THE RISE AND DEMISE OF COERCIVE FEDERALISM
Abstract: The question of how a fiscal balance might be maintained between the Commonwealth and the States exercised the minds of the framers of the Constitution before 1901 and has been of concern ever since. Centralization of financial power in the Commonwealth has resulted from decisions of the High Court of Australia especially the two Uniform Tax Cases which in 1942 established, and in 1957 reinforced, the Commonwealth's hegemony in the revenue field. This hegemony enabled the Commonwealth to influence, if not dictate, State policy initiatives by the making of conditional grants for a wide range of specific purposes under Section 96 of the Constitution. The practice of making specific purpose grants as an element in what has been called “coercive federalism” was adopted in varying degree by the Commonwealth during the years between 1943 and 1975. The “new federalism” policies of the present government have as their objective the reversal of this practice and in its place the restoration of State automomy in the expenditure of a pre-determined share of income tax revenues. Some of the problems entailed in the withdrawal of specific purpose grants are outlined, and the paper also suggests an institutional mechanism to maintain a proper fiscal balance between Commonwealth and States as part of the “new federalism”.