The issue confronting the Commonwealth Government and its agencies following the High Court's decision in Williams (No. 2) is the need to determine which of the scores of its grants and funding programs are valid.

As noted by James Stellios, the High Court's decision in Williams v Commonwealth [2014] HCA 23 was limited to the validity of funding agreement with the Scripture Union Queensland with the Commonwealth and the operation of s 32B of Financial Management and Accountability Act 1997 in relation to that agreement.

However, the ramification of Williams (No. 2) is that a grant or funding program is most likely invalid unless it is authorised by the "nationhood" dimension of the executive power in s 61 of the Constitution or one of the heads of legislative power in s 51 of the Constitution.

Williams (No. 2) also made it clear that funding agreements are not made valid just because that spending is authorised by budget appropriations Acts pursuant to s 81 of the Constitution or that one of the parties to a funding agreement is a corporation (attracting the operation of s 51(xx)).

The challenge for Government and agencies is to work through every grants and funding program to ascertain which ones cross the line drawn by the High Court.

For local government, there is also now be a need to identify what funding received directly from the Commonwealth is validly authorised.

At least more than 400 grants and funding programs have already been identified in schedule to the regulations made after the Financial Framework Legislation Amendment Act (No 3) 2012 (FFLAA), which inserted s 32B, was passed in response to Williams (No. 1).

The Wiliams (No. 2) decision highlights a focus of the High Court under Chief Justice Robert French on the limitations of the scope of the executive power under s 61 in decisions like Pape v Commissioner of Taxation (2009) 238 CLR 1 and Williams v Commonwealth (2012) 248 CLR 156. However, the plurality judgment in Williams (No. 2) provides greater clarity on the scope of the executive power given that there were five separate judgments in Williams (No. 1). The High Court rejected the proposition that executive power of the Commonwealth is the same as British executive power. Unlike the position in Britain, the Commonwealth is not "a polity organised and operating under a unitary system or under a flexible constitution where the Parliament is supreme". It is one where the Constitution effects a distribution of powers and functions between the Commonwealth and the States.

During the Parliamentary debates over the FFLAA and a constitutional amendment to enable the Commonwealth to make direct payments to local government there were pointed references by then-Opposition members to the federation and the importance of the States in providing funding of the kind that the fix-up legislation sought to authorise.

"I say to the Australian people that if you think Canberra can resolve all of your problems then you are not asking the right question, because more limited government is in our national interest. More trust in local authorities and communities to determine their own direction and self-direction and more responsibility and accountability from state governments will result in the better governance of your state," said Liberal senator Cory Bernardi.

The High Court's decision was also foreshadowed by the then-shadow Attorney-General George Brandis 2012 who cast doubt on the FFLAA's validity during the debates about it.

"The whole point of the Williams case was to decide that the executive cannot spend public money without legislative authority and parliamentary scrutiny," Senator Brandis said during the Senate debate.

"It seems to me that it is hardly sufficient to meet the tests which the majority set out in their reasons for judgment as necessary to constitute a valid expenditure merely to specify a schedule of grants payments and simply declare them to be valid... In short, this government's response to the Williams decision to invalidate a particular program because it was established by executive action rather than legislation is to say that all programs are validated so long as they are identified in a regulation, and that regulation does not even have to be made by the minister."

Williams (No. 2) provides the Commonwealth Government with an opportunity to put into action its commitment to "re-align the federation". As the Court pointedly highlighted, s 96 enables the Commonwealth to fund programs through tied grants.

As a result, the focus will now be on the the release of a Federation White Paper promised by the Government in the next year.

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