Federalism and Tax Bonuses: Reflections in the Australian Context

Abstract

Keynesianism is not new in Australia, and indeed has represented the economic orthodoxy for much of the post-World War II period. Commonwealth governments, of both major political persuasions, have been able to work within the existing constitutional framework to pursue Keynesian economic policies, more or less successfully, albeit with the occasional legal setback depending upon interpretations of the High Court of Australia. Recently, like many governments, the Australian Federal Government responded to the 2008 global financial crisis (GFC) by proposing a ‘stimulus package’ whereby Australian consumers would ‘spend their way out of the crisis’. The particular package proposed was also so-called a ‘tax bonus' to be paid to those who earned under a certain (relatively generous) amount per annum and had submitted their tax returns in the previous year, 2008. This package was to be at the ‘front end’ of the government's response to the crisis. Our paper explores some recent dilemmas for Australian federalism in the light of the High Court decision which decided that those ‘bonuses' were constitutional. Yet while the High Court in Pape v Commissioner of Taxation1 upheld the constitutionality of what was formally known as the ‘Tax Bonus for Working Australians’—seeing the federal ‘stimulus package’ as a response to a global financial crisis that is a matter of international concern—it did so only by a bare majority (a four to three decision) in the highest court. We suggest that a reappraisal of Australian federalism is pertinent given this narrow majority and in the light of a claim by prominent constitutional law scholar George Williams that Australia continues to manifest a form of ‘sick federalism’. This is an appraisal made only the more acute with the recent Australian federal election, which resulted in a hung parliament, for the first time since 1940: this followed a campaign with no mention of the complexities and niceties of modern federalism.