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The pragmatist will oft say to the philosopher, “I do not begrudge you your fancies, so long as they do not interfere with mine”. And this clash of views is so often played out in constitutional law. Should the High Court interpret the constitutional powers of the Commonwealth in a ‘practical’ manner, to expand the corporations, interstate trade and banking powers so that one Government controls all the economic regulations in our single national economy? Should it interpret the Commonwealth tax power narrowly, thus by implication vesting a wider tax power in the States so they can raise enough revenue to pay for the services they offer? (At present, vertical fiscal imbalance means the Commonwealth, having previous few services to deliver, gets most of the revenues whilst the States serve us and starve).

These are worthy complaints. I think that many would consider me a pragmatist, but I am afraid I must disagree because I see a greater pragmatism in ensuring the coherence of the system as a whole. But I wonder, to what extent do these constitutional limitations actually get in the way of proper government?

The lawyers reading this blog will have heard the arguments before – if there are limits on the Commonwealth, the same results can be obtained through co-operative federalism. The classic example is the Corporations Act. Because the corporations power was too narrow, the Commonwealth’s Corporations Act was insufficiently wide; they tried having mirror legislation (the States each passed identical Corporations Acts) but the States kept fiddling with their Acts and the power to cross-vesting of jurisdiction over those State Acts in the Federal Court was declare unconstitutional. Eventually, the Commonwealth and the States got fed up; the States simply referred their relevant powers to the Commonwealth so they could pass a single Corporations Act for Australia. To ensure the States didn’t get a raw deal, that referral has to be renewed every ten years so if the Commonwealth does anything naughty, the States can refuse to renew it. [The main limitation on the corporations power is that it only confers the power to regulate corporations, but the Commonwealth cannot regulate the incorporation of corporations themselves].

But is the corporations power too narrow? Let’s look at another significant nationwide piece of economic regulation. The Trade Practices Act (now called the Competition and Consumer Act) is a Commonwealth Act that has been continually plagued by problems with federalism. What does it look like now?

There is the Commonwealth Trade Practices Act, which prohibits corporations from engaging in anti-competitive behaviour. Then, the States have each passed identical State Competition Codes which is literally the same Act with the word ‘corporation’ replaced with the word ‘natural person’. So, if we want to see how inadequate the corporations, banking, interstate trade, external affairs and insurance powers are for the Commonwealth to make economic regulations, we can just compare the number of prosecutions under the Federal Act compared to the State Acts.

And that’s the stunning thing. The ACCC has never prosecuted anyone under the State Codes; it always relies upon the Federal Act. (There are, btw, good reasons for this – it wants to maintain consistency in interpretation and the State Supreme Courts are not bound by decisions of the Federal Court). But if there was a genuinely large hole in the Commonwealth’s power to regulate the economy, here is the first place it would show up.

As it is, the only way that the Trade Practices Act (Cth) would not apply is if a natural person (or a corporation which is not a ‘foreign, trading or financial corporation) engaged in intrastate trade without substantially affecting an interstate market. As a practical matter, it’s incredibly difficult to see how you could lower the consumer welfare without incorporating a business; and any effect on consumer welfare would be minimal if it can’t cross State borders (or affect interstate markets).

I don’t doubt that there are other reasons our constitution is too restrictive; but arguments about an inability to pass economic regulation is not one of them. If anything, the corporations power is now too wide. Just look at how wide the Workchoices laws are. As a firm believer in federalism, I think judges should be eager to find more reasonable limitations upon federal power. Removing the power of incorporation from the corporations power is not one of them.

PS: I think its awesome that there’s a shadow TPA lurking in the lower levels of our federation; seldom seen and never discussed.

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