Sunday, January 17, 2010

Is the rule of law under challenge in Australia?

I expect that some readers will think that this is an absurd question. Australia has a well-deserved reputation for the quality of its legal institutions. Our ranking on the World Bank’s rule of law index is higher than that of the U.S. and U.K. So why ask the question?

First, I don’t think we can derive much comfort about rule of law from the World Bank’s rule of law index. It measures perceptions of the extent to which people have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police and the courts, as well as the likelihood of crime and violence. As I have noted in an earlier post it is a broad measure of the quality of legal institutions rather than a measure relating specifically to rule of law.

Second, there is evidence that Australia has problems with rule of law. An example has recently come to notice close to home. In order to avoid violence in public parks, as occurred in Huskisson on Australia day last year, the Shoalhaven council has introduced bans on alcohol in certain specified parks on certain specified public holidays. I don’t have a view on whether these bans are the best way to prevent anti-social behaviour. The problem regarding rule of law arises because the police have been reported as saying that people wanting to drink responsibly as part of family gatherings can ignore the bans without risk of prosecution. It is comforting to know that the police do not like interfering with family gatherings, but it is difficult to feel comfortable with a situation where laws are to be enforced selectively. What has happened to the idea that the law should be enforced without fear or favour?

Robin Speed has referred to the similar example of an agreement by two doctors who operated independent practices in a country town and who agreed that one would work on Saturday and the other on Sunday. A Senate committee recognised that this was caught by the definition of a criminal cartel, but swept aside that concern on the grounds that the ACCC and DPP would not be expected to prosecute in such a case. As Speed says, “that is the antithesis of the rule of law”.

In his article in “The Australian” yesterday, ‘The rise and rise of the regulators’, Robin Speed argues that there has been a fundamental shift in the relationship between the individual and the law: “Increasingly, the relationship is not of the individual knowing and complying with what the law states, but of knowing and complying with what the regulators state the law states, and then knowing the extent to which the regulators will apply the law as stated by them”.

Even when parliament passes laws with the intention of restraining regulators, this does not necessarily prevent them from seeking to avoid those laws. For example, I have been reliably informed that in the 1970s the government’s most senior legal advisor provided a legal opinion that legislation that had recently been passed with the support of both of the major parties in parliament did not restrain regulators in the way that those framing and supporting the legislation had intended. The circumstances of this example are quite distinct from those where a court finds that the wording of legislation does not have the meaning that parliament intended. In the circumstances to which I am referring the opinion of the government’s legal advisor had the effect of denying the intention of parliament to restrict the regulatory activities of a particular arm of government. It elevated the intentions of regulators above those of the parliament.

How can the regulators be constrained? The obvious answer is legislation that gives regulators less discretion. In my view one area of high priority should be reform of the tax system to introduce greater certainty and reduce role of the tax office in deciding what tax law means. It will be interesting to see whether the Henry tax review has anything useful to say on this question.

Greg Cutbush, a farmer near Yass, has told me that he thinks the rule of law problem Mr Speed identifies is very common. For example, he’s noticed the ACCC applies one rule to farm products and another to household appliances. Any farmer who is found to have conspired with his neighbours to insist that the local grain merchant pay them the same price for their canola will be prosecuted under the Trade Practices Act because collective bargaining is prohibited. And yet when his brother and three of his neighbours get together and all buy new lawnmowers from an agent they have bullied in Bathurst one Saturday morning, nobody gives a stuff. It seems like the ACCC’s watchdog role is all window-dressing.

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