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French, Justice Robert --- "The future of federalism The incredible shrinking federation voyage to a singular state?" (FCA) [2008] FedJSchol 17


University of Queensland and Law Council of Australia
European Focus Group,
'The future of federalism'
10 - 12 July 2008, Brisbane

The incredible shrinking federation – voyage to a singular state?

Justice RS French


1 On 1 February 1898, during the Third Session of the Australasian Federal Convention in Melbourne, Sir John Forrest, the Premier of Western Australia, rose to speak with a sense of exasperation that still springs from the printed record of the debates. He said:

My principal object in rising was to urge honourable members not to discuss this matter all over again. We have had two days of it, and it seems to me we shall have two or three days more if we are to re-discuss the whole question. There is a limit even to the endurance of the delegates to the Convention. [1]

2 The prolonged discussion which so bored Forrest concerned the extent to which the Commonwealth could regulate the use of the Murray-Darling River system in the exercise of its power to make laws with respect to trade and commerce among the States. It has been described by a leading Australian historian as “one of the hardest fought controversies” at the Convention.[2] The debate was informed by the conflict between the interests of New South Wales irrigators and South Australian river boat traders. None of the water ever made its way across the Nullarbor to Western Australia, which no doubt accounts for Forrest’s lack of interest in it. The question was resolved by s 100 of the Constitution. In the interests of New South Wales, the trade and commerce power of the Commonwealth[3] which extended to navigation[4] was limited so as not to authorise laws abridging “the right of a State or of the residents therein to the reasonable use of the waters of rivers for conservation or irrigation”. In the interests of South Australia a limitation was placed on that limitation by insertion of the word “reasonable” before the phrase “use of waters of rivers for conservation or irrigation”.[5]

3 110 years later the Murray-Darling River Basin is a matter of high national concern and debate which now involves the States of Queensland, New South Wales, Victoria and South Australia, the Australian Capital Territory and the Commonwealth. With national television coverage it even enjoys extended airplay in Western Australia. And even in Western Australia there is a sense that the problem is potentially so large that it affects everybody. Three million Australians depend upon water from the Basin and it supports an agricultural industry worth more than $9 billion per annum. On 3 July 2008 the affected States and Territories, along with the Commonwealth, meeting as the Council of Australian Governments (COAG) signed an Intergovernmental Agreement on Murray-Darling Basin Reform. The question was no longer one about irrigation versus navigation. Against a background of climate change, extreme drought, environmental stress and capacity and use disputes, it was a question about the availability of a diminishing amount of water for use for any purpose by anyone. Although an intergovernmental Murray-Darling Basin Agreement has existed since 1992, and was amended in 2006 and 2007, the most recent development contemplates greater centralisation of management with an authority supported by referrals from the States of necessary legislative power to the Commonwealth.[6]

4 Large scale, dramatic and urgent as is the question of the possible collapse of the Murray-Darling Basin water system, it is but one of many areas of infrastructure, natural resource usage and regulation generally giving rise to political imperatives for Australia wide approaches. What used to be local has expanded to become national and in that sense the federation has shrunk. The forces driving the contraction are various. The harsh economics of global markets, the complicated array of international obligations and relationships which Australia has developed, the creation of an electronic environment in which many transactions are negotiated and completed and internally the rapid movement of the people, goods and services across the country, are all transforming the local to the national in a variety of fields of human activity. The responses which they demand test the ability of a Constitution based upon a division of legislative powers, to accommodate national approaches to subjects not directly under Commonwealth legislative competency. A variety of cooperative models, some of considerable sophistication, have been developed. Some have had to be designed to avoid the effect of interpretations of the Constitution by the High Court limiting the capacity of national institutions to undertake functions conferred on them by State legislatures.

5 Given the difficulties of amending the Constitution, cooperative approaches on matters unable to be comprehensively covered by Commonwealth legislation, are necessary. There are benefits in such arrangements which can deliver national responses with checks and balances on the exercise of central power. These derive from conditions and limitations on that power which are the price of cooperation. But such benefits can also come at a cost in complexity and comprehensibility. Moreover, where regulatory authority is conferred on bodies deriving their powers from mixed sources within the federation political accountability can be difficult to locate. But overall the cooperative process uninformed by consistent selection principles is likely to lead to greater centralisation of political authority.

6 This paper considers some of the responses, in Australia’s dealings with national infrastructure and regulation, to the limitations imposed by the division of powers between Commonwealth and States. It expresses a preference, in areas where cooperation is necessary, for referral of powers from the States to the Commonwealth, subject to safeguards which would prevent the cooperative underpinnings of such references being undermined by unilateral action on the part of the Commonwealth. It also raises the larger question whether the trend to a variety of cooperative arrangements and extended exercises of Commonwealth power, are driving Australia into a singular state - a federation in constitutional form but a unitary state in political reality.

7 The development of “cooperative federalism” in Australia in recent times has been very significant. As a review of existing arrangements and current initiatives demonstrates there is an array of schemes in place or contemplated for overcoming the difficulties to which the division of legislative and financial powers gives rise in areas seen as requiring a national response. This is an evolutionary process. There is a generally perceived need to improve the way in which federalism works and to favour cooperation over friction and blame shifting. But such improvement at present does not seem to be informed by principles for determining what matters are best dealt with by a cooperative or multi-government approach and which are not. Nor are there in evidence principles for selecting the most appropriate cooperative mechanism. The identification and application of such principles is not straight forward. A conservative selection principle would favour a scheme which, while achieving desired efficiencies, has least impact on the distribution of power in the federation. On the other hand, the conservative principle may give rise to complexity. A principle of simplification and the location of accountability in one authority may be preferred.

8 The impetus for a national approach to dealing with a whole array of subject areas of government is not likely to diminish. The question of the working of federalism was very much on the agenda for the Australia 2020 Summit. The Interim Report from the Summit on the structure of Australian Federation identified inefficiencies in the economy arising from differences between the States and Territories. The need for a “seamless national economy” was raised. That term was used by COAG at its meeting held on 3 July 2008. At the 2020 Summit there was also recognition of the need to fix federalism to create a modern Australian federation. That would be done, it was suggested, by:

  • reviewing roles, responsibilities, functions, structures and financial arrangements at all levels of governance by a three stage process with:
    • an expert Commission to propose a new mix of responsibilities;
    • a convention of the people, informed by the Commission and by a process of deliberative democracy; and
    • implementation by inter-governmental cooperation or referendum; and
  • forming a National Cooperation Commission to register, monitor and resolve disputes concerning inter-governmental agreements.[7]

There is no doubt that change is occurring and that the stage is set for further change.

9 These general observations can be given some concrete referents by considering recent events in the growth of national and cooperative approaches to infrastructure and regulation. The major vehicle for that growth has been the Council of Australian Governments (COAG). That body was established in May 1992, comprising the Heads of the Commonwealth, State and Territory governments. Since February 2006, it has been driving a National Reform Agenda in a variety of areas. The scope of that agenda may be seen in the outcome of some of its recent meetings.

The Council of Australian Governments - Expanding the reach of cooperative federalism

10 At the COAG meeting held on 20 December 2007, seven areas were identified for its 2008 work agenda:

  • Health and Ageing.
  • The productivity agenda – including education, skills, training and early childhood.
  • Climate change and water.
  • Infrastructure.
  • Business regulation and competition.
  • Housing.
  • Indigenous reform.

Seven working groups were established, one for each of the nominated areas. Each group is overseen by a Commonwealth Minister with deputies nominated at a senior departmental level by the States and Territories. Senior officials from all jurisdictions are included in the groups. It is sufficient to refer to three of them here.

11 The Working Group on Climate Change and Water has as its objective an effective national response to climate change encompassing:

  • A single national emissions trading scheme (ETS) incorporating State schemes.
  • A nationally consistent set of climate change measures to support the ETS.
  • A national cooperative approach to long term adaptation of climate change.

It also has the objective of ensuring “sustainable water use across Australia”. In relation to the ETS, the Working Group is to be the vehicle for Commonwealth consultation with the States and Territories. It is charged with developing an implementation plan for a “… coherent and streamlined set of climate change measures across jurisdictions to complement Commonwealth implementation of the ETS”. The Working Group is to report to COAG on the “state of play with water reform” including progress on the assessment of irrigation infrastructure and the development of water markets.

12 The Infrastructure Working Group has as its objectives:

  • Better coordination of infrastructure planning and investment across the nation, across governments and the private sector.
  • To identify and remove blockages to productive investment in infrastructure.

One of the tasks of the Working Group is to develop an implementation plan covering mechanisms by which a newly established Infrastructure Australia Council will report to COAG, the scope of the national infrastructure audit and a forward work program for Infrastructure Australia.

13 The Business Regulation and Competition Working Group has as its objective:

  • To accelerate and broaden the regulation reduction agenda to reduce the regulatory burden on business.
  • To accelerate and deliver the agreed COAG regulatory hotspots agenda.
  • To further improve processes for regulation-making and review, including exploring a national approach to processes to ensure no net increase in the regulatory burden, and common start dates for legislation.
  • To deliver significant improvements in Australia’s competition productivity and international competitiveness.

A National Approach to Infrastructure – Infrastructure Australia

14 On 8 April 2008 the Governor-General assented to the Infrastructure Australia Act 2008. The Act established an organisation to be known as Infrastructure Australia.[8] It consists of a Chair and 11 other members.[9] The members are to be appointed by the relevant Commonwealth Minister.[10] Nine of its twelve members are to be nominated by the Commonwealth. Three are to be persons nominated by agreement between the States, the Australian Capital Territory and the Northern Territory.[11]

15 The primary function of Infrastructure Australia is the provision of advice expressed thus:

(1) Infrastructure Australia has the primary function of providing advice to the Minister, Commonwealth, State, Territory and local governments, investors in infrastructure and owners of infrastructure on matters relating to infrastructure, including in relation to the following:

(a) Australia’s current and future needs and priorities relating to nationally significant infrastructure;

(b) policy, pricing and regulatory issues that may impact on the utilisation of infrastructure;

(c) impediments to the efficient utilisation of national infrastructure networks;

(d) options and reforms, including regulatory reforms to make the utilisation of national infrastructure networks more efficient;

(e) the needs of users of infrastructure;

(f) mechanisms for financing investment in infrastructure.[12]

16 Additional functions conferred on the new entity include the conduct of audits of the adequacy of the capacity and condition of nationally significant infrastructure, and the development of priority lists in relation to Australia’s infrastructure needs. It is also to review, and provide advice on, proposals to facilitate the harmonisation of policies and laws relating to the development of, and investment in, infrastructure. The provision of advice on infrastructure policy issues arising from climate change and the review of Commonwealth infrastructure funding programs to ensure their alignment with infrastructure priority lists is also included in the additional functions.

17 In a press release on 20 March 2008, the Minister for Infrastructure indicated that when the Council had been appointed Infrastructure Australia would commence its work with a national infrastructure audit, including areas of water, energy, transport and communications and would compile an infrastructure priority list for presentation to the March 2009 meeting of COAG. In a further release on 13 May 2008, following the inaugural meeting of the COAG Infrastructure Working Group, the Minister announced that the Working Group, representing State, Territory and Commonwealth officials, had agreed that all participating governments would provide information necessary for the audit to be carried out by Infrastructure Australia by 30 June 2008. Its first infrastructure priority list would be completed within 12 months and presented to COAG.

A seamless national economy – the COAG Communiqué

18 Beyond the specifics of measures taken in relation to COAG’s seven working areas, the proliferation of matters upon which national regulatory responses are contemplated, was evidenced in a Communiqué issued by COAG after its meeting on 3 July 2008. In that Communiqué express reference was made to the objective of a “seamless national economy”. It stated:

Many of the challenges facing economy can only be addressed through more effective Commonwealth-State arrangements. By moving towards a seamless national economy through the reform of business and other regulation, COAG’s reforms will make it easier for businesses and workers to operate across State and Territory (State) borders. These reforms will make life simpler for businesses and consumers while continuing to provide the necessary protections and access for consumers and the community.

19 Progress on some 27 areas of regulatory reform was reported in the COAG Communiqué:

1. Occupational health and safety. An intergovernmental agreement was signed for the adoption of model occupational health and safety laws.

2. Environmental assessment and approval processes. Bilateral assessment agreements have been negotiated between the Commonwealth and each State and Territory with the exception of Victoria, with whom agreement will be reached by 31 August 2008.

3. Payroll tax harmonisation. All States and Territories have agreed to harmonise payroll administration from 1 July 2008.

4. Licences of tradespeople. A national trade licensing system has been agreed to, to be endorsed in an intergovernmental agreement between jurisdictions by COAG in December 2008.

5. Health work force agreement. COAG has agreed to implement reforms to health work force regulation.

6. National system of trade measurement. A Commonwealth Bill will be introduced in September 2008.

7. Rail safety regulation. All mainland States will have model legislation in place by the end of 2008 with Tasmania to follow in 2009.

8. Consumer policy framework. COAG has agreed in principle to the development of an enhanced national consumer policy framework.

9. Product safety. By agreement, the Commonwealth will assume responsibility for the making of permanent product bans and standards under the Trade Practices Act 1974 (Cth) (TPA). States and Territories will continue with powers to issue interim product bans. The Australian Competition and Consumer Commission (ACCC) and State and Territory Fair Trading Officers will share responsibility for enforcement.

10. National regulation of trustee companies. The Commonwealth is to assume responsibility for trustee companies. It is intended that its legislation will create a national market removing the need for multiple State and Territory licenses.

11. National regulation of mortgage broking. COAG has agreed that regulation of mortgage broking will be transferred to the Commonwealth, accelerating a previously agreed timetable.

12. National regulation of margin lending. COAG has agreed that the regulation of margin lending will be transferred to the Commonwealth, again accelerating a previously agreed timetable from October 2008.

13. National regulation of non-deposit lending institutions. The Commonwealth will assume responsibility for the regulation of non-deposit taking institutions.

14. Development assessment. This is a cooperative initiative by States and Territories towards more streamlined development assessment processes.

15. National construction code. COAG agreed to the development of a National Construction Code on building, plumbing, electrical and telecommunications standards.

16. Regulation of chemicals and plastics.

17. Registering business names. COAG noted agreement in principle by the Small Business Ministerial Council towards the development of a seamless, single on-line registration system for Australian business numbers and Australian business names. It approved the establishment of a national registration system and the necessary referral of power to the Commonwealth to enable it to implement the system.

18. Personal property securities. COAG agreed to reform Australia’s personal property securities law with a view to Commonwealth legislation being introduced late in 2008 or early in 2009.

19. Standard business reporting. COAG agreed on a Commonwealth initiated electronic system of standard business reporting.

20. Food regulation. COAG agreed to implement development of reforms to reduce regulatory burdens on business and not for profit organisations in relation to food regulation.

21. National mine safety framework. COAG asked the Ministerial Council on Mineral and Petroleum Resources to report on options for reforms to national mine safety regulation.

22. National electronic conveyancing system. COAG agreed to a number of principles to form the basis for the creation of a new e-conveyancing system to provide an effective and efficient national platform for the settlement of property transactions electronically and the lodgment of instruments electronically with Land Registries.

23. Oil and gas regulation. COAG agreed to the commissioning of a productivity commission report on the regulation of crude oil and natural gas projects that involve more than one jurisdiction.

24. Maritime safety regulation. COAG asked the Australian Transport Council to report on the implementation of a single national approach to maritime safety for commercial vessels.

25. Wine labeling. COAG asked the relevant Ministerial Council to speed up work to bring the World Wine Trader Groups Agreement on requirements for wine labeling into force.

26. Director’s liabilities. COAG agreed that there is a case for reform to promote a consistent and principled approach to the imposition of personal criminal liability for corporate fault.

27. A national system for remaining areas of consumer credit. COAG agreed that the Commonwealth would assume regulatory responsibility for the remaining areas of consumer credit and requested the Business Regulation and Competition Working Group to report back to the October 2008 meeting together with a detailed implementation plan.

20 Other major reform priorities identified by COAG include Commonwealth/State financial arrangements, preventative health, complex chronic disease management, hospitals, schools, national reform of the vocational education and training sector, the development of children and family centres and key indigenous measures.

21 In the two key areas of climate change and infrastructure, the COAG Communiqué referred to extensive consultations being undertaken by the Commonwealth in relation to a proposed Emissions Trading Scheme and the fact that all jurisdictions are currently assessing the complementarity of their existing climate change measures. So far as infrastructure is concerned, Infrastructure Australia is receiving information it requires from jurisdictions for the National Infrastructure Audit and the development of an infrastructure priority list for COAG’s consideration in early 2009.

22 These recent developments in relation to infrastructure, environmental and regulatory reform are indicative of pressures towards increasing degrees of cooperation and coordination within the Australian Federation. The various measures which are being undertaken and contemplated should be placed in their constitutional context, namely the distribution of powers within the Federation and the legal techniques available for the exercise of cooperative federalism.

Distribution of powers under the Australian Constitution

23 Federalism is a solution to the problem of combining different political communities in a national polity while allowing them to retain their identities. There are different ways of distributing power between the components of a federation. Any such distribution will set limits to their legislative competencies. When a national policy is necessary to meet a need, perhaps not foreseen as such when the Constitution was created, the legislative and other powers necessary to implement such a policy may cross those boundaries. A Constitution may of course be amended to take account of changes in circumstances since it was created. In Australia, however, as in some other federations, amendment is a difficult process. Alternatives to amendment involve cooperative approaches between the units of the federation. Broadly these fall into two categories. They may involve the coordinated exercise of powers by all components or the referral which may be subject to conditions or safeguards.

24 The Commonwealth of Australia Constitution Act 1900 created the Commonwealth of Australia as a federation. It conferred on the Commonwealth Parliament law-making powers with respect to particular topics. The Constitutions of the former Australian colonies, which became States in the Federation, were continued in force subject to the Commonwealth Constitution. So too were their law-making powers, save for those vested exclusively in the Commonwealth Parliament or withdrawn from the Parliaments of the States.[13] The legislative powers of the Commonwealth are mostly concurrent with those of the States. In the areas of concurrent legislative competency Commonwealth law is paramount. If a law of a State is inconsistent with a law of the Commonwealth, the Commonwealth law shall prevail and the State law shall, to the extent of the inconsistency, be invalid.[14]

25 The existence of Federal and State polities and the division of legislative powers between them, together with the scope for concurrent laws dealing with the same subject matter, must be taken into account when establishing national policies requiring legislative implementation. This is particularly so in the area of infrastructure of national significance and activities seen as requiring regulation which cross State and Territory boundaries.

26 Important powers conferred upon the Commonwealth Parliament under s 51 of the Constitution, relevant to national infrastructure and regulation, include but are not limited to the following:

(i) Trade and commerce with other countries, and among the States.

(ii) Taxation; but so as not to discriminate between States or parts of States;

(x) Fisheries in Australian waters beyond territorial limits;

(xx) Foreign corporations and trading or financial corporations formed within the limits of the Commonwealth.

(xxix) External affairs.

(xxxi) 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.

(xxxiv) Railway construction and extension in any State, with the consent of that State.

(xxxvii) Matters referred to the Parliament of the Commonwealth by the Parliament or Parliaments of any State or States, but so that the law shall extend only to States by whose Parliament the matter is referred, or which afterwards adopt the law.

(xxxviii) The exercise within the Commonwealth, at the request or with the concurrence of the Parliaments of all the States directly concerned, of any power which can at the establishment of this Constitution be exercised only by the Parliament of the United Kingdom or by the Federal Council of Australasia.

(xxxix) Matters incidental to the execution of any power vested by this Constitution in the Parliament or in either House thereof, or in the Government of the Commonwealth or in the Federal Judicature or in any department or officer of the Commonwealth.

27 Section 61 provides for the executive power of the Commonwealth:

The executive power of the Commonwealth is vested in the Queen and is exercisable by the Governor-General as the Queen’s representative, and extends to the execution and maintenance of this Constitution, and of the laws of the Commonwealth.

It supports Commonwealth entry into intergovernmental agreements and may be supplemented by the use of the incidental power under s 51(xxxix). It is also in the exercise of executive power that the Commonwealth enters into treaties and conventions including international trading conventions and free trade agreements. It may then, pursuant to the external affairs power under s 51(xxix), give legislative effect to treaties or conventions to which it has become a party and therefore pass laws to implement them in the exercise of the external affairs power.

28 Section 96 confers upon the Commonwealth significant financial power over the States by authorising conditional grants in the following terms:

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 condition as the Parliament thinks fit.

29 The extension of the trade and commerce powers to navigation and State railways is provided for in s 98:

The power of the Parliament to make laws with respect to trade and commerce extends to navigation and shipping, and to railways the property of any State.

30 There are also, of course, restrictions on the legislative powers of the Commonwealth. These include the requirement in s 92 (also applicable to the States) that trade, commerce and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free. There is the restriction under s 99 which prevents the Commonwealth by any law or regulation of trade, commerce or revenue giving preference to one State or any part thereof over another State or any part thereof. The restriction imposed by s 100 protecting States or their residents from laws abridging their right to the reasonable use of the waters of rivers for conservation or irrigation, has already been mentioned. Section 116, not relevant to the present discussion places restrictions on the Commonwealth’s ability to legislate in respect of religion.

31 Section 106 continues the Constitution of each State of the Commonwealth as at the establishment of the Commonwealth until altered in accordance with the Constitution of the State. By s 107 every power of the Parliament of the Colony which becomes a State shall, unless exclusively vested in the Parliament of the Commonwealth or withdrawn from the Parliament of the State continue as at the establishment of the Commonwealth. State laws are saved and continued in effect, subject to the Constitution, by s 108. The paramountcy provision, s 109, provides:

When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.

32 The mode of alteration of the Constitution is set out in s 128 which requires, in effect, the proposed alteration be passed by both Houses of the Commonwealth Parliament and by a majority of all Australian electors and by a majority of electors in a majority of the States.

Techniques of cooperative federalism

33 The techniques of cooperative federalism directed to national or uniform regulation of particular areas include the following:

1. Intergovernmental agreements providing for:

(a) uniform legislation enacted separately by each participating polity;

(b) enactment by one unit in the Federation of a standard law which can then be adopted by other parties to the intergovernmental agreement.

2. The referral of State legislative powers authorising Commonwealth law-making under s 51(xxxvii) on a particular topic or according to the text of a proposed Bill.

3. Executive cooperation by way of intergovernmental agreements.

Of all of these techniques the referral power offers the possibility of achieving, on a cooperative basis, one law from one source of legislative power, namely the Commonwealth Parliament, but subject to mechanisms to protect referring States from abuse of the power by the Commonwealth.

A brief overview of the reference power

34 The power conferred upon the Commonwealth Parliament by s 51(xxxvii) of the Constitution to make laws with respect to matters referred to it by the Parliament or Parliaments of any State or States has the capacity to deliver cooperative legislative regimes in much simpler form than those derived from a uniform legislation or cooperative adoption of laws passed by one element of the Federation.[15] There have been a number of references of power pursuant to s 51(xxxvii) since Federation. The mechanism which has invariably been used is the enactment of an Act of the relevant State Parliament or Parliaments referring a designated subject matter or the text of a proposed law for enactment by the Commonwealth Parliament. Referrals have covered meat inspection, State banking, poultry processing, air navigation, access and maintenance in family law, child custody and guardianship.

35 The mutual recognition scheme which provides for the recognition of qualifications and certain product standards between States and Territories is supported by a referral of power to the Commonwealth by the Parliaments of New South Wales and Queensland. What those Parliaments referred was a matter defined in the referring Act as “the enactment of an Act in the terms or substantially the terms set out in the schedule”. In each case a proposed mutual recognition Bill was scheduled to the State referring Act. As a result the Mutual Recognition Act 1992 (Cth) was passed as a law of the Commonwealth. It was adopted by the other States and Territories so that it ultimately applied across Australia. The referral was based upon a formal agreement signed on behalf of the Commonwealth, the States and the Territories on 11 May 1992.

An important use of the power was that which supported the introduction of the current national Corporations Scheme. It is discussed later in this paper as part of the history of corporate regulation in Australia. The States have referred other powers to the Commonwealth including powers to make laws with respect to terrorism. The reference in that respect is substantially a text reference.

36 The reference placitum in s 51 defines a head of legislative power conferred upon the Commonwealth Parliament to make laws with respect to matters referred. It is not a power conferred on the States to refer matters. It is subject to the Constitution. Constitutional prohibitions operate with respect to it. A law made in the exercise of the power is a Federal law and attracts the operation of the paramountcy provision, s 109, in respect of inconsistent State laws. The matter referred may be either subject matter or the text of a proposed law.[16] The High Court has rejected the proposition that a matter referred can only be in the form of a text. By necessary implication the Court accepted that reference could relate to specific Bills.

37 There are constructional and technical questions about references which need not be explored in detail here. One question is whether a reference unlimited in time is irrevocable. Another question is whether a Commonwealth law passed pursuant to a reference is contingent, for its continuing operation, on the reference not being revoked by the State. The amendment of laws made pursuant to a reference is presumably uncontentious where the referral is of a subject matter. However, where the reference is of the specific text of a proposed Bill, then an amendment of the law passed pursuant to that reference is likely to be invalid. The possibility also exists and has occurred of laws being made by the Commonwealth which apply only to referring or adopting States.

38 Despite some technical difficulties there are many advantages in the use of the power. Where agreement has been reached between the Commonwealth and the States on the text of a Bill to be referred, the result will be a single Federal law rather than complicated cross-jurisdictional adoption of one State’s law by the Commonwealth and other States. There are safeguards of State interests that can be embedded in text referrals and in the terms of referred Bills which may effect their disapplication in the event of a breach of any underlying agreement by the Commonwealth.

39 In the application of this power, as in other areas of cooperative federalism, it would be desirable to have some kind of coherent and principled framework within which choices are made about whether reference or another species of cooperative arrangement is desirable. There may be different species of reference for different occasions. It would be useful for both Commonwealth and States to have some sense of the circumstances in which a subject matter reference would be appropriate as distinct from the usual, more conservative choice, of a text reference. The range of safeguards available to protect State interests, and therefore federalist principles where a reference is made, could be classified and some policy adopted for the selection of the most appropriate mix. At the present time the choices of whether to refer or not and, if so, on what terms, seem to be ad hoc and historically contingent. On the other hand, politics being what it is perhaps that is as good as it gets.

Cooperative federalism in corporations law

40 The extent to which political initiatives, the accident of judicial decisions and other contingencies can affect choices of cooperative schemes is illustrated by the history of corporations law in Australia. That history is a useful case study for a succession of different arrangements endeavoring to effect national consistency in the regulation of companies.

41 In 1961, under a Uniform Companies Act Scheme agreed between them, each State Parliament passed its own Companies Act which mirrored the terms of the Companies Act of every other State. The law in each State had application only within the territorial limits of the jurisdiction of that State. Jurisdiction was exercised by the Courts of the States. There was thus a mosaic of similar laws throughout the country rather than one law covering the whole country. The scheme, although simple in concept, was susceptible to the development of differences over time because of pressures brought to bear upon particular State legislatures.

42 In 1981 the Uniform Companies Scheme was replaced by another cooperative scheme based upon the Companies Act 1981 (ACT) enacted by the Commonwealth Parliament for the Australian Capital Territory in reliance upon s 122 of the Constitution. Each of the States passed a Companies Code which reflected the provisions of the Commonwealth Act. The Scheme was overseen by a Ministerial Council for Companies and Securities and a national regulator, called “The National Companies and Securities Commission” (NCSC), which worked in conjunction with State regulatory authorities.

43 In 1989 the Commonwealth, acting unilaterally in reliance upon the corporations power, passed the Corporations Act 1989 imposing a national scheme of corporate regulation. It established the Australian Securities Commission (ASC) under that Act. In 1990 the High Court held elements of the Act invalid because the Commonwealth did not have power to make laws about the incorporation of companies.[18] Under a new cooperative arrangement the Commonwealth then enacted the Corporations Act 1989 (ACT) and the Australian Securities Commission Act 1989 (ACT), each being a law for the Australian Capital Territory. The States each passed their own statutes which applied the provisions of the Territory Acts designated as the Corporations Law and the ASC Law respectively as laws of the respective States. The States also purported to confer jurisdiction on the Federal Court and the State Supreme Courts with respect to civil matters arising under their Corporations and ASC laws. In 1999 the High Court struck down so much of the legislation as purported to confer jurisdiction on the Federal Court with respect to matters arising under the State laws.[19] The difficulties caused by this invalidation of the cross vesting of State jurisdiction to the Federal Court were compounded by the High Court’s approach to the construction of laws made under the scheme in so far as they conferred functions under State law upon Federal authorities such as the Commonwealth Director of Public Prosecutions and the Australian Securities and Investments Commission.[20]

44 The striking down of the cross vesting arrangements under the cooperative corporations scheme led, after some political contention, to another cooperative solution whereby the States referred to the Commonwealth the power to make laws in terms of the texts of a proposed Corporations Act 2001 and an Australian Securities and Investments Commission Act 2001. These Bills largely reflected the terms of the former Corporations Law and ASIC Law. Each State also referred to the Commonwealth:

The formation of corporations, corporate regulation and the regulation of financial products and services ... to the extent of the making of laws with respect to those matters by making express amendments to the corporations legislation.

The latter reference had effect only to the extent that the matter was not already a subject of Commonwealth power. There was a five year sunset clause for each reference.

45 Following the references by the States the Commonwealth Parliament, relying upon s 51(xxxvii), passed the Corporations Act 2001 (Cth) and the Australian Securities and Investment Commission Act 2001 (Cth). The Commonwealth and the States made an agreement which included undertakings about the use of the referred powers and procedures for the alteration of the statutes and for termination of the references. The agreement required that the operation of the scheme be reviewed every three years. The scheme was powerfully supported by referral agreements made by Victoria and New South Wales directly with the Commonwealth. Other States were then left with little option but to fall into line. Queensland did so. Western Australia did so following a change of government in that State. South Australia and Tasmania also joined after the Commonwealth agreed to consider an amendment limiting the degree to which the power could be used to require persons to incorporate.

46 The development of the comprehensive regulation of corporations in Australia showcases cooperative arrangements which are possible under the Constitution. Referral has the virtue of simplicity. Nevertheless, from the point of view of the States it involves an expansion, be it permanent or temporary, of Commonwealth legislative power on the subject matter referred. Typically safeguards are sought. It is no doubt for this reason that the reference in relation to corporations was limited to the text of a particular Bill and subject to a sunset clause. There is a sense however in which such safeguards may be illusory. The exercise by the Commonwealth of referred power may become widely accepted by the relevant elements of the community. A retreat from the post-reference legislation becomes impossible. So while legally temporary or conditional, the reference may become politically permanent and unconditional.

47 Moving from the classes of techniques by which cooperative federalism can be exercised, their complexities and variety may be appreciated by reference to some subsisting arrangements.

Cooperative schemes involving interlocking legislation

48 There are three major areas of infrastructure and national economic regulation involving interlocking legislation which gives rise to some legal complexity and engender uncertainty about the operation of the scheme at critical junctures and may also sometimes obscure accountability. The three areas selected for review in this context are: competition law, the national electricity market and the natural gas pipelines access regime.

1. Competition

49 In October 1992, the year that COAG was established, it agreed to set up an independent committee of inquiry into a national competition policy for Australia. The inquiry, headed up by Professor Fred Hilmer, reported in August 1993. It recommended, inter alia:

(i) The TPA extend to unincorporated businesses and State and Territory government businesses.

(ii) Prices surveillance be extended to State and Territory government businesses.

(iii) Competitive neutrality principles be applied so that government businesses would not enjoy a competitive advantage by reason of public sector ownership.

(iv) Public sector monopoly businesses be restructured.

(v) Legislation restricting competition be reviewed.

(vi) Provision be made for third party access to nationally significant infrastructure.

50 In February 1994, COAG accepted the so-called Competition Policy Principles set out in the Hilmer Report. It agreed, inter alia, that any recommendation or legislation arising from the Hilmer Report would be applicable to all bodies, including Commonwealth and State agencies and authorities. It was at this meeting that COAG foreshadowed the creation of ACCC out of a merger of the Trade Practices Commission and the Prices Surveillance Authority. It would have new powers and Commonwealth, State and Territory governments were to participate in appointments to it.

51 The principles set out in the COAG Communiqué underpinned three intergovernmental agreements made in April 1995 which established what has become Australia’s National Competition Policy.[21] These agreements were known as:

1. The Competition Principles Agreement.

2. The Conduct Code Agreement.

3. The Agreement to Implement the National Competition Policy and Related Reforms (Implementation Agreement).

52 Clause 3 of the Competition Principles Agreement established the competitive neutrality principle applicable to government owned businesses. Clause 4 provided for structural reform of public monopolies and clause 5 for a review of legislation. An important provision, clause 6, provided that the Commonwealth was to prepare legislation to establish a regime for third party access to services provided by means of what were called “significant infrastructure facilities” where:

(a) it would not be economically feasible to duplicate the facility;

(b) access to the service would be necessary in order to permit effective competition in a down-stream or up-stream market;

(c) the facility was of national significance having regard to its size, its importance to constitutional trade or commerce or its importance to the national economy; and

(d) the safe use of the facility by the person seeking access could be ensured at an economically feasible cost and, if there were a safety requirement, appropriate regulatory arrangements exist.

Importantly, this element of the Competition Principles Agreement recognised that infrastructure facilities entirely within a State or Territory might be of national significance.

53 The Conduct Code Agreement provided for the adoption by each of the States of a competition code replicating Part IV of the TPA. The parties agreed that the Competition Code text should be applied by way of “application legislation to all persons within the legislative competence of each State and Territory”.[22] In other words, the States agreed to adopt common form laws. They also attempted to avoid the development of differences following the initial adoption. Clause 6(1) stated:

It is the intention of the Parties that where modifications are made to provisions of either Part IV of the Trade Practices Act or of the Schedule Version of Part IV of that Act, similar modifications will be made to corresponding provisions of the other.

The Commonwealth agreed to consult with the other parties before submitting to Parliament any modification of Pt IV of the Trade Practices Act or the Code.

54 The Commonwealth was required to call a vote on the proposed amendments by sending a notice to each party. It would have two votes. Each of the other parties would have one. The Commonwealth would also have the casting vote. It agreed not to submit for parliamentary consideration any amendment to the Competition Code text unless a majority of the votes of the Commonwealth and the other parties supported the amendment.

55 Under the Implementation Agreement, the Commonwealth committed to make National Competition Policy payments to each State and Territory in the period 1997-1998 to 2005-2006 where the relevant State or Territory had made satisfactory progress against its obligations under the National Competition Principles and related reforms.

56 A legislative implementation of the Competition Principles Agreement and the Conduct Code Agreement was effected by the Competition Policy Reform Act 1995 (Cth). Among other things, it established the ACCC and the National Competition Council (NCC). It also redesignated the Trade Practices Tribunal, responsible for review of ACCC decisions, as the Australian Competition Tribunal (ACT).

57 Amendments were made to Pt IV of the TPA, making them applicable to areas within State and Territory jurisdiction and applying the TPA in various respects to the Crown in right of the States and the Territories in so far as they carried on a business. The third party access regime in relation to significant infrastructure was also introduced into the TPA. The Competition Code was introduced into the TPA to facilitate its application by participating States and Territories. Importantly, State and Territory application laws were permitted to confer functions or powers on Commonwealth entities.[23]

58 Following the enactment of the Competition Policy Reform Act 1995 (Cth), each of the States and Territories enacted Competition Policy Reform Statutes adopting the Competition Code text. A typical example of an application of the Competition Code text is to be found in s 5 of the Competition Policy Reform (NSW) Act 1995:

1. The Competition Code text, as in force for the time being, applies as a law of New South Wales.

2. This section has effect subject to section 6.

Section 6 provided that modifications to the Competition Code text would not apply as the law of New South Wales under s 5 until at least two months after the date of the modification unless an earlier date were appointed by proclamation. The effect of these two provisions seems to be that a law of the Parliament of New South Wales had a content varying without legislative action by the New South Wales Parliament, according to changes in the content of the Commonwealth law.

59 The State application Acts did purport to confer functions on the NCC, the ACCC and the ACT, all bodies set up under Commonwealth law. Conferral by State Parliaments of functions under State law on Commonwealth bodies is not straight forward. In R v Hughes the High Court held that (at [31]):

1. A State cannot by its laws unilaterally invest functions under such laws in officers of the Commonwealth.

2. A State law which purports to give to a Commonwealth officer a wider power or authority than that the acceptance of which is prescribed by Commonwealth law would, to that extent be inconsistent with the Commonwealth law and invalid under s 109 of the Constitution.

60 The Commonwealth law can permit a Commonwealth authority to exercise a non-obligatory function conferred on it by State law. It does not require the support of any express Commonwealth head of power. If a State law however purports to impose a duty on a Commonwealth body, then the duty must be authorised and, indeed, imposed by a Commonwealth law which is in turn supportable by reference to a head of Commonwealth legislative power. If there is an intergovernmental agreement by which duties may be imposed on Commonwealth officers to carry out functions under State law, then a Commonwealth law imposing such a duty may be an exercise of the incidental power under s 51(xxxix) in aid of the executive power of the Commonwealth under s 61.

61 Concerns about these restraints are reflected in provisions of the TPA relating to functions conferred upon the NCC, the ACCC and the ACT. By way of example, s 44ZZM in Pt IIIA deals with the conferral of powers and functions under State or Territory access regimes on the ACCC and the ACT. It provides:

(1) A State or Territory access regime law may confer functions or powers, or impose duties, on the Commission or Tribunal.

(2) Subsection (1) does not authorise the conferral of a function or power, or the imposition of a duty, by a law of a State or Territory to the extent to which:

(a) the conferral or imposition, or the authorisation, would contravene any constitutional doctrines restricting the duties that may be imposed on the Commission or Tribunal; or

(b) the authorisation would otherwise exceed the legislative power of the Commonwealth.

(3) The Commission or Tribunal cannot perform a duty or function, or exercise a power, under a State or Territory access regime law unless the conferral of the function or power, or the imposition of the duty, is in accordance with an agreement between the Commonwealth and the State or Territory concerned.

62 Section 44ZZMA deals with the case in which there is a duty imposed on a Commonwealth body by a State law. It provides, in effect, that if the State could impose a duty on the Commonwealth body, with the consent of the Commonwealth and that duty would be consistent with constitutional doctrines, then it will operate by force of State law alone. If the imposition of the duty requires the support of Commonwealth laws then that support is available. Thus:

(3) If, to ensure the validity of the purported imposition of the duty, it is necessary that the duty be imposed by a law of the Commonwealth (rather than by the law of the State or Territory), the duty is taken to be imposed by this Act to the extent necessary to ensure that validity.

(4) If, because of subsection (3), this Act is taken to impose a duty, it is the intention of the Parliament to rely on all powers available to it under the Constitution to support the imposition of the duty by this Act.

(5) The duty is taken to be imposed by this Act in accordance with subsection (3) only to the extent to which imposing the duty:

(a) is within the legislative powers of the Commonwealth; and

(b) is consistent with constitutional doctrines restricting the duties that may be imposed on the Commission or Tribunal.

63 There are similar techniques in relation to the conferring of functions on Commonwealth entities under the Competition Code as adopted by State application laws.[25] There is a specific regime relating to third party access to gas pipelines which also involves the conferral of State functions on Commonwealth instrumentalities. The difficulties to which the decision in Hughes gives rise may be said to have led to unnecessary complexity in the legislation and corresponding uncertainty about its interpretation and application.

2. Energy

64 In 1989 the Industry Assistance Commission reported to the Commonwealth Treasurer that the gas and electricity industries were particularly inefficient.[26] In the same year the newly formed Industry Commission was asked by the Treasurer to report on institutional or regulatory or other arrangements subject to influence by governments which led to inefficient resource use in the electricity and gas sectors, and to advise on the reduction or removal of those efficiencies. The Industry Commission reported in 1991 finding that there was an urgent need for reform of both sectors. The primary source of the inefficiency was identified as lack of commercial discipline imposed by competition.

65 At a Special Premiers’ Conference held in 1991, predating the formation of COAG which occurred in May 1992, it was agreed that a National Grid Management Council (NGMC) be established to consider arrangements for an interstate electricity network. The NGMC asked to submit its recommendations to COAG. The NGMC proposed the establishment of a competitive national market in the trading of electricity and made other recommendations about features of that market including absence of barriers to interstate trade to entry for new participants in generation or retail supply to uniform trading rules across South and Eastern Australia.[27] Under the Implementation Agreement referred to earlier, it was a condition of Commonwealth competition payments for the States and Territories that they implement all COAG agreements on electricity arrangements through the NGMC.

66 A National Electricity Market Legislation Agreement was made in May 1996 between NSW, Victoria, Queensland, South Australia and the ACT. Each of those entities agreed to a National Electricity Law with South Australia as the lead jurisdiction. The National Electricity Law was scheduled to the National Electricity (South Australia) Act 1996 (SA). It was given effect as a law of South Australia by s 6 of that Act and was applied and adopted as a law of the Commonwealth, the other States and the ACT.[28] The National Electricity Law provided for the approval by the parties of a Code of Conduct called the National Electricity Code. This was to be managed, administered and enforced by the National Electricity Market Management Corporation (NEMCO). The National Electricity Market began its operations on 13 December 1998. It interacted with price control legislation in the States.

67 An intergovernmental agreement embracing both electricity and gas markets was made in 2004. The Australian Energy Market Agreement 2004 as amended in 2006 outlines a governance framework for Australian energy market institutions, including the Ministerial Council on Energy (MCE), the Australian Energy Regulator (AER) and the Australian Energy Market Commission (AEMC).

68 The Agreement sets out the transfer of economic and non-economic regulatory functions including the transmission, distribution and retail sectors from individual jurisdictions to a national framework. In particular, the AEMC and the AER, along with the ACCC, have now taken over many of the regulatory arrangements for electricity that were previously the responsibility of the state government authorities.

69 The MCE, comprising Commonwealth, State and Territory Ministers with responsibility for energy, is the national policy and governance body for the Australian energy market. It is responsible for the national energy policy framework, including governance and institutional arrangements for the energy market and the legislative and regulatory framework within which the market operates and natural monopolies are regulated.

70 In 2004 Pt IIIAA was inserted into the TPA. It established the Australian Energy Regulator (AER).[29] The AER comprises a Commonwealth member and two State/Territory members.[30] The AER has any functions conferred upon it under a law of the Commonwealth or prescribed by regulations made under the TPA.[31] By the enactment the Commonwealth also consented to the conferral of functions, powers and duties on the AER. It used provisions modeled on those applicable to the NCC, the ACCC and the ACT in respect of the Competition Codes.[32] The functions under State or Territory legislation to which it consented were functions conferred by State/Territory energy laws. A State/Territory energy law is defined in the TPA as:

(a) a uniform energy law that applies as a law of a State or Territory;

(b) a law of a State or Territory that applies a law mentioned in paragraph (a) as a law of its own jurisdiction;

(c) any other provisions of a law of a State or Territory that are prescribed by the regulations for the purposes of this paragraph.[33]

The term “uniform energy law” means:

(a) the South Australian electricity legislation; and

(b) provisions of a State or Territory law that:

(i) relate to energy; and

(ii) are prescribed by the regulations for the purposes of this subparagraph;

being those provisions as in force from time to time.

  71 The Australian Energy Market Act 2004 (Cth) provides that the National Electricity Law as set out in the South Australian Act applies as a law of the Commonwealth “in the adjacent area of each State or Territory” and any other places, circumstances or persons as prescribed by regulations. The Australian Energy Regulator (AER) is responsible for regulating the natural monopoly transmission and distribution sectors of the NEM, monitoring the wholesale electricity market and enforcing electricity market rules. The Australian Energy Market Commission (AEMC) is a national statutory body responsible for rule making, policy advice, market development and electricity distribution in the NEM.

72 Although many of the regulatory arrangements for electricity have been taken over by national bodies, state and territory Governments and regulatory bodies are responsible for any regulation of retail electricity prices and maintain close involvement in planning, especially in the assessment of proposals for new energy infrastructure.[34]

73 In 1997, the Natural Gas Pipelines Access Agreement was signed by the Commonwealth, State and Territory Governments. It was aimed at establishing a uniform national regulatory framework for third party access to natural gas pipelines. South Australia again passed the “lead legislation” (Gas Pipelines Access (South Australia) Act 1997 (SA)) and all other Australian governments enacted legislation providing that the Gas Pipelines Access Law (as contained in Schedules 1 and 2 of the South Australian Act) and regulations would apply as laws or regulations of that jurisdiction,[35] or, in the case of the Commonwealth Act, in certain territories and adjacent areas.[36] The Agreement together with these Acts constitutes the Gas Access Regime.

74 In 2004, the Productivity Commission reviewed the Gas Access Regime,[37] noting it was effectively a form of cost-based price regulation and recommended the addition of a less costly monitoring option. In response to this review, the Ministerial Council on Energy decided to introduce a “light handed” regulatory option for covered pipelines and an overarching objects clause, change the coverage criteria to only apply to those pipelines for which coverage would generate a material increase in competition in a related market, and quarantine from coverage, for 15 years, pipelines assessed as qualifying for non-coverage.[38]

75 The AEMA provides that the MCE is responsible for the national energy policy framework and governance and institutional arrangements in relation to gas transmission, distribution and retail.

76 In November 2006, the MCE released its exposure draft of the National Gas Law.[39] The National Gas (South Australia) Bill 2008 (SA), containing the National Gas Law in the Schedule, was introduced in the South Australian House of Assembly on 9 April 2008 and was received in the Legislative Council on 30 April 2008, but has not yet been proclaimed. At present, New South Wales,[40] Queensland,[41] Victoria,[42] Tasmania[43], the Northern Territory[44] and the Australian Capital Territory[45] have followed South Australia in introducing “jurisdictional application” Bills, which provide that the National Gas Law as set out in the Schedule to the South Australian Act, and any regulations made under that Act apply as a law of that jurisdiction and as regulations in force respectively. Tasmania will follow, while Western Australia will not. As Western Australia has only agreed to implement legislation conferring functions and powers on the AEMC in respect of natural gas pipeline access,[46] it will pass complementary legislation to give effect to the relevant access sections of the National Gas Law.

77 According to the MCE, the National Gas Law is intended to commence in all jurisdictions except Western Australia on 1 July 2008.[47] Western Australia is expected to pass its complementary legislation in September 2008.[48]

Road, rail, shipping and ports – multiple jurisdictions and overlap

78 Other examples of national infrastructure which are not subject to the interlocking complexities of competition and energy law have less developed cooperative frameworks characterised by executive coordination through national bodies such as the National Transport Commission and the Australian Transport Council.

1. Road transport

79 Interstate road transport is not an express head of Commonwealth legislative power. That is not to say it cannot be regulated to a degree by application of the other heads of power. Since 1987 there has been in place a Federal Interstate Registration Scheme designed to provide uniform charges and operating conditions for heavy vehicles engaged solely in interstate operations. It is supported by the Interstate Road Transport Act 1985 (Cth) and a cognate statute and regulations. It is administered by State and Territory road transport authorities on behalf of the Commonwealth government. Vehicles for which registration is sought must comply with relevant Australian design rules.

80 The registration scheme relies upon statutes supported by the interstate trade and commerce power. However the Australian Design Rules are made under the Motor Vehicle Standards Act 1989 (Cth). The corporations power is used in addition to the trade and commerce powers to regulate new motor vehicle safety and environmental standards through that Act. The Australian Design Rules have been described as providing “national standards for vehicle safety, anti-theft and emissions”.

81 The National Transport Commission, the nature of which is described below, has been called more of a facilitator than a regulator in connection with road transport:

[T]he NRTC, and now the NTC, is more of a facilitator than a regulator. In the end a majority of the nine governments need to agree to most proposed changes, and there is then little ability to enforce agreements. For example, there was agreement among Ministers to uniform heavy vehicle mass limits but not all States have implemented them. It is still the case today that there is no common heavy vehicle mass limit across Australia. A vehicle with the maximum allowable mass in Victoria, for example, cannot travel into New South Wales.[49]

82 There are a number of heads of power under which the Commonwealth can make laws relating to rail transport. These include the trade and commerce power, and ss 51(xxxii), 51(xxxiii) and 51(xxxiv).

83 In the 1970s publicly accessible rail services within Australia were operated by government agencies. The Commonwealth government at that time offered to take over State owned entities and create a single national rail operator. Only South Australia and Tasmania took up the offer. Their rail operations were combined with existing Commonwealth Railways operations linking the Eastern States with Western Australia. The new organisation, which came into existence in 1975, was known as Australian National Railways. The rail network for which it had responsibility ran from Broken Hill to Kalgoorlie. Over the years that followed there was a gradual conversion of railway lines within Australia to standard gauge until 1995 when all Australian State capitals were linked by one standard gauge rail network. Although there was now one standard gauge network, there were five different government owned rail authorities operating it.

84 In the early 1990s there were initiatives to establish a National Track Authority for the interstate standard gauge network. The Australian National Railway was privatised and a distinct business known as AN Track Access was established to administer access to interstate track under Australian National control.

85 In 1997 Commonwealth and State governments agreed to a “one stop” shop for all operators seeking access to the National Interstate rail network. The Australian Rail Track Corporation Limited was created pursuant to that agreement. Over particular corridors it is responsible for selling access to train operators, the development of new business, capital investment, management of the network and management of infrastructure maintenance. The remainder of the interstate rail network is controlled by government agencies comprising Queensland Rail (Brisbane to Queensland border), Railcorp (the Sydney metropolitan region) and WestNet (Kalgoorlie to Perth).[50]

86 Nevertheless, as Ken Henry pointed out in 2006, operators of interstate trains in Australia may have had to deal with six access regulators, seven rail safety regulators, nine different statutes, three transport accident investigators, 15 statutes relevant to occupational health and safety of rail operations and some 75 pieces of legislation relating to environmental management. He observed:

Australia has seven rail safety regulators for a population of around 20 million people. In contrast, the United States, with a population of 285 million people, has one rail safety regulator.

One example of rail services fragmentation which he gave related to train communications. As at 2006 each State and Territory required trains within its jurisdiction to have a particular type of radio. New South Wales mandated two. This meant that a train could not operate nationally without eight different radio systems. And even with a cabin full of eight radios, trains could not “talk” to each other.[51]

A cooperative endeavour – the National Transport Commission

87 There is in place an institutional mechanism for cooperative regulation of land transport between Commonwealth and States. In 2003 the National Transport Commission was established under the National Transport Commission Act 2003 (Cth) pursuant to the Inter-governmental Agreement for Regulatory and Operational Reform in Road, Rail and Inter-modal Transport. The Agreement recites the desirability of a national approach to the regulatory and operational reform of road and rail transport.[52] Its overarching objective is:

To improve[e] transport, productivity, efficiency, safety and environmental performance and regulatory efficiency in a uniform or nationally consistent manner.[53]

88 The National Transport Commission superseded the National Road Transport Commission and covers both road and rail transport. It is jointly funded by the Commonwealth, the States and the Territories.[54] Its ongoing responsibilities include “developing uniform or nationally consistent regulatory and operational arrangements for road, rail and inter-modal transport”[55] and the continual maintenance and review of those reforms approved by the Australian Transport Council.[56] As mentioned above it has been described as “more of a facilitator than a regulator”.[57]

89 The Australian Transport Council is “a ministerial forum for Commonwealth, State and Territory consultations and provides advice to governments on the coordination and integration of all transport and road policy issues at a national level”.[58] It consists of Federal, State and Territory Transport Ministers and is responsible, inter alia, for approving submissions or recommendations by the National Transport Council.[59] Such recommendations are primarily in the form of “model legislation”, guidelines or codes developed by the National Transport Council. Upon approval by the Australian Transport Council, State and Territory parties to the Agreement are committed “use their best endeavors to implement and maintain Agreed Reforms in a uniform or nationally consistent manner”.[60]

Transport and the COAG National Reform Agenda

90 Transport regulation is also an element in the “National Reform Agenda” which COAG agreed to implement in February 2006. The competition stream of that Agenda includes a focus on “further reform and initiatives in the area of transport, energy, infrastructure regulation and planning and climate change, technological innovation and adaptation”. It includes an objective of improving the efficiency, adequacy and safety of Australia’s transport infrastructure by committing to high priority national transport market reforms. These include the development of proposals for the efficient pricing of road and rail infrastructure through consistent and competitively neutral pricing regimes, the harmonisation and reform of rail and road regulation within five years, the strengthening and coordination of transport planning and project appraisal processes and the reduction of current and projected urban transport congestion.[61] In its meeting in February 2006 COAG agreed to address six priority cross-jurisdictional “hot spot areas” where overlapping and inconsistent regulatory regimes were said to be impeding economic activity. These included rail safety regulation.

91 A National Model Rail Safety Bill and related National Model Regulations developed by the National Transport Commission were approved by Commonwealth, State and Territory Transport Ministers in June 2006. They are intended to constitute a “seamless, national regulatory regime”.[62] Statutes based on the National Model Rail Safety Bill have since been enacted in various jurisdictions.[63]

92 While road networks are regulated by States and Territories, the Commonwealth provides financial assistance through tied grants and policies. This expenditure has rarely been tied to regulatory issues.[64] However, in 2005 the Commonwealth Parliament enacted the AusLink (National Land Transport) Act 2005 establishing the AusLink network. It is intended to provide “a planning framework and funding for the Australian government’s investment in land transport infrastructure”. It is said to have involved “a major change to how road and rail investment is planned and funded”.[65]


93 The High Court held in New South Wales v Commonwealth [1975] HCA 58; (1976) 135 CLR 337 that the Commonwealth had sovereignty over the territorial sea. The Offshore Constitutional Settlement of 29 June 1979 followed this decision. It was described at the time as a milestone in cooperative federalism.[66] The Commonwealth, the States and the Northern Territory agreed to enact legislation implementing arrangements relating to shipping under which the States and Territories would be responsible for:

  • trading vessels except those proceeding on an interstate or an overseas voyage;
  • all Australian commercial fishing vessels except those going on an overseas voyage;
  • all vessels whose operations are confined to rivers, lakes and other inland water ways (with New South Wales responsible for all vessels operating on the River Murray upstream from the South Australian boarder); and
  • pleasure craft, and vessels used for pleasure on a hire and drive basis.

The Commonwealth on the other hand took responsibility for trading vessels on interstate or overseas voyages, the navigation and marine aspects of offshore industry mobile units and offshore industry vessels other than those confined to one State and Territory. The Commonwealth and the States also developed a Uniform Shipping Laws Code which was adopted by the Australian Transport Council. The Code was to be used as the basis for uniform Commonwealth, State and Northern Territory legislation for the survey and manning of commercial vessels, including fishing vessels. It provides safety standards for the design, construction and operation of domestic commercial vessels.


94 Ports are regulated by the States and by the Northern Territory. In a report published in April 2007 under the title “Australia’s Infrastructure: National Overview Report” COAG stated:

Most of Australia’s ports are owned by State and Territory governments and operated on a commercial basis by State-owned corporations or Port Authorities. Some ports have been privately developed for the exclusive handling of specific commodities. Some (eg Adelaide and other South Australian ports) have been privatised in recent years.

Port Authorities in general are responsible for providing channels, berths and operating some common use facilities. The private sector commonly establishes infrastructure and operates services … under leases or licences within the port precincts.

95 There was some debate in the life of the last government about the possibility that the Commonwealth might assume legislative control of Australian ports by use of the interstate and overseas trade and commerce power. That possibility has not recently been publicly pursued. However regulation of ports is under review as part of the COAG national reform agenda. In the Competition and Infrastructure Reform Agreement, the COAG members have agreed:

To provide for a simpler and consistent national system of economic regulation for nationally-significant infrastructure, including for ports, railways and other export-related infrastructure.[67]

The aims of the foreshadowed reforms are to reduce regulatory uncertainty and compliance costs for owners, users and investors in significant infrastructure and support the efficient use of national infrastructure.[68]

96 In March 2008 all the affected jurisdictions had commenced, although not all had completed the required review. The COAG Reform Council has recommended that the findings and recommendations of the review be implemented by December 2008.[69]


97 This paper began with a reference to water and it is appropriate that the review of current and foreshadowed cooperative arrangements conclude with water. Regulatory arrangements for water in Australia are complex. They differ between the States and Territories. Some governance and regulatory arrangements exist at the national, State, river basin, regional and local government levels. In Queensland, for example, water management responsibilities are allocated at State, regional and local levels divided between ministers and their departments’ regional water authorities. The allocation is as follows:

  • water pricing and economic regulation: State, regional and local;
  • water planning and management: State and regional;
  • water markets: State and local;
  • water supply and services: Regional and local; and
  • water quality management: State.

98 On 25 June 2004 at a COAG meeting all Australian governments signed the Intergovernmental Agreement on a National Water Initiative, save for Tasmania which signed on 3 June 2005 and Western Australia on 6 April 2006. The Initiative set out a framework for national water reform with a view to creating a nationally-compatible market-, regulatory-and planning-based system for the management of water resources. Key elements included:

  • water access entitlements and planning frameworks;
  • efficient water market and trading arrangements;
  • best practice water pricing;
  • integration of environmental and other public benefit outcomes into water management;
  • improved water resource accounting;
  • urban water reform;
  • community partnerships; and
  • knowledge and capacity building.

99 The National Water Initiative contained 70 agreed actions to be undertaken by governments across the eight elements of water management and regulation. Almost half involved national actions or other action by governments working together. This reflected the agreement’s emphasis on greater national compatibility in water regulation and a greater level of cooperation between governments to that end.

100 The National Water Commission was established by the National Water Commission Act 2004 (Cth). It is responsible for managing the implementation of the National Water Initiative and assessing and reporting on its progress.

101 The First Biennial Assessment of Progress in Implementation of the National Water Initiative, which was released in October 2007, found that the Initiative remains the primary and enduring national blueprint for water reform. It found also that governments have made considerable progress in implementing the Initiative.

The Trend

102 The recent history of cooperative federalism in Australia demonstrates a tendency to treat as national a whole range of issues which, not so long ago, would have been regarded as local. The concentration of central power to which this trend contributes began many years ago. The Commonwealth entered, through tied grants made under s 96, the regulation of a range of areas including health and education which were and still are constitutionally the province of the States. That use of s 96 was sanctioned by the High Court. The application of the external affairs power to enact laws affecting trade and commerce and interpersonal relations in connection with race, sex and disability discrimination and human rights generally is another example.

103 Cooperative federalism today is in part extra-constitutional. Driven by political imperatives it yields results on a consensual basis which go well beyond those achievable by the exercise of Commonwealth legislative power and the separate exercise by the States of their powers. In that sense the cooperative federalism movement may be seen to overshadow expansive interpretations of Commonwealth power under the Constitution. And in my opinion, although cooperative and thus respecting the formal constitutional position of the States, it contributes towards centralisation. For every topic which is treated as national becomes potentially a matter which, somewhere along the line, it can be argued is best dealt with by a national government.

104 Mixed jurisdictional cooperative schemes may appear to be fragile because they depend upon a consensus. But once in place it is arguable that there is a ratchet effect. Once a topic has been designated as one of national significance and requiring a cooperative approach, it is difficult to imagine circumstances in which it becomes politically acceptable to the parties to go backwards and fragment responsibility for it. The pressure seems to be in one direction only. It is added to by the kind of criticism that is advanced of mixed jurisdictional cooperative arrangements in terms of locating accountability. A recent commentary by Jack Waterford in the Canberra Times on the Murray-Darling Basin Water Agreement makes the point about the Authority pursuant to the Agreement:

Who’s in charge and who will we hang if it doesn’t work out? Who’s actually deciding things?[70]

He referred in particular to the provision of the agreement underlying the Authority which said:

Decisions of the Basin Officials Committee will be exercised consistent with the delegations received from the Ministerial Council. These delegations will relate to objectives and outcomes consistent with those set by the Ministerial Council and consistent with the Authority having the autonomy to decide on the matters set down in the corporate plan covering program design, delivery, monitoring and reporting arrangements required to implement the decisions of the Ministerial Council and the Basin Officials Committee.

He added the rhetorical question: “Clear Now?”.

105 It is reasonably arguable that accountability is optimised under a cooperative scheme when one government and one minister has to be responsible for its administration. An electorate well versed by long experience in the arts of blame shifting between governments is likely to require no less when things go wrong. This suggests an ongoing pressure, albeit over a period of years, to simplify complex cooperative arrangements where accountability is not well located. That simplification can occur in at least two ways:

1. Use by the Commonwealth Parliament of broad constitutional powers to take over control of the relevant area. In this respect there may be unused potential particularly in the corporations power, trade and commerce power, the external affairs power and the incidental power to enter into areas previously untouched by Commonwealth law.

2. Reference by the States of the power to make laws in relation to the relevant subject matter. Such references are likely in the foreseeable future to be text-based with in extremis escape mechanisms for the States, underpinned by ministerial agreements and, perhaps, a ministerial council and an official advisory body. The law which emerges will be a Commonwealth law and any regulatory agency set up under that law will be a Commonwealth agency. Accountability for its actions will reside ordinarily with the agency and the relevant minister although at least in policy development the Ministerial Council and official advisory bodies will have an important role to play. Such an agency will also be subject to judicial review. ASIC, as corporations regulator, is an example of this class of case.

106 Most people prefer to see cooperation between the components of a federation rather than conflict. But when the trend of cooperation is ultimately to centralise power, then the price of cooperation may ultimately involve a risk of losing some of the benefits of federation. A number of those benefits were listed by Twomey and Withers in their Federalist Paper in April 2007:

  • protection for the individual by checking the concentration of power;
  • choice and diversity;
  • the customisation of policies to meet local needs;
  • incentives to reform and improve in order to complete with other jurisdictions;
  • incentives to innovate and experiment; and
  • greater scrutiny of policies as a result of the need to achieve concentration.[71]

107 They gave a number of examples of State and Territory innovations which have led reform in Australia in areas such as:

  • road safety campaigns and the compulsory use of seat belts;
  • the establishment of the first environmental protection authority in Australia and the second in the world after California;
  • the enactment of various kinds of anti-discrimination laws;
  • the use of commercialisation and corporatisation to improve the performance of government enterprises;
  • the development of trade relations with Indonesia;
  • the creation of mechanisms for the review of business regulators;
  • the use of casemix funding of public hospitals;
  • the establishment of health care call centres;
  • the development of private financing initiatives;
  • the development of the mutual recognition scheme;
  • the reform of financial regulation;
  • the development of the National Reform Agenda to enhance human capital;
  • the development of regional migration schemes;
  • the development of markets for the trading of salinity credits and biodiversity credits;
  • the creation of carbon rights and the development of a national carbon emissions trading scheme; and
  • the development of population policies. [72]

108 The continuance of the benefits to federation in Australia assumes the existence of reasonably efficient, effective and accountable governments at all levels of the Federation. There is no doubt however that some State governments, despite the best efforts of committed ministers and officials, are regarded by a significant proportion of electors as not adequately discharging their constitutional functions. Such negative views of State governments where they exist can feed into an increasing sympathy for assumption by the Commonwealth Government of power and responsibility for matters left to the States under the Commonwealth Constitution. If that observation, which is at best impressionistic be correct, then there is little to be done to stop the drift short of a substantial revitalisation of those governments.

109 The reality of the problem is evidenced by the way in which some federal political leaders have been prepared to talk about relegating the States to a lesser role or abolishing them altogether. When Prime Minister Whitlam in the 1970s floated the idea of provincial governments to replace State governments he was seen as something of a radical. He does not seem so radical now in light of some contemporary debate about Commonwealth powers.


110 In my opinion the benefits of federalism are real even if many of them cannot reliably be quantified in money terms. The current level of cooperation between States, Territories and the Commonwealth is to be applauded. Some of its outcomes are, however, unnecessarily complex, technical and difficult to administer. They also diffuse accountability. The comparatively simple remedy of referral, which locates accountability clearly but retains an underlying veto control by the states of amendments and abuse of the referred powers is to be preferred.

111 On the other hand, despite the benefits of cooperative federalism the wide range of its application may have an overall tendency to define as national that which was once local. That may in turn be used in future argument favouring Commonwealth control and accountability in respect of such matters. If the States are not perceived by electors as adequately discharging their constitutional responsibilities then such perceptions will feed into the legitimisation of national control. A shrinking federation will continue to shrink. The logical outcome is the singular State of a unitary federation. That is the federation you have when you do not have a federation.

Murray-Darling Basin Institutional Structure and Governance

Acknowledgment: I acknowledge the assistance of the Federal Court Research Directorate and particularly Anita Power and Bronwyn Lo in preparing a research memorandum for use in the preparation of this paper.

[1] Conv Deb Vol 4 Melbourne, 1898 p 400 (Legal Books).


[2] Bolton GC, Edmund Barton – The One Man for the Job (Allen & Unwyin, 2000) p 167.

[3] Constitution s 51(i).

[5] Conv Deb, Melbourne 7.3.1898 p 1990. The amendment was inserted on the motion of Sir John Downer. Isaacs objected and asked what the standard of reasonableness was to be.

[6] A scheme of the proposed institutional structure of governance, as scheduled to the agreement, is at Appendix 1 to this paper.

[7] Department of Prime Minister and Cabinet, Australia 2020 Summit: Initial Summit Report, Canberra 2008 p 33.

[10] Presently the Hon Anthony Albanese MP, Minister for Infrastructure, Transport, Regional Development and Local Government.

[13] Commonwealth Constitution ss 106 and 107.

[14] Commonwealth Constitution s 109.

[15] For a history and more extensive discussion of this power see French RS, “The Referral of State Powers” (2003) 31 UWA Law Review 19.

[16] See R v Public Vehicles Licensing Appeal Tribunal (Tasmania); Ex parte Australian National Airways Pty Ltd [1964] HCA 15; (1964) 113 CLR 207 at 224-225.

[17] This section reproduces the history of corporations regulations in Australia set out in French RS, “Horizontal Arrangements – Competition Law and Cooperative Federalism” (2008) 15 Competition and Consumer Law Journal 255 at 261-262

[18] New South Wales v Commonwealth (1990) 169 CLR 482; 90 ALR 355.

[19] Re Wakim; Ex parte McNally [1999] VSC 227; (1999) 198 CLR 511; 163 ALR 270.

[20] Byrnes v R [1999] HCA 38; (1999) 199 CLR 1; Bond v R [2000] HCA 13; (2000) 201 CLR 213; 169 ALR 607; R v Hughes (2000) 202 CLR 535; 171 ALR 155 and McLeod v ASIC [2002] HCA 37; (2002) 191 ALR 543 and see generally De Costa, “The Corporations Law and Cooperative Federalism after The Queen v Hughes” [2000] SydLawRw 21; (2000) 22 Syd LR 451; McConvill and Smith, “Interpretation and Cooperative Federalism; Bond v R from a Constitutional Perspective” (2000) 29 Fed Law Rev 75.

[21] National Competition Council, Compendium of National Competition Policy Agreements, 2nd Edition, June 1998 p 12.

[22] Conduct Code Agreement clause 5(1).

[23] TPA s 150L.

[25] TPA ss 150F, 150FA and 150FB.

[26] Industries Assistance Commission, Government (Non-tax) Charges Vol 1, 1989.

[27] National Grid Management Council, National Electricity Market and Common Trading Arrangements, An Information Paper, January 1993.

[28] See National Electricity Act (New South Wales) Act 1997 (NSW); National Electricity (Victoria) Act 2005 (Vic); Electricity – National Scheme (Queensland) Act 1997 (Qld); National Electricity (South Australia) Act 1996 (SA); Electricity (National Scheme) Act 1997 (ACT) and Electricity – National Scheme (Tasmania) Act 1999 (Tas).

[29] TPA s 44AE.

[30] TPA s 44AG.

[31] TPA s 44AH.

[32] TPA ss 44AI, 44AJ and 44AK.

[33] TPA s 44AB.

[34] Council of Australian Governments, Australia’s Infrastructure National Overview Report (2007).

[35] Gas Pipelines Access (New South Wales) Act 1998 (NSW); Gas Pipelines Access (Victoria) Act 1998 (Vic); Gas Pipelines Access (Queensland) Act 1998 (Qld); Gas Pipelines Access (Western Australia) Act 1998 (WA); Gas Pipelines Access (Tasmania) Act 2000 (Tas); Gas Pipelines Access (Northern Territory) Act 1998 (NT) and Gas Pipelines Access Act 1998 (ACT).

[37] Productivity Commission, Review of the Gas Access Regime (Melbourne, 2004).

[38] Ministerial Council on Energy, Review of the National Gas Pipelines Access Regime (Canberra, 2006). For a detailed discussion of this Review, see Sweeney MJF, “Reform of the Gas Access Regime – Decisions of the Ministerial Council of Energy” (2006) 25 Australian Resources and Energy Law Journal 132.

[39] Ministerial Council on Energy, “National Gas Law” (Exposure Draft, 3 November 2006).

[43] National Gas (Tasmania) Bill 2008 (Tas).

[46] AEMA (2006), 6.3(c), p 13.

[47] Ministerial Council on Energy, Energy Market Reform Bulletin No. 118 (Standing Council of Officials, Ministerial Council on Energy, Canberra, 2008).

[48] Gas Market Leaders Group, Synopsis of Eleventh Meeting – 29 April 2008 (Gas Market Leaders Group, Melbourne, 2008).

[49] Sims R, “Furthering Significant Freight Transport Reform in a Federal System” in Productivity Commission, Productive Reform in a Federal System (Roundtable Proceedings, Canberra, 2006) p 263.

[50] This account of the rail network history is taken from the website of the Australian Rail Track Corporation Ltd.

[51] Henry K, “Time to ‘get real’ on national productivity reform” in Productivity Commission 2006, Productive Reform in a Federal System (Roundtable Proceedings, Canberra, 2006) p 237, 241.

[52] Intergovernmental Agreement cl 1.3.

[53] Intergovernmental Agreement cl 2.1.

[54] Intergovernmental Agreement cl 4.

[55] Intergovernmental Agreement cl 5.1(a).

[56] Intergovernmental Agreement cl 5.1.

[57] Sims R, “Further and Significant Freight Transport Reform in a Federal System” in Productivity Commission, Productive Reform in a Federal System (Roundtable Proceedings, Canberra, 2006) p 263

[58] Website Australian Transport Council viewed 7 July 2008.

[59] Intergovernmental Agreement cl 8.1

[60] Intergovernmental Agreement cl 12.1.

[61] COAG Communiqué (10 February 2006).

[62] See Wilson and Moore, Regulatory Reform and Land Transport in Productivity Commission, Productive Reform in a Federal System (Roundtable Proceedings, Canberra, 2006) p 288.

[63] COAG Reform Council, Report to the Council of Australian Governments, March 2008, Sydney, 2008 p 4.

[64] Wilson and Moore op cit n 38 p 297.

[65] Sims R op cit p 260.

[66] Offshore Constitutional Settlement; A Milestone in Cooperative Federalism (Australian Government Publishing Service, Canberra, 1980) p 14

[67] COAG Communiqué 10 February 2006

[68] Ibid.

[69] COAG Reform Council, Report to the Council of Australian Governments, March 2008 (Sydney, 2008) p 4.

[70] Waterford J, “Black hole in the basin ‘fix’” Canberra Times, 9 July 2008.

[71] Twomey A and Withers G, “Federalist Paper 1 Australia’s Federal Future” a Report for the Council for the Australian Federation, April 2007 at p 8.

[72] Twomey and Withers, op cit, p 15.

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