Prime Minister Julia Gillard and Health Minister Tanya Plibersek have announced they will return health payments to Victoria that had previously been cut from its allocation under the National Health Reform Agreement.
To save face, they say that they will punish Victoria by providing the money directly to hospitals. This is a punishment that is far more likely to end up hurting the Commonwealth than Victoria.
In practical terms, Victoria won. It gets its money back and the money ends up precisely where it would have gone anyway if the Commonwealth had paid it out under the National Health Reform Agreement.
From the Commonwealth’s point of view, not only did it lose by being forced to pay the money out, but it has once more entered the shark-infested constitutional waters of executive expenditure without parliamentary authorisation.
The Commonwealth is gambling on Victoria not challenging its method of granting the money. The Prime Minister recently asked rhetorically:
“Is Premier Baillieu really saying he would take a court case to deny hospitals in Victoria more money? Is he really saying they’d spend all of that money on legal costs to stop money going to patients?”
But there is no need for Victoria to commence a challenge. There is already a challenger ready to take on the issue. He is the challenger who previously beat the Commonwealth in the chaplaincy case, Ron Williams, and he is apparently ready for another tilt at the Commonwealth.
Until 2009 the Commonwealth took the rather optimistic view that it could spend money on anything it chose, as long as the money was covered by an appropriation by Parliament. This proposition was challenged by another individual, Bryan Pape, in a case about the validity of the Commonwealth’s payments to tax-payers during the global financial crisis. The High Court held that an appropriation was not sufficient to support the expenditure of the money – there needed to be some other constitutional head of power to support legislation that authorised such expenditure.
A prudent Commonwealth government would then have reviewed all its expenditure programs to ensure that they were properly supported by heads of legislative power, but instead it appeared to ignore the High Court’s ruling and carry on with business as usual.
Then came Williams who challenged the Commonwealth’s expenditure on a chaplaincy program for schools.
In this case, not only did the High Court find that there needed to be a separate head of power to support such expenditure, but that there needed to be actual legislation (not just a hypothetical power to legislate) to authorise such expenditure of public money.
The High Court stressed the importance of parliamentary scrutiny of public expenditure through the legislative process and that the constitutional procedure for making grants to the States under s 96 of the Constitution should not be lightly by-passed.

This time the Commonwealth did respond. It rammed through Parliament, in two days, the Financial Framework Legislation Amendment Act (No 3) 2012 that authorised the Executive to spend money upon more than 400 broadly described programs and subjects, listed in regulations. In doing so, Parliament effectively abdicated its responsibility to scrutinise public expenditure through the enactment of legislation and dismissed the federal considerations that had so concerned the High Court.
Indeed, it was a provocative act of defiance of the High Court. It was also a provocative act of defiance towards Williams. One of the programs for which expenditure was authorised by this Act was the chaplaincy program. Williams has since been raising funds to launch another challenge – this time to the 2012 Act.
The Act is highly vulnerable to constitutional challenge. As the former Chief Justice of New South Wales, Jim Spigelman, observed, some programs have been “identified in such a general language that they could not withstand constitutional scrutiny”. He too has regarded the Act as a provocation to the High Court and an approach to legislating that is not consistent with the rule of law.
Whether or not the High Court might strike down the entire law, read it down to its valid application or sever the parts that have no constitutional support, remains to be seen.
So where does the recent decision on health funding fit into this fight? Health funding is currently overseen by the National Health Reform Act 2011 (Cth). The expenditure is expressly authorized by s 15A of the Federal Financial Relations Act 2009 (Cth) and is constitutionally supported by s 96.
Instead of using this constitutionally valid system, the Commonwealth now wants to pay the money directly to hospitals, in defiance of its own legislation, by-passing s 96 of the Constitution and without legislative authorisation – exactly what the High Court said it should not do. Perhaps it will attempt to include this expenditure under the scheme it created in the Financial Framework Legislation Amendment Act (No 3) 2012.
But, Victoria would be unlikely to challenge it, because there is at least a plausible head of power to support Commonwealth health funding. The challenge by Williams to the chaplaincy scheme is much more likely to bring down the scaffolding of the Financial Framework Legislation Amendment Act (No 3) 2012, and no doubt Victoria will intervene to support it.
What is most significant about the Commonwealth’s approach is what it tells the High Court – that the Commonwealth Executive will continue to defy the Court and ignore its views on federalism, section 96 and the need for parliamentary scrutiny over public expenditure.
Pity the poor Commonwealth Solicitor-General having to defend the Commonwealth’s law before the High Court in such circumstances. Williams must be leaping with joy. So, no doubt, is the Victorian Government.
Gavin Moodie
logged in via LinkedIn
I am persuaded that the Australian Government is vulnerable on Parliamentary scrutiny of legislation, but is it really vulnerable on federalism? I understood Pape's and Williams' cases to raise doubts about Parliamentary scrutiny of legislation and not about federalism.
In any case, almost since federation the Australian Government has stacked the High Court with centralists and it has accordingly successively enlarged the Commonwealth's powers, most recently in the WorkChoices case. It would surely be a pausing if not a reversal of that trend for the current High Court to preserve States' powers.
Greg Masters
Management Consultant
Hi
I thought that S96 allowed the commonwealth to fund the states on 'any terms and conditions it sees fit'. Why, then, did the high court rule the chaplaincy program funding invalid?
Rajan Venkataraman
Citizen
Thanks for another interesting article Prof Twomey.
It seems to me that, despite the best efforts of the High Court, Australians generally have little knowledge of how our Constitution divides powers between the states and the centre and have given little thought to the merits or disadvantages of that division.
Thus we rarely stop to think about where responsibility lies for the funding for and quality of our schools and hospitals or why there is a duplication of bureaucracy in these areas…
Read moreStewart Scott-Irving
Education Consultant
Perhaps our Julia and Tony would do well to have Professor Anne write the "simple" Constitutional Law elements and history embraced in any National school syllabus prescribed for students and new Australian citizenry applicant. This perpetual student has also taken on board the complexity within the "simplicity."
Philip Howell
Solicitor
Professor Twomey’s article adopts the orthodox approach of the legal establishment. It assumes that once the High Court has made a decision, that decision is obviously right and cannot be criticised.
Having been a practising lawyer for nearly 32 years, I take a different approach. The judiciary is just as fallible as everyone else, and their decisions should be examined with the same scrutiny as is applied to the politicians.
When this is done, it is apparent that High Court made appalling…
Read moreGavin Moodie
logged in via LinkedIn
For Parliament to remove judges for deciding a case in a way in which it disagrees would be very serious indeed and would damage the constitution by far, far more than the High Court may have in deciding the school chaplains’ case wrongly.
Philip Howell
Solicitor
It would not be removal on the basis of mere disagreement with the decision. Our Constitution is defective in not providing a better mechanism for accountability. But removal on the basis of defective methodology is quite legitimate. In some, but not all, aspects the Court departed from long established interpretations, effectively amending the Constitution otherwise than through s.128. Maybe they can defend themselves, but they should be called to account.
Gavin Moodie
logged in via LinkedIn
There have long been substantial disagreements over legal method.
Paragraph 72(ii) of the Australian Constitution provides for High Court judges to be removed for 'proved misbehaviour or incapacity' which is sufficient accountability.