Australian Federalism and the Global Economic Crisis of 2008-09

Abstract

The incoming Rudd government brought to an end what looked like an increasingly rapid spiralling of Commonwealth unilateralism and centralisation in the latter years of the Howard government. At the same time, the framework for a much more generally cooperative federalism introduced in 2007 provided a ready vehicle for countercyclical policy activism in response to escalating symptoms of overseas financial crisis in 2008. The crisis reinforced centralising elements of the government’s program, but in a muted way. More damaging for the States was the way that the crisis demonstrated their inherently weak fiscal position in the federation. Thanks to a combination of very active countercyclical policy and continuing high demand for its resource exports, Australia experienced no official recession and thus Commonwealth-State relations were not subject to the degree of strain they might have been in more extreme circumstances. At the same time, the High Court’s surprisingly high degree of sensitivity to federalism in the Pape decision further limited the centralising impact of the crisis. Whether this decision will come to have a decisive impact on federalism will depend on future cases that may come before the Court.