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Finance and Governance of Capital Cities in Federal Systems

Table of contents :
1 Canberra, Australia
2 Brussels, Belgium
3 Ottawa, Canada
4 Addis Ababa, Ethiopia
5 Berlin, Germany
6 New Delhi, India
7 Mexico City, Mexico
8 Abuja, Nigeria
9 Cape Town and Pretoria, South Africa
10 Bern, Switzerland
11 Washington, District of Columbia, United States of America
12 Comparative Conclusions

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finance and governance of capital cities in federal systems

a global dialogue on federalism A Joint Program of the Forum of Federations and the International Association of Centers for Federal Studies book series Constitutional Origins, Structure, and Change in Federal Countries (2005), Volume 1 Distribution of Powers and Responsibilities in Federal Countries (2006), Volume 2 Legislative, Executive, and Judicial Governance in Federal Countries (2006), Volume 3 The Practice of Fiscal Federalism: Comparative Perspectives (2007), Volume 4 Foreign Relations in Federal Countries (2009), Volume 5 Local Government and Metropolitan Regions in Federal Systems, (2009), Volume 6 booklet series Dialogues on Constitutional Origins, Structure, and Change in Federal Countries (2005), Volume 1 Dialogues on Distribution of Powers and Responsibilities in Federal Countries (2005), Volume 2 Dialogues on Legislative, Executive, and Judicial Governance in Federal Countries (2006), Volume 3 Dialogues on the Practice of Fiscal Federalism: Comparative Perspectives (2006), Volume 4 Dialogues on Foreign Relations in Federal Countries (2007), Volume 5 Dialogues on Local Government and Metropolitan Regions in Federal Countries (2007), Volume 6 Dialogues on Diversity and Unity in Federal Countries (2009), Volume 7 Select publications are available in other languages including Arabic, French, German, Portuguese and Spanish. For more information on what is available, visit

Thematic Issues in Federalism Volume I

FINANCE AND GOVERNANCE O F C A P I TA L C I T I E S IN FEDERAL SYSTEMS e d i t e d b y e n i d s l ac k a n d ru pa k c h at t o pa d h y ay

Published for

by McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

© McGill-Queen’s University Press 2009 isbn 978-0-7735-3564-0 (cloth) isbn 978-7735-3565-7 (paper) Legal deposit fourth quarter 2009 Bibliothèque nationale du Québec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free This book has been published with generous financial support from the Government of Canada and the Nigeria Government. McGill-Queen’s University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the financial support of the Government of Canada through the Book Publishing Industry Development Program (bpidp) for our publishing activities.

Library and Archives Canada Cataloguing in Publication Finance and governance of capital cities in federal systems / edited by Enid Slack and Rupak Chattopadhyay. (Thematic issues in federalism; v. 1) Includes bibliographical references and index. isbn 978-0-7735-3565-7 (pbk.). – isbn 978-0-7735-3564-0 (bound) 1. Federal government. 2. Capitals (Cities) – Political aspects. 3. Capitals (Cities) – Economic aspects. I. Slack, N. E. (Naomi Enid), 1951– II. Chattopadhyay, Rupak III. International Association of Centers for Federal Studies IV. Forum of Federations V. Series: Thematic issues in federalism; v. 1 JS 113.F 56



C 2009-904079-4

This book was typeset by Interscript in 10/12 Baskerville.





enid slack and rupak chattopadhyay

1 Canberra, Australia 2 Brussels, Belgium 3 Ottawa, Canada


graham sansom

caroline van wynesberghe almos tassonyi

4 Addis Ababa, Ethiopia


assefa fiseha

horst zimmermann

6 New Delhi, India

om prakash mathur

8 Abuja, Nigeria

101 126

mario martín delgado carrillo

j. isawa elaigwu

9 Cape Town and Pretoria, South Africa 10 Bern, Switzerland



5 Berlin, Germany

7 Mexico City, Mexico

daniel kübler

nico steytler



12 Comparative Conclusions enid slack and rupak chattopadhyay 292






11 Washington, District of Columbia, United States of America natwar m. gandhi, yesim yilmaz, robert zahradnik, and marcy edwards 263



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Finance and Governance of Capital Cities in Federal Systems is the first in a series of Forum of Federation publications that aims to collect and analyze lessons from different countries on sectoral issues in federal systems. Unlike the Forum’s sister series, Global Dialogue on Federalism, the newer thematic work typically has a sectoral focus (resources, environment, immigration, public security, internal markets, and healthcare) or, occasionally, is related to the policy management of federations (benchmarking). We find that these studies are considered most relevant by practitioners within federations. The goal of this series is to engage sector experts from around the world and integrate their expertise into policy debates related to the management of federal systems. Not all sector experts have an understanding of federalism, and not all experts on federalism have sector expertise. The Forum therefore plays an important role in bringing a federalism perspective to sectoral issues. The Forum took care to provide a template of questions and to hold a conference of authors before work on the volume commenced. Furthermore, through these thematic projects, the Forum is engaged in creating new networks of expertise that combine domain expertise with an understanding of federalism. Such networks make invaluable contributions to the Forum’s work both in established and in emerging federations. This volume on capital cities in federal countries also represents a continuation of the Forum of Federation’s work on local and metropolitan governance. The theme of Local Governments and Metropolitan Regions in Federal Countries was first comprehensively explored under the umbrella of the Forum’s Global Dialogue program and was subsequently selected as a key theme at the Fourth International Conference on Federalism in New Delhi in November 2007. Capital cities as a topic gained salience at a preparatory workshop on metropolitan governance for the



Fourth International Conference on Federalism. Sheila Dixit, the chief minister of Delhi, who participated in helping to choose topics for discussion, expressed her interest in how other federal countries organize their capitals. Of particular interest to the chief minister were issues surrounding the governing structures, roles and responsibilities, resources, and the treatment of capital cities by the federal government. In part, Mrs Dixit’s interest in this topic results from the unenviable demands of her job. As Delhi’s chief minister, she not only has to manage the growing expectations of Delhi’s residents, who elect her government, but also has to work within the constitutional constraints of her position. Delhi’s case is more fully explored in Om Prakash Mathur’s chapter in this volume. We trust that practitioners such as Mrs Dixit will find this volume useful. This book is the most comprehensive volume on federal capital cities since the publication of Donald Rowat’s The Government of Federal Capitals in 1973. It aims to fill gaps in our comparative knowledge by providing as balanced a view as possible of specific practices in various federal countries around the world. The series does so by exploring similar and contrasting practical perspectives. Our aim is to produce books that are accessible to interested citizens, political leaders, government practitioners, and students and faculty in institutions of higher education. In this regard, we have asked each chapter’s author to provide an overview of the country’s fiscal arrangements and institutions, a discussion of the responsibilities of the capital city, and information on how the capital city is funded. We have also asked the authors to identify emerging issues in governance and finance. Thanks are due to all the authors who have contributed to the book, as well as to the Inter-State Council, Government of India, the Government of Nigeria, and the Government of Canada for their generous financial support. Thanks are also due to the the United States’ District of Columbia and the Government of the Federal District of Mexico for facilitating this volume. We wish to acknowledge the work of the entire Forum of Federations staff. Thanks are due to George Anderson, Caroline Andrew, John Kincaid, Beth Milroy, Amitabha Pande, and Johanne Poirier for providing extensive feedback on drafts at different stages of the project. Thanks are due also to the Global Programs staff: Rhonda Dumas, for organizational and administrative support; Libby Johnston, for overseeing management of the publication; and Yani Roumeliotis, for technical support. Special appreciation is owed to Rod Macdonell, senior director of Public Information and Education at the Forum, who played a crucial role in helping to launch the publication program. Thanks are due to staff from the InterState Council Secretariat in Delhi whose generous contribution facilitated the authors’ conference, including deputy secretaries Amaresh Singh and



Randhir Singh. We also thank the staff at McGill-Queen’s University Press for all their assistance in producing the volume and working with us to ensure its success. Special thanks are due to Hans Gnodtke, former senior adviser at the Forum and now Germany’s consul-general in Sydney, Australia, for his flawless management of the authors’ conference. The program and the present book could not exist without his initiative. Finally, thanks are due to my co-editor, Enid Slack, for being wise and wonderfully patient. On behalf of the Forum of Federations Rupak Chattopadhyay, Vice President, Governance Programs

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finance and governance of capital cities in federal systems

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Introduction e n i d s l a c k a n d r u pa k c h at t o pa d h y ay

Capital cities are unique, in large part, because they are seen as an important symbol of the whole country. This symbolism has special meaning for federal countries, which tend to be diverse or large, or both. Consequently, in federal countries the choice of a capital city, its location, its monuments, and its governance arrangements have to reflect this diversity while also being as neutral as possible with respect to individual states or provinces.1 Not surprisingly, therefore, several capital cities discussed in this book, including Washington, dc, Ottawa, Canberra, and Abuja, are all located on historic regional, linguistic, or ethnic borders. The Nigerian capital, Abuja, is located in the geographic centre of a very diverse country and is home to both a grand mosque and a national cathedral, which together represent the country’s two great religions. Similarly, Brussels, as Belgium’s only bilingual region, reflects the country’s linguistic and cultural diversity. Bern’s position both in the relative centre of the country and in proximity to the French part of the country (as well as its relative unimportance as an urban centre) contributed to its selection as the seat of the Swiss government. In Germany, the decision to relocate the capital to Berlin (because it was the only major urban centre that straddled the east-west divide) was an important gesture in the process of integrating the eastern Länder. As in most countries, federal capital cities host the legislative, executive, and judicial branches of the national government and are usually home to many national institutions, such as national museums, the national library, arts centres, and the central bank. Capital cities also host foreign embassies. Capital cities promote national pride through ceremonies and commemorations, but they also experience more public-protest activity than other cities. Capital cities symbolize the actions of the national government and are often associated with national government policies, as in statements like “Canberra increased taxes” and “Washington introduced a new grant program.”


Enid Slack and Rupak Chattopadhyay

At the same time that capital cities take on special political, administrative, and symbolic roles, they are also places where people live, use local services, and engage in local political activity: “capital cities were recognized as doubly bound to be good physical environments where people live out ordinary lives, as well as symbolically rich cities that capture the qualities a state wishes to portray to the larger world.”2 These two roles – the national capital role and the local role – sometimes conflict with each other. Donald Rowat noted this conflict thirty-five years ago when he said that the federal government wants to “control and develop the capital in the interests of the nation as a whole, while the people of the capital naturally wish to govern themselves to the greatest extent possible.”3 This conflict is particularly acute in federal countries because the national capital in a federal country, if treated in the same way as any other city, would normally fall under the jurisdiction of a constituent state or provincial government. In the context of federalism, the state or province would be the order of government in the position of controlling the capital, thereby denying the national government a role in the functioning of its capital. Some of the governance structures that federal governments have designed for their capital cities – city-states and federal districts, for example – reflect the desire on the part of the federal government to treat capital cities in a different manner than it treats other cities in the country. These different governance structures, in essence, eliminate the role of the province or state in the affairs of the capital city and give the federal government more input and control over its capital city. The governance model chosen has tremendous symbolic value in diverse federations, where a federally controlled or purposely built capital city may be positioned as a neutral space for national politics, often driven by a desire to balance the influence of major states or commercial cities. When Canberra was chosen as the capital of Australia, for example, a separate federal capital territory was created so that the city would not be in the states of New South Wales (centred on Sydney) or Victoria (Melbourne); the establishment of Washington, dc, as the national capital of the United States was motivated primarily by Congress’s desire to free itself of reliance on any one state and also because it was reasonably far removed from the major commercial centres. Federal interest in capital cities tends to revolve around public safety (protecting national leaders and foreign diplomats), land use (making the capital a beautiful showcase for the country), and delivery of services to the extent that they have an impact on the operation of the federal government (such as transportation). The policies that the federal government adopts toward its capital city have an important impact on the relation between the federal government and local authorities as well as important implications for the finances of the capital city. The way that the conflict



between the national and local roles plays out in capital cities depends to a considerable extent on how these cities are governed. Who is responsible for making decisions? Is the capital city accountable to a provincial or state government or directly to the federal government? Who is responsible for providing which services? How are these services financed? Does the federal government compensate the capital city for the costs associated with being the capital? The purpose of this volume is to provide a comparative examination of the financing and governance of capital cities in eleven federal countries. In exploring the organization of capital cities and their relationship with the other orders of government, we illustrate the considerable diversity among capital cities. This project also offers some preliminary insights into the larger issue of the place and status of metropolitan areas, including megacities, within federal structures. Very little has been written about capital cities and even less about their finance and governance. Moreover, the few studies that have been written do not focus on the particular issues of capital cities in federal countries. In the 1993 collection edited by John Taylor and colleagues,4 for example, the chapters do not specifically address governance and finance issues, nor do they single out federal countries. In the 2006 volume edited by David Gordon, the focus is on the planning and development of capital cities.5 Eugene Boyd and Michael Fauntroy’s 2002 report6 is one of the few studies that focuses on finance and governance, but again, the focus is not specifically on capital cities in federal countries. A number of studies have been written about Washington, dc, and, in particular, how it compares to other capital cities around the world, but the focus is usually on the city’s lack of representation in the national government rather than on broader issues of finance and governance.7 Furthermore, the capital cities used as the basis for comparison are not restricted to federal countries.

t h e c h a p t e r s i n t h i s vo l u m e The chapters in this volume examine issues surrounding the governance of the capital city in eleven federal countries in different parts of the world – Australia (Canberra), Belgium (Brussels), Canada (Ottawa), Ethiopia (Addis Ababa), Germany (Berlin), India (New Delhi), Mexico (Mexico City), Nigeria (Abuja), South Africa (Pretoria and Cape Town), Switzerland (Bern), and the United States (Washington, dc). The main focus of the case studies is governance structure, funding, and intergovernmental fiscal arrangements. Through the cities chosen, we have tried to ensure that every category of governing structure is well represented and that there is a range of cases from around the world. Of course, the choice also reflects the availability of authors in each country.


Enid Slack and Rupak Chattopadhyay

The authors of all the case studies were asked to provide an overview of the characteristics of the capital city as well as information in four general areas: governance structure, roles and responsibilities, financing, and emerging issues. They were also asked to address the following questions: Governance structure: How is the capital city governed – is it a city-state, a city within a province or state, or a federal district? Is there a capital commission? How does the governance of the capital city differ from the governance of other cities in the country? Does the capital city have authority to make its own financial decisions or is it constrained by the federal or provincial/state government? Does the federal government have veto power over local decisions? • Roles and responsibilities: What are the responsibilities of the capital city and how are they funded? How have responsibilities and revenue changed over time? • Financing capital cities: What expenditures are made by the capital city and how are they financed? How much financial support does the federal government provide for its capital city? How does this arrangement differ with respect to other cities? Does the federal government compensate the capital city for capital functions? Does the federal government pay property taxes on its properties? If the national government is exempt from property taxes, how does it compensate the capital city for forgone revenue? Does the federal government provide transfers to the capital city? If so, what form do these transfers take? Is the capital city sufficiently compensated for the costs associated with its being a capital? What is the role of the provincial/state government with respect to capital cities? What is the relationship between the federal government and the provincial/state government with respect to capital cities? • Emerging issues in finance and governance: What are the major issues of the capital city? Are there fiscal issues around federal funding of the city? Are there governance issues around who is responsible for decision making? Are there unique planning issues around keeping the capital city beautiful, maintaining green space, and so on? Are there regional issues in terms of the city’s ability to provide services to neighbouring municipalities within the metropolitan region? How are these issues being resolved? •

The main findings are summarized in the concluding chapter of this volume, but some brief comments are presented here. In terms of the local governing structure, there are three broad categories of capital cities in federal countries: •

Federal districts: In Australia, Ethiopia, India, Mexico, Nigeria, and the United States, the capital takes the form of a federal district or territory



with a legal status that differs from that of the state or provincial jurisdictions that surround it. Federal districts are often established constitutionally and are subject to federal legislation. These districts lack the constitutional sovereignty enjoyed by states or provinces. Within a federal district, the federal government can have considerable control over the financial and other decisions of the capital city. Even where local governments are elected, local budgets may have to be approved by the national government in some capital cities. The governments of federal districts generally take on both city and state responsibilities, but in most cases, they do not take on all the functions assigned to other states. • City-states: In Belgium and Germany the federal capital has the status of a city-state. The political boundaries of the capital define a political unit that is both a city and a state, and the city-state has the powers and responsibilities of both cities and provinces/states. City-states, as a result, tend to have more powers than other cities and generally more revenueraising authority. However, capital cities that are city-states do not always enjoy constitutional parity with other states. • Cities in provinces: In Canada, South Africa, and Switzerland, the capital city is simply a municipality situated within a province or state. These capital cities fall under provincial/state jurisdiction and generally have the same legal status as other cities in the country. They may benefit, however, from special funding arrangements from the federal government. In some capital cities, federal governments have established capital commissions to oversee planning and to promote tourism by maintaining landmarks, including the preservation of buildings and historic sites and the development of green space. The National Capital Commission in Ottawa and the National Capital Planning Commission in Washington, dc, for example, straddle multiple jurisdictions across states and municipalities in discharging their functions. Roles and responsibilities also differ among capital cities. In most cases, locally elected authorities are responsible for the normal local public services, such as roads, water, sewers, garbage collection and disposal, fire protection, education, and social services. Land-use planning and policing, however, may be provided by the federal government directly or through a capital commission, or they may be shared between the federal government and a local authority. There are also differences in the funding tools available to capital cities in different countries. Revenue may include taxes (such as property taxes, income taxes, sales and other taxes), user fees, and intergovernmental transfers. Reliance on these revenue sources and, in particular, reliance on intergovernmental transfers versus own-source revenue differ among capital cities.


Enid Slack and Rupak Chattopadhyay

Fiscal relationships between capital cities and their national governments also vary. Although most national governments provide some support to their national capital, there is considerable variation in the nature and amount of assistance. Support from the federal government usually falls into three categories. The first is reimbursement to local governments in lieu of taxes. Where cities levy property taxes, some national governments pay those taxes on their properties, some make payments in lieu of taxes, and some make no payments. The federal government in Ottawa provides the municipal government with payments in lieu of taxes on federal properties and diplomatic missions, whereas the New Delhi Municipal Corporation receives no such compensation. The second is compensation to local authorities for capital-city functions. For example, most national governments reimburse the capital city for the costs incurred because of the federal presence. These costs include, for example, security associated with protocol visits and demonstrations, transportation, parks, and cultural activities. The third is direct expenditure by the federal government. In some capital cities, the federal government provides grants for specific services such as transportation and parks; in others, general-purpose grants are provided; and in yet others, few, if any, federal grants are provided, but provincial/state grants are given to capital cities in the same way as they are given to other cities in the country. As can be seen from the brief summary above and the chapters that follow, the same questions were asked in each country, but the depth and breadth of the answers vary across countries. In particular, data on expenditures and revenue of capital cities, especially trends over the past twenty years, are more readily accessible in some of the case-study countries than in others. The history of the capital city dates back further in time in some cities than in others, and there is more information on how the location of the capital city was chosen in the newer, planned capital cities. Intergovernmental fiscal relationships are more complicated in some countries than in others. The role of the federal government has evolved over time in some of the cities because of changes in national and local circumstances. Nevertheless, the chapters in this volume help us to understand the different governance and financial arrangements and to identify the types of issues presented by each arrangement.

notes 1 The terms “state,” “province,” “canton,” “Land,” “region,” and “cultural community” may be used interchangeably for constituent units. For the sake of simplicity, when generalizing, we will use “states” or “provinces.”



2 Beth Moore Milroy, “Commentary: What Is a Capital?” in J. Taylor, J.G. Lengellé, and C. Andrew, eds, Capital Cities: International Perspectives, 85–91 (Ottawa: Carleton University Press, 1993), 86. 3 Donald C. Rowat, ed., The Government of Federal Capitals (Toronto: University of Toronto Press, 1973), xi–xii. 4 J. Taylor, J.G. Lengellé, and C. Andrew, eds, Capital Cities: International Perspectives (Ottawa: Carleton University Press, 1993). 5 David L.A. Gordon, ed., Planning 20th Century Capital Cities (New York: Routledge, 2006). See also Peter Hall, “The Changing Role of Capital Cities,” Plan 40, no. 3 (2000): 8–11. 6 Eugene P. Boyd and Michael K. Fauntroy, “Washington, D.C., and 10 Other National Capitals: Selected Aspects of Governmental Structure,” report on the District of Columbia Appropriations Act for Fiscal Year 2002 (H. Rept. 107–321) (2002). 7 See, for example, Scott Campbell, “Berlin and Washington, D.C.: The Development and Economies of Capital Cities,” Urban and Regional Research Collaborative, University of Michigan Working Paper Series, urrc 01–01 (2001); Charles Wesley Harris, Congress and the Governance of the Nation’s Capital: The Conflict of Federal and Local Interests (Washington, dc: Georgetown University Press, 1995); and Hal Wolman, Jan Chadwick, Ana Karruz, Julia Friedman, and Garry Young, “Capital Cities and Their National Governments: Washington, D.C., in Comparative Perspective,” Working Paper Number 30 (Washington, dc: George Washington Institute of Public Policy, gwipp Working Paper Series, 2007).

1 Canberra, Australia graham sansom

overview The Australian federation was created in 1901. It comprises a federal (a.k.a. Commonwealth or Australian) government, six states (New South Wales, Victoria, Queensland, South Australia, Western Australia, and Tasmania), and two semi-autonomous federal territories (Northern Territory and Australian Capital Territory). Australia covers a continent with an area of 7.7 million square kilometres but has a population of only 21.2 million. Population growth is currently around 1.5% per annum. In 2006 gross domestic product (gdp) was approximately US$760 billion, or US$36,300 per capita.1 The capital city, Canberra, lies within the Australian Capital Territory (act). The territory covers an area of some 2,400 square kilometres consisting of upland plains and hill country about 200 kilometres southwest of Sydney. It has a population of 340,000 (December 2007), nearly all of whom live in the urban areas of Canberra. The growth rate is approximately 1.3% per annum. A further 70,000 people live in adjoining areas of the state of New South Wales (nsw), which surrounds the act. The town of Queanbeyan, immediately east of the act, is effectively an extension of the Canberra urban area, with a population approaching 40,000. Canberra was established in the early twentieth century as a purposebuilt, carefully planned capital city. It is much smaller than the major state capitals (Sydney, Melbourne, Brisbane, Perth, and Adelaide), which have populations ranging from 4.5 to 1.5 million. The act also accounts for only a small part of Australia’s economy (see table 1.1). After rapid expansion during the 1960s and 1970s, its population and economic growth slowed significantly from the 1980s onward as transfers of government departments to the capital were completed and then the overall size of the public service was reduced. As a result, the act economy experienced a


Graham Sansom

Table 1.1 Australia: Gross state product, 2006–07*

New South Wales Victoria Queensland South Australia Western Australia Tasmania Northern Territory act Australia (total gdp)

Millions ($)

Share (%)

Real growth (%)

265,000 195,000 155,000 55,000 112,000 17,000 11,000 17,000 827,000

32.0 23.6 18.7 6.6 13.5 2.0 1.4 2.1 100

1.8 2.7 4.9 0.8 6.3 2.1 5.6 5.0 3.2

* Figures are in US dollars and rounded to the nearest thousand million; AUD$1 = US$0.79. Source: Australian Bureau of Statistics, 5220.0.

somewhat painful transition to much greater reliance on private-sector activity. However, during the past several years growth has again been strong. Gross state product (gsp) rose by 5% in real terms in 2006–07, considerably faster than the national gdp growth rate of 3.2%. Sectors recording the highest growth in 2006–07 in volume terms were communication services, wholesale trade, and finance and insurance. Government administration and defence continued to be the largest industry in the act with a 31% share of gsp, above its long-term average of around 28%, reflecting a rebound in public-sector employment. History and Symbolism At the time of federation in 1901 there was intense rivalry between the cities of Sydney and Melbourne, the colonial capitals of New South Wales and Victoria. The new Constitution directed that the seat of government should occupy its own territory, to be excised from New South Wales, but should not be closer than 100 miles (160 km) from Sydney. The evident intention was that the capital should fall under federal administration. In the meantime, until a site was found and developed, the Parliament of the Commonwealth of Australia was to sit in Melbourne. Selection of a site took many years. Not until 1908 did the federal Parliament declare that the capital would be in the Yass/Canberra district, contain an area of not less than 900 square miles, and have access to the sea.2 Another three years passed before an international competition to design the new city was launched in May 1911. Large-scale models of the city site were exhibited in London and in British embassies and consulates in Berlin, Cape Town, Chicago, New York, Ottawa, Paris, Pretoria, Washington,

Canberra, Australia


and Wellington. The competition was won by the Chicago architect Walter Burley Griffin, working in collaboration with his wife, Marian Mahoney. Griffin was subsequently appointed federal capital director of design and construction to implement a modified version of his plan. The foundation stone of Canberra’s (never completed) Commencement Column was laid on 12 March 1913. The symbolism of a national capital for a new federation was a key element of Griffin’s design. The 1903 Report of the Royal Commission on Sites for the Seat of Government of the Commonwealth had asserted: “The City which is to be the seat of power, the nerve centre of the Commonwealth, and, in the future, the focus of the intellectual activities and the mirror of the nation’s taste, will depend for its beauty and impressiveness in no small measure upon its situation. This will govern also, in large degree, the comfort, health, and happiness of all its residents.”3 When the site was finally selected in 1908, this view was echoed by the then federal minister for home affairs, Hugh Mahon, who said: “the Federal Capital should be a beautiful city, occupying a commanding position, with extensive views and embracing distinctive features which will lend themselves to a design worthy of the object, not only for the present, but for all time.”4 Griffin responded with a plan that combined elements of the City Beautiful and Garden City movements of the time, incorporating grand avenues, an artificial lake, and prominent sites for major national buildings and monuments, all set within and complementing the striking natural landscape of the surrounding hills. He wrote: Australia, of most democratic tendencies and bold radical government, may well be expected to look upon her great future and with it her Federal capital with characteristic big vision ... Australia has, in fact, so well learned some of the lessons taught through modern civilisation, as seen in broad perspective from her isolated vantage point, that we may be justified in believing that she will fully express the possibilities for individual freedom, comfort and convenience for public spirit, wealth and splendour of the great democratic city ideal for which her capital offers the best opportunity so far.5 At the laying of the foundation stone and naming of the city in 1913, the governor general again highlighted the symbolism involved: The City that is to be should have a splendid destiny before it, but the making of that destiny lies in your hands, the hands of your children, and those who come after them. Remember that the traditions of this City will be the traditions of Australia. Let us hope ... that here will be reflected all that is finest and noblest in the national life of the country;


Graham Sansom

that here a city may arise where those responsible for the government of this country in the future may seek and find inspiration in its noble buildings, its broad avenues, its shaded parks, and sheltered gardens – a city bearing perhaps some resemblance to the city beautiful of our dreams.6 These lofty ambitions for the quality of Canberra’s urban environment and the lifestyle to be enjoyed by its inhabitants still resonate in contemporary issues of capital-city governance. Early development of Canberra was slow, due in part to the impact of the First World War, and marked by continuing political and bureaucratic debate about Griffin’s plan and how best to implement it. A “provisional” Parliament House was not completed until 1927, and even then much of the federal public service remained headquartered in Melbourne. Further growth was subsequently brought to a halt by the Great Depression, and the body then responsible for developing the city, the Federal Capital Commission, was abolished. By the outbreak of the Second World War in September 1939, Canberra still had a population of only 10,000, few public buildings, and fairly rudimentary transport and communication links with the major cities of Melbourne and Sydney. However, the demands of wartime government and then postwar reconstruction quickened the pace of growth and demonstrated the need for a new organization to plan and oversee development. The National Capital Development Commission (ncdc) was established in 1957 and given the authority and resources to do the job properly. It quickly set about addressing immediate needs for homes and offices while also realizing the design vision of Griffin’s plan, including in particular the central Parliamentary Triangle with its avenues radiating from Capital Hill, major national buildings and monuments, and the large artificial lake that now bears Griffin’s name. The population increased rapidly as public servants were transferred from Melbourne and Sydney, and a series of new urban areas and town centres were progressively established north and south of central Canberra. Finally, another international competition was held for the design of a new and permanent Parliament House on Capital Hill, to be completed by 1988 to mark the bicentenary of European settlement in Australia.7 Although the ncdc was a highly effective planning and development agency, its sweeping powers and somewhat autocratic approach attracted mounting criticism. There was also growing concern in some quarters about the lack of any elected local government for the act, which was still administered as part of the federal machinery. This concern reflected, on the one hand, a view that the generally affluent residents of Canberra should be less of a burden on federal taxpayers living in the states and now autonomous Northern Territory and, on the other hand, a desire by some

Canberra, Australia


Table 1.2 First impressions of Canberra Respondents (%) Politicians, Parliament, government National capital, Australian Capital Territory Parliament House War Memorial, defence force history Weather (cold/hot/bad/good) Lake Burley Griffin

70.6 41.9 38.8 32.8 24.4 19.4

Source: B. Ritchie and C. Leon-Marillanca, Australians’ Perceptions of Their National Capital: National Perceptions Study (Canberra: National Capital Authority, n.d.).

Canberrans for democratic self-government. Eventually, in January 1989, the ncdc was abolished and replaced by the much less powerful National Capital Planning Authority. Self-government was introduced with the establishment of an act Legislative Assembly and territory government. Canberra now houses the head offices of all federal government ministries and most major national institutions: the Australian War Memorial, Australian National University, High Court, National Library, National Gallery, National Portrait Gallery, National Archives, National Museum, Royal Australian Mint, Australian Defence Force Academy, Australian Institute of Aboriginal and Torres Strait Islander Studies, and Australian Institute of Sport. As the centre of federal politics, the city is also home to the national headquarters of each of the major political parties as well as a wide range of national community, professional, and business organizations. However, some subsidiary government agencies are located elsewhere, many federal departments have state offices, and a few institutions are based in state capitals – for example, the Australian Opera and Ballet at the Sydney Opera House and the Maritime Museum at Sydney’s Darling Harbour. A 2006 survey of Australians’ perceptions of the national capital found that most Australians immediately associate Canberra with politics and government (see table 1.2), and 56% of respondents agreed that Canberra reflects national values. Almost 92% agreed or strongly agreed that the national capital should be something Australians are proud of, and 84% agreed or strongly agreed that it should symbolize Australians’ ideals and aspirations. Large majorities agreed or strongly agreed that Canberra reflects Australia’s defence forces (72%), democracy (70%), and history (67%).

governance structure Since 1989 the act has been a largely autonomous federal territory with most of the powers of state governments, including its own justice system,


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although policing is provided under contract by the Australian Federal Police. Its powers are derived from the Australian Capital Territory (SelfGovernment) Act of 1988 and vested in a Legislative Assembly. The federal government also retains the power to legislate for the act – and has done so in the area of city planning – as well as to override laws passed by the act Assembly. However, that power has been used very rarely. act residents elect four representatives to the federal Parliament: two members of the House of Representatives and two senators. The number of senators is fixed, but growth in population could lead to another seat in the House. John Halligan and Roger Wettenhall characterize the act as a city-state.8 There is no separate municipal level of government, and all local government functions are undertaken by the act government, which thus has a very broad span of responsibilities. Moreover, the Self-Government Act allows for no more than five ministers, including the chief minister, and each of the seventeen members of the Assembly must fill the roles both of members of Parliament and of local councillors. They thus carry an exceptionally heavy legislative, representative, and – in the case of ministers – administrative load. The act government exhibits some notable departures from the Westminster model on which all Australian governments are based.9 First, like the governments of Queensland and the Northern Territory, it is unicameral: there is no “upper” house for review of legislation. Second, elections are conducted under a system of proportional representation that tends to produce minority or coalition governments (only the 2004–08 Labor Party government had a majority in its own right). This has in turn resulted in more influence being exercised by Assembly committees than their counterparts elsewhere in Australia. Third, there is no “head of state” position: the chief minister is elected and can be dismissed by a vote of the Assembly; there is no vice-regal governor (as in the states) or administrator (as in the Northern Territory); and there is no executive council to ratify government decisions and legislation – this is done simply by a notice in the Government Gazette or by an addition to the Legislation Register. Elections must be held at a fixed time every four years. Some have argued that these features amount to a “partial republic” within the Australian constitutional monarchy.10 There are also complexities in public management and intergovernment relations. The culture and styles of municipal and state administration tend to differ considerably and can be difficult to combine in the machinery of government and within a single public service. Externally, the act is represented in all federal forums as though it were a state, but it is also a member of the Australian Local Government Association and the Council of Capital City Lord Mayors, where it pursues its municipal

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interests. Indeed, it receives some federal funding through a system of grants to local governments (see below). The absence of separate municipal councils in the act raises important questions about the adequacy of citizen engagement in the processes of government. As noted above, members of the Legislative Assembly have a very heavy workload at the level of territory governance. Elsewhere in Australia, a population of well over 300,000 could normally expect to be divided into at least two and possibly several municipalities, each with seven to twelve councillors, to supplement the local members of Parliament. Moreover, the system of proportional representation in the act means that there are multiple members for each of three electoral districts and thus that residents do not have a single, clearly accountable constituency representative to whom they can turn. The act government puts considerable resources into community consultation and has a community engagement framework that includes the Community Engagement Service Charter. It has also adopted the Social Compact: A Partnership between the Community Sector and the act Government, which outlines principles for cooperative efforts with civil society. In addition, the Department of Territory and Municipal Services, which undertakes “local government” functions, has adopted a detailed community engagement policy and established a Community Advisory Group that is intended to reflect the diversity of Canberra residents, to guide strategic direction, and to provide advice on appropriate consultation methodology and processes. Nevertheless, unlike the practices of many larger local governments in the states, there are no standing committees at neighbourhood or district levels to provide regular input across the broad range of local governance issues and community concerns. “Community councils” cover most of the act and are often consulted, but these are unofficial citizens’ groups. City planning is a particularly complex and contentious issue both for governments and for the community. Under the act (Planning and Land Management) Act of 1988, responsibility is divided between the federal and act governments and their respective agencies – the National Capital Authority (nca) and the act Planning and Land Authority (actpla). Essentially the nca is responsible for formulating and managing the National Capital Plan, an overarching strategic plan for the development of Canberra, which must be approved by the federal Parliament. The object of the National Capital Plan, prescribed in the Act, is “to ensure that Canberra and the Territory are planned and developed in accordance with their national significance.” It must set out standards for the maintenance and enhancement of the character of the national capital, as well as general standards and aesthetic principles to be adhered to in its development. Under the plan, the nca controls development within certain “Designated Areas,” principally the Central National Area comprising the


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Parliamentary Triangle, Lake Burley Griffin, and adjoining areas of national land. As well, it exercises concurrent powers with actpla over various areas considered to be of particular importance in maintaining the character of the national capital and the integrity of Griffin’s plan. These include the hills that frame central Canberra and the land alongside the major avenues and approach roads to the centre. actpla handles all other aspects of urban planning through a Territory Plan and related mechanisms. These arrangements have been a more or less constant source of debate since self-government, with opinions differing sharply. On one side are those who see continued federal oversight as unwarranted outside the Central National Area and leading to needlessly complex arrangements that restrict local autonomy and impede development; on the other side are proponents of the view that continued federal involvement in planning is essential to maintaining Griffin’s legacy and high standards of urban design. Interestingly, the Act contains no mechanism to resolve intergovernment disputes: the two agencies and their political masters must negotiate an agreed outcome, with of course the federal government holding the upper hand. However, working relationships between nca and territory officials appear generally cordial and productive, even if the bureaucratic processes involved are sometimes convoluted. Some oversight both of act governance in general and of the nca and planning arrangements in particular is exercised by the federal Parliament’s Joint Standing Committee on the National Capital and External Territories. Over the years, the committee has undertaken a number of inquiries into various aspects of governance in the act, and it recently completed another major report on the role of the nca. This is discussed below in the final section. A key aspect of land-use planning in the act is that all land is publicly owned, having been acquired by the Commonwealth at the time the territory was excised from New South Wales. Parcels of land are leased to individual property owners for development, usually for ninety-nine years. This means that in theory the federal and act governments are able to exercise considerably greater control over the pattern, style, and quality of development – as well as stronger legal property rights – than is possible under predominantly freehold tenure in other major cities. The leasing arrangement also makes it possible to raise substantial revenue from land rents and to levy a betterment tax when a lease is amended to permit a higher value use of land – for example, to allow for higher-density residential development. In practice, however, the leasehold and planning systems now operate in a manner very similar to the way freehold land is administered and regulated elsewhere: local property taxes (“rates”) largely substitute for land rent, and betterment charges are relatively minor. Nonetheless,

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the act government does generate very considerable revenue from selling leases over previously rural or vacant land at the time it is first developed (see below). Another important set of planning and governance issues arises from interactions between the act and surrounding areas of New South Wales. As noted earlier, the town of Queanbeyan, adjacent to the act’s eastern boundary, is effectively an extension of the Canberra urban area but is separately planned and controlled by a municipal council under nsw state laws. In addition, “rural-residential” development in the form of smallholdings of some 2 to 20 hectares has spread widely across adjoining shires. Many residents of Queanbeyan and the semi-rural areas work in Canberra and make use of act services – and many of those residents are federal public servants. For its part, the act is dependent on a catchment and dam in nsw for much of its water supply (secured under federal legislation). In many ways, the relationship of Canberra to Queanbeyan and the rural hinterland is no different from that between any large city and its neighbours. It is complicated, however, by two higher-level governments being involved – the federal government and the state of New South Wales – and by the act government itself being at a higher level than adjoining local governments. As a result, it is not always clear precisely what set of intergovernmental relationships and mechanisms would be most appropriate and helpful when addressing specific regional issues. The act government deals regularly with nsw state agencies and local councils on both service delivery and planning, but except for water supply there are no legislated frameworks for cross-border relations. Arrangements have tended to be ad hoc, although there are moves toward a new regional plan, and the act government sits with its nsw counterpart and surrounding local governments on a Regional Leaders Forum. This issue is discussed in more detail in the concluding section of this chapter.

roles and responsibilities As noted earlier, the act is effectively a city-state and has been granted powers similar to those of the states and Northern Territory, although these can be modified or revoked by the federal Parliament. It thus has far more extensive powers and responsibilities than Australian local governments, all of which are established under state or Northern Territory laws and are completely subservient to those jurisdictions. Unlike the act, local governments across Australia have little or no responsibility for hospitals and medical services, education (other than preschools), police and justice, electricity and gas, water supply and sewerage (except in Queensland, Tasmania, and non-metropolitan New South Wales), or public transport (except Brisbane City Council). However, a few are larger in population


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than the act: Brisbane City Council has almost 1 million residents and Gold Coast City around 500,000. Planning and management of Australia’s other major cities is thus dominated to varying degrees by state governments, which like the act government handle key areas of infrastructure provision and service delivery and are the ultimate decision makers on patterns of urban development and large-scale investment projects. In that sense, governance of Canberra is little different from that of the state capitals. Under the current provisions of the Self Government Act, the act enjoys as much autonomy as the states in making decisions about revenue and expenditure. The only legal constraints on revenue raising are those arising from the Constitution and High Court interpretations of it, although these have proved considerable in recent decades, with severe limitations placed upon the states’ ability to raise both income and indirect taxes. As a result, the states and territories are now heavily dependent on federal funding (see below). Thus even though the federal government has no legal power to control their expenditures (except to preclude them from undertaking federal responsibilities), it can exercise considerable influence by attaching conditions to grants or negotiating agreements from its position of fiscal dominance. For example, in the field of city management the federal government has total discretion over whether – and if so, how – to assist state and territory governments in meeting the heavy demands that infrastructure provision, service delivery, and increasing environmental, economic, and social pressures are placing on their budgets. Federal Labor governments in the mid-1970s, late 1980s, and early 1990s entered the field of city management through a variety of funding programs and associated planning arrangements. The Liberal-National Party coalition that ruled from 1996 to 2007 offered little or no support. It remains to be seen whether the current Labor government will retrace the steps of its predecessors: it has established a new national body (Infrastructure Australia) to identify and prioritize strategic infrastructure investments, incorporating a “major cities unit,” but the intended scope of activity remains unclear. Hence the only critical difference between Canberra and other major cities is the federal government’s interest in the city’s role as the national capital, expressed through the activities of the nca and some other federal agencies. The National Capital Plan summarizes the position as follows: The act Government is responsible for managing the affairs of the Territory on a ... basis comparable to the Australian States. The act Government also manages those functions which, in the States, are performed by local government.

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The act Legislative Assembly has the general power to make laws for the peace, order and good government of the Territory. Canberra’s role and functioning as the National Capital remains a responsibility of the Commonwealth Government ... Under the Constitutional provision, the Commonwealth remains the owner of land in the Territory, even after the granting of self-government. The Australian Capital Territory (Planning and Land Management) Act 1988 provides that land used by or on behalf of the Commonwealth may be declared National Land, and managed by the Commonwealth. The remaining lands of the Territory are Territory Land and these lands are managed by the act Government on behalf of the Commonwealth. Management of National Land in the Territory is a function shared by [various Commonwealth departments]. Certain other Commonwealth agencies, such as the Department of Defence, also manage land on which their activities are located. Financing of the construction of Commonwealth facilities in the Territory is a responsibility shared among the many Commonwealth Departments and authorities. Maintenance and development of certain National Land is undertaken by the act Government on behalf of the Commonwealth, but is financed by the Commonwealth. In order to maintain a broad oversight of planning in the Territory as a whole, and to ensure its involvement in the planning, design and development of those areas having the special characteristics of the National Capital, the Commonwealth established the National Capital Planning Authority to reflect its interests and carry out its intentions.11 As well as its city planning functions, the nca is also responsible under the Planning and Land Management Act for: on behalf of the Commonwealth, commissioning works to be carried out in Designated Areas where no other agency has responsibility for the works required • recommending works that it considers desirable for maintaining or enhancing the character of the national capital • fostering an awareness of Canberra as the national capital (including some aspects of tourism promotion and sponsoring special events) • managing national land required for the special purposes of Canberra as the national capital •

The nca has had a budget of around US$17 million per annum (2006– 07), excluding major projects. About 90% of its costs are met by


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federal-budget allocations. Sales of goods, services, and assets make up the remainder of its income. Apart from the National Plan and the policies implicit in the functions allocated to the nca, there is no formal federal policy or statement of principles on its relationship to the capital city. However, the recent review by the Joint Standing Committee on the National Capital and External Territories again highlighted some enduring themes, chiefly that the federal government should maintain its commitment on behalf of all Australians to the future of Canberra as a planned national capital in accordance with Griffin’s design and ideals, and in doing so should ensure the highest standards in design for areas of national significance. The committee recommended that relevant Commonwealth and territory legislation be amended to protect the heritage of all Designated Areas in Canberra and that the role of the nca be clarified to include promotion of the national cultural icons located in the Central National Area. It also proposed that the Planning and Land Management Act be amended to enshrine policies and principles of national significance in a schedule appended to the Act. Thus although the committee also made a number of recommendations that could somewhat lessen the control over planning of the act currently exercised by the nca, its fundamental position was to retain effective federal oversight and involvement. At the time of writing, the federal government had yet to respond to the committee’s report.

financing the capital city Until the advent of self-government in 1989, the costs of administering the capital city and providing services to its people were incorporated in the budgets of a number of federal government departments and agencies. Not until the mid-1980s did the federal government establish a single, integrated act administration and budget.12 By then, there was a strong view within the federal government that it was time for the act to stand on its own feet, and the path to self-government was being explored. As part of this process, the Commonwealth Grants Commission prepared a series of reports on the act’s finances that painted a picture of excessive federal funding, relative to that being provided to the states and Northern Territory. The commission found that Canberra residents were being considerably overserviced and undertaxed.13 In response, the federal government set a timetable for reducing funding to typical state levels over a ten-year period. From 1989, handling this adjustment became the task of the new act government. Views differ on the success or otherwise of the various act governments in making the changes required and maintaining a sound budgetary position. Nonetheless, as recently as 2006 the then act government found it

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Table 1.3 Australian Capital Territory: Projected expenditures, 2007–08* Function Health and community care Government schooling (inc. early childhood and preschool education) Territory and municipal services (exc. tourism, environment, sustainability, and land management) Disability and community services Nongovernment schooling Policing Vocational education and training Justice and community safety Environment, sustainability, and land management Housing Treasury Public transport Emergency services Planning Chief Minister’s Department Tourism Business and industry development Legislative Assembly Executive Auditor general

Millions ($) 706.1 395.4 268.8 192.0 143.6 104.7 101.2 100.8 97.2 92.0 79.8 74.9 69.4 35.4 30.8 21.8 9.7 10.0 4.9 4.6

* Figures are in US dollars; AUD$1 = US$0.88. Source: act government, Budget 2007–08 (2007), 45.

necessary to introduce a budget with sweeping tax increases and cuts to services in order to reduce a ballooning deficit. In his budget speech that year, the chief minister said that the territory had been living beyond its means, with services on average 20% more expensive than Australian benchmarks.14 Strangely, however, in his 2008 budget speech the same chief minister boasted: “we are a community of great expectations, and that is not about to change. We support the highest level of service provision in the nation – at around 122% of the national average. Yet our taxation levels are middle-of-the-pack.”15 Table 1.3 sets out the act government’s projected expenditures for the 2007–08 financial year. Like state governments, its budget is dominated by health and education. The figures for territory and municipal services and related functions are comparable to what might be expected in a local government of similar size. For example, the city of Blacktown in outer metropolitan Sydney has a population of some 290,000 and annual expenditures of US$200 million (but does not have to fund “municipal” functions undertaken by the state government, such as main roads and major drainage


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systems). Changes in the classification of expenditures over recent act budgets make it difficult to calculate precise figures for growth in outlays by function, but again the act displays the typical state pattern of very rapid growth in health (which has more than doubled since 1999–2000) and education (an increase over the same period of around 80%). Other areas that have grown rapidly, albeit from a much smaller base and hence less in absolute terms, include disability and community services, police, municipal services, and environment, sustainability, and land management. Growth in the last category partly reflects pressure on the act government to maintain the high-quality environment expected of an iconic planned capital by both residents and visitors. Table 1.4 provides an overview of act government revenue. The territory has a narrow revenue base. Like the states and Northern Territory, it is excluded from levying most of the major income and indirect taxes, such as the personal income tax, company tax, sales tax, excise tax, and so forth. And unlike several of the states, it has no access to mineral royalties or potentially large profits from commercial operations such as ports or electricity generation. Taxation comprises mainly a payroll tax and property taxes – namely annual rates and charges, a land tax, and a conveyancing duty (i.e., a stamp duty on property transfers). However, under the Constitution the act cannot charge a payroll tax in respect of federal government employees or levy rates on federal properties other than those used by Commonwealth-owned commercial enterprises or leased to the private sector (e.g., Canberra Airport). The impact of these restrictions is taken into account in the distribution of federal grants to the states and territories (see below). The next largest category of own-source revenue is sales of goods and services – essentially fees and charges for a wide range of services delivered to residents and businesses. Dividends and tax equivalents include payments of profits from the act authority responsible for water supply, sewerage, and electricity distribution as well as from land sales. The importance of the latter reflects continuing public ownership of all land in the act: “greenfield” development is managed by the act Land Development Authority, which pays a substantial dividend to the territory government. Again in common with the states and Northern Territory, the act is heavily dependent on federal government grants: over 40% of its budget is funded by federal transfers. The largest component (more than 60%) is the general revenue sharing grant, a transfer of income from the federal goods and services tax (gst), which is distributed to the states and territories in accordance with a formula recommended by the Commonwealth Grants Commission and incorporated in a formal intergovernmental agreement. These funds are untied and may be used at the act’s discretion. The act’s share of gst revenue was recently revised upward. This

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Table 1.4 Australian Capital Territory: Projected revenue, 2007–08* Revenue source Taxation • payroll • conveyancing duty • property rates • land tax • other

Millions ($) 813.2 210.3 170.8 145.8 63.7 222.5

Australian government grants • gst revenue sharing • education • health • local government • other

1,130.7 741.6 138.4 127.2 53.8 69.7

Contributed assets Sale of goods and services Interest income Dividends and tax equivalents Other revenue

51.4 286.1 97.4 165.5 124.7

Total revenue


* Figures are in US dollars; AUD$1 = US$0.88. Source: act government, Budget Paper No. 3 (2007).

reflected a worsening of its revenue-raising capacity relative to those states that have received very large increases in mineral royalties. The balance of federal support comprises a series of special-purpose payments, chiefly for health and education. These are conditional grants, and the federal government has stated its intention to make them more performance-based in future. Matching territory expenditure is usually required, although not necessarily according to a fixed formula. Also included is a share of the pool of financial assistance grants paid to local governments across Australia. This amounted to some US$31 million in 2007–08. In addition, the act receives a special grant (US$21 million in 2007–08) to cover the cost of “national capital influences” on municipal expenditure – a contribution toward the cost of maintaining a high-quality urban environment and facilities that might not otherwise be provided, such as extensive parklands, and toward offsetting nonpayment of local rates on Commonwealth property. Borrowing by Australian governments, including the act, is regulated on a voluntary basis through the Australian Loan Council. The council was established under the Financial Agreement Act of 1927 to manage the call


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on national savings by the Australian public sector as a whole. It consists of a Commonwealth representative (usually the treasurer) as chair, plus a representative of each of the states and territories (again usually the treasurers), and usually meets annually. In effect, the Loan Council agrees upon an annual target for total net financing by each jurisdiction and hence upon the scope for further borrowings. States and territories do not require specific approvals to borrow.

emerging issues in finance and governance As preceding sections of this chapter have shown, the governance of Canberra and the act has undergone profound changes over the past two decades. This final section considers the ongoing and evolving implications of those changes, and prospects for the future, in light of some broader issues facing the governance of Australia as a whole. The election of the new federal Labor government in October 2007 was soon followed by the current global financial crisis and a sharp downturn in prospects for economic growth. This may have significant implications for provision of funding support to the states and territories. The federal government has moved to stimulate economic growth by dramatically increasing expenditure and reducing its previously planned budget surplus. Moreover, thus far it remains committed to policies that reflect a more cooperative approach to relations with the states and territories – which would involve increased grants – and to a major “nation-building” program of investment in new and renewed infrastructure. In both cases, the act could expect some modest benefits. Whether all these proposed expenditures can be sustained in a worsening economic climate remains to be seen. The act would be particularly vulnerable to any reduction in government revenues, whether federal grants or own-source income from taxes and charges, in three key areas. First, there are expectations that it will maintain the high standards of urban and environmental amenity inherent in Griffin’s original plan for Canberra and in the implementation and embellishment of that plan by the National Capital Development Commission in the late twentieth century. As noted above, the federal government pays the act a “premium” on the level of assistance normally provided to local governments in recognition of the cost of “national capital influences” on municipal expenditure. Second, the act faces a mounting bill for maintenance and renewal of the vast amounts of urban infrastructure installed by the ncdc during the years of very rapid population growth in the 1960s and 1970s. Chris Uhlmann discusses the implications of what he describes as “a command economy at work.”16 The ncdc designed and built Canberra as a series of separate towns, each with its own town centre and each divided into

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suburbs with their own schools, local centres, and other community facilities. Large areas of open space separate and articulate the urban areas. The city is serviced by one of Australia’s most extensive and elaborate road networks. Due to the topography, it also requires a high-capacity drainage system. The sheer scale of what is now aging infrastructure presents a potentially major problem for a relatively small city government. As the 1990 Committee of Inquiry into act Assets and Public Debt observed: “These assets were produced by the ncdc with minimum concern for long-term maintenance considerations. The committee was of the view that the national capital standards imposed by the ncdc may not have been those a territorial or municipal government would have chosen for a city of comparable size.”17 Third, the residents of the act continue to demand and receive a standard of community services that approximates the high level provided with federal largesse before self-government. As mentioned earlier, the act government acknowledges that services such as schools and hospitals cost around 20% more than the typical level found in the states and Northern Territory. Despite the confidence expressed by the chief minister in his 2008 (pre-election) budget, it seems probable that the assessment offered in his 2006 budget speech – that the territory is living beyond its means – is more accurate. Uhlmann argues that successive act governments have failed to come to grips with underlying financial problems, that in recent years the cost of delivering services was out of control, and that the current government continues to claim operating surpluses that are illusory.18 Such an analysis does not bode well for difficult economic times. These financial issues are linked closely to the debate about the respective roles of the act and federal governments in urban planning, specifically to the central question of the future of the National Capital Authority. The nca has already become a victim of fiscal constraint: the May 2008 federal budget included a substantial cut in funding that will severely constrain its capacity to undertake improvement works and to support special events that attract visitors to Canberra. It is interesting to note that in its submission to the federal Parliament’s recent inquiry into the role of the nca, the act government had argued that the authority’s functions of sponsoring capital works, managing lands set aside for the purpose of the national capital, and fostering public awareness of the capital should be augmented.19 Opposition to the strong role played by the nca in both strategic planning and control of development tends to be couched in terms of overlapping systems, unnecessary duplication of responsibilities, and the need to streamline decision making. In this regard, the act government has argued that it should “achieve State level planning rights that reflect


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the accountabilities and responsibilities of the act Government, while maintaining an appropriate balance of genuine national interest in the nation’s capital.”20 However, the underlying agenda that emerges is one of economic development and government finances. The act government’s submission to the parliamentary inquiry stated that the current system creates “unforeseen barriers and disincentives to investment and economic activity in the act”21 and that changes are needed in order, among other things, to reduce confusion for the development industry. It went on to argue: [G]iven the act’s lack of manufacturing and resources such as mining and agriculture revenues, planning efficiency and land development are more economically significant in the act than in any other Australian jurisdiction ... The actual as well as opportunity costs that accrue to the Territory as a result of retaining the 35-year-old General Metropolitan Structure Plan (msp) run into many tens of millions of dollars ... [T]he generally prescriptive nature of the [National Capital Plan] has not allowed the Territory to respond flexibly to emerging challenges that will optimise planning outcomes.22 The act government’s own strategic planning has moved away sharply from the ncdc’s philosophy of separate, “self-contained” towns still reflected in the National Capital Plan and Metropolitan Structure Plan. Planning is under way for a major new urban area in the Molonglo Valley, immediately west of central Canberra, which was retained in the National Capital Plan as an attractive rural landscape between urban areas to the east, north, and south. For the act government, the attraction of developing the Molonglo Valley is that it is close to the city centre, no new town centre is required, major infrastructure costs are relatively low, and it will reap substantial profits from developing and leasing government-owned land. Alternative development patterns would have hastened the day when Canberra’s urban expansion has to cross the act border into New South Wales, generating additional costs for the act government but no revenue from land development.23 It has long been understood that sooner or later Canberra will outgrow the limited space for urban development available in the act and hence that long-range plans should incorporate potential urban areas in adjoining parts of New South Wales. The ncdc’s 1970s “Y” Plan for Canberra designated areas northwest and northeast of the act for that purpose, and land-use planning controls were applied by the nsw government and local councils to protect those areas against excessive fragmentation of land ownership that would impede their eventual development. In the early 1990s an act and Sub-Region Planning Strategy was prepared by a joint

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committee of the act and nsw governments. This addressed a wide range of land-use planning and related issues, including cross-border urban development, the relationship of Canberra with Queanbeyan, the growing population living in the rural areas surrounding Canberra (either on rural smallholdings or in expanding villages), and various aspects of environmental and natural-resource management.24 The subregional strategy also considered the need for policies and mechanisms to deal with increasing interdependence in service provision. As explained earlier, Canberra relies for much of its water supply on catchments within nsw. These water sources have been secured for Canberra’s use by federal legislation: a question of growing importance concerns the amount of water that should be made available to support future growth in Queanbeyan and other towns and villages in nearby nsw – growth that is fuelled largely by the economic development of the act. This question is becoming more pressing as Canberra and the subregion seek to augment urban water supplies in response to the increasing effects of the drought that has gripped much of Australia during the past decade. A large new dam has been proposed within the act. Another complex issue is the extent to which residents of surrounding areas of nsw make use of urban and community services provided by the act government. Canberra’s hospitals, high schools, recreation areas, and entertainment facilities service a population much greater than that of the act itself. This imposes additional costs on Canberra taxpayers, which are expected to increase, particularly in relation to health services.25 However, the surrounding region is also an important market for act businesses, and as Access Economics points out, there are further benefits in terms of workforce availability.26 At a time of skills shortages, the varied residential opportunities offered across the region may assist considerably in attracting and retaining labour needed in Canberra. These cross-border issues demand close cooperation between the act and nsw governments and with local councils in the subregion. Apart from the joint planning committee, the 1990s saw the establishment of a Regional Leaders Forum, which is now chaired jointly by the act chief minister and nsw minister for regional development and which includes the mayors of seventeen local councils within the act subregion and wider south-eastern region of nsw, as well as state and federal members of Parliament and a representative of the Capital Region Development Board. The forum meets every six months and is largely a vehicle for information sharing: specific policy and planning issues are handled through a range of other mechanisms. For example, the act and nsw governments recently agreed on a Regional Management Framework, which includes a new Cross Border Settlement Strategy for Canberra and the subregion, focused primarily on expansion of Queanbeyan.


Graham Sansom

The Capital Region Development Board was established in 1994 and comprises five members each from the act and south-eastern nsw, charged with promoting local and regional economic development. It is supported and appointed by the act and nsw governments. Again, the federal government has not been represented to date, although over the years it has provided grants for development projects. Currently, the board’s future is under review, as the new federal Labor government has proposed joint arrangements with the states and territories as part of a new national regional development program. Finally, we return to the core issue of democratic governance of the act as a city-state, specifically the particular characteristics of the act Assembly and the lack of a subordinate tier of elected local government. As discussed earlier, the seventeen members of the Legislative Assembly (mlas) carry a very heavy workload, and their capacity to operate effectively as constituency members is limited. Philip Pettit argues that the public do not have sufficient access to their mlas.27 He points out that at the time of selfgovernment the ratio of mlas to voters was 1:10,000, but a decade later it had increased to 1:14,000. Moreover, mlas do not have offices in their electoral districts and, according to Pettit, seem indifferent to the problem of public access. He suggests there is a view that Canberra is a middle-class community of well-educated residents more than capable of looking after themselves and hence that there is insufficient recognition of the needs of the city’s marginalized and disadvantaged groups.28 Such concerns about a “democratic deficit” are also reflected in Donald Rowat’s argument that Canberra should have a system of local councils as well as the act Assembly.29 He compares Canberra to a number of other national capitals and proposes that the satellite towns of Belconnen, Woden, and Tuggeranong are all large enough to warrant their own lower-tier local governments. However, there is no evidence of any moves in this direction, nor indeed of any significant concerted public pressure to go down such a path. The act government does offer some support and legitimacy to the network of nongovernment “community councils” that cover Canberra’s constituent urban areas, but these play only a very minor role in governance and are generally little more than a convenient mechanism for community consultation. Furthermore, there has been a reduction in the number of consultative bodies for planning with the disbanding of Local Area Planning Advisory Committees and the Planning and Land Council, although the latter was more of an expert advisory body with several members from outside the act. The need to cut costs was a key factor in its abolition.30 There remains, however, a Planning and Development Forum, which meets quarterly and includes representatives of the community councils as well as of professional, environmental, and industry groups.

Canberra, Australia


In summary, since self-government in 1989 Australia’s national capital has enjoyed a governance framework that provides local democratic autonomy and accountability, together with seemingly adequate representation of the city’s residents in the federal Parliament and intergovernment forums. Governance of the act is efficient, in the sense that institutional arrangements are quite simple and streamlined, with just a small unicameral Assembly and no lower-tier local governments, but the evidence suggests that valid concerns can be raised about the adequacy of community access to parliamentarians and engagement in decision-making processes, as well as about responsiveness to the needs of some marginalized groups. There is also continuing debate about possibly unnecessary complexity and inefficiency arising from federal involvement in urban planning and about whether the level of involvement goes beyond that required to protect the essential qualities of the national capital. The act is positioned and structured as a city-state within the federation, and the territory government is treated in a very similar way to the states and Northern Territory, apart from the special arrangements for capital-city planning. It is compensated at least to some extent for the costs involved in maintaining high standards of urban design and environmental quality in those parts of Canberra of particular national importance and is otherwise free to discharge its responsibilities as it sees fit. Despite recent cuts in funding for the nca, there is no indication that the federal government will abandon its responsibilities for providing national capital facilities and maintaining its own estate at a high standard. A more important question for the act is how it will fare in the evolution of Australia’s federal system as a whole, given the ongoing changes to financial and functional relationships between the Commonwealth, states, and territories. As the federal government’s financial and policy dominance becomes ever greater, will the roles of the states and territories become more circumscribed? At present, the future of the act – whether it rises to emerging challenges of economic development, service provision, community engagement, and regional development and partnerships – is largely in its own hands. Will that remain the case?

notes 1 See (viewed 30 January 2008). 2 The act also includes a separate area on the nsw south coast at Jervis Bay, which offers a potential site for a port (never built). 3 Quoted in D. Headon, The Symbolic Role of the National Capital: From Colonial Argument to 21st Century Ideals (Canberra: National Capital Authority, 2003), 34. 4 Ibid., 36.


Graham Sansom

5 Ibid., 42. 6 Ibid., 48. 7 Ironically, however, the old “temporary” parliament house has been retained as an important item of national heritage. 8 See J. Halligan and R. Wettenhall, “A City-State in Evolution,” Canberra Bulletin of Public Administration, no. 103 (March 2002): 3–10. 9 P. Petitt, “Three Problems with act Governance,” in J. Halligan and R. Wettenhall, eds, A Decade of Self-Government in the Australian Capital Territory, 81–9 (Canberra: Centre for Research in Public Sector Management, University of Canberra, 2000); Halligan and Wettenhall, “City-State in Evolution.” 10 Halligan and Wettenhall, “City-State in Evolution.” 11 National Capital Authority, Consolidated National Capital Plan Incorporating Amendments (2002), 1–2. 12 R. Wettenhall, “Development of the act Model: Themes and Challenges,” in J. Halligan and R. Wettenhall, eds, A Decade of Self-Government in the Australian Capital Territory, 56–71 (Canberra: Centre for Research in Public Sector Management, University of Canberra), 60. 13 D. Hughes and R. Albon, “A Successful Transition? act Public Finances under SelfGovernment,” Australian Journal of Public Administration 55, no. 3 (September 1996): 26–36, at 27. 14 C. Uhlmann, “act Financial Management: Victim or Villain?” Agenda 13, no. 3 (2006): 253–63, at 253. 15 act government, Budget 2008–09, Paper 1: Speech (2008), 2. 16 Uhlmann, “act Financial Management,” 258. 17 Quoted in ibid., 260. 18 Ibid. 19 act government, Submission to the Joint Standing Committee on the National Capital and External Territories: Inquiry into the Role of the National Capital Authority (2008), 2. 20 Ibid., 4. 21 Ibid., 4. 22 Ibid., 4–6. 23 act Planning and Land Authority, Annual Report 2006–2007 (2007), 16–17. 24 act and Sub-Region Planning Committee, Draft act and Sub-Region Planning Strategy (1995). 25 Access Economics Pty Limited, The act and Its Region: Economic Relationships and Key Drivers of Economic Growth, report for the Chief Minister’s Department (2008), viii. 26 Ibid., iv. 27 Petitt, “Three Problems with act Governance,” 84. 28 Ibid., 85. 29 Donald C. Rowat, “Canberra in International Perspective,” in W.K. Oakes and L.J. Reeder, eds, Governing the Two Canberras: Canberra as Federal Capital and Canberra as a Place to Live, 28–45 (Canberra: Centre for Research in Public Sector Management, University of Canberra, 1991), 42. 30 act Planning and Land Authority, Annual Report 2006–2007, 15.

2 Brussels, Belgium c a r o l i n e va n w y n s b e r g h e

overview In recent times Brussels has become synonymous with the European Union (eu) both in the press and in the larger public perception. However, Brussels is a historical city. Although Belgium was established in 1830, Brussels’ importance as an administrative and commercial centre long predates the founding of the Belgian state. The city’s status as an administrative centre through succeeding periods of Burgundian, Austrian, Spanish, and Dutch rule ensured that Brussels would house the institutions of state when Belgium was founded in 1830. This role has never been questioned. Brussels’ location at the commercial and cultural crossroads of Europe made it the natural choice for capital of the new state (home to two main linguistic and cultural communities and now a federated entity), as well as host to the European Union and several of its major institutions. There was thus no need for an appointed commission to choose between several cities, taking into account climate, security, landscape, or other factors. Belgium is a small country and Brussels is the largest and most central city.

the b e l g i a n f e d e r a l c o n t e x t The Constitution (Art. 194) establishes the city of Brussels (one of the nineteen municipalities of the Region of Brussels) as the Belgian capital and the seat of the federal government. Belgium is a federation made up of language Communities and territorial Regions. The country could therefore be constitutionally made up of as many as six constituent units representing three Communities (Flemish, French, and German Communities) and three territorial Regions (Flanders, Wallonia, and Brussels). Both types of federated entities are organized on the basis of four linguistic areas. There is some overlap between Communities and Regions. For example, although both the

Brussels, Belgium


Table 2.1 Belgium: Distribution of main competences between levels of government Federal Agriculture Aid to persons Defence Diplomacy Energy and environment Immigration Justice Religions Security and public order Social security Taxation system Transportation




Agriculture Employment policy Environment Housing Public transportation Supervision of municipalities Taxation system Trade and economy Urban planning and public works

Aid to people Culture Education Health Tourism

Aid to people Culture Education Housing Security and public order Urban planning and public works

Flanders Region and Flemish Community remain constitutionally defined entities, they operate with a common parliament and government. Even though there is a linguistic connection between the Walloons and the Francophones of Brussels, the linguistic identity of the French is not as strong as that shared by the Flemish. Thus the Belgian federation, in practice, has five constituent units: Flanders (Community and Region), Wallonia (Region), Brussels (Region), the French Community, and the German-speaking Community.1 The Brussels Capital Region (bcr – Région de Bruxelles-Capitale, Brussels Hoofdstedelijk Gewest), consisting of nineteen municipalities (communes), has been recognized as a Region of the Belgian federation since 1989, together with Flanders and Wallonia. Unlike the rest of Flanders, which surrounds it, Brussels has a mixed population of Dutch and French speakers, with the latter in the majority. The reluctance of the Francophones to be absorbed into Flanders, coupled with Flemish reluctance to allow Francophone domination of Brussels, has resulted in Brussels being the only officially bilingual region in the country. Since linguistic Communities are organized on the basis of commune populations, the Flemish Community may exercise its powers in the Flanders Region and in Brussels, and the French Community may exercise its powers in the Wallonia Region (excluding the German-speaking communes) and in Brussels. The German-speaking Community also has autonomous status and may exercise its powers in the German-speaking area of eastern Wallonia.2 The powers allocated to the Regions and Communities are not derived from the Constitution but listed in so-called special laws, first introduced in 1970. The rule for the distribution of competences in Belgium may be summarized in one phrase: shared competences but exclusive powers. As shown above, in table 2.1, different tiers of government


Caroline Van Wynesberghe

Table 2.2 Brussels: Size and population compared with Belgium and other federated entities

Area (km²) % of country Population* % of country





161 0.53 1,048,491 9.83

30,528 10,666,866

13,522 44 6,161,600 57.76

16,844 55 3,456,775 32.41

* As of January 2008; see spf Économie – Direction générale Statistique et Information économique – Service Démographie.

share the competences or parts thereof. But each tier is responsible only for its part, which explains why the powers are exclusive. The Brussels agglomeration (also known as “the nineteen communes”) covers an area of 161 square kilometres and constitutes only 0.53% of the country’s land area. However, it is home to 10% of Belgium’s population (see table 2.2). In January 2008, the Brussels communes had 1,048,491 officially registered residents.3 The city also played host to another 30,000 registered asylum seekers, representing 35% of all registered refugee applicants in Belgium.4 Furthermore, given Brussels’ importance to the eu, the city also has a large “shadow” population, which is usually transient. This population is estimated at 80,000 people and includes not only illegal migrants but also interns from the European Commission and Parliament, students, diplomats, and so on.5 Also, the presence of the Aliens Office in the capital makes the city particularly attractive to a large proportion of refugee applicants. This makes the refugee problem more acute in Brussels than elsewhere in Belgium.6 Despite its size, the bcr is the only urban agglomeration not merged into a single municipality. Indeed, the agglomeration has municipalities that are larger than other major Belgian cities. Seen in comparative perspective, the bcr is more than twice as large as Antwerp (located in Flanders), which is also called “the metropolis,” with a population of 472,071 inhabitants (see table 2.3). The largest city in Wallonia, Charleroi with 201,593 people, has only one-fifth as many inhabitants as Brussels. Namur, the capital city of Wallonia, has only 108,000 inhabitants and is smaller than two bcr municipalities with over 100,000 inhabitants. The municipality of Brussels is home to 148,873 inhabitants, and the other largest municipality in terms of population, Schaerbeek, also has over 100,000 inhabitants. They are thus the two largest of the nineteen municipalities of the bcr. Clearly, Brussels’ position as an international city makes it a magnet for diplomats and eu bureaucrats. Moreover, with its two large universities, Brussels probably has a larger international and nonresident student

Brussels, Belgium


Table 2.3 Belgium: Largest cities (census 2008) City


bcr Antwerp Ghent Charleroi Liège

1,048,491 472,071 237,250 201,593 190,102

Source: spf Économie – Direction générale Statistique et Information économique – Service Démographie.

population than other cities. Brussels has 273,693 registered residents who are not Belgian.7 Against a national figure of 8.6%, about 30% of the Brussels population is foreign, with the largest groups in 2006 being from France (42,000 people) and Morocco (41,000 people). As it is forbidden to collect data on the distribution of national linguistic communities, there are no reliable figures on the exact numbers of Frenchand Dutch-speaking people residing in the capital city. French has become the lingua franca in the capital, and more than 90% of the residents say they speak French well or very well.8 This is largely a reflection both of the city’s international status and of its cosmopolitan population, since only 44% of Brussels’ residents have purely regional roots (compared with more than 80% elsewhere in Belgium).9 The population of Brussels is still relatively young compared with other Regions in the country. The youngest age groups (0–4 years as well as 20–39 years) are the most numerous, whereas those between the ages of forty and seventy-five are less well represented within the city’s population.10

governance structure Unlike Berlin or Vienna, where local and federal institutions are merged, Brussels has a two-tier governance structure. It is a city – or more accurately an agglomeration of nineteen municipalities – and it is also a Region covering exactly the same territory. Each municipality has its own elected council, chaired by an appointed mayor (bourgmestre, burgemeester). The Region is governed by an elected parliament and an appointed government, as are the other Belgian federated entities. The Belgian capital, however, does not have exactly the same constitutional status as the two others Regions – Flanders and Wallonia. Brussels is subject to three (potential) limits on its regional autonomy. First, Brussels does not enjoy constitutive autonomy. This means that the Region may not


Caroline Van Wynesberghe

reorganize existing administrative and institutional arrangements without federal concurrence. For example, this makes it impossible for the Region to alter the size of its parliament or to reconfigure the composition or size of its government. Second, the regional parliament legislates ordinances (ordonnance, ordonnantie) instead of decrees (décret, decreet). Ordinances are subject to a broader judicial control than is imposed on Flemish and Walloon decrees. Finally, and more specifically, the federal government has the right to overturn or cancel any Brussels ordinance that prejudices its status or function as the capital and international city. The last arrangement above – regular in terms of limitation of the local autonomy in a federal capital city – leads to a procedure at the level of the “cooperation committee,” which is equally composed of representatives of the federal and Brussels regional governments. These limitations were accepted in 1989 as the price for obtaining regional self-government. The question of local autonomy is highly sensitive, as the Brussels Region was created nine years after the other federated entities. Between 1980 and 1989, Brussels was managed at the regional level by the federal government, with concurrent municipal autonomy. Under this arrangement, the management of the capital city was seen as being co-directed by the two main Communities. Finally, now that Brussels has gained self-rule as a Region, its elected representatives all agree on the importance of maintaining its autonomy. Hence it seems difficult – if not impossible in practice – to imagine closer supervision by the federal government or even a federal planning agency’s involvement in any aspect of day-to-day government, as is the case in Ottawa, for instance. Almost twenty years later, citizens as well as politicians are now pushing for full self-government, or at least constitutive autonomy. The Brussels regional government is composed of a minister-president and four other ministers as well as junior ministers (secrétaire d’état, staatssecretaris). With the exception of the minister-president, linguistic parity between the senior ministers is the rule. Replicating arrangements at the federal level, provisions exist that guarantee the linguistic balance of the government, such as the process of the “alarm bell,” which may be activated in case one Community is threatened by the other. Each member of the regional parliament is part of a linguistic group (seventeen Dutchspeaking seats and seventy-two French-speaking ones). Both linguistic groups have to validate the appointment of the government. This frozen linguistic distribution of seats implies that it is not possible for a political party to introduce bilingual lists. Every candidate has to make a choice between both linguistic regimes, which forces Brussels residents to choose a linguistic membership.11 The Belgian Constitution does not recognize the municipalities as an order of government like the Regions and Communities, nor does it define

Brussels, Belgium


local interests. However, it allows latitude for the municipalities to exercise local interests.12 The Belgian Regions are responsible for the Municipal Law and exercise supervision over municipalities. There is no difference with the capital city, except some restrictions on specific points linked to its functions (see below). Brussels residents elect their representatives at the municipal level every six years, at the regional (and indirectly to the Community parliament) and European levels every five years, and at the federal level every four years. The federal Parliament is made up of two houses. The Belgian Senate is not (yet) a House of States, and Brussels has no representation as a Region. And due to Belgium’s double and overlapping federalism arrangements, as well as existing political cleavages, any attempts at reform are more likely to provide representation to the Communities rather than to the Regions. But the explanation for this situation is probably linked less to Brussels’ status as a federal capital city than to its bilingual status, since the “Community” trend – until recently on the French-speaking side – is stronger than the regionalist one. Members of the Senate are elected on a Community basis. The current Belgian Senate includes different categories of senators: forty are directly elected, twenty-one are drawn from the Community councils (ten from both the Flemish and French Community councils and one from the council of the German-speaking Community), and ten more are appointed by senators from the two previous categories. There are some quotas, such as a requirement for the presence of seven senators (six French-speaking and a single Dutch-speaking one) living in Brussels. Traditionally, however, the Senate functions as a federating chamber and may be seen as a place for the conduct of intergovernmental relations. Brussels, like Washington, dc, is therefore deprived of institutionalized representation in the process of intergovernmental relations. However, given Belgium’s long history of coalition governments, the process of government formation provides political parties an opportunity to ensure that all the Regions are represented, or at least that their largest cities are represented. But there is no formal obligation to appoint a minister from the capital city, even if one will necessarily be responsible for the management of the bilateral agreement between Brussels and the federation (see the section below on “Financing Brussels”). In the House of Representatives, Brussels’ citizens are, for the moment, included in an electoral constituency composed of the capital territory and surrounding communes, the well-known Brussels-Halle-Vilvoorde (or simply bhv) district. But the composition of this district is very controversial for reasons linked to its bilingual status, which allows – although this is far from being the only issue – French-speaking voters from the Flemish suburbs of Brussels to cast votes for candidates on French-speaking political lists in Brussels.13 If the boundaries of the bhv are redrawn, as demanded


Caroline Van Wynesberghe







Federal Senate (every 4 years)


Community commission Joint






Walbonia F

17 F






118 D




Brussels F

or D

Flanders D

Community Parliament (every 5 years) Region Parliament (every 5 years) Voter

* co-optation broken line = election; black line = delegation; D = Dutch-speaking; F = French-speaking; G = German- speaking

Figure 2.1 Belgium: Elections for regional parliaments and the federal Senate

by some Flemish politicians, the specific interests of the capital city’s inhabitants will be more explicitly represented in the Lower House.

roles and responsibilities Brussels exercises the competences alloted to the Regions (see table 2.1), including public works, urban planning, regional heritage protection, public transportation, housing, environment, economy, employment, scientific research, fire departments, and emergency medical aid. Additionally, the competences exercised by the Brussels municipalities include: “aid to people” (health and social aid), culture, education, environment, housing, security and public order, public works, and urbanism. Obviously, some competences are concurrent. This is why some propose redistribution. This point has been raised since the beginning of the decade, and a committee was appointed to discuss the redistribution of responsibilities. Most political parties agree in principle that there is a need to reassign responsibilities so that higher-order competences that require multi-jurisdictional coordination are transferred to the regional level while more local matters are left to the municipalities. However, in practice, it has been impossible to reach an agreement to reform the current distribution.14 A certain degree of inertia is probably responsible for this impasse, but opposition

Brussels, Belgium


comes mainly from municipal representatives, who stand to lose power, influence, and money. Rather exceptionally, the Belgian Regions have no jurisdiction over security, public order, and policing. Indeed, police powers in Belgium are vested with municipalities (i.e., intercommunal police areas) and with the federal government (i.e., federal police). Since the capital city is home to inhabitants belonging to the Flemish and the French Communities, institutional engineers chose to bifurcate the regional government and parliament for the purpose of exercising Community competences. This arrangement allows the Dutch-speaking representatives to participate in debates on matters from the Flemish Community (Vlaamse Gemeenschap) and the French-speaking ones to discuss competences from the French Community (Communauté française). These separate arenas give rise to two commissions dealing with Community competences: the Vlaamse Gemeenschapscommissie (vgc) and the Commission Communautaire française (cocof). The members of the regional parliament from one linguistic group sit in the assembly of the correspondent commission, while the ministers of the same linguistic group constitute the executive body. vgc and cocof competences were similar in the beginning: education, sport, health, and social aid. But because of Belgium’s potential institutional asymmetry, the cocof sphere of activities has been enlarged since the transfer of competences from the Community to Brussels and Wallonia. Moreover, some Community competences exercised in Brussels are simultaneously within the purview of both Communities (“bi-Community” matters). This is the case for public hospitals and public services for social aid. A third Community commission has thus been created: the Joint Community Commission (cocom). As the name indicates, this commission is the joint assembly of the vgc and the cocof, or in other words, the regional parliament. The logic is the same for the executive body, which is made up of all regional ministers! Through these three Community commissions, both the French and Flemish Communities are able to adapt their policies to Brussels’ reality and specific needs.

financing brussels The structure of the economy, together with delegated competencies, offers the best context for understanding the city’s fiscal capacity. Brussels’ economy is heavily reliant on the tertiary sector (see table 2.4), which accounts for 88% of its value added.15 One-fifth of the total value added is produced by public services. This statistic is not surprising since Brussels may be considered an administrative hub. In addition to the Belgian federal government, the main European Union institutions, such as the


Caroline Van Wynesberghe Table 2.4 Brussels and Beligium: Sector distribution of value added (%)

Tertiary sector • private services • public services • business/finance • trade Secondary sector • industry • building Energy and primary sector



87.8 36.7 21.8 16.7 12.6 10.7 8.6 2.1 3.7

74.5 33 21.1 5.8 14.6 22.1 17.2 4.9 3.4

Source: Institut Bruxellois de Statistique et d’Analyse (ibsa) – Cellule statistique, Indicateurs statistiques (Brussels: Ministère de la Région de Bruxelles-Capitale, 2007), 415.

Commission, Council, Economic and Social Committee, Committee of Regions, and to a lesser extent, Parliament, are located in Brussels. The North Atlantic Treaty Organization (nato) also attracts a high number of people working in, or close to, the international organizations, with 21,000 jobs having been directly created by these institutions.16 In addition to employment generated directly within the public sector and international organizations, another 11,000 jobs are directly dependent on the eu (regional representations, journalists, lobbies, diplomats), and more than 20,000 jobs exist in the provision of ancilliary services, including lawyers’ chambers, congress organization, and so forth.17 Although the balance sheet of the 2003 eu budget introduced Belgium as a net contributor, if we pay attention to the economic repercussions of the eu’s operating expenditures, Belgium is becoming a net beneficiary, as 33% of these expenditures (€743 million; US$987 million) in turn profit Brussels.18 In city-states, financial autonomy corresponds greatly to the attribution of competences. The little compensation received by these capital cities is formalized into bilateral agreements that set the amount and the rules governing the disbursement of grants over a stipulated period. Most agreements either provide tied grants (mainly for public security or for mobility and culture) or are grants in lieu of taxes on federal and diplomatic properties. This kind of arrangement implies limited federal control over the city’s budget. To finance the role of Brussels as the capital city, the federal and Brussels regional governments are bound by the terms of a “cooperation agreement.” Negotiations are conducted during meetings of a cooperation committee comprising four federal and four bcr ministers (see the section

Brussels, Belgium


above on “Roles and Responsibilities”). The execution of the agreement and the planned works are under the responsibility the federal Department of Mobility and Transportation but exercised in consultation with the regional authorities. The cooperation committee has been created with equal representation of the federal and regional levels and of French- and Dutch-speaking members. This joint commission has few competences, as members meet only in case of disagreement between the federal government and the Brussels Region or to discuss the bilateral financing agreement. Johanne Poirier notes that this latter function marks the federal government’s oversight of the functioning of capital.19 The cooperation agreement provides (partial or entire) federal funding for public works in Brussels in order to promote its international role and its functions as the capital city. Poirier distinguishes between four types of investments: infrastructure and transportation, monument valorization, planning of public spaces, and infrastructure improvement in underprivileged neighbourhoods.20 The agreement was first signed in 1993 and hasbeen regularly updated since then. The latest amendments (2005) cover three years and allocate €269 million (US$357 million) for 2005, €101 million (US$134 million) for 2006, and finally €124 million (US$164 million) for 2007.21 The amount for 2005 comprises non-engaged credits for previous years (i.e. the money that has not been spent during past years). It is clearly a weakness of the process. Philippe Cattoir notices that credits are engaged with a high delay. Moreover, the federal administration executes the agreement, whereas the regional administration would be the more appropriate overseer. Finally, the projects financed under the cooperation agreement are now quite far from the initial purpose linked with the functions of a capital city. Nowadays, funding under the agreement constitutes more of a compensation for some typical problems of a metropolis.22 The Special Law of 1989 sets out the modalities for financing Regions. Brussels, like Flanders or Wallonia, benefits from federal transfers. The main federal transfer (35% of the regional revenue) corresponds to a share of the income tax (ipp) (see table 2.5). This share is proportional to the regional contribution in the gross federal collections. The principle governing this transfer is “fair territorial return”: a Region receives money proportional to the yield of income taxe levied in its territory. Unlike the German equalization process based on solidarity between the Länder, the Belgian financing system has its roots in the regional location of resources. However, existing federal legislation makes it possible to invoke equalization when the income-tax receipts per capita in a Region are below the federal average. Under such circumstances, the federal government may intervene to cover disparities.23 The Region is then entitled to receive a sum (the so-called National Solidarity Intervention, or ins) proportional to the difference from the average. Actually, it is more a matter of solidarity


Caroline Van Wynesberghe Table 2.5 Brussels: Revenue, 2008 Revenue sources Regional taxes • succession fees • registration fees (on sales) • other regional taxes Autonomous taxes Income tax (ipp) Agglomeration Various Total revenue (€)*

Share (%) 49.1 13.7 22.2 13.2 4.26 35.67 5.78 5.13 2,437,961,000

* 1 Euro = US$1.35 Source: Parlement de la Région de Bruxelles-Capitale, Les échos du Parlement bruxellois, no. 3, Session 2007–08, February 2008, 1.

between Regions than a true equalization process because of the “fair territorial return” principle that conducts the financing process. Since 1997 Brussels as well as Wallonia have been beneficiaries of the ins. It is important to note here, although discussed later as an emerging issue, that eu civil servants and diplomats do not pay any income tax or local taxes. This exemption constitutes a loss of earnings for which Brussels is not compensated in any way. This issue is a politically sensitive one and represents somewhat of a paradox. It remains a live issue as Brussels considers how to balance its loss of revenue with the desire to remain an attractive destination for workers who (for tax purposes) are nonresidents. Brussels attempts to produce viable plans for taxing nonresidents, particularly the commuter population from the other Regions, have met with strong opposition from Flanders. The Flemish minister-president recently suggested totally “regionalizing” this tax. Such a change would mean a deep-rooted residency base for the collection, putting a larger burden on Brussels, as Brussels is penalized by commuters working in Brussels but paying income taxes in their places of residence outside the bcr. Table 2.5 lists the main financing sources for Brussels. The largest share comes from own revenue, mainly derived from regional taxes (49%). Brussels levies taxes on gambling, entertainment machines, opening bars and cafés (reduced in 2008), succession, property (précompte immobilier, onroerende voorheffing), donations, vehicle registration and licensing, “eurovignettes” (for trucks), radio and television (reduced in 2002), and registration (on sales). Before the creation of the Brussels Capital Region, the nineteen communes were managed through the institution of the agglomeration. This

Brussels, Belgium


institution no longer has any administrative functions but exists solely as a receiver of additional taxes. The amount is immediately transferred to the Region, which now deals with agglomeration matters. However, agglomeration taxes still correspond to almost 6% of the total regional revenue. The significant amount of money collected through the agglomeration makes it easier to understand why party officials refuse to abolish an institution that no longer serves any function. Under the label “various” (5%) in table 2.5, there are different items, including the capacity to draw on the federal budget to finance incentives to return the unemployed to work (1.7%).24 There are also payments in lieu of taxes (mainmorte) (1.1%). The federal government compensates Brussels for up to 72% of lost revenue from nontaxation of federal properties. Another federal transfer covers regional expenses in relation to transferred competences from the federation (1.4%). The bcr also benefits from other resources not included in the budget. Notably, the municipality of Brussels (not the Region) enjoys a subvention covering specific expenses, including for security and cleaning, linked with its status as the capital city. The bcr, like Flanders and Wallonia, also enjoys borrowing powers, but loan demands have to be submitted within a strict framework that includes information and consultation steps. Today, the regional debt mainly takes the form of loans.25 Finally, in conformity with the Lombard Agreement of April 2001, the federation transfers about €25 million (US$33 million) to the Region, which it is obliged to disburse among the nineteen municipalities. The Region, therefore, does not benefit from this subvention, as it is immediately divided among the municipalities in accordance with the Lombard conditions, which are intended to encourage Flemish representation at the local executive level through the provision of extra money. Since the Lambermont Agreement of January 2001 and the reform of regional financing, Brussels’ budget has been highly dependent on tax revenue (about 50% of all resources – twice as much as before 2001). This means that its main source of revenue is subject to the fluctuations of the business cycle and is dependent largely on economic circumstances. This situation introduces a high degree of uncertainty. Brussels’ dependence on property taxes (succession and registration fees, précompte immobilier) increased from 32% of its total regional budget in 2002 to 38% in 2007.26 Paul Zimmer points out a paradox in relation to this new dependence: although Brussels is highly reliant on property-tax revenue (broadly speaking, the more expensive are the transactions, the more the Region benefits from property taxes), high property values are a source of social weakening or even of exclusion, as they immediately increase rents.27 Moreover, a Region may attempt to reduce its own tax rates to attract new households or companies. Revenue from this category will automatically decrease, but


Caroline Van Wynesberghe

this may conversely imply an increase in other categories. For instance, reducing the registration fees on house sales would probably cause an increase in revenue. But the Region is not protected from competition by other Regions, which may follow the same logic. That is why a high number of companies choose to locate in the immediate periphery, where they can benefit from proximity to the facilities and infrastructure of Brussels but pay lower taxes. The supervision of municipalities invariably implies costs for local support, to which Brussels dedicated €444,323,000 (US$590,482,860) in 2008, or 15% of its total budget (see table 2.6). These costs increased by 5% compared with the 2007 budget. With its central position and as the major city in the country, Brussels suffers from typical urban ills. Employment mediation is another significant cost, at €239,163,000 (US$317,835,566), or 8.3%. This figure is logical if we consider the high unemployment rate, which may be explained by various factors: (1) more than 50% of the jobs in Brussels are filled by people living outside the bcr, (2) the unemployed may have a poor command of Dutch and English, which are needed to find a job, (3) they may lack professional qualifications and/or experience, and (4) they may suffer racial discrimination.28 Support for the unemployed is therefore one of the first missions of the Brussels employment office. The cost for housing – €125,486,000 (US$166,764,565), or 4.3% – reflects a response to the housing crisis (i.e., high rents and scarce social housing). The double federation and its asymmetrical organization have a number of direct consequences for Belgium’s fiscal organization. Both the French and the Flemish Communities are present in the Brussels Region, but the inhabitants of Brussels are not required to choose a Community identity. The Communities, therefore, do not know who their own citizens are. The total population of the Brussels Region is known but not the number of members of each of the Communities. Thus, in Brussels, taxes are regarded as coming from each Community in proportion to its approximate weight: 20% from Dutch speakers and 80% from French speakers. Powers of taxation are transferred to territorial Regions rather than to linguistic Communities precisely to avoid the problems created by the dual linguistic make-up of Brussels.29 Community commissions may not levy taxes. They are totally dependent on transfers from the Region to meet operating needs. The mechanism is more complex than a simple subvention. They receive a drawing right on the reserve provided in the regional budget: €270,113,000 (US$358,966,555), almost 10% of the total. When a Community commission exercises its right, the other automatically receives a counterpart. Due to the imbalance between French- and Dutch-speaking people in Brussels, a distribution key has been formulated: 80% to the largest Community commission (French) and 20% to the Flemish.30

Brussels, Belgium


Table 2.6 Brussels: Expenses, 2008 Expenses Public transportation Municipalities support Transfer to community commissions Employment mediation Housing Human and material resources Waste Roads Fire services and emergency medical aid Parliament and government Canal and port Rational energy use Mobility promotion Total expenses (€)*

Share (%)

Evolution (2007–08)

20.00 15.50 9.40 8.30 4.30 4.00 3.80 3.20 2.70 2.00