Anne Twomey
Unlawful federal government spending on local projects must stop

For the past 50 years, successive federal governments have taken turns at shovelling billions of taxpayer dollars into local projects such as refurbishing surf clubs and building barbecues. As these are local, not federal matters, is it lawful? The short answer is, mostly not.

The Constitution does not confer any power on the Commonwealth to fund sporting clubs and public recreation amenities. Nor would any sane person expect it to.

In a federal system, the national level of government is there to deal with national and international matters, such as defence, foreign affairs and immigration, as well as cross-border issues, such as interstate trade, and matters that need uniformity, such as setting standard measurements and currency. Local matters, such as providing a local basketball court or swimming pool, are left to local government or the states that control them.

Sure, the Commonwealth has more money, but this doesn’t mean it has the power to spend it on local matters. Instead, section 96 of the Constitution allows the Commonwealth to pass this money to the states with conditions about how it is used. If a Commonwealth government genuinely wants to provide funding for local sporting and public amenities, it can use section 96 grants so such funding is provided through the states in a fair and comprehensive way, based on public need.

That is not the point of this spending. It is all about using public money to buy political favour, and hence votes, at the next election. Politicians have become so accustomed to this soft corruption they genuinely think it is what election campaigns are about – a competition of promises for car parks, sporting fields and a new microwave for the senior citizens’ club. Hence the significant increase in “grants” to local groups over the past three decades, even though the government lacks constitutional authority to spend on such purposes.

From the 1970s, the Commonwealth government had operated on the basis that it could spend money on whatever it chose. But the High Court, in a case about funding chaplaincy services in 2012, ruled that not only did federal expenditure have to fall within those subjects the Constitution allocated to the Commonwealth parliament, known as “heads of power”, but grants to third parties had to also be authorised by statute. Without statutory authorisation, supported by a constitutional head of power, grant spending is unlawful.

So the Commonwealth whipped up legislation authorising expenditure on every grant program listed in a set of regulations. It gave the programs meaningless titles, such as “Strengthening Communities” and “Building Better Regions”, and nebulous objectives, such as “to provide grants for community projects to strengthen and benefit local communities”.

Here is the sleight of hand: the regulations loosely tie each program to various constitutional heads of power. For example, they say a program has effect as if it were limited to grants that implement treaties, operate in territories or involve interstate or overseas trade. This is intended to show that grants under the program could fall within a constitutional head of power. But the person making the grant does not actually consider whether it does so. Instead the grant is made on the basis that it falls within the broad and vague title and objectives of the program.

This means the lawyers, without too much shame, can argue the spending program has constitutional support and ministers continue spending money on whatever they want even when it has no relationship to a constitutional head of power. Most of the spending is unlawful, but nobody sues because those who get the money want to keep it and those who miss out want to get money next time.

The only fly in the ointment is the Australian National Audit Office, which occasionally points out that there is no legal authority for the spending. Sometimes the media takes notice and a scandal erupts, such as the “sports rorts” affair concerning the Community Sport Infrastructure Grant Program. But while in that case there was laser focus on the use of colour-coded spreadsheets and the possibility of political bias in the distribution of funding across electorates, neither side of politics wanted to face the bigger scandal that most grants fell outside Commonwealth constitutional power.

Some of those grants, such as those for sporting facilities within the territories and those that implemented treaty obligations to give women and disabled people equal opportunity to participate in sporting activities, would have been valid. But others, such as grants to resurface the local football oval, did not fall within a constitutional head of power and therefore were not validly authorised.

Constitutional lawyers pointed this out, but a parliamentary committee turned a blind eye, concluding constitutional and legal issues pointed to a program design failure. In fact, it was a failure to comply with the Constitution. Both sides of politics are so invested in spending public money to buy political favour, neither is prepared to forgo unlawful spending.

One of the former Coalition government’s most flagrantly political schemes was the Stronger Communities Programme. It allocated $150,000 to each electorate to pay for community projects chosen by the local member of parliament, in consultation with community representatives. Because it was a “non-competitive” program, where the local MP controlled who could apply for the grants, it favoured political patronage over merit and public need. It built a public expectation that politicians were there to hand out money like lollies to their electorates.

While it was at least politically equitable – to the extent the same amount was allocated to each electorate regardless of who held the seat – it had the effect of favouring the incumbent party, which ordinarily holds a majority of seats. For example, before the 2016 election, because the government held 90 out of 150 seats, the Coalition had $13.5 million to hand out, whereas Labor had $8.25 million. Moreover, implicating all MPs in this way buys their silence on constitutional validity.

So did the Albanese Labor government axe the Stronger Communities Programme? The answer is as depressing as it is inevitable. No, the SCP continues, with the Albanese government trumpeting greater “transparency” and “accountability” by creating a new online form in which MPs can provide information on the project selection and nomination process.

That online form, if anyone can find it, must have exhausted the government’s capacity for transparency because it redacted, under freedom of information (FOI), the parts of the ministerial approval brief that set out the “legislative basis for the expenditure under the program”, its “constitutional risk” and its overall risk assessment.

Given there is no constitutional head of power with respect to minigolf courses, dog parks and men’s sheds, the risk of unlawful spending would have to be high. But when the Commonwealth government refers to constitutional risk, it is generally code for “will anyone take us to court and catch us with our fingers in the till?” While one hopes governments obey the law because it is the right thing to do, the ugly truth is sometimes they do not if they are confident they can get away with it; that is, the overall risk is categorised as “low”.

An audit office report on one Coalition grant program revealed officials and ministers were told in 2019 no legislation could be reasonably relied on to authorise six projects. But the grants proceeded anyway because the government had already announced the projects, stakeholders were committed and a legal challenge was considered unlikely.

Both sides of politics use this strategy of making a commitment first, before any assessment of need, merit or legal validity, and then proceeding with the funding in order to satisfy “election commitments” and meet time lines, even if it is unlawful.

The Albanese government’s Investing in Our Communities Program and Priority Community Infrastructure Program may have new names, but the approach is the same. Both are closed, non-competitive grant programs where only organisations identified by the government (on the basis of promises made by Labor while in opposition) are invited to apply. The projects are not ranked against each other and merits review was deemed inappropriate as they are government commitments.

Ministerial briefs for these programs, accessed under FOI, make copious references to “transparency” in relation to the mechanics of the financial arrangements, but there is no transparency about why particular commitments to projects were made and whether they were based upon the merit of the project, community need or electoral favour. In a tour de force from the public servant who laboured over redacting anything informative from the ministerial brief, the section on assessments made to ensure transparency was carefully blacked out.

Again, all assessments of constitutional validity and risk were redacted because they might have revealed that programs established to “build resilient communities”, “increase community liveability” and “leverage community strengths” will frequently not fall within any Commonwealth head of constitutional power. Indeed, the ministerial briefs refer specifically to grants for basketball courts, BMX tracks, surf clubs and community spaces, none of which is likely to fall within Commonwealth power, unless they are in a territory.

Such matters could lawfully be funded through Commonwealth grants to the states, but the ministerial documents reveal the constitutional risk was not mitigated in this way as the government wanted to make the grants directly to organisations and councils.

When ministers are confronted with their unlawful spending, their excuses range from “the other side did it, so we can too” to arguments that the projects are needed and should not be denied due to a technicality. But the Constitution is not merely a technicality and good projects can be validly funded through conditional grants to the states, as envisaged by the people who wrote the Constitution. The only reason this unlawful spending occurs is because Commonwealth politicians want to use public money to buy votes.

Another claim is “this is what democracy is about – we got elected so it’s our money to spend as we like”. Again, no. As the High Court pointed out in the school chaplaincy case, the money does not belong to the government. It is public money and it can only be spent for public purposes – not for the private benefit of politicians or their political party.

The Commonwealth government is part of a federal system and the Constitution limits what subjects the Commonwealth parliament can make laws about and hence what spending it can authorise by law. Neither politicians nor governments are immune from the requirements of the Constitution. It’s the law and they have to obey it. It’s about time they started doing so.

This article was first published in the print edition of The Saturday Paper on January 13, 2024 as "Stop unlawful spending".

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