page_title: Federalism in Australia
section_title: Development of Australian Federalism
hierarchical_section_title: Federalism in Australia / Development of Australian Federalism
caption_attribution_description: High Court of Australia
context_page_description: Federalism was adopted, as a constitutional principle, in Australia on 1 January 1901 – the date upon which the six self-governing Australian Colonies of New South Wales, Queensland, South Australia, Tasmania, Victoria, and Western Australia federated, formally constituting the Commonwealth of Australia. It remains a federation of those six "original States" under the Constitution of Australia.
  Australia is the sixth oldest surviving federation in the world after the United States, Mexico, Switzerland, Canada, and Brazil.
  Relatively few changes have been made in terms of the formal constitution since Australian federation occurred; in practice, however, the way the federal system functions has changed enormously. The most significant respect in which it has changed is in the degree to which the Commonwealth government has assumed a position of dominance.
context_section_description: Since federation, the balance of power between levels of government has shifted substantially from the founders' vision.  The shift has transferred power from State governments to the Commonwealth government. While voters have generally rejected proposals to enhance the Commonwealth's authority through constitutional amendment, the High Court has obliged, with generous interpretation of the Commonwealth's enumerated powers. A major factor has been the way the Commonwealth government has monopolised access to the main revenue sources.
  For the first two decades, Australian federalism stayed reasonably true to the "co-ordinate" vision of the framers.  In co-ordinate federalism, the Commonwealth and the States were both financially and politically independent within their own spheres of responsibility. This was reinforced by the High Court, which in a number of decisions in those early years rejected Commonwealth government attempts to extend its authority into areas of State jurisdiction.
  A factor in the expansion of Commonwealth powers Australia's involvement in the First World War. The turning point really came, though, with the High Court's decision in the 1920 Engineers Case, Amalgamated Society of Engineers v Adelaide Steamship Co Ltd, repudiating its early doctrines that had protected the co-ordinate model and the place of the States in the federation.
  A system of co-operative federalism began to emerge in the 1920s and 1930s in response to both internal and external pressures.  Elements of cooperative federalism included: the establishment of the Australian Loan Council in response to intergovernmental competition in the loan markets; the co-ordination of economic management and budgetary policies during the Great Depression; and the establishment of joint consultative bodies, usually in the form of ministerial councils.
  A second turning point came with the threat to Australia at the beginning of the Second World War and the Commonwealth government's mobilisation of financial resources.  The constitutional framework on tax allowed both the Commonwealth and States to levy taxes.  However, in 1942 the Commonwealth introduced legislation to give it a monopoly on income taxes.  It did this by providing financial grants to states (using the section 96 grants power), on the condition that they did not collect their own income taxes.  The validity of this scheme was upheld twice in the High Court.  "Uniform" income taxation levied by the Commonwealth became the principal instrument of Commonwealth financial domination and vertical imbalance in the Australian federal system (vertical fiscal imbalance). The system allowed the Commonwealth to intrude into traditional fields of State responsibility by means of specific purpose grants or loans to the States for purposes such as education, health and transport. Extensive use of these 'tied grants' by the Labor Government 1972–75 provided a "work-around" solution for the Australian Labor Party's long-standing frustration with the obstacles of federalism.  It thus helped diminish Labor's antipathy to the federal system in Australia.
  Despite the centralisation of legislative and financial power, there are many areas where federal Parliament lacks the power to regulate comprehensively, even where such regulation might be seen to be in the national interest. This has led State and federal governments to co-operate to create regulatory regimes in fields such as the marketing of agricultural products and competition policy.
  Over the years Australia has developed an increasingly comprehensive system of horizontal fiscal equalisation (HFE) aimed at ensuring that all jurisdictions have the same fiscal capacity in relation to their needs.  Since 1933, a statutory agency of the Commonwealth government, the Commonwealth Grants Commission, has been responsible for determining the way transfers are distributed among the States and Territories to accomplish this goal.  Since 2000, the net revenue of the GST, a national value-added tax, has been distributed as general purpose payments according t
caption: The High Court of Australia played an instrumental role in the development and evolution of federalism in Australia
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