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Joint Select Committee on the Constitutional Recognition of Local Government
Majority finding of the expert panel

BROWN, Professor Alexander Jonathan, Centre for Governance and Public Policy, Griffith University

PEATMAN, Ms Maureen, Chair of Legal Practice Section, Law Council of Australia

TWOMEY, Professor Anne, Private capacity

WILLIAMS, Professor George, Private capacity

Committee met at 09:22

CHAIR ( Ms Rowland ): Welcome to this first public hearing of the Joint Select Committee on Constitutional Recognition of Local Government. At the outset I would like to thank all participants who are contributing to this inquiry and particularly acknowledge your efforts to assist us at short notice. Do you have any comments to make on the capacity in which you appear?

Prof. Brown : I appear in a private capacity, from the Centre for Governance and Public Policy at Griffith University in Queensland.

CHAIR: I also want to declare to the committee that, although I do not work at Gilbert + Tobin anymore, Professor Williams is director—

Prof. Williams : I was.

CHAIR: was director at the Gilbert + Tobin Centre of Public Law. I obviously no longer work for Gilbert + Tobin but I just disclose that to the committee.

Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a formal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. These proceedings are being broadcast live on the internet.

The secretariat has distributed general discussion areas that will guide our discussion. To begin with, Professor Anne Twomey will provide a short summary of the general issues that are relevant in this area. We will then move to questions and discussions.

Prof. Twomey : First of all I will just talk about some of the points that I think are peripheral—to get rid of them—and then move to the core issues. The peripheral points concern other reasons why you might want constitutional recognition of local government in the Constitution. One of the reasons that is sometimes stated is that local government is a third level of government in Australia and it should be recognised in the Constitution. This, I think, is a bit of a misleading argument. Technically, local government is not a third independent level of government in Australia; it is a sublevel of government of state government.

Our Constitution is a dualist system. It has two levels of government—a federal government and a state government. If you were to introduce local government as a separate, independent third level of government you would have to change a whole lot of other provisions in the Constitution. First of all, you would have to have powers of local government to make laws. You would have to have rules about how those laws conflict with the laws of the Commonwealth and the laws of the state and how it all fits together. You would have to change other provisions of the Constitution, like section 114; where local government comes under a state for the purposes of local government property not being able to be taxed by the Commonwealth; you would have to change your implications, like the Melbourne Corporation implication that protects state governments from Commonwealth government action. You would have to have a similar principle in relation to states and local government, and it would be very complicated and I do not think anyone is proposing to do that.

Although many of us, probably including me, have often described local government as a third level of government, I think that for these purposes that is not what we are trying to do. If we could avoid that sort of loose discussion to avoid those sorts of issues, that would probably be helpful.

The second area where people want recognition of local government is in trying to protect its democratic standing in order to prevent, for example, states from sacking local governments and appointing administrators. That is an issue that is often raised. That was raised and discussed in the Spigelman committee but apparently it is not really what we are trying to do today. Again there is a good reason for that, because the difficulty with local government is being small government in very small areas and localised, and particularly where there are strong financial interests involved in the classification of property, for example, and property development and therefore very high risks of corruption because of the financial benefits of that. There are very strong reasons why you may want to retain a system where a council can be dismissed if there are problems with corruption and for it to be replaced in circumstances where you do not immediately elect a new council, because of the problems of it being a small area and taking a longer time to get new candidates and people up who are not involved in the initial corruption.

The other political reason for not going down that route is because it would take powers away from the states and cause problems with the states. Again, that is not the proposal that is before the committee. The proposal for constitutional recognition of local government is largely in relation to the financial issues, which I will come to now. The financial issues arise because, under the Commonwealth Constitution, the Commonwealth can fund local government through grants under section 96 of the Constitution to the states. They put conditions on those grants that say that all the money goes to local government and that is how local government, since the 1920s, has received money from the Commonwealth. For a short period under the Whitlam government, and then revived by the Howard government and continued from then, there have also been some direct grants given to local government from the Commonwealth. There were doubts during the Whitlam period as to whether this was constitutionally valid. The Whitlam government sought a referendum to make it constitutionally valid. The referendum was defeated, the Fraser government went to a different way, back to section 96 grants, in funding the local government and also giving them part of income tax. More recently, in the Pape case and the Williams case, there has been significant doubt as to the constitutional validity of that direct funding of local government.

My own point of view, as a constitutional lawyer—particularly looking at the Roads to Recovery program—is that it is more likely than not that it is constitutionally invalid. That leads to an issue where people say, 'Then we want to change the Constitution to allow direct funding of local government. That then leads to the question of, 'If you change the Constitution to allow direct funding, you could do that, but why do you need to make such a change if you can already give exactly the same amount of money to the local government through the states under section 96 grants?' All you are doing is achieving a second way of achieving the same thing that you can already validly do under the Constitution. What is the difference? What is the benefit? Why go to a referendum and spend $50 million, $80 million or whatever it is to do that when it actually does not achieve a different outcome? The same amount of money goes from one spot to another.

There are a number of arguments that I think are misleading. There is the argument of: local government will get more money if you take out the middle man.

There is no evidence to support that at all as best I can see. The costs of distributing money within the states through local government commissions, grants commissions, are actually borne by the state and not borne by local government, so the money that is granted by the Commonwealth goes in its complete entirety from the Commonwealth to local government without any extra money coming out for administration. In fact, the likely prospects are the reverse. If the Commonwealth had to take all the costs of administering the distribution of the money to local government, the most likely thing is that the Commonwealth would deduct its administration costs in doing so, resulting in less money going to local government. You can see that because that is exactly what the Commonwealth does in relation to the GST and its distribution to the states: it takes the money out for administrative costs before that money goes to the states. So the big risk if you move from funding through the states to direct funding by the Commonwealth is that the administrative costs of doing so will be deducted. So I think that argument does not really work in relation to the arguments about why you need direct funding. There is another argument there that the states take their cut from the grants. Again it is not true. The Auditor-General has to sign off that all the money has gone through. It is a bit of a misnomer.

The third argument, and this is an argument that may well have some basis to it but it is a very hard one for the Commonwealth to argue, is that the Commonwealth is only likely to fund local government appropriately if it can use the money in such a way that it is more likely to buy votes. The argument here is that the Commonwealth is disreputable, that it will not fund local government appropriately unless it can do so by direct funding with lots of signs and advertising for itself saying, 'Gee, aren't we wonderful,' and therefore buy votes from it, and that therefore you get more funding for local government through direct funding than you get through funding through the states because then the Commonwealth does not get the kudos and cannot buy as many votes. The difficulty with that argument is that I do not know that would you get many Commonwealth ministers prepared to run it and therefore it has to be run sotto voce, just saying it is more likely that local government will get more funding from the Commonwealth if they can fund directly with that being the underlying argument that people are supposed to guess but you are not supposed to say. From my point of view I do not find that an acceptable argument. I do not see why you should change the Constitution in order to facilitate bad behaviour; it does not seem to be an appropriate thing to do.

Ultimately if you see all the arguments about why local government should be funded directly by the Commonwealth it is all about local government getting more money. But it does not seem to me that there is any clear evidence or reasoning as to why local government gets more money from direct funding than it gets through funding through section 96 of the states, unless you come down to the argument of the Commonwealth wanting to only spend its money to buy votes, and I do not think that is an acceptable argument.

To me that seems to be the range of arguments that we get into. I will let my colleagues vociferously dispute that.

CHAIR: Thank you very much, Professor Twomey. I might first open it up to questions from committee members. I am thinking of the time and want to make sure we get down to some of these.

Senator BUSHBY: You made a comment then and you go into more detail in your submission that local governments might actually be worse off financially if the changes that we are discussing today are implemented. Why then do you think local government is so keen on those changes? Why are they labouring under a misapprehension?

Prof. Twomey : I think that is really curious and I struggled with that idea for quite some time. I think there is amongst local government one argument that I did not go into but that I will mention here, and that is a great desire for respect. There seems to be a view that somehow you gain respect by being mentioned in the Constitution. Again I am not sure that that is true. Local government has been recognised in state constitutions. I am pretty confident in predicting that 99.9 per cent of the population do not know that and that it does not alter their opinion of local government. While it is true that if you had a referendum to recognise local government in the Commonwealth Constitution some people would need to be aware of it because they actually had to vote in the referendum, I suspect it would disappear from people's consciousness pretty quickly.

I do not think that you get respect by being mentioned in the Constitution; I think that you only get respect by earning it. I think that is an underlying thing.

What is really interesting is that if you look at the debate about recognition of local government in the Constitution, it goes back well before the Pape and the Williams case. The stuff we are discussing now about direct funding is subsequent to the local government's Constitutional convention. At that Constitutional convention there were hundreds of different reasons why people wanted recognition of local government, but no-one could really agree on what the real reason was. It seemed to be some sort of notion that everything will be better if we are mentioned in the Constitution, and I just cannot see that that is really true.

Senator BUSHBY: Your argument is that they would be worse off—

Prof. Twomey : Possibly worse off.

Senator BUSHBY: because the Commonwealth government may shift all its money to direct funding rather than through section 96 and then require the administrative costs to come with that. ALGA says that they could have done that now—or at least prior to Pape and Williams they could have done that—and they have chosen not to. Why do you think that the Commonwealth would choose to do that if there were a specific right to do that?

Prof. Twomey : At the moment, most of Commonwealth money to the states still comes through section 96 grants. The Commonwealth asserts that it has power to fund directly, and does so in some cases. But it has never been game to put all its eggs in one basket because it too knows that it is actually fairly dodgy. And since Pape and Williams, I am sure that they are reasonably confident that there is vulnerability in what they are doing and that is why they have not done it that way.

In the past we have had the distribution of money by virtue of population to each state first, and then within the state they distribute that money according to need with a 30 per cent minimum going to each local government according to population. Instead, the Commonwealth parliamentary committee and the Commonwealth Grants Commission have previously recommended that it all go on the basis of need. That seems fair enough. But if you go on the basis of need and you do not distribute to each state because you no longer have a need to distribute to states for section 96 reasons because you can do it all directly, first of all, New South Wales and Victoria lose out hugely because New South Wales and Victoria at the moment get the advantage of the original grant being based on population. If it is based on need rather than population for each local government area, they are going to lose out significantly and so that will significantly affect those two states.

ALGA seems to think that you would not do it because there would be a huge political kerfuffle if you did do it. But then the other question is: why would ALGA want to give the Commonwealth the power to do the thing that they do not want the Commonwealth to do? That strikes me as really odd. Why would you want to change the Constitution to give the power to the Commonwealth to do the thing, which is the Commonwealth controlling directly local government funding to all local government areas without going through the states, if you do not want them to do it?

Senator BUSHBY: One the issues with local government—and I have got 17 local government areas in my electorate—is the feeling that in regional local government the task that they have been given to do is not funded sufficiently, because they have far wider-ranging issues. In regional areas local government are doing aged care, child care, native issues—a whole range of issues—and one of the frustrations is that the model at the moment does not take into account those varying needs.

The other question I had was with regard to respect. One of the issues with local government now is that you are purely there at the whim of the local government minister in each state and, if you fall foul of that local government minister with either squabbling among councillors or financial dealings, they can put an administrator in, and there is a feeling that local government does not have any power. I would like your thoughts on those two.

Prof. Twomey : In terms of the distribution between cities and local government areas, I think it is undoubtedly true that if the Commonwealth did take over local government funding and funded directly to each council according to some sort of criteria, depending on what sort of criteria they used, the likelihood is that more disadvantaged rural areas would get more money and that the city areas, particularly the metropolitan areas, would get less. In terms of fairness that is probably a good outcome but in terms of self-interest, if you look at the statistics in terms of how that would affect people, that would probably give an advantage to about one per cent of the population and would disadvantage something like 98 or 99 per cent of the population. So, from a voter's perspective, the proportions affected who would end up with raised rates and reduced services living in the cities from a population point of view would be much greater than the benefit from a population point of view from those in rural and disadvantaged electorates. So, yes, on the one hand one approach is fairer but on the other side the existing system is more beneficial to a greater proportion of the population. So, from a political point of view, that is the issue you are balancing in there. Sorry, the second question was?

Mr COULTON: The fact that local government is purely at the behest of the minister.

Prof. Twomey : Yes, the dismissal sort of issue. The question first of all there is: should local government have significant power or should it be there for the purposes of providing services to people in the community? If it is just there for the purpose of providing services to the community and doing so efficiently, they should not need to have extensive powers; they should be providing services in the most appropriate way that is consistent with the wishes of the people in their community. If you are doing that, it is hard to see why you would get sacked by a state government.

The real problems with local government come in relation to corruption. In New South Wales we saw the problems with the Wollongong council, the ICAC inquiry and things like that. That is not to say that that sort of problem affects many councils—hopefully, it affects very few councils—but then, equally, not many councils get dismissed. The number of councils that get dismissed and an administrator put in are very few. Whether there is a margin there where some get dismissed that perhaps did not need to be and whether there are party political influences at play in some circumstances, I am not sure but from my point of view I still think you need the facility for state governments to be able to dismiss local governments in circumstances where there is a system of entrenched corruption. For example, in Wollongong I think it is right that an administrator should have been there for a period of time—maybe a year or two years—so that uncorrupted local government politicians, leaders and whatever can develop again before you go to an election rather than simply electing the same people or relatives of the same people, which is what can potentially happen if you just dismiss the council and then immediately have an election. There are legitimate reasons why there should be a period of administration to straighten things out, clean out the system, allow new people to come up in the system and be elected.

CHAIR: I invite other panel members to contribute to some of the answers as well if they wish to.

Ms LIVERMORE: You talked about the likelihood of a shift to an equalisation model for local government funding if the ability to directly fund became clarified under the Constitution. But isn't it just as possible to adopt that equalisation model using section 96 grants now?

Prof. Twomey : They do adopt an equalisation model now within the states because they have to distribute money to each state separately, which they do. It is true that they have chosen to do that on a population basis at the moment. The difficulty is if you get to the point where you are no longer distributing money to each state because you are no longer going through section 96 grants it would be unlikely then that the Commonwealth in directly funding every single local government body would still then proportionately do it then according to the population of each state. It would not make any sense, would it, to distribute according to state population if all of a sudden you have taken the need to send money to each state out and you were doing it directly? What I am saying is that as soon as the Commonwealth adopts a direct funding model it would necessarily take out the notion of divvying up the money between the states. If you are not divvying up money between the states then the first thing you are going to do is adopt an equalisation model. It would seem extremely unlikely that if you are not divvying up between the states you would still have a notional divvy up between the states before you gave money to a local government organisation within the state. It would also be inconsistent with what the previous Commonwealth parliamentary committee and what the Commonwealth Grants Commission have previously said as well.

Prof. Williams : I might take the chance to say a few things as well. There are many things that I agree with Anne about. For example, there is obviously significant doubt now about the ability to directly fund local government. I share the same view as her that it is more likely than not that the Roads to Recovery program, for example, will be struck down if challenged in the High Court. I also agree with a range of her reasons as to why there are not good foundations for this referendum, such as cutting out the middleman and the like.

But I would disagree with Anne on a few things. I think there is merit in this referendum, but on different grounds to some of the ones that she has rightly disposed of. In reaching that conclusion, I think the important starting point is that what the referendum would do, if it went forward, would be to actually return us to what we thought was the position—that is, it is about retaining what was assumed to be the status quo. The question is: can something be adequately drafted to put us in the position that we were prior to the High Court decisions that now mean that, for example, the Roads to Recovery program is very likely to be unconstitutional. It is really important, I think, that it is framed in that way because that is a different proposal to how it might otherwise be looked at.

The other general point I would make is that we are talking here about merely altering a conduit for money—that is, section 96—by enabling that conduit also to extend to local government. Section 96 itself has a long history of interpretation and it may lead to consequences such as equalisation or not, but it is a conduit. I mean, who knows what policy factors may play out in the future. There will be a number of drivers when it comes to local government, that is certainly true, but in the end there is nothing directive about section 96. It would still be a section 96 grant; it would just be made to local government directly as opposed to via the states.

Where I disagree with Anne is that I think there are some reasons that do have merit for considering this proposal. I put them in three categories. The first is that I think there are circumstances where it is important to have the flexibility to directly grant money to local government without going via the states under the existing provisions in section 96. A good example of that is the many hundreds of millions of dollars the Commonwealth channelled to local government directly, prior to these High Court decisions, in order to stave off the global financial crisis. There was need for a speedy response that could not have been done as adequately if the money had had to go through the legislative path of acceptance by section 96 via the states. So speed and flexibility sometimes justify some programs that the current mechanism does not adequately cater for.

The second reason is—Anne does not like this reason—what I call the political reality reason. The experience of local government in Australia is that the direct funding mechanism does open up programs and possibilities that are less likely to occur if the money must go via the states. That is just the lived reality of our system of government. When we talk about the local government areas being starved of funds, if you do not have access to direct funding from the Commonwealth but only via the states, well there are political and other realities that mean that some programs, such as Roads to Recovery, may never exist in the first place. Whether or not you see that as an adequate reason, I think that is part of the broader context of how these sections of the Constitution operate.

The third reason I would put forward as to why I think there is merit in this is as a matter of constitutional design. Anne is right that we are not talking here about full recognition of the third tier of government, but I think there are good strong constitutional reasons for why the Commonwealth ought to be able to have a direct funding relationship with local government. I think there are national programs that can best be implemented at the local level for which there is no compelling justification as to why the money ought to go through the states in the first place. The Roads to Recovery program is an example of that, but the global financial crisis programs are other examples as well, where the states do not have a necessary role in that funding relationship and so there is no particular reason why the money needs to go through the states in the first place.

I think you can also take into account, when it comes to design, that we have a constitutional system where the Commonwealth now raises by far the bulk of the money of tax revenue in the federation. And when you talk about design and the expenditure of that money, I think there are reasons why it again should give rise to a direct funding relationship to local government. But I would stop at funding. It is not a regulatory relationship; it simply says some money ought to be able to be spent directly without any capacity for the Commonwealth to override state interests or wishes, or the capacity to directly regulate. I would simply say that the conduit should be open. And if it is limited to that conduit only to return us to what we thought was the case prior to the High Court decisions, then on that narrow basis I think you can put forward arguments that suggest that the proposal has merit.

Senator SINGH: To any of the panel: I just wanted to go a bit further into this issue of the current arrangements of direct funding being unconstitutional because since the Williams case, that is now the position that the Australian federation finds itself. That is really where this potential referendum is focusing on the financial assistance: direct funding of local government by the Commonwealth.

So my question is: because we now know that the Commonwealth powers are not unlimited in that respect, what is the probability of a High Court challenge to the Commonwealth directly funding local government, like for Roads to Recovery and so forth—something that it has done for some time? What do you see as the probability of some kind of High Court challenge?

Prof. Brown : As both a constitutional lawyer and a political scientist, I think that this is a very significant question and a very significant issue. Like some members of the committee, I was a member of the Commonwealth government's expert panel which produced the Spigelman report. It is very important that the committee note and recognise that at the time that that committee reported, the Williams decision had not come down yet, so we did not have the window on the trajectory of the High Court's very logical thinking on this—more logical than, I think, previously in history and therefore not to be dismissed.

I think the real answer to that question is: do we want to live with the uncertainty? And the answer to that question has to be no. It should be obvious to the committee and the committee should not have any trouble articulating the reasons that even the risk in this day and age to this federal system of having that sort of uncertainty is something that is worth eliminating.

The reality is that there is a risk. Look at the Williams case and Mr Ron Williams and the particular program that he sought to challenge. Who knows why in our democratic system somebody might not come along. Bryan Pape, for example, would probably do it himself. I think he might have said he would, but I am not sure. That is just a fact of a democratic system where citizens have the right to litigate about things that they feel that they are affected by.

But there are probably more substantial risks in that it is quite conceivable that a state government or state governments would, for some reasons—due to whatever the politics of the day might be—choose to challenge particular direct funding programs in local government. It could well be—and this quite often the case with quite a lot of High Court litigation over history—a private business interest is somehow commercially affected by decisions are being made under a particular type of planning program that is getting direct funding from local government and has a financial interest in seeing the chain of decisions made under that program eliminated or declared null and void. I think there is a range of real possibilities, but I think the risk in and of itself is something that you would not want in this day and age.

Ms Peatman : If I may, I would just bring in a different perspective. Whilst I acknowledge anything that Anne has said, and agree with it, the Law Council does not agree with the end result of what Anne is saying. The Law Council considers that local government should be recognised. The wording is almost the same as the Law Council recommended. We would also recommend a definition of local government be put in the Constitution so that it puts paid to any possibility that a local government area could be created at some stage directly by the Commonwealth—that it remains under state jurisdiction at all times.

We strongly agree that the state government should be able to dismiss local government. The instances where that has occurred in New South Wales are self-evident that they should have occurred at that time, if not before they were dismissed. The state government should have a controlling regulatory role in relation to local government.

Having said that, the question that is not being put today because it is not so much a legal question but a question of sustainability—we need to have the dialogue in this country about how we sustain our ecology, how we sustain our lifestyle and how we sustain our manner of living. If you look at the ecology of Australia, a good bit of it has been destroyed so far. If you look at what is happening in Europe and what is happening in the USA at the present time, a good bit of their lifestyles is not sustainable into the future. Australia has the opportunity at the present time to plan for the future so that we can have sustainable lifestyles and that is where Agenda 21 from the UN came in to say, 'We want communities to have a say; we want local government to have a say throughout the world,' because it is the part of the world that most affects the everyday life of human beings.

From that perspective, the Law Council considers that we should be recognising local government. It is not the third tier of government. I have to say that we all casually say that sort of thing. It is not the third tier of government—it is going to be under the control of states or territories. There is no need to have one in Canberra, it being a territory. But we need to think carefully as we go through to the future. If this is passed, it may give us the opportunity where we have an ecologically-endangered community that the federal government can say of, 'We will fund that in perpetuity,' and we could set up a trust fund for it.

There are lots of good reasons why it should go ahead. In relation to local government, I work in this area so I can speak personally about it. Local government is underfunded in Australia; you can see it everywhere you look. You do not have to go to rural Australia—which is poorly funded, I agree; but local government is poorly funded throughout Australia. The requirements on local government have increased over many years at a rapid rate and they now need support coming down from the Commonwealth and the states so they can look after their local communities properly. They need the recognition because of respect. I agree that you have to earn respect. You do not get given respect; you cannot buy it at the corner shop. I believe it will give them more self-respect than they have at the present time.

We need to think about this issue holistically and not simply about how it is going to work technically. Technically, Anne is correct in all that she says, but does that get us to the outcome that we want at the end of the day? That is what we have to look at.

CHAIR: Professor Brown is going to say something. I am going to ask Senator Fawcett and Mrs Prentice to ask a question, then I will ask a final question in this section; then we will move to the next section which is considerations for a successful outcome. I will ask Professor Williams to make some comments. Senator Bushby will then ask some questions.

Prof. Brown : Just to extend and endorse the position of the Law Council there and, to some extent, Professor Williams' position. I want to go on record as also saying that I agree with Anne's excellent technical analysis but with very few of the implications and conclusions that she draws from it. I will touch on three of the issues we have touched on. The first is the fact that we now have the option of either changing the Constitution to allow direct funding of local government from the Commonwealth or putting it all through the states. The committee needs to ask the state governments whether they really want to see all the programs, not just now but in the future, that the federal government should logically be directly funding at local and regional levels, preferably with the agreement of the states, which is how it works most successfully in the context of programs like Roads to Recovery—do the state governments really want to be taking back responsibility for all those programs, not just the current ones but the future ones? We do need to be thinking about not just the history and the current situation in the Constitution, but where we think this federal system is going and should be going.

To my mind, that provides the committee with a very strong, legitimate—in fact, unarguable—rationale, when you look at where we are and where we are travelling, to examine what method will best set up the federal financial system in a way which will work as a tripartite system whereby all levels of government can get together and agree on a plan, have clear roles in relation to their responsibilities in that plan, have clarity as to where the funding is going to come from and then execute it on a sustainable, continued basis into the future, rather than having this continual push-me, pull-you back to the states et cetera, with questions such as: what are the conditions; has it flowed through or not; is the agreement being delivered on or not?

So I think there is a real need for the committee to look to the future in terms of what sort of federal financial system it thinks Australia is going to have and going to need and then which of those two constitutional options best fits that system—the system of now and the system of the future. I think that answer is very, very clear in that it justifies a change to the Constitution.

The second big issue was this question of the financial implications. I endorse what Professor Williams said: this just creates a conduit. I think that the creation of this conduit for funding will create both more opportunity for and more pressure on all parties to the federation to come up with some better solutions to the entire funding stream and funding flow that runs the federal financial system. Look at it at the moment: nobody thinks that the system works too well as it is, so it makes no sense to simply say that we are going to stay in the small picture and play around with these particular financial distribution models. We have had a review or we are looking at a review at the moment of some of the elements of the federal financial system, led by John Brumby and Nick Greiner. I know these things are contentious, but the reality is that none of these big issues are going to go away; they have to be systematically worked on into the future.

So all we are talking about here is creating a conduit. The possibilities around how that conduit will work are things that the committee can also articulate some principles about and lay down some future direction for in order to make clear what should or should not happen in the future in terms of the basic approaches. But none of those risks negate the logical and, I think, compelling case for creating that conduit or confirming that conduit that most people actually believe should be there and continue to be there. And it is not just about solving any money-laundering problem or problem with creaming off the top when it comes to more money getting to local government; this is a mechanism for local government to get a larger agreed share of the total financial pie. That is what local government is legitimately looking for and that is what it should be looking for. State governments are incrementally allowing local government a larger share of responsibility and resources in the federal system as a whole, as is the federal government. When anything major happens, the first thing that both federal and state governments agree on, once they have agreed that they need to do something, is who is going to do it, and more often than not local government plays a huge role.

So we really need to recognise that this is about increasing, in a planned, sustainable way, the financial flows of resources to local government—growing them, even though that should occur necessarily as a result of both federal government and state government being prepared to share those resources with the third tier of government more effectively. That is what this is about.

The third thing was the issue of the issue of status. A change as proposed, and any change that could possibly pass at a referendum, would need to leave the regulatory control over local government with state governments, as it currently is. We know that from polling and various other things. As Jim Spigelman said quite accurately in the expert panel, the fact is that, as soon as the term 'local government' or 'local government body' gets into the Constitution, the High Court will have a role in interpreting what that means, in the same way that it has a role in interpreting what are the minimum constitutional requirements or features of a court in order to legitimately satisfy that description. The High Court may logically be called upon to do the same thing in relation to defining what is a local government in our federal system.

So, in terms of status, it does make a change and it does make a difference.

It does provide, in effect, an ultimate safeguard and backup against a state government that is so draconian, or operates in a way that is so predatory or negative towards local government that it would create the facility for local government or for communities to actually say: 'No, the Constitution says we exist, and we are going to ask the High Court to say that we have to have particular democratic qualities or particular independence or a particular status or particular continuity. We can't just be totally abolished so capriciously'—as a particular state government might be doing.

That might sound alarming to state governments—the fact that that could be a logical constitutional consequence. I say that we are one country with one Constitution, with one High Court that we entrust to be the ultimate guardians of our Constitutional rights and to set down the rules for how our political system works. Providing the High Court with that ultimate constitutional guardianship role in relation to the basic definition of what local government is in the Australian federal system is actually in itself something that contributes positively to the status of local government and is in and of itself something that is also worth doing.

Senator FAWCETT: Taking the term 'conduits', which you have used for money: part of our role as elected representatives of the country at whatever level is to make sure we use the taxpayer dollar as effectively as possible. You have intimated that perhaps the cost of a referendum may exceed the benefit of choosing the most efficient conduit. Is there in fact any body of work that highlights which method of passing money from the federal government to local government is in fact the most efficient in terms of capital productivity and least opportunity cost—whether it be cost of bureaucratic process, the opportunity cost of delay et cetera? At the moment we are talking with assertions and assumptions, but if this committee is going to recommend the path that makes best use of taxpayers' money it would be great to have some empirical work. Are you aware of any studies that have looked at the most cost-effective way of moving money from the Commonwealth to local government?

Prof. Brown : I think the short answer to that is no. That type of systematic research has never been done. It should be done, and various of us in academic land regularly put up proposals for seeing investment in exactly that type of research. But it would be a good question to ask the Department of Finance and Deregulation and some of those who should be in a position to know what currently works in terms of being efficient or less efficient. I think part of my answer as a political scientist and public policy person would be that it would inevitably vary between programs and areas of activity. You just need to look at something like the home insulation program in terms of the enormous amount of theoretical financial efficiency of a program that in fact ended up being not efficient in many measures.

So, it is a very complex thing to get an overall picture of. But, to my mind, it comes back to the question of not just the financial efficiency but the transparency and accountability of the program. I am not an economist, but I think the economists would say that when you think about what we know about agency costs and transaction costs that the transparency delivers efficiency in that direct funding flows are always preferable to indirect ones, where possible, in terms of the big picture of how public programs are structured.

Prof. Williams : Perhaps I could also say that I am not aware of any study of that kind. What you would need to do is measure the cost of the referendum against potential benefits over the life of that change, which could be a century. That is the important thing about these types of changes. We are talking about a 50- to 100-year threshold for how long you would expect something like this to be in place. So the question is: would you, out of a $40 million to $50 million investment, if the referendum is held at election time, get benefits over the course of a century? And that is the appropriate time frame.

Prof. Twomey : Just to add to that, there are some reports by the Commonwealth Grants Commission that I think would be helpful in relation to that. I am just looking for the footnote, but it is somewhere in my submission. Certainly there are reports that looked at certain issues. For example, one of the real problems about the Commonwealth funding local government directly is that unless you have all the information about every single local government organisation then you cannot effectively fund them, particularly on an equalisation basis. There is a serious problem with trying to get one equalisation rule that applies to all the different local government organisations, particularly when each state gives different responsibilities and has different structures and roles for its local government things. So that is a real problem.

At the moment when the Commonwealth funds local government directly it does so using formulas that are established by a state's local government grants commission. One of the problems is this. If the Commonwealth is no longer funding local government through section 96 grants, through the states, and you take out then all the state local government grants commissions and the Commonwealth has to get the information itself from every single one of these organisations, efficiency goes down the tubes.

One of the issues is about the states doing the distribution on an equalisation basis within the states. One of the reasons why you have a state local government grants commission for each state is that the state governments have the information about each one of these local government bodies and are therefore able to more efficiently distribute within their state. So those Grants Commission reports have shown that if the Commonwealth try to do it alone they could not even work out a formula to be able to do it because of, first of all, the significant differences between local government in all the states whereby one formula just does not seem to work. Secondly, there is a problem with the Commonwealth having that information to be able to do it. So, for example, when they do Roads to Recovery there seems to be a general impression with local government people that it is all just done by the Commonwealth and it is all very easy because they all just get listed in the schedule. But the work that is done to achieve that listing in the schedule is work that relates to things like not only length of roads within a state but also the distribution and the assessment done by the state local government grants commission. You take them out of the picture and then you have a really difficult issue for the Commonwealth to be able to do all that efficiently. So that sort of stuff has been analysed and done by the Commonwealth Grants Commission.

Prof. Williams : That is right, Anne, but that would assume that you direct all of the funding that goes via the states direct to local government and that would be a very unwise thing to do, I agree with you, but you would still have the option of going via the states for the general funding. There would be no reason that you would have to give all of it.

Prof. Twomey : You could, but the point is: what is the real reason for creating a system to go directly? Why are you creating a system for which in the end you say you do not want to use? You want to still have the state local government commissions and you still want all of that sort of system and that architecture to work. What I can't work out is this: why spend $80 million for a system that in the end you do not want the Commonwealth to be doing direct funding for, to all these bodies? You still want most of the funding to go through the states and you still want the state architecture for reasons of efficiency. It comes down to the question that, yes, you can put all this money through the states efficiently—and more efficiently than doing it from the Commonwealth directly—but at the same time you are saying you want to change the Constitution so that you do not have to. It seems to me very odd.

Prof. Williams : I think the answer is that there are some programs that do not need to go through that state architecture, like Roads to Recovery perhaps or others, and that it would be sensible—for the generalised funding that you are talking about—that that should continue in the existing form. But you do not have to go down that path.

Prof. Twomey : But why does state Roads to Recovery not need to go through the states? That is what I do not understand, because originally that money was part of the general grant that the Commonwealth gave states as to the section 96 grants. What has happened—and if you look at this over history you will see this—is that the Commonwealth used to give them—and it is just like having the general purpose grants and the specific purpose grants for the states—and the shift is that the Commonwealth has moved from general purpose grants to local government—through the section 96 grants—to specific purpose grants with more conditions and limitations on them. What you are likely to see if you go via this 'Commonwealth can fund directly' route are smaller and smaller and smaller general purpose government grants, which is what is happening now, and larger and larger and larger specific purpose grants with lots of conditions on them. In the end it is not good for local government.

Prof. Brown : It does not necessarily logically follow that that is what is going to happen.

Prof. Twomey : It is what the Commonwealth has done with the states and it is what is happening with the direct ones and with the ones through the states now. That is what is going on now.

Prof. Brown : I think that part of the answer to that is not just what George said but the fact that we are looking at a federal system which is evolving—so I go back to that point—and the fact that I think those trends and those debates about how federal funding to the states is structured are very live questions. Are we going backwards in terms of national partnership agreements? Nobody wants to go backwards, therefore it is: how do we keep going forwards? This change would include local government, which I do regard as being a third tier of government, in that conversation, as it should be, in a much stronger and more powerful way than is currently the case. It would trigger and provide the impetus for systematic review and overhaul of all of those local government funding distribution systems and would be able to provide a basis for looking systematically at this: what is it about Roads to Recovery and other equivalent programs that work so well—because they do compared to the previous system.

If you ask local government, they will say: 'It's because we know what's going to happen. We've had direct input. We get more flexibility. We know we will get the cheque in the mail on such and such a date. We can rely on it. We can bank on it.' If it comes through the states through another program et cetera it is a whole lot of different parameters that influence local governments thinking about when they are going to get the money and how they are going to be able to spend it. So I think this change will enable the Commonwealth, the states and local governments to sit down and say: 'Right. How are we going to do business now better as part of the element of the continuing overhaul and dealing with those bigger questions about how the whole federal financial system works?'

Mrs PRENTICE: Professor Williams or AJ, given your very well-articulated reasons for the valid recognition of local government, what wording would you see as being appropriate for the Constitution to be put to the people?

Prof. Williams : In terms of what the wording ought to do, firstly, I think it needs to deal specifically with the problem and not do more than that. I do not think this ought to be cast as something that actually is about transferring broader power to the Commonwealth over local government, and that is why I think you just stick with section 96. The advantage of that is the High Court has been very clear that section 96 does not give a general power over law-making; it is only a grant power. So we can be confident about it being quarantined, and that deals properly with many of the concerns that people in Western Australia and other places have suggested in that this would be a centralisation of regulatory power. I think also when we look at what it ought to do, it ought to have sufficient safeguards to make it clear on the face of section 96 that it is just about achieving that. That is why the wording that the committee that AJ was on came out with sensible wording—and that is simply adding the words 'or to any local government body formed by state or territory legislation'. That is sufficient for the job, in my view.

In our submission, we say that if you want even more satisfaction for the states—and part of this is about that: are they achieving enough certainty?— you could also add in words so that it would read: 'or to any local government body having powers and functions and formed in accordance with state and Territory legislation'. So you could add in a specific reference to powers and functions being a state matter, if you wanted to. I do not think it is necessary. In fact, there is a risk here that if you go too far down the path of saying to the states, 'We're being absolutely clear,' you will actually create an implication that other Commonwealth powers cannot regulate local government in a way they have done so for a long, long period of time. So the risk is now going on the Commonwealth side rather than the state side if the wording is too explicit or too direct. I actually think those wordings, either way, do the job.

CHAIR: To wrap up this section of the discussion, and just following on from Mrs Prentice's question: you believe the wording that has been proposed by the expert panel would be sufficient? Is that correct?

Prof. Williams : I do. It is sufficient in legal terms. The question is: do the states want extra words in? I do not see that as necessarily being a problem if it is done sensibly. And it is a political compromise as to whether they can live with that wording. I think they should. But if they want more certainty then it is possible to add words to achieve that.

CHAIR: Last question: options other than constitutional amendment. For example, last year I think we had a bill that went through because we needed to overcome—I am pretty sure it was Pape or maybe it was Williams—

Prof. Williams : It was the financial framework legislation.

CHAIR: The Financial Framework Legislation Amendment Bill. Do we need a referendum to achieve this outcome, or can we do it by a similar act for local government?

Prof. Williams : The act itself is insufficient and likely unconstitutional. I agree with Anne completely on this that it is waiting for an analysis by the High Court. Anne has said it is heading for a clobbering. In fact, if you wanted to challenge direct funding for local government, I would not challenge the Roads to Recovery program. I would challenge that act of this parliament last year, which has many direct funding of local government programs in it; it is the weak point. And even then it does not deal with any local government direct funding program that has a legislative basis already, which is Roads to Recovery. It does not in any way deal with that scheme; it only deals with schemes which were more on an ad hoc, non-legislative basis.

So the short answer is that legislation does not fix it. No legislation is capable of fixing it. This is because it is a constitutional problem, and the only question is whether you think the section 96 mechanism provides an adequate alternative. If it does, you do not need a referendum. If it is insufficient, then a referendum is the only way to avoid that consequence.

CHAIR: I am going to move us straight into the second part of this round table where we are looking at considerations for a successful outcome. What I am going to do, Professor Williams, is ask you to give a very brief overview, please, and then Senator Bushby will ask the first question. If any other committee members have questions, please let me know.

Prof. Williams : As to the prospects of success and how such a referendum might be won, I think Sir Robert Menzies accurately said that referendums and winning them are a labour of Hercules. The record is a very poor one in Australia. We have had only eight out of 44 referendums succeeding, and no referendum has succeeded since 1977.

So, whole generations have gone past in Australia without a successful 'yes' vote.

I have written extensively on this in a book called People Power, which looks at all of those referendums and asks why some were won and why some were lost, and the most striking conclusion we came to was that the reason for the many failures was not because Australians generally like to vote 'no'—although they will certainly be prepared to vote 'no' if there are good reasons to do so—but because the political management of referendums has displayed a series of mistakes that tend to be repeated time and time again. Those mistakes included a failure to attain bipartisanship; taking the people for granted; putting up poor proposals; and a range of other problems such as not even giving people enough information to cast an informed vote.

On the bipartisanship issue, which is a necessary condition to achieve success in the referendum, Labor in government has put 25 of those 44 referendums, and of those 25 it only got bipartisanship support once, and that was the only referendum Labor has ever won. So, if we ask why 24 out of 25 failed, the very simple conclusion is that the opposition rejected them. There is a simple lesson here: if the opposition does not support this referendum it will almost certainly fail. It is a necessary condition, in my view.

The sole Labor success is very interesting for this proposal, though, because it actually is a like proposal, which was put in 1946. A year or so before that the High Court found that the Commonwealth was not able to directly fund a pharmaceutical benefits scheme. The Labor government, led by Chifley, went to the people, supported by Menzies, to say that we needed this High Court problem fixed because the Commonwealth needed to be able to directly fund these types of schemes. The status quo needed to be restored so that the sort of schemes people supported could continue. The people voted 'yes' to that particular scheme. It went to the people with the clear support of both sides of politics. It is an example, and the only clear example of this kind, where Australians said, 'We are prepared to vote yes to restore programs that we value and to do so where it is clear that it is a narrow fix that leads to that problem'—although the 1946 problem actually went a bit beyond that—'and it does so in ways that give political confidence across both sides of politics.'

My view in terms of this particular referendum is that if it is to have realistic chances of success it has to have bipartisanship and it cannot have strong opposition from the states. By that I mean that the states preferably either run dead or say nothing, or, if they do oppose it, they do not put enormous resources into doing so, like Western Australian and Queensland governments have done in the past. But simmering opposition itself is not likely to be a significant problem unless they take it further. Also, I think the referendum needs to be run as not about recognising local government. That is a clear losing proposition. Australians are going to ask, 'Should we spend this money on recognising local government? What is it about? I do not understand it. It seems abstract and symbolic and it is not related to real and practical problems.' If I were to run the referendum I would say that it needs to be run as a measure that it seen to respond to a problem identified by the High Court. This referendum needs to be run on the basis that people should vote 'yes' to restore funding and maintain funding to local roads, child care centres, libraries and other forms of community infrastructure that they value. And, as in 1946, they ought to be asked to vote 'yes' to support that funding, because as the constitutional advice has clearly indicated there are now significant concerns about whether direct funding of that kind can now continue to local government.

But I think 'vote yes for local government' is a losing proposition. The self-serving 'vote yes to these facilities' has the potential to win, as it did in 1946. I think though that in terms of timing there is a key issue here, which is that, if you really want to run this as fixing a problem, if it is left too long the urgency and rationale for it dissipates. Even though this has been left dreadfully late and for a long period of time—and in fact this committee is months past when it should have been running—I think it is going to be much harder to say we need to fix this, because people and opponents will rightly say that it cannot be that big a problem because it has been left for so long. That is why if it is not run in the next year or so the sort of basis I can see for winning it will get harder and harder over time, even though the key points at this point have not been put into place, such as strong government support and opposition support to actually get it over the line. I will leave it there.

Senator BUSHBY: In regard to your closing comments, ALGA have argued that they do not want to see the referendum put until the prospects of success are reasonably high. Their view is that the work has not yet been done in order to create the weight of support with the general public that is required to get to that point.

I would have thought that the argument, putting it back as it was—putting the funding arrangements back as we understood them to be, before Pape and Williams—is a reasonably strong argument that would withstand a little bit of time. I would not have thought the urgency factor is the strength of that argument. The strength of that argument is the need to put things back the way they were. The vast majority of Australian electors at this stage would have no concept whatsoever that anything has changed. Putting together a viable and effective public education campaign will take time. I think ALGA has a point—and I am interested in your views on it, given what you have just said—that you would probably be better off making sure that you did actually achieve that level of understanding and support with the general populous prior to actually going to a referendum rather than relying on an urgency factor, which probably does not tweak most electors' minds at the moment.

Prof. Williams : I think you can really go either way. Interestingly, the referendum experience is that often the bipartisan support, with urgency, with a proposal run at election time can be successful, as it was in 1946. That referendum was very similar to this. In fact, it got almost no public recognition but Australians voted for it because their leaders told them that there was a problem, that they had a straightforward fix and they trusted them in those circumstances.

Senator BUSHBY: You have to bring states on board with this—

Prof. Williams : We had very similar problems then as well. But it is a risky course—I certainly agree with that—and not the most desirable course, either. The most desirable course would be that, by this point, more work would have been done over the past months to actually build the level of public recognition, to get the support on board. It is dreadfully late and that itself is a major problem. All I would say is that in the longer term that has a series of different risks associated with it and they need to be weighed up. I do not have a clear answer on this but I think you do need to factor in that, in the end, you are never going to get people at the high levels of knowledge you want. That is a generational change, not a year change. Also, you can look to the experience of not just national referendums but New South Wales referendums in particular, which tend to have a very high success rate on this model of 'run them at election time with bipartisan support' on the basis that people will support sensible, mechanical changes that do not excite strong political opposition. But in the end if this does excite opposition of any kind, then no short-term path is possible but I doubt whether a long-term path is as well.

Senator BUSHBY: I have just one more question. I mentioned the states and you also mentioned the need to get the support of the states and for them, at least, to play dead rather than oppose it. There is at least one state and possibly more states that may well oppose it, depending on what actually comes up or what is put forward to the people. Part of the reason why they are doing that is an issue you also raised—that is, the potential for the High Court to actually define or ascribe particular characteristics to what local government might be in order to receive the benefit of the grants.

In her submission Professor Twomey actually pointed out that you may be technically correct in terms of the limitations of section 96 but the reality is that if you are only going to get the grants if your local government bodies meet the ascribed conditions that the High Court has placed upon them, state governments are going to be under enormous financial pressure to ensure that those bodies do actually meet those conditions, which may well then lead to those state governments having to lose some of their power and actually comply. That will have an impact on states. If the states think about that and work that through, unless there is an answer to that, that may well lead to them being less likely to support it.

Prof. Williams : I think that is a fair assessment and it is of the nature of the federal system we have at the moment. Those pressures are there through the existing section 96 mechanism where the Commonwealth can use its financial muscle to effectively require a state to receive a grant in circumstances where the state could not fund something itself. That can be channelled through to local government. There are many areas where this has happened. Higher education is a good example where the Commonwealth largely controlled the higher education sector simply through using section 96 grants to do so. It would give you a direct channel, but those pressures are born of the Commonwealth's financial clout. I am not sure the conduit will necessarily change that. They can do that already, if they wish to do it. It is a larger question and that is where some of AJ's material may assist.

Prof. Brown : I was just going to say that I have had the privilege of spending a lot of Commonwealth Australian Research Council money on looking at public attitudes towards local governments within the context of the whole federal system. Combined with the type of research that ALGA has done and the research that the expert panel commissioned, we have a pretty good take on what the current state of public opinion is not just in relation to attitudes towards local government and constitutional recognition but to the overall political context.

The risks that George is describing are very much exacerbated at the moment by the general political climate, and especially by the fact that, given there are legitimate questions being raised by the states and that there are also likely to be illegitimate questions raised by the states that have not been worked through, the Commonwealth has not yet done what the expert panel recommended, which was to do a deal with the states. Doing a deal with the states to support this requires that the Commonwealth comes to grips with the other issues that the states want some action on in relation to federal-state relations. Until that happens, there is not a secure basis for consensus here as everyone is not saying that we are moving forward with a few things now and/or later in terms of fixing up aspects of how the federal system works so that everybody gets something. If we did have that, we would be able to move forward with some sort of consensus.

The only way of overcoming that is to introduce a sense of urgency—and this was discussed during the work of the expert panel. In fact, the Newspoll consultancy that ran our polling said that the best way to get public awareness of this would be if someone challenged some program right now that had funding going from the Commonwealth to local government to support childcare facilities. If that was challenged and knocked out, suddenly you would have awareness. If there was a bit more time for somebody to go out and find a litigant to go and do that then that may well solve the whole problem, because suddenly you would have a compelling argument.

The problem is that we have a situation where base public awareness of the issue is fairly low. There is a reasonable amount of support out there among the general public for local government, higher than you would think. The latest constitutional values survey that we released—and I will make sure that the committee has this—and that appeared in the Australian in November or December confirms that public support for and faith and confidence in the federal level of government has collapsed relative to its norm. That creates high risks, because as soon as a state government or anybody else says that this is about the federal government grabbing more power and using local government to do it then automatically you will lose whatever support is out there for constitutional recognition of local government.

On the other hand, our constitutional values research shows that, relative to other levels of government, local government is the level of government that more people are more likely to say does not currently have enough power. People are much more likely to say that about local governments than state governments—and much, much more than about the federal government. That in and of itself is very significant. But it also impacts on how this proposal can be sold. If people think it is just about the status quo and fixing a technical problem then they are likely to be sceptical because people do not think that the status quo is very good. If it is sold on the basis that it is about making sure that local government gets more money, more sustainable money and more secure money for more programs—which everybody agrees that it should have—then more people are likely to say, 'Okay, we're going to get a better local government system out of this as well as a better performing federal system overall.' Those issues have to be worked through. This is not just about the technical changes but how the package is going to be sold to the public and what resonates. That work has not been done yet, either.

I agree with George and his analysis of what could be done at the next election. But my assessment as a political scientist would be that this is not the election to do it unless this committee can pull rabbits out of hats in terms of finding and articulating a level of consensus that we have not seen quite yet. That is the challenge for the committee. If the committee could deliver evidence from the parties and from other players and stakeholders that confirms that there is a consensus there that is not going to slip backwards in the context of the election campaign then it is possible. Otherwise, I would say that a blueprint from this committee, if there is bipartisan commitment for it, is to aim to put the question to the people about 12 months into the term of the next federal parliament—irrespective of who the government is. You might then be still moving quickly enough to maintain the sense that there is a problem here that has to be fixed and have some chance of putting it into an environment that is positive enough to overcome some of those challenges.

Senator SINGH: I want to ask you a bit more about timing for success. As you are all very aware, there has been another expert panel looking at the recognition of Indigenous Australians and a referendum on that issue. Do you think this referendum on the funding of local government should be separate from that potential referendum? Is there a chance of failure if you put both of them together? What is the history with such combinations of questions? Regardless of the bipartisan support issue—the fact that there are those two potential referenda there—which way do you think this one should go?

Prof. Brown : Unfortunately the work has not really be done that tells us how the attitudes would play out in terms of voter preferences. This is a real shame because, even down to the point that the two expert panels were working on the issues together, they were both using Newspoll as the consultants and we could not actually facilitate agreement to let the two Newspoll teams who were working on the attitudes actually do the research into how the two issues interlocked in the minds of voters in terms of who supports and who does not and to what degree and so forth. The only research we have done that gives some idea confirms that it is a really complex mix and it varies a lot from state to state the extent to which the same people support both, and how strongly, or are quite divided about both. So it is a very complex issue that needs some work to really figure out what the possible scenarios would be in terms of support for each before you could really come up with a definitive opinion.

I think the problem is that the more issues you put to people—and George will have a view on this—the more complex it is to weave it into an overall narrative that people can understand simply. If the work was put in to say, 'We are updating the Constitution in a number of really important respects: (1) recognising Indigenous people, (2) recognising local government and (3) doing something to strengthen cooperative federalism and the relationships between all levels of government so they can get on and do the job better together,' it is possible that there would be consensus between all three of those things. But we really just do not know that people would say: 'We've got this bloody ancient Constitution and finally we're doing something sensible to update it that everybody agrees is good. I couldn't be bothered going into the detail of it. Everybody is saying it's good, so we'll tick, tick, tick.' That is the only scenario where you would be able to pull it off. That would require a big process. It would require a lot of public education and it would be a longer process than 12 months or 18 months or whatever we are talking about in each of these. It is a very hard issue. It is possible that just Indigenous recognition and local government recognition could work, provided there was a high level of consensus behind both of them. But there has got to be a high level of consensus behind either of them anyway for them to work. I would be interested in George's assessment.

Prof. Williams : The history of it shows that Australians have been surprisingly able to differentiate between proposals put on the same day. The best example was the 1967 referendum, when 90 per cent of Australians voted yes to remove from the Constitution some discriminatory references about Aboriginal people. A second proposal, put on the same day, about the number of members of the House of Representatives and the Senate failed dismally. There are many examples of that kind where Australians differentiate. In fact, I thought that the proposal put by the Indigenous expert panel that they had to be on separate days was just wrongheaded; it did not take account of that history. In fact, you have got to take into account that putting them separately is going to cost an extra $80 million to $100 million. That is an enormous investment of taxpayers' money without any evidence on the record that it is necessary.

Particularly the Indigenous one shows that, even if the local government one was unpopular, Australians are quite capable of differentiating. What the record also shows is that the referendums most likely to succeed are those dealing with mechanical pragmatic changes and problems—as with 1946, but not with the republic. That is why the Indigenous one is so fraught and difficult, even though it is so necessary in my view; it in many ways has the harder road to tread. If this is ready in a year, I cannot see any possibility that the Indigenous one will be ready in that time frame. I just think they are on different paths at the moment, and I suspect that the question is not likely to arise.

The real question for this one would be: 'Is the government likely to run this outside an election campaign?' That has two factors. It sets it up, potentially, like a by-election in that there are very high incentives for an opposition to oppose a referendum because it is the big issue of the day and oppositions, even where they may support it, tend to oppose when it comes to the day because there are great advantages in knocking a government down in support for its own referendum—as in 1988 where John Howard, as opposition leader, opposed the government's local government referendum. It was Liberal Party policy at the time to support it but there were greater political advantages in opposing and showing the government was doing it poorly.

Senator SINGH: Can't that happen in an election as well?

Prof. Williams : What happens in an election is that, if it is something with which people basically agree, there are other things to disagree about, and people will talk about the economy and the like. It is why, sometimes, there are big advantages in running it in an election time, as in New South Wales, because you can fight on the big issues and agree on the small ones and in the end there is no mileage to be gained, whereas, if it is the issue of the day and there is a referendum, everybody votes—well, it is a hard thing for an opposition to let that run through. It is also much more expensive: double the cost, or greater. So the likely window, to me, is: is it going to be in 12 months or is it going to be in four years? And that is why I say, in terms of the question: four years or five years or six years from these High Court decisions, it is going to be a bit harder at that point. It may still be runnable, but you lose some of those factors.

Prof. Twomey : Can I just add to that? There is one other factor involved and that is the bipartisanship factor. Going back to the 1988 one, I think I read somewhere that a Liberal shadow cabinet agreed to support the local government referendum, of the four referenda to be held in 1988, and was actually overruled by the party room. The reason for that was a general view that you should not be telling the people to differentiate between one and the other. So it had to be a package of all yes or all no, and that is what came out of that. So there was a flip turn there. The government had believed strongly that the opposition would support the local government referendum but the party room turned it around and said: 'No, we are going to oppose them all because we are opposed to some of them and we do not want to send out a mixed message to people.' So there is a real risk, if you run the two—local government and Indigenous—together, that, in terms of bipartisanship, if the opposition is opposed to one then they might well flip to oppose both as a consequence, and that is a real issue.

CHAIR: Ms Peatman, I know you have particular views about the referendum question. Can I invite you to make some brief comments?

Ms Peatman : Yes. It is the Law Council's view that the recognition of Aboriginals and Torres Strait Islanders should come first, simply because it should happen. So it is a strong view held within the Law Council that it is beyond time that we recognised Aboriginals and Torres Strait Islanders. It is also the Law Council's view—which I am changing as I sit here and hear experts at either end who know more than the information that I have been given—that we should have one referendum successful before we put the local government one. And it was our view that we should put the Aboriginal and Torres Strait Islander referendum first and then follow it with the local government one. But I defer to two gentlemen who know more than I do about this topic.

Mr WINDSOR: I think some of my questions have been answered but I would just like to follow up on the impact of a High Court challenge on the financial framework legislation that was put in place last year. It really goes to the heart of this, because if we do nothing what is likely to happen in terms of the major driver for the change? If that legislation is challenged then it goes to your issue, AJ, I think, in terms of the community suddenly becoming aware that there is a very significant issue here. It is not about the ego of local government; it is about the administration of finance at a Federal level. If that legislation is challenged, what is the political fix for that outside a referendum?

Prof. Twomey : You put them through section 96 grants like you used to. Let us face it: this money all came to local government previously from the 1920s right up to the 1970s with the Whitlam government through section 96 grants. So the same money was going to local government, and can still go to local government, through the states under section 96 grants.

It changed for a short period with Whitlam. The Whitlam government and the Commonwealth then thought that what they were doing was probably unconstitutional so they went to a referendum to fix it; it was defeated by the people. The Fraser government had to then—

Mr WINDSOR: I understand that. How does that go to the issue of Roads to Recovery, though?

Prof. Twomey : Well, that means you put it precisely where it was.

Mr WINDSOR: You make it a nonspecific grant.

Prof. Twomey : Where it was, was when the roads grants that were under the general grants to local government—at one stage, later on, they changed those to make them general grants and, although they are still described as roads grants, they can be used for anything. Then they syphoned off the money from that and put it directly into Roads to Recovery. You just move the money and put it back into the pot that it came from. It is really easy. You can do it like that. So the issue is, if it does get challenged and the Commonwealth moves back from its position of 'We don't like talking to the states'—which is the reason that it has moved to direct funding rather than general funding—the Commonwealth will have to talk to the states. You can fix it in the matter of a couple of days if you need to by just saying to the states, 'Well, you don't want your local governments to all have their roads funding stopped either, so let's sign an agreement on the line and do it now.' Now that takes the wind right out of the referendum's sails because once the problem is fixed and the money still flows through and nothing stops—

Prof. Brown : What the committee has got to do is ask the question of all the stakeholders: 'Does anybody actually think that that's the desirable solution?' Do you as Commonwealth parliamentarians prefer a solution which, when you have the option of putting something to the people, is about maintaining the ability to directly fund a whole range of programs—whether local government or other programs; or do you go back in history and try to fund everything through the states? What is your preference? What do you think is the popular preference? In this day and age, and with the direction the federal system is going in, that that is not the path we are going to choose. I do not think that it is necessarily the path that the states, if they are being honest, would want to choose—but that is where you should ask the states. But there is another special question that the committee should ask of the Commonwealth agencies this afternoon which is: what is their proposed or preferred fix for all those other Commonwealth programs which have got nothing to do with local government—which are direct funding to community organisations, or business, or whatever, that do not have a head of power or that might not be supported by legislation; for example, to the national schools chaplaincy program? What is the Commonwealths' executives preferred solution to that? I am sure that there would have to be one; I am not sure what it is. This bandaid legislation is not it. Is there, therefore, a constitutional fix in addition to, separate from or independent of constitutional recognition of local government for that problem and all those non-local government related programs? That is a very important question for you to ask the Commonwealth agencies.

Mr ZAPPIA: Professor Williams, your notion of a simple argument for restoring the funding, I believe, has merit; however, how do you respond to the view of Professor Twomey—which I suspect will also be put—that we can restore the funding using Section 96?

Prof. Williams : The first thing, when you look at how these referendums are run, is that they tend only to be run if opposition is muted or nonexistent. It actually does not matter whether you have a good argument in opposition or not; in fact, history shows very clearly that demonstrably false arguments are more than effective enough in knocking down referendums. So, in terms of the Realpolitik of it if this was to go forward, the question is is anyone going to put a strong series of contrary arguments, irrespective of what they are? If they are going to do that, it will probably lose. The preconditions are that the opposition is not prepared to do it; the states are not prepared to do it; and there is no other entity which is likely to emerge to do it.

My short answer is that, if someone like an opposition leader was prepared to put that, then the referendum would be lost simply because people see disagreement and they are concerned about changing the Constitution in circumstances where they do not understand the issues, the major political parties seem to be at loggerheads, and it is safer just to say no. As for how you actually answer it in substance—which is not what tends to happen in referendums—this is where Anne and I disagree. She is absolutely right: that is an open and available path that would enable the funding to be retained, there is no doubt about that. My point is simply that, as a matter of constitutional design and how the system actually works, it is desirable to have the capacity for direct funding of local government. Given where the money now lies within our Federation, it is a dangerous course for local government, in the longer term, to be dependent solely on grants via the states because there are imperatives that mean that the Commonwealth will likely fund some schemes only if it can do so directly. Also, there are matters of design that suggest that it is desirable for that to occur for some schemes, in any event; not everything must go through the states because there are reasons for it not to.

But that is not an argument that you run through the media; that is an argument for you talk about. As AJ has identified, the real question is whether there is the opposition there that will run a successful 'no' case. If there is, it should not be run. If that opposition is not there, then you have the makings of perhaps a successful referendum.

Mrs PRENTICE: I just want to go further with AJ on the need to run a hard campaign soon and who should be running it. How long do you think we need? Do we need 18 months?

Prof. Brown : That is a very good question, and I think the answer is that you need more than six months. When George said it is either in a year or in four years, well, the next election is not going to be a year away from now. So we are looking at something less than that. I just come back to absence some crisis which instantly elevates the issue in people's minds right to the top. Given the political environment that is why I see the risks for this election as being so high. But I think the work needs to start within the next six months.

Prof. Williams : Can I just quickly say on that I think the referendum record is interesting on this and it shows that successful referendums have typically had campaigns that have lasted for six to eight weeks. That is not desirable and it is best to educate people, but that is just the reality. There is no way you can sustain a high-level political campaign for 18 months. People just will not be interested. You cannot cut through in the media unless there is something really and present. You just do not get media attention for these things until it is the issue—and that is in the coming weeks. That is a real problem in this area. I just do not think you could run an 18-month campaign unless you are prepared to invest tens of millions of dollars in TV advertising—which people just turn off to anyway.

Mrs PRENTICE: I know, but my view is more that it takes some time to ramp up. I did not expect the campaign to—

Prof. Williams : It will ramp up in the last two months.

Prof. Brown : I think we are probably confusing two things here. One is the actual campaign for the referendum, which is about 'Here is the specific question. Should you vote for it or not?' But, before that, there is a range of things—and this is where I think continuing evidence and advice from ALGA and the local government associations will be worthwhile, although it should not just be what local government wants. For example, what can be done to actually influence the public mindset towards their awareness of local government and their mindset towards the positives and negatives of the role of local government in their lives currently? This is where the local government association of Queensland has especially done a lot work in seeing how much impact you can have in setting up for a more positive environment in which to put a referendum by doing some strategic things.

ALGA also got very good advice about setting up a framework with local government ambassadors who were not from local government and getting other stakeholder, business leader and third-party endorsement, if you like—and not from politicians at all and not from disagreeing academics; you just get agreeing academics. You have to basically think about some of those fundamentals about how you are going to engineer an environment in which the campaign can then be prosecuted.

Prof. Williams : I think the first and most important thing is that you need the Prime Minister and the Leader of the Opposition to say that we have a problem that needs to be fixed. Until you have got that, nobody is interested, frankly. And that is where the media will see this as a non-issue.

Mrs PRENTICE: Do they then step away from it and someone else runs the campaign?

Prof. Williams : There is an ongoing discussion. I think you can have 'yes' committees and 'no' committees—though there ought not to be a 'no' committee unless there are actually those in parliament against it, which hopefully there would not be. I just do not think this has even got to the first base in terms of our political leaders at the highest level of themselves acknowledging a problem that is worthy of a referendum to fix. In the absence of that, there is no reason that you would run a campaign.

Prof. Brown : I agree with that, but I think it is vitally important that this be perceived as being something for the benefit of the people and not for politicians—local, state or federal. As soon as it is perceived as being for the benefit of politicians, people are automatically sceptical, especially in the current political environment in terms of attitudes towards the legal system overall and trust.

The great thing about Indigenous recognition is that there are a whole lot of voices out there that are very strong. Reconciliation Australia, the Fred Cheneys of the world—he was a politician that no-one remembers anymore. There are all sorts of people. So there is basic good community support that is not coming from politicians and not just coming from Aboriginal people. I think it is very important that some of those elements be seriously thought about and put in place in order to maximise the chances. You really need to have everything going in one direction. At the moment the base level of support consistently is at best a glass half full and so you have to be looking at all the things that will make sure that there is 90 per cent support out there before things start so that whatever impact is eroding that cannot erode it to the point where it becomes borderline. That is again where I think the community can play a really useful role irrespective of the decision about time frame and sustainability, and locking in those ingredients of political support and bipartisanship is making it fairly clear about some of those fundamentals that need to happen and that should happen in order to maximise the chances.

CHAIR: I need to wrap up this section. I want to end by challenging with some questions of my own some of the things that have been said. Professor Brown, you talk about the timing and the need for a campaign, how long that campaign might need to be. Last time I voted in a referendum must have been 1999 and back then you are lucky if you had a mobile phone. In 2013 you can start a campaign today on anything you wanted to by putting out a tweet. We are in a vastly different age for campaigning now. I remember getting a call from the person who started the Every Australian Counts campaign and three months later I was holding up a placard as part of an online campaign which has led to the introduction of legislation. We live in such a different age to where we were in the last referendum, not to mention all those other referendum that failed, including on this same question. I would like to put it that we are in a vastly different world where campaigning means a very different thing on these kinds of issues.

The other thing I want to say is that we have had a discussion about the political climate and the standing of federal politicians. I would even bet that if everyone in this room said we would forgo our salaries for a year for the betterment of the country we would not see an improvement overnight, just in response to that question, in the standing of federal parliamentarians. The notion that somehow there is going to be some point where we have the ability of anyone who has important interest, including this really important question for communities, that there is going to be a vacuum that this is going to be able to fill and then the time will be right to put this forward. I just think it is a fantasy. I am not saying you are directly saying that but a lot of what I am hearing coming out from some of the submissions we will have a discussion later on today about is that somehow there is going to be kinder, gentler environment in 12 months time, in two years time, in however many years time. I think that is an absolute fantasy.

One thing I would also say that goes to this issue is that Professor Williams has put forward that referenda succeed where there is a mechanical problem that needs to be overcome. If there ever was going to be an urgent problem that can be overcome by a mechanism of a referendum it is right now, because we have challenges right now that are going to the High Court on different matters that go to local government. They are still there on the books. As you rightly point out, any litigant can step up tomorrow and then what do we do, what do councils do when the High Court decides that Roads to Recovery is unconstitutional and they have to pay the money back? Will the punters think of us then? I put those issues out there to wrap up. I think we need to get a bit of context that we are different age of communication and campaign than we were in 1999 and the last time local government was put to a referendum, and there is not going to be a political climate where all of a sudden financial recognition of local government in the Constitution is going to have a perfect time. I think we are really deluding ourselves if we think that that time exists and is somehow around the corner. I open it up to arguments.

Prof. Brown : If I could, I would make three quick responses to that, in case it would help the committee. One is, if this is put at the next election, I will be voting for it and I would be happy to encourage other people to vote for it. My fear would be that, unless the committee can demonstrate that enough of those stars are aligning, I would say it is going to be a very high-risk proposition. I would be voting for it and I agree with you: if it is down the torpedoes, let's do it. In terms of the timing and waiting for that utopian moment, the trouble is that we know some moments are better than other moments. Helen Irving, another constitutional colleague of ours, has said it quite well in that what you are looking for is a moment when people are disillusioned enough with something, when they believe there is a problem that needs to be fixed, that combined with their faith in their positive capacity they should make this decision to fix it. So we know from the last few years that there have been better moments than others to do things. 2008 would have been a great year to put reforms to the people to try to fix particular problems. We know there would have been enough positivity coming off the 2007 election so that people would have said, 'Yeah, we've made a change and now we're doing some things to fix the system.' I am just not sure that we are in an environment now where things are not just too fraught with division and negativity for people to do that.

CHAIR: The problem, of course, Professor Brown, is we only know that that was a good moment after the fact.

Prof. Brown : After the event, yes—quite. We have not done a very good job of thinking about when are the moments. I think if we were to go to this next election with everybody committing that, irrespective of who was in government after the next election, they will do it, that in and of itself provides some leverage and positioning for some consensus.

Prof. Williams : We have already had that commitment in the sense that it is in the agreements that we would be having a referendum at or before the next election. You could not have a clearer timing than we will have an election this year. I think there are always reasons not to do it and the good reasons are that the work has not been done to this point to make the preconditions of success likely. This is a really hard area. I think in the end you are absolutely right. You cannot work towards a moment. You take your options as best you can. There are big issues in this debate. This clearly should not be run unless there is clear, direct, unequivocal support from the major political parties and the states are prepared to run with or give some lukewarm support. If that is not going to happen, it should not be run. If it did happen, that is probably your moment. That is what creates the moment. They are the preconditions. AJ's survey is very interesting in that at the moment local government just happens to be the most popular of the tiers of government in the country.

CHAIR: Or the least unpopular, maybe.

Prof. Williams : The least unpopular perhaps. You may well find your moment in 12 months time, that there is another Wollongong-like scandal and the whole thing is over. That is the thing. You just cannot predict these sorts of things. I think you are right to focus more on what you need to do to line up the ducks. That is what creates your moment in the first place rather than assuming at any time it will actually occur. I still think it is more likely than not that this will never happen, given the reluctance to hold a referendum.

Prof. Brown : The other issue in terms of the nature of campaigning now—you are absolutely right about this being a different era—is that the expert panel flushed out a certain level of initial reaction from people. In the internet age and the age of Twitter, it is not only those who want to campaign for something who can immediately get instant traction; it is everybody else as well. Unfortunately, there are a whole lot of people out there, a very strange bunch of people in my estimation, who actually believe that local government is illegitimate and should not exist. They are the people who do not want to pay rates, for example. There are some very strange theories out there which are strangely well networked and well-organised, networks of people who in my view are completely wrong factually, constitutionally and politically—and their political values I also do not understand—people who are ready to create quite sharp no arguments for this, completely out of the blue, using the power of Twitter et cetera. That is one of the reasons there needs to be a strategy, whether or not it is a strategy for a rapid delivery of how you want to do it.

Social media campaigning is not a simple thing, so there is a real need for a strategy to make sure there are those third-party endorsements from people who have broad social credibility and the right demographics—the Hugh Jackmans or whatever—just ready to make sure that crazy things do not happen, which could equally derail what could otherwise be a positive campaign.

CHAIR: I thank all participants for joining us this morning. It has been illuminating, I am sure we would all agree.

Proceedings suspended from 11:05 to 11:17