has criticised COAG for meeting
infrequently, for being seen as a creature of the Commonwealth, and for not
being more able to "anticipate emerging reform issues, to identify and
analyse potential policy responses and to monitor progress in implementing the
This report has already noted concerns such as that of Civil Liberties
Australia. The CLA view is supported by comments such as those of the Gilbert
and Tobin Centre of Public Law. They argue that:
[COAG] was established by agreement between the Prime
Minister, Premiers and Chief Ministers in 1992 but enjoys legal recognition
neither in the Constitution nor by statute...its existence necessarily remains
Statutory recognition would give COAG a more secure place in
the Australian federal framework...[G]iving COAG a statutory basis would instil
COAG with a stronger democratic legitimacy.
The committee recognises that the establishment and subsequent evolution
of COAG represents a significant step forward in managing the challenges posed
by the need for cooperation in Australia's modern federation.
The committee believes, however, that several reforms and improvements
can be made to COAG and the Ministerial Councils which would enhance its
efficiency, encourage greater transparency and strengthen COAG's institutional
standing. These improvements would focus on three areas: agenda setting,
accountability and administration.
State governments should have an equal stake with the Commonwealth in
COAG. This could begin with a formal, transparent intergovernmental agreement
to underpin COAG. For some years now stakeholders, including the Business
Council of Australia, have been arguing for a stronger institutional structure
Through CAF, state and territory governments, have argued that there should be
an intergovernmental agreement to underpin COAG's operations, and that the
agreement should include several principles:
recognition that COAG is an equal partnership between all spheres
of government which should extend to agenda setting within COAG
set out COAG’s vision and objectives, including reform priorities
have a strong emphasis on joint accountability
provide flexibility for COAG to adapt and evolve
make COAG transparent to the community and stakeholders through
better communication of its decisions.
This argument was also put by individual governments, such as NSW, WA and
Tasmania. The reform should also extend to ensuring states have an equitable
capacity to place items on the agenda.
The committee is also of the view that there is a need for greater
transparency of COAG processes, particularly in areas such as the public
availability of agendas prior to meetings and the publication of meeting
schedules. As the Business Council of Australia has noted:
[a]ccountability can be increased by more frequent meetings
of COAG...as well as a Secretariat...which will ensure that there is a continued
dialogue and agenda that the participants must address and cannot avoid.
The preparation of agendas for COAG meetings should link the
meetings together – creating an ongoing accountability of ideas. The
transparency of discussions, agreements and outcomes of COAG – with clearly
allocated lines of responsibility – may also increase accountability.
An equally important reform is the need to locate the administration of
COAG on a more independent foundation, placing it at arm's length from the
Commonwealth Government. This is currently the case with staffing of the COAG
Reform Council, which is 'located in Sydney and jointly funded by the
Commonwealth and the States and Territories.'
Australia's federation would operate more successfully if most states
and territories could develop and coordinate their policy positions on a range
of issues independently of the Commonwealth. Currently, the institutional
architecture necessary to facilitate this objective is almost non-existent.
Some capacity for coordination exists in the Council for the Australian
Federation, which comprises the heads of state and territory governments. In
2009, the Council released an important discussion paper on inter-governmental
reforms, Common cause: Strengthening Australia's cooperative federalism.
The paper proposed three key principles to underpin modern federal systems.
Subsidiarity: proximity of government to the community
Alignment of responsibilities: the allocation of roles
and responsibilities to the level of government with the corresponding
geographical scale (also referred to as the logic of assignment)
Cooperation: engagement and cooperation between the
levels of government, including the comity principle.
Subsidiarity provides the fundamental rationale of
federalism; however, it is less informative about how functions should be
arranged between the levels of government in a federal system. The logic of
assignment of responsibilities provides the basis for arranging functions,
however, in the modern world there are few policy areas where clear lines of
division can be drawn. This gives the third principle, that of cooperation, a
particular significance...the reality is that modern conditions of overlapping responsibility
increasingly place a premium on effective engagement and cooperation between
national and sub-national levels of government in federal systems. This need
for engagement and cooperation has received the least attention to date and is
the ripest for change in the current climate of Australian intergovernmental
The paper went on to outline changes to the architecture of cooperative
federalism as well as ways to improve supporting collaborative cultural
practices. However, the Council was only recently formed, and it seems to have
a precarious existence and few resources.
The committee believes that the interests of closer federal state
cooperation would be served if the states and territories were to meet more
regularly through a more institutionalised CAF process along the lines of arrangements
in place in Canada, through its Canadian Intergovernmental Conference
Established in 1973, the CICS is a public sector agency:
The secretariat being truly intergovernmental in nature, both
the federal and provincial governments share in its direction, finance and
staffing; thus, making it an impartial agency at the service of 14 governments
(federal, provincial and territorial).
In addition to acting as the permanent secretariat of the
First Ministers Meetings (FMM), CICS offers its services to other meetings of
First Ministers, Ministers and Deputy Ministers both at the
federal-provincial-territorial and provincial-territorial levels. The agency is
available to any federal, provincial and territorial governments’ departments
which may be called upon to organize and chair such meetings.
The committee believes that formalisation of the Council would
strengthen cooperation amongst states and territories on policy issues that
have little or no federal government dimension, as well as giving states a more
formal forum in which to develop policy ideas that may ultimately be brought to
The committee recommends that COAG be strengthened through
institutionalisation to ensure the Council's effective continuing operation and
ability to promote improved mechanisms for managing federal state relations.
The principles of transparency and joint ownership should be central to this institutionalisation.
The committee recommends that agendas for COAG meetings be developed
jointly by Commonwealth and State and Territory governments, that they be made
publicly available before meetings, and that the timing, chairing and hosting
of COAG meetings similarly be shared.
The committee recommends that outcomes of COAG meetings be published in
a more transparent manner than is currently the case with the communiqués.
The committee recommends that the states and territories establish a
stronger foundation for the Council for Australia’s Federation by providing additional
funding, formalising Council processes and ensuring that it meets more
regularly than is currently the case.
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