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1003CCJ Law Government And Policy

tag 0 Download 10 Pages / 2,260 Words tag 12-07-2021


According to Fenna (2008), “Australian federalism is characterised by an unusually high degree of vertical fiscal imbalance”. This vertical fiscal imbalance (VFI) essentially refers to a constant disproportionality in revenue and expenditure between the State and Commonwealth governments, as the central legislative and executive bodies have historically benefitted from under statute, referendum and interpretation of the Australian Constitution in the High Court. This has allowed the Federal Government to accumulate various taxation powers to the present day, resulting in a situation where the States are so fiscally malnourished as to be reliant on funding from the Commonwealth surplus (Dollery, 2010).
In this, issues arise, as the States are not individually capable of meeting their constitutional responsibilities and furthermore unable to respond to the needs of their own communities in areas such as healthcare and education. Certainly, the central government does provide somewhat adequate funding, though it is secured in Specific Purpose Payments (SPPs) which are only supplied conditionally in return for some service. Consequently, State governments despite having an inherently comprehensive understanding of their own regional issues and needs – are simply unable to act unless the Commonwealth shares some interest in the matter or is otherwise encouraged to contribute.

I became aware of the topic given its importance in recent elections, with a common goal of many governments to at least return some fiscal responsibility to the States such that they may address local affairs. Discussion of the issue is available on the websites of the National Commission of Audit, the Parliament of Australia and the outline of Budget of 2009-10. Secondary material is prevalent in various national publications including the University of New South Wales Law Journal and the History of Economic Thought Society Australia Journal, each source employed in my research. 

Almost by definition, the problem involves both the State and the Federal governments given that their ‘vertical’ relationship in the Australian federalist system underlies the VFI problem. If the issue is to be addressed however, an appeal will likely only succeed before the Commonwealth Parliament, as it is the central authority to which expansive powers are given under section 51 of the Constitution. Additionally, the Federal Government has traditionally been granted further fiscal influence by the courts over the States in cases such as Victoria v Commonwealth and statute law such as the 1942 Uniform Tax legislation. The resulting broad boundaries to Commonwealth financial power are entrenched so deeply as to be immune to any challenge from sub-national jurisdiction. As a result, for an inquiry to be heard with any potential for action to be taken, it must be put before the central government with its national legislative powers. 

According to a paper in the 2009-10 Budget, the SPPs at the heart of fiscal imbalance concerns are ‘processed by the Commonwealth Treasury and paid directly to each state treasury’. The Treasurer, The Hon Joe Hockey MP, is therefore accountable for all matters concerning such payments under the Federal Financial Relations Act 2009. Certainly, raising
the issue before the Treasurer or indeed the Shadow Treasurer would be most appropriate,given the possibility for Parliamentary debate on VFI when both parties are aware of its significance.

It would also be of great importance to bring the issue before the Council of Australian Governments (COAG) – a forum comprised of the ‘Prime Minister, State and Territory Premiers and Chief Ministers and the President of the Australian Local Government Association’. It may be possible however that within this assembly it would be most effective to put the issue of VFI before the state members, as the Commonwealth may not have any true interest in demolishing or manipulating the SPP scheme considering its operation is to their benefit in the first place.Ultimately, however, raising the issue before each state minister would be of marginal benefit given that none can individually take action on the issue. Comparatively, the Treasurer is still able to discuss VFI concerns before COAG and is otherwise accountable for SPPs with influence over their operation. 
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