CHAIR —Welcome. You may wish to make some opening remarks, as I note that you have made an extremely short submission—if we could even describe it as that. Would you like to outline your views?

Prof. Williams —Yes, if I could. I would also like to make a couple of additional points that have come to me as I have looked again at the provision and thought about some other matters. My point, essentially, is that section 5 of the bill is overbroad. It goes beyond what is necessary to set up the federal scheme and, in particular, exhibits what I would refer to as a coercive approach to federalism. Instead of setting up a system based upon a cooperative scheme, it pre-emptively overrides a range of state laws, whether enacted or potentially to be enacted, and in doing so could have a great impact upon the ability of the states to legislate in this area and to set up a variety of different schemes.

My view is that you might well be able to justify something as broad as this if it were on the basis of a cooperative arrangement between the states and the federal government. It might be, for example, that the states agreed that their laws would not operate so long as they got equal access to the information collected under the Comonwealth scheme or if the states were ensured that their information would be collected and they could provide the questions or other information collected as part of the scheme. But I think it would require that type of cooperation to justify a federal section of this kind.

I have a couple of other points specifically about section 5 that I think raise some operational problems with how it will work in practice. Section 5 deals only with constitutional corporations and the information collected in regard to them, but is extremely broad in terms of the type of information that the states cannot collect. It refers, for example, to constitutional corporations disclosing or collecting information about energy consumption or energy production. It is true that certain state agencies can be constitutional corporations, particularly utilities, water authorities and the like, and this might prevent the states collecting information from their own bodies where those bodies are engaged in the energy industry. That itself seems to be me to be clearly overbroad.

Another problem is that the definition of ‘constitutional corporation’ itself is very uncertain and, until the High Court resolves that, it will not be not clear whether section 5 will apply to the whole of the local government sector, which is an area that, in Work Choices and other contexts, is still having its status reviewed. It does mean that you will end up with some quite thorny constitutional questions that will need to be worked out in the High Court. That will impose a high compliance cost and a range of other costs that will need to be borne in order to work out exactly who is precluded by section 5 from giving information to the states.

CHAIR —If, within the regulations, there is scope for consultation with the states and adjustment of the breadth of this clause, would it not be possible that any of your objections could be thereby addressed?

Prof. Williams —Yes, it would be possible to blunt the worst problems with this section by making appropriate regulations. I do agree with that, and the regulation power itself is very broad. But it gets it the wrong way round. I do not think you can set up an effective cooperative arrangment whereby you legislate for something coercively and then rely upon it being fixed up later. I think it is much better to structure a provision based upon consultation and negotiation prior to its enactment. Also, you rely upon the regulations being made in an appropriate form, and until they are made you have these continuing problems. It also leaves the operation of the law subject to whoever is in government and their making of the regulations. I think that is inadequate as opposed to a truly cooperative arrangement.

Senator WORTLEY —Your submisson concisely addresses the impact of clause 5 on the states and territories, and you have briefly discussed that in your introduction. Would you care to discuss the policy underpinning or otherwise of this provision.

Prof. Williams —I can only talk from a constitutional perspective. I certainly do not have any pretence to expertise in the broader policy dealing with greenhouse and energy reporting. What I can say from my perspective is that the policy that underpins this is a policy that is not based upon cooperation between the Commonwealth and the states. You simply do not find provisions of this kind enacted where cooperation underpins it. Indeed, if you want to find equivalent provisions, you have to turn to some quite significant disputes—for example, those involving the third runway in Sydney—at that point I think it was the Hawke government that enacted a similar provision—and the Work Choices legislation—which, in section 16, has an equivalent provision.

It is quite unusual to find something as broad, as direct and as coercive as section 5, which pre-emptively knocks out a range of state laws. The short answer is that, for me, the policy is one that is clearly not cooperative, despite the potential saving effect of the regulations. That is deeply problematic in an area such as this in which, if we are to have effective not only reporting but regulation of climate change and this problem, we will have to have cooperation between the Commonwealth and the states. Neither alone can deal adequately with this problem.

Senator WORTLEY —Given that the emissions trading scheme would not come into effect until 2012, it has been argued that the passing of this legislation would result in the termination of many state and territory greenhouse programs for the intervening years. Do you share this view?

Prof. Williams —Yes, I share that concern. I do not pretend to be able to talk to the specifics, but I am well aware that state programs of this kind depend to a very large extent on the collection of accurate information. If you do not have the information, you cannot engage in a proper system of regulation. That is why it is inappropriate for the Commonwealth to knock out state laws so broadly. I do not think that it is appropriate that they can be saved on an ad hoc basis by the making of regulations. Indeed, before legislation of this kind is enacted, there should have been better consultation and negotiation to work out exactly what impact there would be on the state schemes and to eliminate or minimise that impact.

Senator MILNE —In your submission, you say that section 5 should be removed because section 109 of the Constitution puts in place a sufficient mechanism to resolve disputes. Could you elaborate on that a little more?

Prof. Williams —I am happy to. There are two paths that can be taken here. One path is that you have something like section 5 but it is based on negotiation in a cooperative scheme. Indeed, that might be the ideal system, whereby you do have national collection of data but the states are willing for that to occur because they get access to that data and design the collection in cooperation. That is the best option. The second option is, as I have stated in my submission, that you recognise that there is no agreement and that there could be problems of inconsistency. But the Constitution already deals with that and if a corporation or any other body was put in a position whereby they were stuck with two competing but inconsistent laws the constitutional answer is that the Commonwealth law would prevail in any event. But it would do so in a far more limited way and unlike section 5, which simply knocks out a range of state laws, the state laws in this case would only be removed where there truly is an inconsistency and it is impossible, for example, for a corporation to properly comply with the law because of the competing obligations placed upon it by federal and state laws. I have to say that that would be very unlikely to arise, because where you are simply dealing with the collection of information in many other areas you tend to find that there is dual collection because it is accepted that one or more tiers of government need information from corporate and other bodies.

Senator MILNE —It has been put to us this morning that one way to overcome this in the short term is to amend the proposed section 5 of the legislation to have ministerial discretion restricted to areas where duplication is an issue. Is that an appropriate way of fixing the problem or is deleting the clause in your view the best way?

Prof. Williams —I would delete the clause, because even if there is duplication I do not think that it is an adequate solution to override the state collection of data unless you have a cooperative arrangement whereby the states will fairly get access to the federal data. You could well remove the state collection but provide a system that still does not give the states the information that they need to set up their own responses to climate change or their own schemes, and that is why the cooperative aspect is so important. My view is that you do not deal with duplication by simply coming over the top with anything like section 5. You deal with it in a different way involving cooperation. My view is that it is better to simply delete section 5 until a cooperative scheme is arranged.

Senator MILNE —There has also been some discussion here today as to whether the legislation should proceed in the absence of the regulations. The argument for doing so is urgency; the argument against doing so is that while there might be delay you will get an understanding of whether we will have a best case or a worst case scenario to underpin an emissions trading scheme. Given the current debate, do you think that it would be better to delay proceeding until the regulations are clear?

—I would deal with it in a different way. Obviously, my first preference is to delete section 5. My second preference would be that, if there is a view that something of this kind must be there and if there is also a view that you cannot have the regulations available, section 5 should be amended to provide that there is no overriding of state law except in those areas made by regulation. So that is actually reversing the operation 180 degrees to provide that it is only by regulation that you can actually specify certain state laws to be overridden, and, in the absence of those regulations being made, no state laws are overridden. That provides the ongoing role for the houses of parliament to look at individual instances of overriding state law without doing it prescriptively and pre-emptively in this way.

Senator MILNE —That is very helpful, thank you.

Senator WORTLEY —Professor Williams, is there potential, by virtue of this clause, for less rigorous reporting on the part of corporations?

Prof. Williams —Yes, there is that potential, because what you may well find is that the Commonwealth may only need to collect a small set of data for its own purposes, particularly if the Commonwealth does not have the range of responses to climate change and other problems that the states may have. That may mean that the reporting needed for those wider state and other schemes is simply not collected because there is no Commonwealth need for it. That could mean that vital information would not be collected, by virtue of the state schemes being overridden where the federal system is not requiring that same data.

Senator BIRMINGHAM —Thank you for your time today, Professor Williams. If we took your approach and abolished clause 5, it would allow for states to continue to operate their own reporting frameworks in tandem with a Commonwealth reporting framework, would it not?

Prof. Williams —That is correct, unless there is a genuine inconsistency with those. As I have said, that would be unlikely to arise through mere reporting.

Senator BIRMINGHAM —Given the objects of the Commonwealth, the desire of industry and, I would have hoped, the desire of the Labor Party and the state governments and others to remove the potential for duplication, surely a Commonwealth reporting arrangement where we saw sharing of information with the states would be a preferable outcome.

Prof. Williams —I agree with you. I actually think that the policy object is a good one: to avoid duplication of reporting, to provide standardised reporting, to lower compliance costs on businesses and other organisations. I think that is a worthy and appropriate object. It is simply that this is the wrong way of going about it, in my view. This is an exceptional provision. You do not normally find provisions of this breadth being enacted. I think that the better way to go about it, as I have suggested, would be through a cooperative arrangement whereby there is a single agency collecting data on behalf of both the Commonwealth and the states to ensure that questions are minimised, compliance is minimised and that you have one reporting obligation. In the absence of that, it is not appropriate to pass this legislation, because you knock out the collection of appropriate data that the states need. For that reason, I would say I agree, but it should just be dealt with in a different and more appropriate way.

Senator BIRMINGHAM —This is an emerging area of policy and law. I guess the approach that is being taken by providing ministerial discretion allows future ministers to exercise that discretion as new policies, programs et cetera at a state level emerge, rather than being locked into some type of framework if a tighter definition of section 5 were adopted.

Prof. Williams —Again, that is a fair point. But I think the provision is the wrong way around to achieve exactly that object. Unfortunately the provision pre-emptively knocks out all of the state reporting schemes, whereas what it should be, if it has any place without a cooperative arrangement, is a regulation-making power to override state schemes where they are perhaps collecting data that is being duplicated. Then you could actually narrow it down just to the state schemes rather than having it there and then an escape clause that may or may not be exercised. The other point I would make about this scheme, which I mentioned at the beginning, is that this is not a general override; it only relates to constitutional corporations. This will put significant compliance costs on a range of corporations where it is unclear whether they fit within that definition, such as local government, non-profit bodies and a range of others that would need to report. Even though the object may be to reduce duplication and business costs, I can tell you, as a constitutional lawyer, that one of the obligations will be to seek some expensive legal advice as to whether they do or do not fit within this definition. I think that is an unintended but unfortunate consequence that, again, would be avoided by structuring this in a different and better way.

Senator KEMP —Professor Williams, I join my colleagues in thanking you for appearing before the committee, although we only have the pleasure of your voice rather than your presence. We hear what you say. I guess the basic argument for this clause is to develop a national scheme to prevent duplication with the states. We take your point that this can knock out some state schemes which you feel are worthwhile schemes, but the clause also allows for the minister to agree that those state schemes could continue, does it not?

Prof. Williams —Yes, it does, and I do recognise that a regulation-making power exists that could save the state schemes. But the point is that the law will come into force and the state schemes will disappear unless they are saved on an individual ad hoc basis. That does not seem the right way round to dealing with this. In particular it removes the possibility of corporation which should be at the front end of this scheme not something that is saved afterwards. I think that it is poorly conceived in the way that it is put together. I would also say, as someone interested in the area of federalism, that if we cannot get together and cooperate on the sensible collection of vital data to all levels of government then I really despair of the possibilities of getting cooperation on other really important areas. It seems to me that this is a commonsense thing. People should be getting together and setting out one system of reporting and collection, avoiding the constitutional problems of definition and with the Commonwealth dealing just with constitutional corporations, and putting that together in a way that all state and federal governments have access to the information they need collectively through one agency without the costs that I understand business should not be put to through duplication of reporting.

Senator KEMP —I hear what you say but this clause in a sense does give the Commonwealth the whip hand. It does not prevent the outcomes which all of us around the table would think are worthwhile. Section 3 does allow, as you have noted, for the minister to determine that the particular state law can continue and, presumably, the collection of data. I think it is a matter of who has the whip hand on these things. We have seen the case of the Murray-Darling Basin and we all agree that it is good to cooperate and it is good that the States and the Commonwealth can work together. But at the end of the day if you have a recalcitrant state like Victoria, what you do? In the end someone has got to make a decision.

Prof. Williams —I accept your premise, but I think that there are two points to be made. Firstly, I think it is very important that we start with cooperation and an attempt at cooperation. I respect the fact that the Commonwealth has now legislated for the Murray-Darling, to override Victoria to the extent it can. But it did the right thing. It went through a cooperative process first: agreement would not be reached and then it legislated. I think that it is very important that that process is followed because otherwise the Commonwealth lacks legitimacy to be enacting legislation of this kind.

Secondly, I think that it is a mistake to overstate the power that the Commonwealth does have here. It can only have the whip hand when we are dealing with constitutional corporations. Vast numbers of organisations, partnerships, sole traders and other bodies—some of significant size—will not be covered by this and will be still stuck within a state reporting mechanism. All we end up with it is a fractured system whereby, based upon this definition of constitutional corporation, the Commonwealth will or will not have the whip hand and you will still actually be forced to negotiate with the states for all of the other bodies that you cannot cover and you will end up not, if you like, with common sense and goodwill emerging but, as in a number of other areas, a level of anger and distrust between levels of government because of how the scheme has been brought about.

Senator MILNE —Professor Williams, could you give me an example—apart from local government—of an entity which is not a constitutional corporation but which may be a major emitter?

Prof. Williams —Yes, I can. Firstly, there are a number of corporations that are not covered. Only trading, financial or foreign corporations are covered by this definition and local government is the most obvious one. It could well cover a range of people in the non-profit sector such as sporting organisations, charitable organisations and others which, like the Salvation Army or other bodies, may have a very large number of employees but may not be engaged in industry. I accept that they are not emitters of that kind but, nonetheless, they are very sizeable organisations.

You have also got organisations that are not corporate bodies at all. A very large part of the economy is run by partnerships, sole traders, unincorporated associations including most bodies engaged in the legal profession. You can also probably add a very large number of farming and other organisations where irrigators and others are not corporations and so would not be covered by this. When you add in large parts of the agricultural sector, legal and other financial sectors and the non-profit and a number of government sectors, you will find that it is actually a very significant part of the workforce and of business groups that will not be covered by this override and will still be stuck with duplication of reporting but without cooperation through a single body to collect the data.

CHAIR —Thank you very much for appearing. Unfortunately we are out a time at this point. Your evidence has been very interesting.

Prof. Williams —Thank you very much. We have wrung more out of one page than I thought we could. I am delighted that I could be of some assistance.

CHAIR —You have been of great assistance. Thank you very much, Professor.