Company Law
Constitutional impediments and Commonwealth-State rivalry prevent Australia having effective national,
corporate regulation
Is this statement an accurate description of the situation in Australia today? Discuss, in the light of recent
reforms to the regulatory scheme and problems which may arise in the future.
Guidelines
The word limit is 2400 words. If the assignment exceeds the word limit by 100 words or less, there will be
no penalty. If the assignment exceeds the word limit by more than 100 words, there will
be a penalty of half a mark deducted for each extra 50 words or part thereof. Footnotes will not comprise
part of the word count nor will a bibliography. If the assignment word count is well
below 2400 words (2100 words or less) there will be penalty.
NB: Late assignments will be penalised as follows:
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� Up to 3 days late 5% of the maximum possible mark awarded for the assignment
� From 4�7 days late 10% of the maximum possible mark awarded for the assignment
� From 8�14 days late 25% of the maximum possible mark awarded for the assignment
� More than 14 days late Not marked
Refer to the Rules concerning all assignments for the circumstances when these penalties may be
waived. Remember that the extension to the submission deadline is exception rather than the
rule and it can be granted only in exceptional circumstances.
The assignment may cover all unit objectives, though content will vary with the topic selected. In addition
to matters developed in more detail below the marker will examine whether you have:
- identified and clearly stated the relevant issues;
- applied relevant legal principles to the resolution of these issues;
- critically analysed deficiencies in the law and recommended appropriate changes to the law;
- integrated and evaluated relevant knowledge from both the material covered in this unit and your own
independent research;
- developed and sustained a concise and convincing legal argument through to a logical conclusion;
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Company Law
Introduction
The commonwealth (Federation) and the States have been engaged in rivalry since the
inception f the Australian federation in 1901, which has only got more heated over the past years
given that the High Court has continued to award more power to the commonwealth at the
expense of the States. The commonwealth has continually used the powers of the Australian
High Court in judicial interpretation of the constitution to exercise their constitutional power
over the policies of the States. A clear example of such a case was in 1942 when the High Court
upheld the decision by the commonwealth to levy taxes through the First Uniform Tax case so
that it could finance the war effort become the sole collector of taxes across the whole federation
(OBPR, 2008). The High Court cited section 51 (ii) within the constitution that gave powers to
the commonwealth to levy taxes (OBPR, 2008). The key issue of contention is that in cases
where there is a conflict between the commonwealth and state regulations, the relevant
commonwealth laws are considered supreme in such situations. The rivalries between the
commonwealth and the states and the impactof the constitution have created an untenable
situation in Australia that impedes effective national and corporate regulation. This was true in
the past and is still true today although significant steps have been taken to create reform and
change within the regulatory system so as to improve the situation. This paper shall focus on the
recent reform agenda pioneered by the Council of Australian Governments (CAOG) and its
effect on Australia and its corporate regulatory environment.
Fiscal Imbalances between States and the Commonwealth
A common source of rivalry between the Commonwealth and the States in recent years
has been regarding how the federal government gives funding to the States through awarding
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them various grants. Given that the federal government is the sole tax collector in the country, it
has to find a way of redistributing the taxes collected back to the States so that they can provide
essential services to their people (OECD, 2009). The federal government is required to fund
various basic services such as the provision of services to the elderly including their health care,
and at the same time, it is supposed to provide basic health services to the rest of the population,
but the States governments are required to provide hospital services. This scenario indicates that
the responsibilities of the federal government and the State government overlap and the two
bodies have been known to commonly use this overlap to blame the other party for any
deficiencies in the provision of health services. As this blame game rages on because of the
rivalry between the Commonwealth and the States, ordinary Australian continue to suffer due to
lack of some basic health services as they are being told that it is the fault of either the State or
the federal government (OBPR, 2008). Similar blame game scenarios exist in the provision of
other basic services, which lowers the service delivery aspect of both governments.
Harmonization of legal and regulatory requirements
The commonwealth and the State governments also have a lot of rivalry that arises out of
the harmonization of the legal and regulatory requirements for businesses in the country that
have acted as a significant barrier to the growth of the country’s economy. Research indicates
that through harmonization, the country can generate significant GDP growth, growth in real
incomes and create more jobs, which will reduce unemployment and raise the living standards of
many Australians. The rivalry has acted as a significant barrier to harmonization with both
governments wanting to be the superior partner in such partnerships and to get the best of the
benefits that accrue from such partnerships instead of thinking about the benefits to ordinary
Australians (OBPR, 2008). It has seen Australia continue to offer significant obstacles in terms
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of regulatory requirements when creating companies and when paying for licenses with many
corporations being charged for licenses both at the State and the national level. Without the
rivalry one can only imagine how far Australia would actually go in terms of being one of the
most friendly nations to investors and businesses in the region and maybe even across the globe.
Over time efforts to establish national trade authorities and organizations that mange trade on a
national level through harmonization have been met with a lot of resistance by the State
governments. This rivalry has resulted in the lack of implementation of most of the
harmonization programs in Australia.
National partnership payments
The delivery of services in the states has been affected for a long time by federal-state
relationship in the sense that whatever the state governments did was tied to the policies of
federal agencies. The NPP programs through which the federal government funded most of the
projects of the states was skewed in the favor of the federal government, which had excess
control over what the states did with the funding as it usually had attached conditions. The states
were extremely limited in the scope of independent choices they could make in terms of how
they would spend the money they received from the federal government. However, in order for
states to have autonomy in their affairs as envisioned in the constitution, the role of the federal
government in deciding the policies of states should be non-existent or minimal at best (‘BEPS
and recent developments in Australian corporate tax law,’ 2013). Efforts to create a more
independent relationship between the federal governments and the states have faced challenges
because of the existing rivalry with most of the proposed changes still not being implemented. A
different funding program should be implemented in order to give states more power over the
policies they implement by removing the attached conditions that were a part of federal funding.
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Such a strategy would ensure that states have more control over the delivery of services within
their jurisdictions, which will increase innovation within the states and boost competition
between states that will benefit all Australians.
Rivalries between heads of governments
Initially the Commonwealth was almost entirely responsible for meeting of heads of
governments that discussed the reform agenda in Australia, which gave little room for the states
to set their own agenda and fully express their needs and policies in relation to the federal
government policies. The heads of agencies in the federal government would arrive at such
meetings with their requirements for the state governments clearly outlined with little room for
debate, which fueled the rivalry further. However, the COAG has strived to reverse this trend
and create a new culture for such meeting between heads of governments by directly involving
the heads of governments from the states, the territories and the commonwealth in the planning
of such meetings (COAG, 2008). Other avenues for dialogue have also been created in terms of
working groups and ministerial councils, which meet much more frequently than in the past
where COAG meetings were only convened on an annual basis and were extremely brief
(OECD, 2009). These frequent collaborative meetings have served to increase the cooperation
between the state and federal governments, which has significantly increased the pace of reforms
within the country. The establishment of a Center for the Australian Federation by the states in
2006 is a clear indicator of the increased role of the states in the reform agenda currently being
implemented in Australia.
The Impact of Ministerial Councils
During the implementation of recent reform agendas, the role of the ministerial councils
has taken center stage given that they are a direct way of ending state and commonwealth rivalry
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as they are usually made up of ministers from states, the territories and the commonwealth
(OBPR, 2008). The impact of ministerial councils cannot be understated as they usually result in
the adoption of specific policies by the states that quickly translate into legislations and finally
into regulatory practices in the states and territories. The ministerial act as avenues for resolving
any issues that arise between governments and the COAG has identified them as a crucial
component of the efforts to implement the reform agenda within the states because of the
authority of the members of such councils as representatives of their governments. Initially the
ministerial councils were too many with some having overlapping roles and there was ineffective
communication between the numerous ministerial councils which directly impeded the
coordination of their activities and their effectiveness. However, the CAOG embarked on a
project of streamlining the effectiveness of the ministerial councils and creating better integration
firstly by reducing their number and redefining their scope and providing clear guidelines for
their formation (COAG, 2008b). The ministerial councils have been vital in redefining the role of
the states in creating their own policies, which has positively impacted the relationship between
the states and the commonwealth by increasing the autonomy of the states (OECD, 2009).
Improved mechanisms for regulatory management
A crucial component of the rivalry between state and federal governments is the rising
costs of compliance across various jurisdictions in Australia because of non-uniform regulatory
schemes that lead to double taxation on businesses, thus hindering business competition.
Although the federal government is the sole tax collector, businesses are taxed and regulated
under the individual constitutions of each state or territory, which greatly increases their
compliance costs across jurisdictions (OECD, 2009). In order to improve the regulatory
management mechanisms, the CAOG got the three levels of government to agree to several
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guidelines that would govern the regulatory environment (COAG, 2008b). The agreement
included the establishment of gate keeping or controls as a crucial component of the decision
making process, use cost-benefit analysis as a method of improving the quality of decisions
made by analyzing the impact of such decisions. The agreement also involved the establishment
of better analysis of the cost of compliance resulting from new regulations on individuals,
businesses and the community, while at the same time increasing the scope of the impact
analysis performed for new regulations (‘BEPS and recent developments in Australian corporate
tax law,’ 2013). These mechanisms are supposed to apply to all three levels of government and
the ministerial councils as they create regulations within the recommended regulatory framework
in order to eliminate all forms of rivalry between states, territories and the federal government.
Applying best practice principles in regulation
In order to create and implement equal regulatory requirements the three levels of
governments agreed to abide by some principles that would ensure the equality of regulations
across Australia based on principles of equality and fairness. Some of the guiding principles
under this agreement brokered by the CAOG include establishing a credible case for action
before attempting to create legislation to solve a particular problem, considering several feasible
options before making a decision on the best option to adopt for the problem, and adopting only
those options that have the greatest overall positive impact on the society (COAG, 2008). The
three levels of government also agreed not to restrict competition unless it could be proven that
the benefits of such a move on the community would be greater than the costs and that this was
the only way such benefits could be attained. The governments should also guide those affected
by certain regulations on how best to comply with the regulations so that the expected policy
outcomes might be achieved, while at the same time the governments should keep regulations up
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to date and relevant over time. In case there are issues that are raised by several jurisdictions
after a particular regulation is being considered for implementation, the ministerial councils
should halt its processes and commission a review of the decision making process (OECD,
2009). If the review team finds faults with the process, the council has the option of using the
findings and recommendations when making their final decision, but if they ignore the
recommendations, the heads of government may take up the issue.
Working Arrangements that Facilitate National Reform
As coordination between the commonwealth and states increased significantly after the
December 2007 elections the COAG created a set of guidelines that would guide the creating of
appropriate working conditions for the Australian workforce under the renewed cooperation
between the two governments. Some key areas of focus included health and ageing, business
regulation and competition, and productivity agenda including training and education. Working
groups were constituted by the CAOG to create proposals for the implementation of these
strategies, which were headed by a minister of the commonwealth with their output being in
form of proposals, and delivery objectives (COAG, 2008). Heads of treasuries complemented the
working group as an independent unit chaired by the Commonwealth Head of Treasury where
they worked out formulas for implementing the proposed financial plans (OECD, 2009). The
major strengths of the working groups include the fact that they have a clear agenda, they have
high ranking political leaders, they have adequate funding and well established secretariats, and
are composed of high level commonwealth and state officials with relevant experience in setting
policies. However, states have raised issues with the significant role played by the
commonwealth as the leader, but they also appreciate that the commonwealth is leading the
reform agenda.
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Conclusion
In conclusion, the analysis of the issues at the core of the rivalry between the
commonwealth and state governments and the reform agenda implemented by the CAOG
indicate that the reform agenda has tries to resolve most of the issues that impede the
establishment of a national corporate regulatory environment. I would like to point out that if the
reform agenda is implemented fully by successful governments, they can prevent any future
rivalries by preempting them and establishing structure to quickly resolve such rivalries in the
future. I would also like to issue a cautionary word to the corporations that are relying on the
reform agenda to rollout programs or expand operations across the country or even
internationally that the pace of reforms is unpredictable. Reforms may be fast tracked by one
government only for them to drastically slow down during successive administrations, which
means that all corporations should plan for such eventualities in future. The rivalries between the
three levels of government are not new to Australia, what would be new is if the current
generation of leaders was able to completely resolve the rivalries and constitutional impediments
to create a favorable corporate regulatory environment. The reform agenda discussed here holds
the key to the desired corporate regulatory future, but Australian leaders must be willing to
implement it fully to reap the maximum benefits for their efforts.
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Reference List
‘BEPS and recent developments in Australian corporate tax law,’ 2013, International Tax Review,
24, 10, p. 15, Business Source Complete, EBSCOhost, viewed 21 August 2014.
COAG, 2007b, ‘COAG National Reform Agenda, COAG Regulatory Reform Plan April 2007,’
