Commonwealth Financial Powers – Taxation, Direct Spending and Grants – Scope and Limitations

17 Pages Posted: 8 Aug 2011 Last revised: 5 May 2014

See all articles by Andrew Lynch

Andrew Lynch

University of New South Wales

Date Written: August 4, 2011


The traditional approach to the topic of fiscal federalism is generally to highlight the limited capacity of State governments to independently raise sufficient revenue to acquit their extensive responsibilities in major service areas including health, education and transport. This is then contrasted with the financial strength of the Commonwealth which it employs to effect policy domination over the hapless States, who, driven by penury, accept offers of ‘financial assistance’ on such terms and conditions as the Commonwealth thinks fit. The effects of this have, as many have illustrated at length, been harmful to accountability and responsible government on one hand and the vitality of the federal division of power on the other.

However, in just the last three years, there have been two important developments in fiscal federalism that present the opportunity for a reappraisal of this all too familiar landscape. The two developments are, of course, the 2009 decision of the High Court in Pape v Federal Commissioner of Taxation and the 2008 Intergovernmental Agreement on Federal Financial Relations. This paper considers both to offer a contemporary assessment of the state of Australian federalism and intergovernmental relations.

Keywords: co-operative federalism, fiscal federalism, intergovernmental relations, appropriations, spending power, grants power

Suggested Citation

Lynch, Andrew, Commonwealth Financial Powers – Taxation, Direct Spending and Grants – Scope and Limitations (August 4, 2011). UNSW Law Research Paper No.23. Available at SSRN: or

Andrew Lynch (Contact Author)

University of New South Wales ( email )

High St
Sydney NSW 2052

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