Subsidiarity
Subsidiarity is the principle that powers and responsibilities should be left with the lowest level of government practicable. Such a devolved system means there is greater local input into decision-making and States and Territories can customise policies and services to suit local preferences.
Assembly of European Regions (2009). From Subsidiarity to Success: The Impact of Decentralisation on Economic Growth.
Link to PDF
Link to Press Release
A recent study commissioned by the Assembly of European Regions has found:
The application of the subsidiarity principle in the distribution of powers is a key to economic success, and that a country's economic performance can be improved with more influence of the regions at the national level, more independence of the regions from the national level, financial competences and resources for the regions, as well as more competencies in recreation and culture, infrastructure, education and research, and health care.
Bennett S (2008). Specific purpose payments and the Australian federal system.
Research Paper no. 17, 2007–08. Parliament of Australia: Parliamentary Library.
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Specific purpose payments are grants the Commonwealth makes to the states under section 96 of the Constitution on whatever conditions the Commonwealth government sees fit.
This research paper describes what functions specific purpose payments perform, how important they have become, their consequences for the delivery of services, how they might be improved, and whether their use might be gradually altering Australia's federal system in fundamental ways.
Buettner T, Wildasin DE (2007). Symposium on New Directions in Fiscal Federalism: An Introduction.
CESifo Economic Studies 53: 491 - 494.
Extract
Issues of fiscal federalism—broadly defined to include the tax, expenditure, and debt policies of different levels of government, as well their interaction—have attracted heightened attention from academics and policymakers alike. Global changes in institutional structures and economic conditions within and among countries, including fiscal, economic and political reforms, have highlighted the importance of the division of fiscal and political responsibilities among governments. Competition among governments, as well as the development and evolution of mechanisms of horizontal and vertical fiscal coordination and cooperation among them, have been the subject of a rapidly developing literature. Better understanding of the fiscal policies and interactions of governments, and of their institutional and political underpinnings, presents deep intellectual challenges as well as opportunities for useful policy applications.
The five papers in this symposium are a selection of papers based on keynote addresses presented at a September 2006 conference on "New Directions in Fiscal Federalism".
Burrell S (2007) Big squeeze: states as branch offices.
The Age, 29 May
Argues that the Howard Commonwealth Government was turning federalism into centralism as states were squeezed for funds.
Eccleston R (2008). Righting Australia's vertical fiscal imbalance: transferring public hospital funding as an option for reform.
Agenda, 15 (3). Link to PDF
Abstract:
Vertical Fiscal Imbalance (VFI) is the root cause of intergovernmental conflict in the Australian federation, and un-remedied will limit the dividends of any revitalised Council of Australian Governments. The paper argues the while the GST has been an effective growth tax, it has exacerbated Australia's VFI and is unlikely to yield sufficient revenues to meet the expenditure pressures confronting the States. The paper suggests that transferring the funding of public hospitals to the Commonwealth will enhance the sustainability of State public finances and reduce the VFI.
Fenna A (2007). The divisions of powers in Australian federalism: subsidiarity and the single market.
Public Policy 2(3)
Abstract
Australian federalism has been found wanting in a number of respects. For some, it is the problem of too much centralisation; for others, it is the problem of too little centralisation; for many it is simply too much overlap and entanglement. Federal theory, including the very current notion of subsidiarity, established a presumption in favour of decentralisation, arguing that divided jurisdiction carries, inter alia, certain policy benefits… Federalism has always been about a compromise between unity and diversity and such measures are the price of union. At the same time, federal theory cautions against unnecessary harmonisation and favours maximal scope for the States and Territories to make their own policy choices.
Fenna A (2008). Commonwealth fiscal power and Australian federalism.
University of New South Wales Law Journal, 31(2): 509-529.
Professor Alan Fenna of the John Curtin Institute of Public Policy writes:
Australian federalism is characterised by an unusually high degree of vertical fiscal imbalance (VFI). With just more than half of the service delivery responsibilities, the Commonwealth controls over 80 per cent of all tax revenue—well in excess of its requirements. Such disparity necessarily entails some system of fiscal transfer whereby the surplus funds of the Commonwealth are used to make up the corresponding shortfall in the States…
Australian federalism would benefit from changes moderating the degree and effects of VFI and bringing the use of tied grants under control.
Hartwich OM (2009). Beyond Symbolism: Finding a Place for Local Government in Australia’s Constitution.
Issue Analysis (104): 22 January.
Link to PDF
Dr Oliver Marc Hartwich, Research Fellow, Centre for Independent Studies, argues:
Whether recognition of local government in the Australian Constitution would actually be a step towards achieving these goals is dubious. While there are advantages of giving local government recognition in the Constitution, there are great dangers as well – it could also strengthen the Commonwealth government and weaken federalism.
Jones S (2008). Cooperative federalism? The case of the Ministerial Council on Education, Employment, Training and Youth Affairs.
Australian Journal of Public Administration, 67 (2): 161-172.
This case study of MCEETYA—from its inception in 1993 to 2006—provides a pertinent example of the difficulties of establishing a national approach when the function is squarely within the power of the states.
Keating M, Anderson G, Edwards M, Williams G (2007). A Framework to Guide the Future Development of Specific Purpose Payments (SPPs).
A discussion paper by the ALP Advisory Group on Federal-State Relations.
This discussion paper was commissioned by the Australian Labor Party (ALP) to propose alternative options for reform of the architecture and operation of federal-state relations to reduce inefficiency, duplication and the opportunity for blame shifting and cost shifting.
Novak J (2008) Gains in restoring powers to states.
Canberra Times, 27 November
On the eve of a major COAG meeting on federal financial relations, this article argues that Australia should “capture the true spirit of federalism”:
The Commonwealth should not only relinquish its policy controls over state services but return personal income tax powers to the states. With sufficient revenues to fund essential services, the states can transform themselves from begging bowl-holders of federation to serious competitors for footloose economic resources.
A more competitive federalism will ensure that services are better tailored to communities' needs.
Pincus J (2008). Six myths of federal-state financial relations.
Committee for Economic Development of Australia. Link to HTML
Federal-state financing expert Jonathan Pincus argues that much of what we think we know about federalism is wrong or overstated—and that Australian federalism has succeeded:
The Australian federal system must be judged as one of the most successful in modern history. This paper argues that a key to its success is the evolution of Australian federal arrangements in response to changing circumstances. Federalism can continue to assist Australians in achieving their aspirations in the twenty-first century, by encouraging the choice of good public policies, and facilitating their efficient implementation.
Seitz H, Kempkes G (2007). Fiscal Federalism and Demography
Public Finance Review, 35: 385 - 413.
Abstract
This article examines the effects of demographic change on federal, state, and local government expenditures in Germany to answer the question of whether demographic change will induce vertical fiscal expenditure imbalances. The authors present estimates of the impact of demographic change on public spending based on a decomposition of expenditures into twenty-nine categories (functions). Results suggest that demographic change will result in significant vertical expenditure imbalances between the federal and the sub-national government sector as well as within the sub-national government sector. In addition, the estimates show that the structure of expenditures by function has to be adjusted considerably to avoid deficits since demographically induced increases in expenditures in some important functions, such as pension payments, have to be counterbalanced by exploiting potential savings that arise from demographic change in other functions.
Walsh C (2008). Fixing fiscal federalism. In: Carling R (ed.) (2008). Where to for Australian Federalism?
St Leonards, NSW: Centre for Independent Studies (pp. 43-62).
Cliff Walsh, Emeritus Professor of Economics at the University of Adelaide, discusses what changes in fiscal arrangements would be desirable as a contribution to fixing federalism.