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Tuesday, 4 June 2013
Page: 5165

Mr IAN MACFARLANE (Groom) (21:22): The Constitution Alteration (Local Government) 2013 is a bill to amend section 96 of the Australian Constitution to make a specific provision allowing the granting of financial assistance to local government bodies. These changes are made in two ways. First, the words 'and local government bodies' would be added to the heading of section 96. Second, the words 'or local government body formed by a law of a state' would be added into section 96 after the words 'to any state'. If this change were approved, section 96 would then read:

During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State, or local government body formed by a law of a State, on such terms and conditions as the Parliament thinks fit.

This change would establish a specific power that the Commonwealth may grant financial assistance to local government bodies formed by a law of a state. This financial assistance can be for a wide range of services and facilities. The Commonwealth would thus no longer need to rely on other, less specific sources of power to provide financial assistance to local government bodies.

The proposed changes to the Constitution were developed by two inquiries: firstly, an expert panel, chaired by Jim Spigelman, which reported in December 2011; and, secondly, a Joint Select Committee on Constitutional Recognition of Local Government, which published its final report on 7 March 2013.

The coalition has previously expressed support in principle for the financial recognition of local government. The coalition formed this view after two High Court cases created doubt over the Commonwealth's powers to make direct payments to local governments. To make direct payments to local governments, the Commonwealth government has historically relied on its appropriation powers in section 81 of the Constitution or its executive powers under section 61 of the Constitution, as supported by section 51(xxxix). Recent High Court rulings imply that the Commonwealth can only appropriate money under its specific legislative or executive powers. For instance, in the Pape case, Chief Justice French commented on section 81:

These are not words of legislative power in the ordinary sense. They are words of constraint.

The manner of appropriation is shortly specified in s 83 and requires that it be made "by law".

That can be taken as a reference to appropriation by a statute enacted by the parliament of the Commonwealth or otherwise authorised by the Constitution.

In addition, the Williams case, concerning the funding of school chaplains, called into question the Commonwealth's ability to make appropriations under executive powers where those payments are not backed by a law. While a majority of the court recognised that there were some categories of executive power that could be exercised without statutory authority, such as prerogative powers, the ordinary administration of government departments and the nationhood power, the court did not back a 'broad' view of the Commonwealth's spending powers. As Professor Anne Twomey submitted to the Joint Select Committee on Constitutional Recognition of Local Government:

Is this direct funding at risk of being held constitutionally invalid? Yes, much of it, in my view, is vulnerable to a constitutional challenge … Some might well be supported by a Commonwealth head of legislative power, but much of it, including the Roads to Recovery program, is probably not so supported and therefore invalid.

All up, direct payments to local government amount to around $500 million a year, although the amount varies depending on the success of local governments submitting for grants. Direct payments could, in theory, be made via grants to state governments, such as the way financial assistance grants are paid. For instance, Professor Anne Twomey stated:

Is this a significant problem? No, because the same amount of money can be validly given under section 96 grants, as has been done since the 1920s.

In practice, however, removing the ability to directly fund local government would change the relationship between the Federal government and local government—a relationship that is a strong one.

Over the past five years, more than 6,000 projects have been funded through direct payments from the Commonwealth to local government. In particular, almost $2 billion of stimulus spending was granted to local governments to spend on local community infrastructure, and this money was spent without the waste and scandal that beset stimulus spending from the Commonwealth and state governments.

Not making the change to the Constitution puts at risk the status quo and could lead to unintended consequences in the relationships between different levels of government. For instance, local governments often submit for Commonwealth grants such as from the Regional Development Australia Fund or the Building Better Regional Cities program. Having to make a section 96 grant every time a local government was successful in a Commonwealth tender round would be an unwieldy process.

Moreover, the proposed change has been worded to protect the subordinate nature of local governments to state governments. The proposed change explicitly states that the Commonwealth can only grant payments to a local government 'formed by a law of a state'. This recognises that state governments will continue to have the power to merge local governments, dismiss local governments or curtail the spending of local governments.

We recognise that the views of state governments are mixed. The Victorian, Western Australian and New South Wales governments have opposed the change. The Queensland government supports financial recognition of local government, while the views of South Australia and Tasmania are unclear. Nonetheless, the proposed change to the Constitution has widespread support from local government and from the community. For instance, a poll conducted for the Australian Local Government Association found that 61 per cent of Australians support recognition.

Debate interrupted.