Constitutional and other Constraints on State Governments seeking Labour Market Reform
When I was asked to present this paper I made it clear
that I was not an expert on any aspect of labour or
industrial law, even on that comparatively narrow area
of labour and industrial law concerning constitutional
limitations on State Governments initiating labour
market reform. I said however that I guess I was qualified
to give a talk in general terms on constitutional limits
on State independence generally, and to try and talk
about that in such a way that set a framework for Mr
Russell's paper and for other considerations relevant
to industrial reform in the States. So I propose to
talk about the extent of the constitutional independence
of the Australian States and therefore derivatively
their ability to deal independently with any area of
policy and therefore derivatively to deal with such
areas as industrial relations independently to the
Discussing the independence of the States is timely
in at least two senses. One is, I think, that people
will increasingly be looking to the States for reforms
in areas where the Commonwealth is not prepared to
act. That has happened quite a lot in the United States
of America. I believe it will happen more here, and
I will come back to that and give some examples, but
I think the labour market may well be a good example
The second that is important is that we have a continuing
debate over federalism and the place of the States
in Australia. At last week's Constitutional Conference
in Sydney it was actually that affirmed that Australia
should be a federal society. So it is appropriate
that we examine whether or not there is a degree of
significant independence for the States.
I propose to do two things. Firstly to look at a
couple of the major factors which I see as limitations
upon the constitutional independence of the States
and therefore upon their ability to engage in independent
policy. Secondly to look at why the States are the
poor relations in Australian government and try to
isolate a few issues which I think are of continuing
The first factor that I would like to look at in terms
of the ability of the States to function independently
is the High Court and its attitude to the federal division
of power. The popular perception of the High Court
matches pretty much the intentions of the founding
fathers that the High Court was to hold a neutral balance
between the States and the Commonwealth, that it was
to be arbiter of federal division of power disputes
according to the Constitution under law. Now most
people still believe that, and that is a remarkable
triumph of hope or sheer ignorance over experience.
It is extraordinary in the area of federal relations
that the High Court has been able to maintain that
public facade with such success because, to be blunt,
in a comparatively private audience, there has been
no question of the Court giving justice to the States
for at least 70 years.
Since the Engineers Case the general thrust of the
Court's interpretation has been powered by an entirely
non legal agenda and that non legal agenda has been
the desire to expand the power of the Commonwealth,
to expand the legislative competence of the Commonwealth,
at the expense of the States. That is perhaps not
a political agenda but an institutional political agenda.
That might be wrong as a matter of politics, it might
be right as a matter of politics, but it is not simply
a matter of law which is what the High Court should
cover. The technique which the High Court has employed
has been to interpret the Constitution with what might
roughly be referred to as Constitutional literalism.
What that comes down to, and Sir Daryl Dawson, Justice
of the High Court put it quite well, is basically that
when we inserted a Commonwealth power you take the
bare words, you construct the widest view of that power
possible on a literal reading of the bare words, and
you then apply it regardless of context documentary,
political or historical, you simply apply the widest
interpretation you can.
The essential effect that has from our point of view,
talking about the independence of the States, is that
in seeking to maintain their independence, seeking
to decide what sorts of political initiatives they
may care to make, the States have to face the fact
that in virtually any case of Constitutional doubt
they will lose in a context where we have an ambiguous
Constitution. So, you may say the States do occasionally
win. Well, so do the Brisbane Bears.
I would like to point to some specific features that
are of interest regarding this judicial attack on federalism
The first feature is the development of what I will
refer to as two Commonwealth super powers. Powers
which have the ability not merely to cause trouble
for the States but to cut a swathe through State power.
The first of those super powers is the external affairs
power. This is probably the only truly open-ended
Commonwealth power. The effect of the Dams case has
been that if the Commonwealth enters into a treaty
and assumes an obligation it then has the legislative
power to implement that obligation by the passage of
legislation. The scope of the External Affairs power
is limited only by the range of treaties into which
the Commonwealth can enter. That of course is determined
simply by the range of treaties into which it is possible
to enter and to that there is virtually no limit.
There are treaties on criminal law, on human rights,
on labour law. It is interesting that in fact the
Commonwealth has not sought to exploit that power as
much as it could partly out of what I would suggest
is a certain constitutional shamefacedness. There
is a political cost to using the External Affairs power.
Nevertheless if you go through and look at those treaties
that could be implemented, there is an enormous slack
that can be taken up by the Commonwealth.
The second is the corporations power, which is immensely
dangerous to the States because it is a power to legislate
not with respect to an activity but with respect to
a class of persons. Now as classes of persons and
corporations are central to massive amounts of Australian
life, the potential to use that power to intrude into
fields previously covered by the States is absolutely
enormous. Again it is interesting to note that the
Commonwealth has not yet, I think, called on the slack
of the corporations power to move into the area of
say, industrial relations in the way it could to regulate
industrial relations in relation to corporations, but
that may well come.
Another feature that I think is less often pointed
to but which is equally important, is the area of inconsistency
of Commonwealth and State laws, Section 109. Section
109 provides quite properly that when there is any
inconsistency between Commonwealth and State law the
Commonwealth law shall prevail to the extent of the
inconsistency. What that means is that the State has
to be extremely careful to ensure that its laws do
not come into conflict with the laws of the Commonwealth.
It has to be particularly careful because of the way
the High Court has chosen to interpret the inconsistency.
In Canada the law to be inconsistent basically means
it has to be impossible to obey both simultaneously.
In Australia the Commonwealth merely has to have evinced
intention to cover a whole field of legislation, and
then if a State law intrudes upon that covering field
in any way, even if it is identical then the State
law is invalid. That means that the Commonwealth has
the ability to cut down whole fields of State law rather
than individual pieces of State legislation. The States
have immense difficulty first determining what on earth
the Commonwealth law is and then what field it is meant
to cover. It may not sound that difficult, but it
is hard when you try to do it.
Then there is sheer Commonwealth carelessness. When
the Commonwealth chooses to make legislation it does
not necessarily bother to identify the State legislation
that may be displaced. I recall doing a paper on this
some six years ago for the Australian Constitutional
Convention and wondering what procedures the Commonwealth
had, to make sure it didn't cause mayhem, I wrote to
the then Chief Parliamentary Counsel of the Commonwealth
and I can still quote the answer verbatim:
'regrettably the exigencies of the Commonwealth legislative
timetable rarely allow us the luxury to consider the
impact upon subsidiary State legislation'.
That is not an intelligent way of conducting government
in a federation.
Another problem of Section 109 is the way the High
Court goes about applying the covering field. Logically
you should identify the field carefully, you should
consider whether the State law has intruded, you should
consider the Commonwealth's intention to cover that
field. In fact there is a tendency to just look at
it and in a very vague and holistic way make some sort
of emotional judgement, that it must have covered the
field. Rarely will the Court articulate those three
The final factor that I think is going to be a big
problem, is the validity of the Commonwealth's power
over interstate trade and commerce. That has been
a major source of federal power in the United States.
Previously in Australia the use of the Commonwealth's
power over interstate trade has been restricted to
Section 92 which applies to coal. It is difficult
for the Commonwealth to regulate interstate trade under
the old law of Section 92 or it may run foul of the
guarantee that trade be absolutely free.
The result is that it all adds up to an atmosphere
where the States cannot rely on a fair constitutional
hearing. It affects their ability to implement policy,
it affects their willingness to try. I will give you
a good example of that. When Lionel Bowen was embarking
on his ill-fated venture with corporations, there was
a suggestion that Victoria would in fact refer the
relevant power to the Commonwealth. Now whether that's
a good idea or not Victoria was going to do it and
one had to try and make some sense of an intelligent
transfer. I was the poor person who got the job of
trying to draft the reference legislation, which was
very greatly constitutional rather than commercial
legislation. The difficulty was that when a State
tries to refer power it has to try to retain some way
of making sure it doesn't refer too much. The problem
was we could have no confidence that, however good
the clause and however clear the intention and however
blatant the constitutional position, we would not lose.
Without wishing to be too bleak about this, I am saying
that the High Court is going through a period of quite
profound change in terms of constitutional interpretation
and I don't think it has become evident yet. I have
said that the method of the High Court is constitutional
literalism, interpreting powers literally and according
to the natural words and without regard to the implications.
The problem with that form of constitutional interpretation
is that no-one believes it any more. No-one overseas
believes that you can go to a particularly ambiguous
constitutional document and interpret it according
to the natural meaning without regard to anything else.
When you go to North America and they ask you as a
constitutional lawyer about your High Court's interpretative
method, and you say they interpret it according to
the natural meaning, they just laugh.
The problem is I think that the High Court stuck with
literalism but also stuck with the fact that it doesn't
even apply literalism because it has this agenda underneath
it. It is losing faith in its own interpretative method.
Two new forces are starting to play themselves out
and have been doing so since the Dams case, each going
in the opposite direction.
One I would refer to as progressivism which is very
evident in the Dams case. This states that the Constitution
is ambiguous, we should interpret it according to the
interests of modern Australian society, and we will
tell you what those interests are. That is the strong
line from High Court authority. It's a difficult one
to run in terms of democracy, and has grave dangers
for the States, because the High Court obviously is
not going to consider the interests of the community
in the States so it is likely to increase centralisation.
It can have a lot of other implications.
The contending force I would refer to as intentionalism,
the idea that you interpret the Constitution not according
to the literal meaning but according to the intention
of the founders. Funnily enough, while the High Court
flirts with progressivism it is also flirting with
this, partly because literalism has collapsed and you've
got to come up with something. An example of that
is in the Corporations power where the High Court referred
to the convention debates of the founding fathers and
used them as the main force in denying to the Commonwealth
the power to regulate incorporation of companies.
This is pretty funny because intentionalism and progressivism
and literalism are all mutually inconsistent, and I
think as literalism dies you are going to see a period
of considerable chaos. It will be interesting to see
what emerges out of that in terms of federalism.
Another factor in relation to State independence is
of course the area of Federal fines. Even if the High
Court were to wake up tomorrow and repent and reverse
its interpretation it wouldn't necessarily help the
States anywhere near as much as they would need, because
they lack the financial resources to engage in any
I don't want to dwell on this but there are two points.
One is that the States are revenue starved, they are
prohibited by the Constitution to exact excises at
customs, and on top of that they are practically excluded
from income tax by a combination of Commonwealth muscle,
their own political spinelessness and by the perceived
political inability to impose double income tax. The
result is that the taxation regime of the States is
an odds and sods regime.
The second point is that this financial difficulty
has been the Commonwealth's opportunity. As the States
have come to rely heavily on Commonwealth funding the
Commonwealth is able to exact a quid pro quo, particularly
by using Section 96 of the grants power which enables
them to impose conditions on giving money to the States
and this is the way the Commonwealth has been able
to significantly take over areas like tertiary education,
by funding with condition. That is a massive and incalculably
difficult impediment to State independent policy.
Simple blackmail. We often talk about co-operative
federalism. I've always thought of co-operative federalism
as the way that you co-operate with a mugger: you give
him money so he doesn't shoot you.
Basically that there are no legal descriptions on
the power of the Commonwealth vis a vis the States
and correspondingly no legal protection for the States,
but the States are in little financial position to
resist with the insurgence of the Commonwealth, with
the result that the constraints on the Commonwealth
are purely political. You can only not do what the
electorate won't wear, and if you wanted to rewrite
the Constitution, Section 51 would become something
like: The Commonwealth 1) may do whatever it can get
away with, and 2) cannot do that which it cannot get
away with. That is very close to the position now.
I want to conclude by making a few general comments
on this situation with relevance to the position of
the States within the Australian federation and their
ability to act independently. I want to be quite critical
of the whole area, I want to be critical of myself,
and I want to be critical of you.
I want to start by attacking you and me by saying
that the whole base of federalism and the position
of the States in Australia has been appallingly unsophisticated.
In Australia in both constitutional and political
terms we are awful at abstract constitutional reform.
We are the sort of people who are very good at putting
a spark plug in a car and wouldn't know a combustion
engine if we fell over it. We have never tried to
articulate the theoretical advantages of federalism
or argue it, we have simply tended to dwell on the
costs, which are easily observed. We have never got
into trying to think about the theoretical and conceptual
advantages of federalism which are the very advantages
which appealed to both the American founding fathers
and our own. Those sorts of conceptual advantages,
I would suggest to you for some consideration, are
very much the sorts of advantages that you as an institution
might care to ponder. If you go through the American
literature on why federalism might be a good idea,
you see that they talk about federalism as a recognition
of diversity, and a mechanism for fostering diversity
when diversity may be seen as a positive thing.
Federalism is a mechanism to encourage political involvement
by people by allowing them to be involved on both a
smaller but significant and a larger scale. Federalism
is a means of bringing government levels closer to
the people to make those governments more efficient,
more accountable, and more responsive to local needs.
And Federalism is a mechanism of balancing power.
We all like separation of power analytically dividing
it into judiciary, executive, legislature. Federalism
divides it geographically and is about a balance of
power, and if you are worried about tyranny, if you
are worried about concentrations of power then logically
you are at least partly committed to considering federalism.
That is important in this country.
Now I understand that there are also always counter-claims
against federalism. We always get taught the need
for uniformity, the need for central power to be able
to manage the economy. Uniformity is only a good thing
if you have a net benefit. It only works if you are
brought up to some reasonable common denominator and
not down to the lowest, which is all too often the
case in a federation. I always think of the defamation
laws here. I am proud of the fact that in Victoria,
truth is a defence. I do not want to be dragged back
to New South Wales and go and have to prove that truth
on a matter of public interest is an offence, and I
will be blowed if Victoria should give up its diversity
---which in this case happens to mean being a more
advanced political community than New South Wales---
in the interests of uniformity. That's the first point
I want to make.
The second point is this, the old idea about needing
strong central power to manage the economy. I can
see the arguments there---there are obvious reasons
to try to have a strong central economic management
system, but I point out this. One can observe that
seventy years of increasing central power does not
seem to have produced an immensely healthy economy.
If you found that a brand of soap wasn't washing properly
it might have something to say to you about whether
it works. One can't overstate this but there is no
necessary correlation between centralism and good economic
management, and that is something worth thinking about
in terms of federalism.
Conservative forces in Australia in their considerations
of federalism have been particularly reprehensible.
The Federal Labor Party also has an ideological commitment
against federalism and in favour of the centralisation
of power. Even politicians who speak in favour of federalism
have seldom acted accordingly. To anybody who actually
has ideas of freedom of choice, of diversity, of responsiveness
to local populations and of balance of powers, there
is an obligation to do something more than simply to
claim to be in favour of the States, then when one
comes to power federally to do one's best to destroy
them. It is also true that in the area that I come
from---academia---so many ordinary young
people are attracted to left wing theories of constitutionalism
by default because there are no other theories.
One should be careful of taking a view of constitutional
reform that is short sighted. I know that some of the
reactions to the constitutional convention which was
held in Sydney were along the lines that there must
never be a change to the Constitution, how dare they
fiddle with the Constitution.
Constitutions do need reforms after 90 years. It's
a question of whether they're good reforms or bad reforms.
I have invested an enormous amount of energy over
the years in attacking the cretinous argument that
we have a horse and buggy Constitution. The Australian
Constitution undoubtedly is the central political achievement
in this country in its entirety. It is a very good
Constitution, but no Constitution is ever perfect.
The founders would have been appalled by the idea
that we would never change it---and you are assuming
of course, if you take that attitude, the Constitution
has never changed anyway.
I would like to change the Constitution back to more
like its original form and I am not terribly interested
in arguments that we are never going to change it.
I would say one other depressing thing before I say
two happy things. My depressing thing is that I think
that the downward trend of the States may already have
gone beyond the point from which a balance can be restored
between them and the Federal government. We may not
be able pull it back, although I think we may have
reached bottom. We have now got to the stage where
even if you can destroy a federal Constitution, you
can't destroy a federal society.
There are two factors that I would conclude on though
that I think may cause some rejuvenation for federalism.
One I would call the factor of undesirability of
power for the 90s. Power is most desirable in the
Constitution when it won't cost you anything to exercise
and when you don't have to take responsibility for
the whole area you are exercising. Power is much less
desirable when it costs a lot to exercise it and when
you have to take full responsibility for the area in
which you are exercising your power.
Traditionally the Commonwealth has to a large extent
been able to enjoy power very much because it has had
the money to pay for the exercise, and because it has
to some extent been able to charge around as a white
knight to do lovely things and overrule the States
when it suits it and take the credit. A perfect example
is environment. The way the Commonwealth has worked
in the environment so far is firstly because it had
the money to bear the costs for environment protection.
Secondly it didn't have to take political responsibility
for the environment because mainly that stayed with
the States The only time the Commonwealth came in was
when Tasmania was trying to dam the Franklin and then
the Commonwealth came screaming in saying 'the platypus
shall swim free to the sea.' Now the Commonwealth no
longer has the money to be able to as easily afford
these indulgences, and it has come into some of these
areas a bit too often to be able to walk out, so that
suddenly the green movement is no longer looking at
Gray or Greiner, they're looking at Hawke. It turns
out to be no fun to be in control of the environment
Now I think you are going to see a lot of that. It
is no fun to have power if you can't pay to fulfil
responsibilities that the electorate expects. We may
well see the Commonwealth not merely not taking more
State power, but positively wishing to shovel large
bits of it back. Education is a prime example, but
also health, social services, all of these things
I think may well tend to be shuffled across to the
The second factor which may positively influence our
views on federalism is simply this---that while
it may be fashionable in Australia to be a centralist,
it's much more fun to be a true centralist at a cocktail
party. There are intense worries around the world
about the power of central executives, of the huge
power of conglomerations, that people are talking about.
Ideas that central government is not necessarily,
an efficient government. Perhaps most interestingly,
what is highly likely to happen over the next thirty
years is that three or four of the most powerful countries
on earth, those countries that will come out of the
Soviet Union, Eastern Europe and Western Europe plus
the United States will be federalist states, and those
first three probably highly federalist states. There
is a world trend towards federalism and it may be,
even in Australia, this will affect our thinking.
As I said, I didn't propose to say a huge amount about
industrial relations, although I hope that I have set
some sort of background for a consideration of the
constitutional matters relating to industrial relations.
I hope that that background is useful in considering
the idea of the States taking independent political
initiatives in a whole lot of areas, including wage
awards and industrial relations.