Key crossbencher Nick Xenophon, whose party commands three crucial Senate votes, has announced he will quit federal parliament to run for a state seat in the March South Australian election.
Xenophon’s shock announcement comes ahead of the High Court judging whether he is entitled to sit in parliament, because he is a dual Australian-British citizen by descent. The case will be in court next week, and a quick decision is expected after that.
His departure won’t change the numbers in the upper house. If he loses the court case, he will be replaced by the next candidate on the Nick Xenophon Team (NXT) ticket. If he wins, his party will fill the casual vacancy he creates. Either way, the NXT will have three senators. It also has a House of Representative member, Rebekha Sharkie.
But Xenophon’s exit could substantially affect the dynamics in negotiations with the government. He has been a tough, canny but pragmatic bargainer, extracting concessions in return for supporting legislation. The two other senators in the NXT, Stirling Griff and Skye Kakoschke-Moore, only entered parliament at the 2016 election.
Xenophon said he would remain in the Senate until the High Court handed down its decision. He denied his decision to quit had been made because of the threat to his position.
Xenophon, heading a team of state SA-BEST candidates, said he would run in the electorate of Hartley, where he lives. It is a marginal seat held by the Liberals.
He hopes the party can gain the balance of power, but ruled out serving as a minister in a SA government. “Once you do that, you’re in the tent”, and then “you can’t be a fearless watchdog,” he said.
“Unashamedly, we want the balance of power to drive deep and lasting reforms in our state’s political institutions and our processes because there is a lack of transparency and accountability,” he said.
“Having candidates that get elected to hold the balance of power will be a game changer for lasting reforms for the state. It is coming from the political centre, not the extreme right or left.”
He plans to keep a strong hand in with the federal party. “I will, of course, still have a very active and direct role in decisions made at a federal level with NXT,” he said.
“With SA-BEST and NXT holding the balance of power in both the state parliament and the federal Senate, we will work together as a united team under my leadership to drive real change to improve the lives of all South Australians.”
Xenophon started in state politics, elected on an anti-poker-machine platform and serving in state parliament between 1997 and 2007, before winning a Senate seat at the 2007 election.
He said SA politics was “broken, politically bankrupt”.
“I’ve decided that you can’t fix South Australia’s problems in Canberra without first fixing our broken political system back home.” He said since last year’s massive power blackout in SA and its record power prices, “I have concluded they are symptoms of a much bigger and deeper problem”.
SA was at a crossroads, he said. The state had long been falling behind because it had been failed by its leaders, parties and institutions.
There seems to be an ever present struggle for a share of the revenue government collects, not only between states but also between the different levels of government.
In each year’s budget, the federal government allocates funds for federal programs (such as defence) and for some programs operated at a state level (such as school education, public transport, and hospitals). It has this role because it also collects more revenue from taxpayers than the states.
The reason for this all relates back to (at least in part) the Australian constitution.
The division of power between the federal and state governments
The federal parliament can only legislate (that is, make laws) in certain areas, known as “heads of power”, most of which are listed in sections 51 and 52 of the Constitution. This gives the federal parliament the power to legislate with respect to matters such as defence, external affairs, immigration, invalid and old-age pensions, and marriage.
In contrast, there is no equivalent limit on the legislative power of the states. The states may legislate in any area. However, section 109 of the constitution provides that where there is an inconsistency between a federal law and a state law, the federal law will prevail. In simple terms, this means that if the federal parliament has made a law dealing with a particular matter, state governments are unable to legislate in ways that conflict with the federal law.
The federal government’s control of revenue
The state and federal governments all have the power to collect tax, subject to some exceptions. Notably, section 90 of the Constitution gives the federal government exclusive power over the lucrative revenue streams of customs and excise duties (taxes on goods, such as alcohol, tobacco and fuel).
Until the Second World War, Australians paid income tax to both state and federal governments. However since 1942, the federal government has been the sole collector of income tax.
The federal government has also collected company tax for over 100 years, and the GST since 2000. The states could still collect income tax if they wanted to, but choose not to for political reasons.
Prime Minister Malcolm Turnbull tried to explore the possibility last year of both the federal and state governments collecting income tax, but this was quickly rejected by the states. While the states generate some revenue – for example through gambling, property and payroll taxes and mining royalties – they are unable to collect anywhere near the same amount as the federal government.
This creates a “vertical fiscal imbalance” between the federal and state governments. Conversely, the federal government is in the opposite position: while the federal government collects extensive revenue, its power to spend and directly fund programs is more limited.
Testing the government’s power to spend on certain programs
Until recently, the federal government thought it could spend money more or less as it pleased. However, the High Court clarified and restricted the federal government’s power to spend money and limited its ability to fund directly some programs.
Its power to spend was tested in 2012 and 2014 in two legal challenges to the government’s funding of the national school chaplaincy program. Prior to the legal challenges, the federal government had entered into agreements with religious service organisations – such as Scripture Union Queensland – to provide chaplains in schools.
The High Court held that (with some small exceptions) the federal government’s power to spend money is limited to where the authority to spend money is expressly conferred by legislation. The legislation authorising the spending must also be supported by one of the “heads of power” granted to the federal parliament by the constitution.
In the case of the chaplaincy program, the court rejected the arguments that the legislation could be supported by the power in one section of the Constitution to make laws for the “provision of…benefits to students” or by the corporations power in another section of the Constitution. To continue the funding of the national school chaplaincy program the federal government turned to the states for assistance.
How the federal government gives money to the states
Section 96 of the Constitution provides for the federal government to provide a significant proportion of its revenue to the states:
…the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.
This distribution of revenue takes two forms – general revenue assistance (“untied funding”) and payments for a specific purpose (“tied funding”).
The untied funding that states receive from the federal government is largely made up of the money that the federal government collects from the GST. The states can spend this money as they see fit.
However, the passing on of the GST revenue is not unconditional. It’s conditional on the states giving up the collection of a number a number of states taxes.
The federal government may also provide funding to the states for a specific purpose. The states have to consent to receiving the funding (which is not usually a problem), but it does mean that the federal government cannot impose programs on the states that they vehemently oppose.
This funding is tied to a particular project, where the federal government provides the funds and the state carries out the project. Grants such as these have been used regularly to fund education and health projects in the states. These specific purpose grants may be conditional on states meeting regular reporting requirements or achieving certain milestones.
Providing funding to the states through specific purpose grants allows the federal government to have great influence on policy areas that have traditionally been within the purview of the states.
The federal system of government created by the constitution divides power between the federal and state governments. While at times this might seem inefficient, it also provides checks and balances on government spending.
Elections are colourful affairs, and the March 11 state election in Western Australia is no exception. What is bringing particular clamour to this election is the resurgence of One Nation.
Pauline Hanson’s party has certainly made its presence felt. The party is contesting 35 of the state’s 59 Legislative Assembly seats, and fielding 17 candidates across the six upper house regions. According to the polls, it is also the third-largest party in electoral terms. The most recent Newspoll has One Nation’s primary vote at 13%, well ahead of the Nationals (5%) and the Greens (9%).
It is little wonder, then, that the Liberals finally ended speculation by announcing a preference deal with One Nation. The Liberals will direct preferences to One Nation upper house candidates in regional seats. In exchange, One Nation will direct lower house preferences to Liberal candidates ahead of Labor candidates.
While the Liberals’ preference deal with One Nation is the first of its kind since John Howard took the decision as prime minister to place One Nation last on the Liberal how-to-vote card at the 2001 federal election, it is not likely to be the last. Over the past six months or so, the Liberals’ anti-One Nation resolve has been fraying.
In spite of catastrophising in some quarters, the preference deal is important for the Liberal-led government’s chances of re-election. The party’s first preference vote is at 30% and its two party preferred vote is 46%. ABC election analyst Antony Green estimates that “a swing of between 2.2% and 10% against the Liberals would produce a minority government”. In the face of a resurgent Labor Party, such a swing is possible.
The Liberals’ partners in government, the WA Nationals, are the most grievously affected by this deal. Some commentators estimate it could cost them their five upper house seats.
But the Nationals can hardly be surprised by the Liberals’ decision. Although the relationship between the two parties is often civilised, it also has a long history of strife.
In recent years, tensions between the parties were re-ignited when, prior to the 2008 WA election, the Nationals declared they would not be seeking a coalition but a partnership with the Liberals.
The Nationals leveraged the fact that neither major party had attained a parliamentary majority to negotiate a deal that provided for 25% of all state royalty payments to be set aside for re-investment into a royalties for the regions program. While the Nationals eventually agreed to support the Liberals, there was no doubt that the Nationals were seriously entertaining the prospects of doing a parliamentary deal with Labor.
A more traditional coalition arrangement was resumed following the 2013 state election, but the relationship between the two parties showed signs of strain by August 2016. The return of Brendan Grylls – the architect of the 2008 parliamentary agreement – to the Nationals’ leadership, and the unpopularity of the Barnett government, marked the return of a more assertive Nationals party.
Under Grylls’ leadership, the Nationals have been less than willing to commit to a new alliance with the Liberals. Grylls has indicated that support for any minority government would be contingent on the Liberals agreeing to support an increase in the lease rental fee on BHP and Rio Tinto from 25c to $5 a tonne on Pilbara iron ore production. The Liberals oppose this.
Consequences of the deal for the Liberals
The preference agreement carries some risk for the Liberals.
It is not entirely clear whether One Nation preferences will flow in a manner consistent with the party’s how-to-vote card. In part this is a question of whether One Nation has the infrastructure to deliver on the agreement.
A successful how-to-vote card strategy requires a party presence at polling booths on election day. The major parties struggle to cover all of their polling booths, so One Nation is likely to struggle too.
There is also a question mark over whether One Nation supporters will actually follow the party’s how-to-vote card recommendations, even if given one.
If the party’s voter base is anything like some of One Nation’s candidates, there is no reason to think that the preference deal will be widely supported. Already one of the party’s highest-profile candidates, Margaret Dodds, has rejected the deal on the basis of policy differences with the Liberals and concerns about the lack of consultation over the agreement.
Even if a significant proportion of One Nation preferences help to secure the Liberals’ return to government, the deal will cost the Liberals when the incoming upper house members take their seats in May.
While lower house preference deals are difficult for parties to impose on their supporters, there is greater certainty on preference flows for the upper house. Proportional representation, combined with above-the-line voting, makes it highly likely that most of the Liberal surplus preferences will find their way to One Nation’s upper house candidates.
This greatly increases One Nation’s prospects of holding the balance of power in the Legislative Council. Should this happen, the Liberals’ plans to partially privatise the state’s electricity utility in order to pay down soaring debt will not be realised. One Nation is staunchly opposed to the privatisation.
So while the Liberals’ decision is “pragmatic and sensible” in the short term, it might seriously compromise the party’s legislative agenda should it be returned to office.