There Must be Limits: The Commonwealth Spending Power
| Author | Gabrielle Appleby |
| Date | 01 March 2009 |
| DOI | 10.22145/flr.37.1.4 |
| Published date | 01 March 2009 |
| Subject Matter | Article |
THERE MUST BE LIMITS: THE COMMONWEALTH
SPENDING POWER
Gabrielle Appleby*
I INTRODUCTION
The power to make a present to a man is not the power to give him orders.
Sir Robert Garran1
[M]oney doesn't talk, it swears[.]
Bob Dylan2
There is an assumption that government affects community action and implements its
policy primarily through legal rules backed by sanctions.3 Reality however dictates
that policy implementation occurs in a number of ways, one of the more significant
being through the lure of money.4 Money has been utilised over the course of
Australia's history to impact a dramatic redistribution in federal and State power
without constitutional amendment. Spending is also, by its very nature, less
transparent than legislative regulation. There is growing disquiet about the unchecked
and unaccountable nature of government spending which this article seeks to explore.5
_____________________________________________________________________________________
* Lecturer-in-Law, University of Adelaide. The author would like to thank Cheryl Saunders,
Geoff Lindell, Alex Reilly and John Williams for their insightful comments, advice and
overall encouragement on earlier drafts of this article. The author also acknowledges the
funding provided by the Australian Federation of University Women – Qld Inc which
allowed the research involved with this article to be completed. Any mistakes are, of
course, the author's alone.
1 Commonwealth of Australia, Royal Commission on the Constitution of the
Commonwealth, Report of Proceedings and Minutes of Evidence, (1927) Part 1, 72 [396] (Sir
Robert Garran).
2 Bob Dylan, 'It's Alright, Ma (I'm Only Bleeding)' Bringing it All Back Home (1965).
3 Sometimes referred to as traditional 'command and control' regulation: see, eg, Julia Black,
'Critical Reflections on Regulation' (2002) 27 Australian Journal of Legal Philosophy 1, 2–3. See
also definitions in Robert Baldwin, Colin Scott and Christopher Hood, A Reader on
Regulation (1998) 3 and Robert Baldwin and Martin Cave, Understanding Regulation: Theory,
Strategy and Practice (1999) 2.
4 Baldwin, Scott and Hood, above n 3, 3; Baldwin and Cave, above n 3, 2.
5 See, eg, Department of the Prime Minister and Cabinet, Australia 2020 Summit: Final Report
(2008) Australia 2020 Summit, 309.
<http://www.australia2020.gov.au/docs/final_report/2020_summit_report_full.pdf> at
1 April 2009; Senate Standing Committee on Finance and Public Administration,
94 Federal Law Review Volume 37
____________________________________________________________________________________
Commonwealth government funding is pervasive across a number of sectors
including education, health and local government. Much of this results from the
vertical fiscal imbalance between the federal and State governments and attempts at
equalisation of horizontal fiscal imbalance between the States.6 In 2005–06 the
Commonwealth's share of the total taxation revenue across all levels of government
was 82.3 per cent (including the Goods and Services Tax).7 In 2007–08 nearly one third
(72.6 billion)8 of the Commonwealth's cash receipts was returned directly to the States
and local government,9 and millions of additional dollars will be spent on funding
agreements with non-State parties. The Commonwealth is not, however, a silent
partner in its funding pursuits. Grants and funding are frequently used as government
policy vehicles.
As is well known, federal legislation is constitutionally limited through the
legislative process itself and the federal division of power. This article addresses the
extent to which the Commonwealth's power to enter funding agreements is also
limited (if at all). The ability to enter funding agreements rests to a certain extent on the
Commonwealth's 'spending power'. This power is not express. The legislative powers
in ss 51 and 52 of the Constitution undoubtedly allow the Parliament to legislate for
spending with respect to the enumerated subject matters. Section 96 also gives
Parliament power to spend on grants to the States. Beyond this, there may also be a
more general implied spending power. Sections 81 and 83 give Parliament power to
appropriate money from the Consolidated Revenue Fund ('CRF') and the executive
power vested by s 61 probably includes the power to spend money, for example,
through contracts. An implied spending power raises two interrelated questions. First,
whether it can support more than mere spending and therefore the extent to which
terms and conditions can be attached. Second, whether the areas of such funding can
extend beyond the strict legislative competence of the Commonwealth.
This article will proceed as follows. Part II will outline the relevant constitutional
framework for the consideration of the spending power in the rest of the article. Part III
considers the theoretical basis for why the spending power should have limits. There
are two broad theories which can generally be described as the 'democratic critique'
and the 'federal critique'. The fundamental accountability and constitutional concerns
raised in the critiques illustrate the disquiet around an unlimited spending power. Part
IV chronicles the use of the spending power by Australian governments, focusing on
_____________________________________________________________________________________
Parliament of Australia, Transparency and Accountability of Commonwealth Public Funding and
Expenditure (2007) xi–xiii.
6 GST revenue grants under the Intergovernmental Agreement on the Reform of
Commonwealth-State Financial Relations are distributed in accordance with 'horizontal
fiscal equalisation (HFE) principles': cl 8 of the Intergovernmental Agreement on the
Reform of Commonwealth-State Financial Relations (A New Tax System (Commonwealth-
State Financial Arrangements) Act 1999 (Cth) sch 2).
7 Australian Bureau of Statistics, Taxation Revenue 5506.0 2005–06 (2007) 4
<http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5506.02005-
06?OpenDocument> at 1 April 2009.
8 In the 2007–08 budget year, the Commonwealth anticipated $245.611 billion in cash
receipts: Peter Costello and Nick Minchin, 2007–08 Budget Paper No 1: Budget Strategy and
Outlook 2007–08 (2007) 13-15.
9 Peter Costello and Nick Minchin, 2007–08 Budget Paper No 3: Federal Financial Relations
2007–08 (2007) 4.
2009 Commonwealth Spending Power 95
____________________________________________________________________________________
the reliance on the power by the Howard Coalition government in the education sector
(which continued a trend started under the Hawke and Keating Labor governments).10
Finally, the article will discuss in Part V the potential ways in which the spending
power may be limited. The main focus of previous attempts to limit the power has
either been the text of s 81 of the Constitution (the 'appropriations power') or the
breadth of the executive power in s 61. An analysis of the historical background to the
appropriations power and the relevant jurisprudence will be undertaken. From here,
the article will develop a theory for limiting the spending power. The article concludes
that there are two limitations which vary in their nature. Practically, the power should
be limited through the constitutional supervision of the executive by Parliament in the
appropriation process. Secondly, the power is also limited by subject matter where the
executive seeks to do more than merely spend appropriated money. To take further
action, such as the engagement in activities or the imposition of regulatory type
contractual conditions, there must be a further source of executive power. This comes
from s 61 of the Constitution and is therefore limited by the scope of the executive
power.
II THE CONSTITUTIONAL FRAMEWORK
The Commonwealth's 'spending power' is an implied power found in a number of
different provisions of the Constitution. Before a critique and analysis of the power can
be undertaken, it is important to set out the relevant constitutional framework.
Some provisions necessarily infer a limited spending power. Sections 51 and 52
provide that the Parliament has the power to make laws under a number of different
heads of power. The power within these subject matters is plenary,11 and would
include the power to make laws for the expenditure of money either directly or
through the incidental power.12 Section 96 gives Parliament power to grant financial
assistance to the States on the 'terms and conditions as the Parliament thinks fit.'13 This
section assumes a spending power to allow such grants of assistance to take place.
These provisions are not the direct concern of this article.
A more general spending power may be implied from a combination of
constitutional provisions relating to the appropriations and executive powers. Sections
_____________________________________________________________________________________
10 See, eg, the overview of the Hawke and Keating programs and policies in higher education
and schools in Russell Mathews and Bhajan Grewal, The Public Sector in Jeopardy: Australian
Fiscal Federalism from Whitlam to Keating (1997) 622–44. See also the discussion of Howard
policies in Andrew Parkin and Geoff Anderson, 'The Howard Government, Regulatory
Federalism and the Transformation of Commonwealth–State Relations' (2007) 42 Australian
Journal of Political Science 295.
11 These sections are prefaced by the words 'for the peace, order and good government of the
Commonwealth'.
12 Implied or express, under s 51(xxix) of the Constitution.
13 Section 96 grants have been discussed extensively elsewhere and are not the immediate
concern of this paper. See, eg, A J Myers, 'The Grants Power: Key to Commonwealth–State
Financial Relations' (1970) 7 Melbourne University Law Review 549; Cheryl Saunders,
'Towards a Theory for Section 96' (Pt I) (1987) 16 Melbourne University Law Review 1; Cheryl
Saunders, 'Towards a Theory for Section 96' (Pt II) (1988) 16 Melbourne University Law
Review 699.
To continue reading
Request your trial