The Commonwealth Government's proposal to hold a
referendum on Constitutional recognition of local government is a
welcome step towards securing certainty around the financial future
of local government. This reform is much needed, and long
Earlier this month, Prime Minister Julia Gillard announced the
Commonwealth intends to hold a referendum on 14 September 2013, the
date of the Federal Election, on financial recognition of local
government in the Australian Constitution.
The referendum will seek to amend section 96 of the Constitution
to expressly enable the Commonwealth to financially assist local
Section 96 currently allows the Commonwealth to "grant
financial assistance to any State on such terms and conditions as
the Parliament sees fit."
The referendum would amend section 96 so as to permit the
Commonwealth to allow the Commonwealth to "grant financial
assistance to any State, or to any local government body formed
by a law of a State".
Although, at first glance, such a change may appear to be
trivial or purely technical, it's in fact vital for providing
certainty around the future funding of local government.
Similar referenda have been defeated before, in 1974 and 1988.
However, two recent High Court decisions – Pape v
Commissioner of Taxation1 and Williams v Commonwealth2 – have elevated the issue.
Although neither case directly related to local government, the
reasoning in those decisions has raised doubts about the
Commonwealth's ability to financially assist local government,
absent an express Constitutional power to do so.
These doubts cast a fog of uncertainty around the legality of
Commonwealth funding for important local projects, such as the
Roads to Recovery Program and the Regional and Local Community
Indeed, in its March 2013 report on financial recognition of
local government, the Commonwealth's House of Representatives
Joint Select Committee on Constitutional Recognition of Local
Government (House Committee) noted that "there is a palpable
fear in local government" that without Commonwealth funding
for local governments "communities will not have the resources
for the essential infrastructure services on which they
If such Commonwealth spending were to be challenged in a Court,
and held to be invalid, the Commonwealth would likely be forced to
negotiate all such funding with the States and Territories.
Plainly, this is less efficient than the Commonwealth funding local
Moreover, it creates a real risk that local government funding
will simply become hostage to the notoriously intractable process
of Commonwealth-State/Territory negotiations.
The main case against financial recognition of local government
rests on the notion that the Commonwealth has no place funding
local government. On this view, the proposed change would simply
serve to tip the Federal balance further in favour of the
Commonwealth, at the expense of the States and Territories. This is
seen, by some, as undesirable and anathema to Australia's
Federal structure, on the basis that local government matters
should remain under the exclusive oversight of State and Territory
However, the response to such arguments is that the proposed
referendum would simply seek to "update" the
Constitution, drafted over a century ago, to reflect the reality of
modern Australia. Whatever may have been the case back in 1901,
when the Commonwealth played a much narrower role in governing
Australia, it would be disastrous for the stability, and
efficiency, of Australia's contemporary system of government if
the Commonwealth was unable to directly fund local government.
Unfortunately, prospects for the referendum are mixed. The
Australian public has a strong tendency to reject referenda, with
only 8 of 44 referendums having passed since Federation. Moreover,
the Coalition appears to be divided on the proposed change, despite
offering "in-principle" support.
With just under four months until the 2013 Federal Election and
the referendum, and other political issues dominating public
debate, there is a real risk the Commonwealth will fail to explain
to the public the case for the Constitutional change.
Nonetheless, the change is important, and will provide local
governments with certainty as to their own funding, and the
financial viability of important public programs.
For more information about the Constitutional recognition of
local government, please see the Expert Panel's final report here
and the House Committee's final report
1 (2009) 238 CLR 1.
2 (2012) 288 ALR 410,
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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