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Tuesday, 23 October 1956


Mr CLAREY (Bendigo) .- This bill contains two provisions to which I shall direct attention. The first provision, which is found in clause 4, proposes that a sum of £173,000,000 shall be made available for financial assistance to the various States. The second provision proposes that an amount of £1,050,000 shall be made available to Victoria as special assistance, so the total payment will be £174,050,000.

Before 1 discuss the matters that I desire specifically to raise, I shall point out one or two facts in connexion with the amount that is to be granted to the States under the provisions of this bill. The amount due to the States in accordance with the formula laid down in the States Grants (Tax Reimbursement) Act is £153,600,000. An amount of £20,450,000, which includes the special grant to Victoria, is added to that sum.

During the last financial year, £157,000,000 was made available. That amount consisted of £141,652,000 under the formula, and an additional amount of £15,348,000. The additional amount under this legislation is £19,400,000. An extra amount of £1,050,000 is granted to Victoria, apparently because of difficulties that are being experienced in the dried vine fruits industry and also because of an adverse position that arises in that State as a consequence of the original formula laid down in the 1946-48 act.

I think, it is advisable at this stage to point out that the question of financial assistance to the States has proved to be one of extreme difficulty from the time that federation was first mooted. In the conventions which preceded the adoption of the Constitution and the creation of the Commonwealth of Australia, the subject was thoroughly discussed, and delegates found difficulty in reaching agreement. Eventually, the Constitution was so drafted to provide that, for the first ten years of federation, 75 per cent, of customs revenue should be made available to finance State activities. When one takes into consideration that at that stage of Australia's development the great bulk of money for the financing of the enterprises of the States came from customs revenue and that customs, by the Constitution, was transferred to the Commonwealth, one can understand the apprehension felt by the States about the source of their revenues.

After the constitutional provision expired in 1911, the States were financed by a per capita grant of 25s., and from time to time since then, various Commonwealth parliaments and governments have endeavoured to find a method whereby financial assistance to the States could be made on an equitable basis, in order to give the States a sufficient share of Commonwealth revenue to enable them properly to carry out the functions entrusted to them.

The present system of financial assistance is prescribed by a formula in the States Grants (Tax Reimbursement) Act 1946- 1948. The introduction of uniform taxation took away from the States the taxing powers that gave them the great bulk of their revenue and left them with only minor taxing powers. As a consequence, and also as a result of discussions which took place, the tax reimbursement legislation was passed to provide a formula according to which the amounts to be granted to the States each year were to be determined. The act provided that, in the first two years of its operation, the sum of £40,000,000 should be apportioned among the States. It provided that, for the year 1949, and thereafter for a period of ten years, the sum of £45,000,000 was to be set aside and adjusted year by year, in accordance with the population of the States and the average wage paid to employees in each State. That system has operated since 1946. We have now reached a stage at which, in the interests of Australia, we must ask ourselves whether this is a satisfactory method of providing the financial assistance which the States require. I venture to suggest that, in view of the many events that have occurred since 1946, the resentment which is felt by the State Premiers concerning the assistance that is given, and the wrangling that takes place at the Premiers' conferences on this question, most people will agree that the time has arrived for the system to be reviewed with a view to putting a new system in its place.

The Opposition will support this bill, but at the same time, we on this side of the chamber make it clear that we regard the amounts to be made available to the States as totally inadequate and not calculated to keep them solvent. From information which has been made available by State authorities, it is clear that unless a new method of providing financial assistance for the States is devised, some States will proceed rapidly towards bankruptcy. From the taxation stand-point, the Commonwealth is master of the finances of Australia and, for that reason, master of the finances available to the States. The important sources of revenue - income tax and customs and excise - are within the control of the Commonwealth. By means of income tax and the imposition of customs duty and excise, the Commonwealth takes the cream of the funds available for governmental purposes. The States are left with the minor taxation fields, such as stamp duty, registration of motor vehicles, entertainment tax and land tax, which do not yield sufficient revenue to enable them to carry on all of their activities.

The serious position into which the States are drifting is indicated, I think, by statements that were made at the conference of Commonwealth and State Ministers in June last when the whole question of financial assistance was discussed. Five of the State Premiers indicated that their States would have substantial deficits for the financial year which ended on 30th June last, the total being likely to amount to the enormous sum of £15,950,000. They indicated clearly to the Treasurer (Sir Arthur Fadden) and the other representatives of the Commonwealth that unless the amount of assistance was increased substantially in 1956- 57, the deficits of the States could reach the alarming total of £27,550,000. I point out that the amounts that are to be made available will not, by any means, be sufficient to place the States on a sound financial basis during the current financial year. The figures which I am about to give will indicate to honorable members the degree of assistance that the States are to receive this year.

New South Wales will receive, including the special financial assistance granted under this bill. £4.260.000 more than it received last year. Victoria with its additional special grant of £1,050,000, will receive £6,342.000 more; Queensland will receive £2,737.000 more. South Australia, £1,677.000 more. Western Australia. £1,327,000 more, and Tasmania. £707.000 more. I should indicate that South Australia and Western Australia and Tasmania also will receive assistance from the Commonwealth Grants Commission, so that the total amount that they will receive by way of financial assistance for their activities will be more than the figures I have just given. The startling fact emerges, on the figures given by the Premier of New South Wales, that that State is likely to face a deficit of £9,250,000 this year; yet it is to receive only £4,260,000 more than it received last year. Although the Premier of Victoria has asserted that his State will have a deficit of £8,300,000, it is to receive only £6,342,000 more. Although the Premier of South Australia is of the opinion that his State will have a deficit of £5,000,000, it is to receive only £1,677,000 more.

The question that arises is what causes these State difficulties, and why do the States need greater assistance? It seems to me that the present Commonwealth Government has not taken into consideration the very great changes which have occurred in Australia during the last ten or eleven years. Among the reasons advanced by the States for their difficulties are the increased debt charges with which all of the States are faced. For instance, New South Wales last year had an extra debt burden, in interest and sinking fund charges, of £2,250,000 over the amounts paid previously. It is expected that there will be a further increase in 1956-57 of the same amount. A similar position exists in Victoria. Victoria claims that it has to bear an additional burden of £2,500,000. It complains bitterly that the interest rates have been raised from 34 per cent to 5 per cent. More bitterly still does it complain of the fact that, although the people of Australia have been taxed in order to provide capital funds to enable State developmental work to be done, when the States receive that money raised in taxes by the Commonwealth without any difficulty whatsoever, they are charged interest and have to meet sinking fund payments, which result in their having to impose further taxes upon their people and add to the alarming interest burden which the Australian people are being called upon to carry.

Then there is the matter of expansion of State services required as the result of Commonwealth policy and legislation. I select just one matter which is of great importance and has been the subject of discussion in this House on more than one occasion, namely, immigration. The Government's policy certainly results in people being brought to Australia, but when they arrive the problem of meeting all their social and other requirements falls upon the States, in the building and maintenance of hospitals, schools, enlargement of educational staff, and the one hundred and one other things associated with the education of immigrants, as well as of native-born Australians. Those are adding enormously to the burdens of State exchequers. In Victoria, additional State school teachers are costing over £1,000,000 a year. One can readily see that, as population increases, the burden upon the States of providing schools and obtaining, training and paying teachers, becomes ever-increasing.

In addition, there is the problem of transport, which comes solely within the province of the States. Every State has suffered severe deficits from the operation of its railways. Although the States have imposed higher fares and freights, they are unable to make the railways pay. In New South Wales alone it is estimated that there will be a deficit on the operations of the railways of over £6,000,000 this year. A similar position obtains in Victoria. Nevertheless, the railways have to be operated, and they are providing transport for immigrants as well as old Australians. In some States the proportion of immigrants to the total population is higher than in others. For instance, 32 per cent, of the immigrants to Australia are settling in Victoria. The State has to bear the burden of providing all the additional social services that are required. In addition, the States have to face - the problem of continuously rising costs, very often as the result of action taken by the Commonwealth. Because of rising costs, the States have to impose further burdens upon their people in the form of electricity and water charges, bus and tram fares, and the like.

During the last ten years many alterations in wages and working conditions have had a severe effect upon State finances. One can point, for instance, to the effect of granting long service leave. That imposed a new charge upon the States and upon enterprise generally during the last ten or eleven years, but although the formula takes account of average wages, it does not take account of such changes in conditions of employment which cost a good deal of money. A similar position applies in respect of annual leave. At the time legislation granting this concession was passed in 1946 and 1948, there was provision for one week's annual leave; now two weeks are provided. Sick leave entitlements have also been increased. Those elements are not shown in the figures for average wages which are published in each State. Increased superannuation payments, higher interest rates, and quickened tempo of development, indicate that the necessity for a review of the basis upon which financial assistance is granted to the States is certainly due, if not overdue.

The other matter which I desire to raise is the position of the States in regard to the money which is raised in taxes by the Commonwealth and is given to the States for developmental work. I think the budget which we debated a few weeks ago showed that in this connexion it is proposed to raise in taxes about £100,000,000. When this money is raised and paid to the States for this purpose, the States have to enter into bonds and pay the current rate of interest, whatever it may be - I think it is 5 per cent, at present - and over a period of years they repay that money, plus interest, fo the Commonwealth, although it is raised in taxes and the Commonwealth has not to go upon the loan market either here or abroad to obtain it. After the Commonwealth has taxed the people to obtain this money for capital works, the States in turn have to tax their people in order to find the necessary money to meet interest and sinking fund charges for 50 or 60 years. I suggest that in such circumstances the charge made for the money is not interest but usury in the worst sense of the term, because the people, having made the money available in current revenue, find that they are further taxed by the States and have to pay interest upon this money. I suggest that there should be a departure from the principles that have been followed by the Government so far. No interest should be charged upon moneys loaned by the Commonwealth to the States. I think it fight and proper that the States should pay the money back to the Commonwealth, but not for the purpose of payment into the Consolidated Revenue Fund. The money should be loaned to the States on the understanding that 3 per cent., 4 per cent., or 5 per cent, will be repaid to the Commonwealth annually, and that the money so repaid will be used to create a revolving fund from which the States could be assisted in the future. In that way, money that we have been lending to the States from the proceeds of taxation levied during the last five or six years would, in the course of time, create a revolving fund and the States could be certain that money would be available to them for developmental purposes. The establishment of such a revolving fund would enable us to overcome many of the present difficulties of raising money for developmental works, would give to the States a guarantee that moneys would "be available for that purpose and, I think, would relieve considerably the pressure that is being imposed on financial institutions now.

Victoria has to pay, this year, an additional £2,500,000 in interest charges. One of the matters to which we, as a Parliament, must give consideration is the enormous burden that the payment of interest charges is imposing on the Australian people. I read recently that no less than 10 per cent, of the revenue of the States and the Commonwealth is being used to pay interest charges. With each new loan, the interest bill increases. Interest is being paid overseas and in Australia, and high interest rates continue. So, the community must be taxed at a high rate.


Mr Drummond - Has the honorable member worked out interest charges as a percentage of the national income?


Mr CLAREY - I have read that, at present, about 10 per cent, of the receipts of the Commonwealth are being used to pay interest charges. On every occasion when we cause either the States or the Commonwealth to pay more in interest charges, we add to the burden of taxation and make more difficult the conduct of the financial affairs of both the States and the Commonwealth.

Because there is still a great deal to be done in the way of water conservation, the construction, repair and maintenance of road's and railways, and the general development of the country, it is probable that we shall have to borrow more heavily in the future than we have borrowed in the past. As our population increases, the necessity for more intense development will become apparent. Therefore, from the standpoint of the community, and also from the standpoint of the States, which will be required to do the greater part of the developmental work, it is essential that a policy of low interest rates be applied. Otherwise, we shall be overwhelmed by interest payments.

This measure is most unsatisfactory to the States. It will not make available to them the money that they should receive. I have no doubt that the Treasurer (Sir Arthur Fadden) considered that he was being very generous when he increased the total grant to the States from £157,000,000 to £174,000,000. But the States are faced with budget deficits. They are encountering the greatest difficulty in keeping their roads in order. They are finding it almost impossible to construct new roads and to strengthen and repair existing roads. A great deal of their revenue is being used for patching up and repairing schools. They are finding it difficult to make the necessary alterations to their railway systems and to provide the hospital services that are required. The extra money that has been granted to them is not sufficient to enable them to discharge their obligations.

The Opposition believes that the Government should have given greater consideration to the problems with which the States are faced. If the States have budget deficits, as has been suggested, to the extent of £8,300,000 in Victoria and £9,250,000 in New South Wales, that will add to the debt of the community, because the only way in which the States will be able to get out of their difficulties will be by funding their debts. In that event, sooner or later they will be forced into a policy of retrenchment, which will have grave effects on the economic life of Australia. From every stand-point it is desirable to give more generous assistance to the States. If we do not do so, the economy of Australia will be adversely affected. It is obvious that if the States cannot balance their budgets, that will be a bad thing for the country. It will have an effect upon every section of the community. Therefore, in the interest of Australia, we must see to it that the States have an opportunity to balance their budgets.


Mr Turnbull - Hand them back their taxing powers.


Mr CLAREY - The honorable member for Mallee (Mr. Turnbull) mentions taxes. I do not desire to make lengthy quotations from reports of the proceedings of

Premiers conferences, because I think that would bore honorable members. However, if the honorable member for Mallee desires to have full information about the extent to which the States have increased taxes and made retrenchments, as well as about their difficulties in relation to roads, hospitals and schools, I suggest that he read the report of the last Premiers Conference. If he does so, he will be as wise a man as 1 am.


Mr Turnbull - That was not my point. That is just a red herring.


Mr CLAREY - In conclusion, let me summarize the Opposition's suggestions. We think it is necessary to review the existing legislation in connexion with financial assistance to the States. The legislation dates from 1946, and I suppose that during the last ten years there has been a bigger expansion of the activities of the State governments than at any other time since federation. We are living in a rapidly changing world, and the States now are required to undertake tasks in fields which, many years ago, would have been regarded as fields in which the States should not interfere. I believe that the tax reimbursement formula is out of date and that it should be brought up to date. There should be a much more generous approach to the problems of the States, and for that purpose a review of the current legislation is necessary. 1 have referred to the establishment of a revolving fund. I believe that if such a fund were established, it would bring about conditions of stability in the field of financial assistance to the States and the problems of obtaining the money necessary for capital development would not press so hard upon the Commonwealth as they have done during the last five or six years. The States will provide their own money in this revolving fund, and as a consequence will be able to look forward with some assurance to a ready availability of money for developmental works.

Those are the Opposition's views. We believe that if the Government does as we su ggest it will be doing something statesmanlike for Australia and will help greatly to. overcome the difficulties of the States.







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