The unanimous High Court decision in the Williams (No 2) school chaplains case offers the Abbott government a historic opportunity to restore federalism.
The court found that federal legislation passed in 2012 authorising funding agreements for the national school chaplaincy program was invalid and that the provision of a chaplain or welfare worker at a school was outside the legislative and executive powers of the commonwealth.
Federalism is enshrined in the Constitution. There's no doubt that the framers of the Constitution intended for Australia to remain a strong federation.
The commonwealth was given only a limited number of enunciated legislative powers. The intention behind the demarcation of power was to limit the size and reach of the commonwealth, retaining strong states.
Yet despite this, the trend in Australia has been towards an ever stronger federal government.
Over the past 100 years, High Court decisions such as the Engineers case, the Tasmanian Dams case and the Work Choices case have provided an expansive reading of the commonwealth powers enabling federal governments to trample into areas traditionally of state concern.
Blurring the lines of responsibility and accountability has led to the blame game of modern politics.
Duplication of commonwealth and state activities has added to the overall burden of government. For example, the federal Health Department has 4500 public servants without running a single hospital.
Likewise, the federal Education Department has 3500 public servants without running a single school.
The Abbott government is acutely aware of the problem, having committed to undertaking a white paper on the federation.
The government's first budget showed promise in handing back responsibility to the states, with Treasurer Joe Hockey stating: "Over the next 18 months, we will work with state and territory governments to strengthen the federation and ensure that the overlap between the layers of government is reduced or removed."
The government may not have a choice. The High Court's decision in Williams (No 2) is significant, not because it invalidates the national school chaplaincy program (Ron Williams' primary motivation for bringing the challenge) but because it is the third in a series of recent High Court decisions that counters the long-term trend; limiting commonwealth power and reasserting the role of the states.
First is the 2009 decision of Pape. Lawyer Bryan Pape challenged the Rudd government's global financial crisis "stimulus package" of cash handouts between $250 and $900.
While the majority of the High Court upheld the validity of the payments, the court unanimously found that the executive did not have a substantive spending power - contrary to the conventional wisdom.
Any power to spend taxpayers' money must be found expressly in the Constitution, or in statutes made under it by the parliament. Pape put many areas of commonwealth expenditure into doubt, and this was the basis for the two Williams decisions that followed.
The chaplaincy program, introduced in 2007, was funded in accordance with government guidelines rather than legislation.
In December 2010 Williams brought his first challenge, opposing the payment of money from the commonwealth to Scripture Union Queensland on various grounds.
In 2012, the High Court in Williams (No 1) found that the payments were unconstitutional because they were not supported by the executive power of the commonwealth.
In response, the Gillard government rushed through unprecedented and undemocratic legislation that stripped the power of the parliament to oversee government spending in 415 different, often vaguely described, areas.
The key question for the High Court in Williams (No 2) was whether the commonwealth parliament had the power to pass this legislation. The High Court found that the program was outside the legislative and executive purview of the commonwealth.
More challenges to other federal government programs could succeed for the same reasons. Because the ruling casts doubt on many areas of commonwealth expenditure, fixing federalism is an urgent constitutional necessity.
However, the policy case is also strong. The case rests on two main principles: subsidiarity and competition.
Under subsidiarity principle, policy and service delivery should be decentralised to the level of government closest to the affected people. State governments are in a much better position to formulate policy and deliver services specifically tailored to local needs and preferences, rather than the one-size-fits-all approach of Canberra.
Under the competition principle, multiple sovereign governments setting different policies will breed innovation and choice.
The bar lifts over time, resulting in better outcomes for all jurisdictions, rather than centralised mediocrity.
The Abbott government must seize this rare opportunity to restore the principles of federalism in Australia. Already, the government has made some welcome steps in this direction, with the establishment of a one-stop shop for environmental approvals, avoiding the costly situation in the past where major projects required permission from both state and federal governments to proceed.
But there is scope to go much further. The commonwealth should cease meddling in policy areas that were clearly intended to be the responsibility of the states, like health and education. The wasteful duplication of government departments and agencies should end. States should be given the capacity to raise enough revenue on their own to cover the cost of the services they deliver.
If the Abbott government doesn't act quickly to revive federalism, the High Court might force it to do so