Section 96 of the Constitution of Australia

Section 96 of the Constitution of Australia permits that the Australian (Commonwealth) Parliament is able, subject to the approval of the State(s) concerned, to grant financial assistance to any State on the terms and conditions that it sees fit. Its use in Australian parliaments has led to the Commonwealth parliaments having significant influence over matters that would otherwise be constitutionally State matters.

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Tied Grants

Whilst section 51 of the Australian Constitution enumerates limits on Commonwealth involvement in the residual powers of the States, section 96 provides the Commonwealth with the power to grant money to any state. These monetary grants are typically tied to certain terms and conditions (often legislative) that the states must adhere to in order to receive the grant. As these grants are linked to a particular purpose, they are known as 'tied grants'. In practice, section 96 has provided the Commonwealth parliament with the ability to influence policy matters that lie within the residual powers of the States (e.g. Education, Health, Water, etc.).

Vertical Fiscal Imbalance

Section 96 does not oblige states to accept 'tied grants', i.e. States reserve the right to refuse a grant and its subsequent policy conditions. However, in Australia, a vertical fiscal imbalance is present, meaning that the Commonwealth has significantly greater income than the states.^[2] This is largely due to the uniform federal system of income tax that was introduced in 1942 in accordance with s51(ii).^[3] Additionally, Section 51(iv) grants the Commonwealth control over state borrowings, furthering the reliance of the States on Commonwealth funding. The vertical fiscal imbalance, alongside section 96 of the Australian Constitution has effectively extended the Commonwealth's powers beyond those enumerated in section 51 of the Australian Constitution and other explicit enumerations of Commonwealth legislative power (e.g. Section 52 and Section 90).

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