No Vacancies

Constitutional and other Constraints on State Governments seeking Labour Market Reform

Greg Craven

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 Commonwealth.

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 of that.

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 relevance.

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 in Australia.

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 modular steps.

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 serious independence.

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 anyway.

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 States.

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.

Why HR Nicholls?