Financial Dependence Of Commonwealth States: Understanding The Federal Imbalance

Discussion: Federalism meaning

Discuss about the Financial Dependence Of Commonwealth States.

The present case is based on the federal system of Australia and the dependency of the States relating to the financial matters on the Commonwealth[1]. An attempt has been made to understand the fact that whether there is any threat cropped up regarding the financial dependency to the State autonomy of Australia. It has been observed that the political structure of Australia is federal in nature[2]. Through this report, an attempt has been made to find out the federal structure in details and impacts of the federal imbalance regarding the legal and fiscal matter.

The base of the federal system is stand on the compound mode of government where there is a mixed system of government[3]. The powers are divided into two separate divisions, one is the central government and the second is provincial government. The word federalism derives its origin from the Latin word “foedus” that means treaty or covenant. In the provinces of Australia, the federal system has been observed and the system was adopted in the year 1901[4]. The main reason behind the federal government is to divide the power of the government to avoid the arbitrariness to secure the interest of the individual as a whole[5].  However, there are certain weak points observed in the federal system of Australia that has been chalked out by many critiques that are as follows:

• It has been stated by many critiques that the federal system boosts the inequality system in the provinces of Australia and the people of Australia are facing serious problem in the border areas[6].
• It has also been stated that due to the federal system, the Australians are become more entrusted to the bureaucracy and the infrastructure development are lagging behind day by day.
• The local government are facing certain weakness and the officials of the government become disappointed regarding the performance of the government.
• The public service cost of the government is exaggerated and the arena of service becomes over lapped[7].

There are certain specific theories present to define the federal structure of a country. The theories can be categorised as follows:

• Ideational theories: this type of theory derives from the ideological commitment and the main objective of the theory is to centralise the idea of society regarding federalism[8].
• Cultural-historical theory: According to this theory, the federal structure of the government will be imposed on the society by maintaining an assimilation of cultural and ethnical process. This helps to lead towards a fragmented population.
• Social contract theory: The supporters of this theory are believed the fact that through federal system, integrity and equality can be established in the society of Australia. The main objective of the theory is to impose certain power on both the commonwealth and the provincial government so that any of them can supersede the other by using their dominating character.
• Infrastructural power theory: This theory highlighted the infrastructural system and it intends to develop the base of the governmental structure. The infrastructures can be based on constitution or the nature of the infrastructure can be parliamentary.

Fiscal federalism is related to the monetary element of the administration in addition to it denotes the relation between the various governments of the federal system[9]. The main essential of a federal government is the separation of powers between the central government and other provincial governments. Richard Musgrave was coined the term of “fiscal federalism” in the year 1959 to maintain a financial discipline among the governments[10]. Under the theory of fiscal federalism, it has been presumed that the present difficulty relating to the finance facing by the government can be resolved by this system and the resources can be allocated effectively. It has been stated by Richard Musgrave that in case of useful allotment of reserve, intrusion by the central and state government is required. The government should be liable for the economic stabilisation.

There are certain positive characters present in this system and that can be categorised as follows:

Theories of federalism

It has been stated by the supporter of this system that the differences in between the provincial and the central government should be considered and an attempt will be adopted to settle the dispute amicably[11]. The most serious problem that Australia is facing today is related to the planning cost and administrative cost. Fiscal federalism attempts to resolve the problem. Apart from all the advantages of the fiscal federalism, there are certain disadvantages too. One of the main problems in the case is that there is laxity regarding the unavailability of eligible staff[12]. Fiscal federalism provided certain independence to the local government.

The fiscal system is based on the relationship exists between various steps of the government. Therefore, it can be stated that the term denotes the relationship between the levels of government[13].  

It is important to make a balance between the fiscal and legal federal system. However, in certain circumstances, imbalance regarding the fiscal system has been observed. The main reason for the imbalance cropped up if revenue earnings and expenses are not matched. The fiscal federalism can be of two kinds: vertical imbalance and horizontal imbalance. The inequity relating to the fiscal federalism based on the levels of the government. When disparity observed regarding two diverse levels of government, it regarded as vertical imbalance and when imbalance has been observed in the same level of government, it is known as horizontal imbalance. The equalisation transfers are regulated by horizontal imbalance and the structural issues are regulated by the vertical imbalance. It is required to reassign all the revenue and expenditure responsibilities by the government in general so that the same can be corrected in a systematic way. The main reason behind the horizontal imbalance is the net fiscal benefits. It includes the tier of taxation and the services that are public in nature.

The term fiscal federalism is based on the understanding that is engraved within the decentralised levels of government. Fiscal federalism consists of the study that denotes the competency level regarding the expenditure and the revenue sides of administration. It is to be stated that fiscal federalism will be identified the different layers of the government system. It has been observed by many researchers that the system can be observed in case of every types of governmental associates. It can be seen if the nature of the government is unitary or non-federal. A relationship between vertical and horizontal federalism is required under the system and if it is not possible, the same can be give birth to fiscal imbalance.

Fiscal federalism

The practice concerning the fiscal system is based on the economical circumstance of the states. It intends to make a relation between the levels of the government and therefore, it is the ultimo regarding the creation of balance between two important features of the country, that are the expenditure and the revenue income. It is to be taken into consideration that the system allows a systematic approach regarding the variation of economic policies of the state. The nature of the fiscal policies cannot be measured and it is also impossible to understand the effectiveness of the system. Therefore, it is important to look over the issues that are find out by certain case studies regarding the same topic and the application of all the studies will depict the impacts of the fiscal system where there is an imbalance occurred.

The common rule regarding the fiscal policy is that the fiscal councils are directed by the fiscal policy rules and there are certain rules mentioned under the Australian federal system. In the light of emerging economies, it is important to make a link in between the rules and performance of the fiscal system. The process of regression approach approves all the related consideration regarding the other determinants of the main balance, such as the output gap and the level of the public liability. The potential collision of fiscal councils is tested via binary numbers identifying observations related with a fiscal council in general or with a council that exhibits only certain description. For fiscal rules, an index building on the dataset compiled by Schechter is used. By contrast, the superior chief balances are to be connected with fiscal councils featuring firm characteristics. It is to be noted that fiscal councils generally merge several of features. Simple deterioration analysis does not recognize “sufficient conditions” for effectiveness. The following can be taken into consideration that the task of monitoring conformity with fiscal rules is unlikely to be sufficient to brunt fiscal performance if it is not paired independently and a presence in the public debate.    

It is a fact that federal system of Australia does not work adequately in managing transformed needs in Australian community. The Australian Constitution recognized a federal state where powers were to be divided by national or Commonwealth government and six associate states and in this case, the rules of Great Britain are followed up as Australia was the former British colony. It has been observed that the parliamentary laws are protected by the rules derived their origin from England. However, the powers are divided within the states. It is required that the Australian Government optimised different character to work on regarding the state legislation and the  Australian law Founders are required to look after as many state powers as achievable, as they supposed that this was the only form of government that can be accepted by supporters. It has been observed that more or less all the states is concerned over the probable loss of colonial uniqueness in a large, unidentified union. The Founders’ of legislations wish to conserve certain state occurrences that can be seen in a quantity of spaces, including:

• The organization of the governing body, seen by the law-makers as the residence where the states’ continuation was predictable in the national assembly—many of the Founders chosen the name ‘states’ Assembly’ or ‘states’ House’, to make the place of the nationalized upper house in the federal system perfect.
• The fact that the national Parliament’s powers are particular in the statute, with the residue belongs to the states.

Imbalance regarding the fiscal federalism

According to section 96 of the Constitution, it has been stated that modification is required in Australian federalism and that have derived from the stop working of the Finance provinces especially Chapter IV of the Constitution. This chapter has thrown light on the financial power and an attempt has been made to convert the system centrally.  After certain times of Federation, the Commonwealth was finding the financial appointments exasperating, due to the need to make without former notice huge expenditures of its own in such areas as resistance, public works and social services. The states were powerless to defy. As early as 1902, the Commonwealth Attorney-General, Alfred Deakin, had coined his declaration that the states were ‘legally free, but financially bound to the chariot wheels of Central Government’. By the end of the first decade, when sections 87 that states about the payment of customs and excise takings to the states and 94 that states about the distribution of excess Commonwealth funds to the states had been allowed to fall into desertion, the pattern of Commonwealth financial dominance and relative state scarcity had been established.

The provision regarding section 96 was begun to use invariably since 1910 and the Commonwealth had taken a key step. Besides this, Western Australia and Tasmania were still unable to tackle, and within two years, extra payments were being made to these states.  As a result, all states were soon based upon s. 96 grants to help them meet their financial needs, a reliance that has, in fact, incremented in the years since. In the year 1928, the Commonwealth had also made the states to recognize the newly created Loan Council, that controlled all government lending, both Commonwealth and State. Both the expansions further destabilized the legitimate provisions.

The provision regarding the income tax authorities has been featured by the section and the commonwealth is used the same utilise the same provision. The Australians have been preliminary to forfeit the tax for both the commonwealth and states since 1942. However, difficulties occurred when the disparity takes place regarding the commonwealth and state taxes that means that there were diverse rates of income tax around the nation. In 1999, the Howard Coalition Government has legislated certain provisions regarding the fulfilment of the common-purpose transferred funds to be the Goods and Services Tax (GST). Since then there has been a law-making obligation that Commonwealth Grants Commission monies must be disseminated according to the philosophy of horizontal fiscal equalisation.

Impacts of the imbalance

It has been observed that the states under the provinces of Australia are very much depended on the commonwealth as the coordination is being continuing to keep the concern of the states safe.

In the year 1901 the provinces of Australia recognised as federal State and it was assumed that if it is hard for the Commonwealth government to do all the governmental activities properly, it may divide the works with the state government. It is the rule regarding the federal government that powers will be divided among the states and it should be the duty of the Commonwealth government to assist the states so that the people are not compelled to attach with the baptised state. It is to be kept in mind that the commonwealth have the power to regulate the activities of only those states that are within the sphere of it.

In the year 1942 the commonwealth government has, the power to merge up all the conducts and expunge the same as per section 90 of the Income tax related law. Even the High Court has construed the term expurgate roughly so that it becomes unfeasible to the states to enforce any kind of sales duty.

Each provisions of the income tax Act bears the importance regarding the separate importance. For instance, it can be stated that the main objective of the Goods and Services Tax is to determine problems raised by the incapability of the states to hoist sales taxes. The main concern regarding the same is that the Commonwealth congregate this tax and have certain power to allocate it. As the Commonwealth power over income tax is not constitutional but parliamentary, there is a chance to restore the income tax authority to the states.

The original biased question concerning Australian federalism is that the government has become dysfunctional and unable to put off much growth of authority by the Commonwealth government. The modern correspondent is that a political categorization founded on realm turns the normal people into noble and subjects.

The Commonwealth government clutches successful authority in the provinces of Australia including an exclusive control over the finances. The states must behave positively if they are expecting to receive the funds required by them from the Commonwealth. The states of Australia started to think that they are depending on the commonwealth and forget to think themselves as self-determined entity.  They started to avoid accountability with active perception and never upheld the topic regarding the monetary submission from the commonwealth. The Commonwealth uses its monetary control to impress such things as the national school curriculum, in spite of what the states desired.

Financial dependency of States

It is a fact that without financial independence, respect cannot be earned. For persons it means useful employment as against welfare dependency and for political entities, the meaning of the same can be regarded as the capacity to execute sovereign judgement and it is important than subservience that would render to another political unit.

Therefore, it can be stated that the states are turn into more depended on the commonwealth as its powers are increasing day today and therefore, the rules made out by the High Court regarding the commonwealth structure can be harmed a lot.          

It has been observed that Broadcasting Services Act has provided certain constitutional base under schedule 5 and 7 and concentrates on the mobile contents. It was held by the drafting committee that the it is important that the states exercise their power regarding the implementation of the legislative powers. In this case, it is necessary to inform Commonwealth under s 51(xxxvii) of the Australian Constitution.

The provision under section 51(xxxvii) of the Australian Constitution provides certain Parliamentary action to constitute and amend laws along with matters that has been referred to the Parliament by the assembly of any state. The states have referred matters to the Commonwealth regarding the issues relating to corporation’s law and counter-terrorism.

A state power is suggested to swathe up the matters relating to the manoeuvre of new Commonwealth categorization to the extent that the matter is not otherwise included in the legislative powers of the Parliament of the Australia.

Where the authority to legislate is held simultaneously by both the Commonwealth and the states would rely, enquiry involving changeability of legislations may arise.

An offer has been made under Section 109 of the constitution that when ‘a law of a State is conflicting with a law of the Commonwealth, the latter shall conquest, and the former shall to the extent of the inconsistency, be invalid’.

Therefore, it can be stated that many states have simultaneously cataloguing powers in respect to pamphlet, films and games are also covered by the Commonwealth Classification Act.

Therefore, it can be stated that the Constitution provides numerous powers to the Commonwealth and helps the commonwealth to augment the powers and provisions concerning many decisions.

Conclusion

Therefore, it can be stated that the federal system of government helps Australia to face certain things regarding the every layers of administration. It has been stated by the researchers of the federal system that the provincial governments of the Australia are, fir certain reasons become dependent on the commonwealth system. The report has been stated certain reasons that can be regarded as a threat to the government regarding the dependency. The legislative power of the commonwealth is also to be taken into consideration.

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