Today, the Commonwealth and State governments spend over $500 billion in delivering services to Australians.
Australia’s Constitution and federal system dictates the level of government which delivers various services.
Chart 3.1: Government spending
Source: Australian Bureau of Statistics Cat No. 5512.0.
Australia’s Constitution provides the basic rules for government. It was conceived and approved by Australians and established a federal system which distributed powers between a new central government and States.
The Constitution (particularly section 51) confers powers to the Commonwealth Parliament to only make laws in specified areas including defence, external affairs, interstate and international trade, taxation, foreign affairs, trading and financial corporations, marriage and divorce, immigration and interstate industrial conciliation and arbitration.
The list of Commonwealth powers in the Constitution does not specifically refer to a number of important areas such as education, the environment, criminal law and roads. However, this does not mean these subjects are outside its authority.
The Constitution does not confine the matters about which the States can make laws. Accordingly State parliaments are able to legislate on a much wider range of subjects than the Commonwealth Parliament. This is why important areas such as education, crime and roads are regulated primarily by State rather than Commonwealth law.
Although States can pass laws on a wider range of subjects than the Commonwealth, the national government is generally regarded as the more powerful partner.
A principal reason for this is section 109, which provides that where there is an inconsistency between Commonwealth and State laws, the former prevails.
Traditionally the States have not raised sufficient revenue to perform all their functions. Consequently they receive grants from the Commonwealth, many without conditions.
Section 96 of the Constitution allows the Commonwealth to make conditional grants of money to the States for any purpose. This power allows the Commonwealth to influence the way things are done in areas where it has no direct power to pass laws.
The shared roles and responsibilities between the Commonwealth and the States are problematic. They increase the risk of administrative duplication and overlap, higher administrative costs and cost shifting. They are a fertile ground for reduced efficiency, effectiveness and fairness of service delivery.
Chart 3.2 below illustrates the current division of effort in identified areas of government. The grey portions show the level of Commonwealth effort and the dark blue portions show that of the States. The States’ component is further broken down into those amounts that are funded by them directly and those funded by the Commonwealth through tied payments to the States.
Source: Australian Bureau of Statistics Cat No. 5512.0.
As the charts above demonstrate, there are numerous spending areas with significant Commonwealth and State overlap and numerous areas where the Commonwealth provides tied funding to the States to deliver specific outcomes or policies.
The division of responsibilities often raises significant problems and contributes to a less functional Federation. This includes poor coordination of planning and service delivery and a lack of accountability over the quality and cost of services provided.
In health for example, the Commonwealth has responsibility for primary health care (including doctors and pharmaceuticals) while the States have responsibility for managing public hospitals.
Complex funding arrangements between the Commonwealth and the States are in place for public hospitals resulting in a lack of clarity when it comes to political responsibility and accountability.
Problems with the division of responsibility mean that cost shifting often occurs between governments. Patients discharged from State government run public hospitals are often referred to their local general practitioner who is subsidised by the Commonwealth. Separately, a lack of Commonwealth funded aged care places in a particular area can result in public hospital beds being inappropriately occupied by elderly people.
Significant overlap between the Commonwealth and the States exists in relation to the provision of mental health services.
The States operate public schools on a day to day basis including running their own systems and regulating non-government schools. While the Commonwealth does not have specific constitutional responsibility for schools it has, since the 1970s, taken an increasing role in schools funding.
The provision of vocational education and training has traditionally been a State responsibility, however the National Training System is jointly provided by the Commonwealth and States.
There is considerable duplication and bureaucracy in the provision of early childhood services. Childhood education and child protection services are provided by the States. However, the Commonwealth is also in this space running its own programmes to prevent child abuse and neglect.
Government funding for the universities sector is the responsibility of the Commonwealth yet the States retain an involvement, including their own legislative framework, owning the land on which the universities operate and having responsibility for making appointments to university senates.
In the area of housing, the Commonwealth has no constitutional power. The States take the lead in the provision of public housing and, along with community based organisations, in addressing homelessness. Nevertheless, the Commonwealth spends a significant amount on housing through rent assistance and through direct payments to the States for affordable housing and alleviating homelessness.
Commonwealth and State governments both direct significant funding towards Indigenous affairs, through both mainstream and Indigenous-specific programmes and services. While funding is almost equally split, there is substantial overlap and duplication in Indigenous programmes provided by the Commonwealth and the States. In the town of Roebourne in Western Australia for example, the 1,150 predominantly Indigenous residents are serviced by some 400 different programmes funded variously by both the Commonwealth and State governments.
Australia’s environmental regulatory framework contains numerous overlapping, excessive and inconsistent requirements between the different levels of government. The Constitution contains no specific powers for the Commonwealth to legislate on environmental or planning matters with the States having an ability to legislate on a broad range of matters, including the environment and cultural and natural heritage.
However, the Commonwealth uses other constitutional heads of power to regulate in this area and matters of national environmental significance now trigger the operation of the Environment Protection and Biodiversity Conservation Act 1999.
Australia’s governments provide much of the nation’s economically essential infrastructure including roads, rail networks and ports. Major investment decisions with respect to public infrastructure are predominantly taken by State governments and most infrastructure is owned by the State. However, substantial expenditure on infrastructure is funded through Commonwealth payments to the States. There is significant institutional and regulatory duplication on infrastructure matters between the Commonwealth and the States.
The responsibility and costs associated with repairing infrastructure damaged in natural disasters accrue mainly to the relevant State government. However, the Commonwealth provides financial assistance to the States to assist with these costs, with funding determined by the claims submitted by the States in line with a designated formula.