School chaplaincy decision threatens Commonwealth funding of local government

25 June 2014

The High Court’s declaration that Commonwealth funding of the school chaplaincy program is invalid has consequences far beyond the issue of religion in schools. The landmark ruling could affect a raft of Commonwealth spending programs, including some that provide direct funding to local government.

The Court’s reasoning for striking down the chaplaincy legislation was that the Commonwealth government cannot make legislation that authorises Commonwealth spending unless that legislation falls into one of the Commonwealth’s heads of power under the Constitution.[1]  

Following the decision, all Commonwealth legislation that authorises funding for programs that do not fall within those heads of power risks being considered unconstitutional. 

Commonwealth funding for local government under threat

The Constitution has no head of power which entitles the Commonwealth to make laws with respect to local government, which is a matter for the States. Despite the absence of such a head of power, local governments receive significant levels of funding via direct grants from the Commonwealth. Most funding relates to infrastructure, but it has also included housing and community initiatives. Currently the largest grant program is “Roads to Recovery”, which supports the maintenance of local road infrastructure.

The legality of such funding must now be in serious doubt. Unless Commonwealth spending for programs like Roads to Recovery can be justified under some other head of power, the effect of the High Court’s decision is that any legislation authorising such spending will be unconstitutional. 

Where now for Commonwealth funding programs?

Current indications are that the Commonwealth will attempt to maintain the chaplaincy program through tied grants to the States. Whether the States will agree to this, and on what terms, remains to be seen.

Even if the chaplaincy program is resurrected this way, there are good reasons to doubt the viability of such an arrangement in relation to funding local government programs. 

Local governments are politically independent from the States, and any arrangement that utilises the States as an intermediary to direct Commonwealth funding to local governments will be fraught with complications. The question of whether States would seek to recover administrative costs for acting as conduits is just one of a long list of likely hurdles.

While there are currently no signs of a constitutional challenge to programs such as Roads to Recovery, nor of the Commonwealth seeking to dismantle those programs, the legality and ongoing viability of those programs is now in doubt.

This places local governments in a very difficult position.

Should local government continue to accept Commonwealth funding, (which is ultimately taxpayer money), where that funding may be unconstitutional, and any Commonwealth funded project could be subject to a politically motivated challenge?

The decision also casts doubt on the security of future Commonwealth funding - a matter that local governments will need to consider in their budgeting and planning processes. 

Local governments may need identify contingency sources of funding if the Commonwealth is unable to overcome the difficulties arising from Williams (No 2) and projects like Roads to Recovery end up being scrapped.  

The outcome in Williams (No 2) was no surprise

The High Court had already struck down an earlier version of the chaplaincy program in a previous successful challenge by Mr Williams.

This first ruling was the catalyst for the then Labor Government’s proposal to hold a Constitutional referendum that would have given the Commonwealth an express power to directly fund local government.

The referendum was to amend section 96 of the Constitution, which allows the Commonwealth to grant “financial assistance” to the States, to also allow it to grant financial assistance to local governments. Section 96 is routinely used by the Commonwealth to grant money to States subject to conditions, so-called “tied grants”. These allow the Commonwealth to fund policies outside its legislative powers, subject to agreement from the States.

The referendum was to coincide with the 2013 Federal Election, but was postponed and subsequently, the incoming Coalition Government announced it would not proceed with the referendum.

Now, given the wide range of Commonwealth programs affected by the High Court’s decision, the Commonwealth will be giving the impacts of Williams (No 2) immediate and urgent attention.

Unfortunately for the government the two most obvious solutions – tied grants to the States or a Constitutional referendum – pose significant political and practical challenges. There appears to be no real prospect of this uncertainty being resolved in the near future.

 [1] The High Court’s decision is published as Williams v Commonwealth of Australia [2014] HCA 23 (Williams (No 2)).

We have prepared a more detailed summary of the background to the Williams (No 2) decision, and the Court’s reasoning, available here.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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