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Tuesday, 15 March 1927

Senator Sir HENRY BARWELL (SOUTH AUSTRALIA) - I do not know about that. I am inclined to think that, if the problem in New South Wales is more, deeply probed, it will be found that the position is not so bad as is now thought.

At a later stage Sir Henry Barwell said -

That (an adjournment) would mean that nothing would be done during the present financial year unless the Commonwealth takes the matter into its own hands and says, " Notwithstanding what the States say, wo will do it." I would rather come to an arrangement with the Commonwealth Government. I am prepared to accept, on behalf of my State, tlie proposal put forward by the Prime Minister, and my Government will meet the position by a total readjustment of the incidence of taxation in our State.

I venture to say that had that spirit been more in evidence during subsequent negotiations this vexed problem would long since have been solved.

Let us turn now to the utterances of another well-known gentleman who, both as a State and a Commonwealth Treasurer, has taken a leading part in negotiations concerning this issue. I refer to the Right Honorable W. A. Watt. At the Premiers' Conference of 1919, Mr. Watt said, as set out at page 11 of the official report -

.   . . Since the Surplus Revenue Act 1010 the Commonwealth is saddled with an increasing liability for interest on war loan, repatriation loan, war pensions, and invalid and old-age pensions..... For these reasons I propose to ask that the Commonwealth Parliament shall be asked to diminish the payments progressively by 2s. 6d. per head of the population in each year until the total payment to the States is 10s. per capita. That payment will continue definitely for five years, subject to alteration at the end of that period as Parliament determines.

Sooner or later the States may have to do without any help whatever from the Commonwealth.

On page 62 the right honorable gentleman is reported to have said -

As to the per capita arrangement, I say without the slightest hesitation that it is not at all likely that the States will have as advantageous an offer made to them later on.

It has been urged that the present Government is unduly rushing this matter through Parliament. The long list of quotations which I have read, shows that the negotiations for a settlement of the financial relations between the Commonwealth and the States, go back to 1910. Prom that year onward, practically every Federal Government has, at one time or another, raised it in conference with the States. How, then, can it be contended that the Government is acting precipitately, or that the States have not had an opportunity to come to an agreement with the Commonwealth? The fact is that there has been no agreement. It is also said that we have no mandate from the people to introduce this legislation. I have here a quotation from the policy speech of the Prime Minister at the last election. It was published in full in the Melbourne Argus, of the 6th October, and very nearly in full by every leading newspaper in the Commonwealth. In that speech, Mr. Bruce said -

It is essential that we should consider whether the Constitution meets the needs of to-day in the light of the developments which have taken place. The ideal which the framers of tlie Constitution had before them was to weld Australia into one great nation, while preserving to the States their rights of selfgovernment. The greatest problem which had to be faced, in the realization of this ideal, wat the question of Commonwealth and State finance.

After referring to the provision in the Constitution relating to the return of three-fourths of the Customs and excise revenue, the passing of the bill providing for the per capita payments, and to the' Commonwealth's obligations, the Prime Minister said -

The result of these fundamental changes is that tlie Commonwealth to-day is raising revenues in order to provide tho per capita payments to the States. This is contrary to the basic principle of national finance, that every Government shall have the responsibility of raising the revenue which it is expending. The development of Australia as a nation, and the necessity of dealing with many great questions on a national basis, such as that of road transport, also renders necessary, a reexamination of the financial relations between tlie Commonwealth and tlie States. . . . The Government proposes, in the near future, to invite the States to attend a conference for the purpose of reconsidering the financial relations between the Commonwealth and the States, and dealing with the disabilities suffered by certain States, with a view to laying .down a basis for our national development, in which the Commonwealth and the States will cooperate. At this conference an opportunity will be afforded to consider all questions affecting the relations of the Commonwealth and the States.

It believes that the National Parliament of tlie Commonwealth, representative of tho whole of the people, is the proper body to consider these fundamental questions, and proposes to invite it to undertake this great task.

Senator Needham - There is not one word in that extract about the abolition of the per capita payments.

Senator PEARCE - Indeed, there is, as the honorable senator will see if ho reads it for himself. The Prime Minister definitely referred to the financial relations between the Commonwealth and the States, and specifically mentioned the per capita payments.

Senator Sir Henry Barwell - He did not contemplate the abolition of the payments.

Senator PEARCE - The Prime Minister contemplated that there would be a conference with the States to arrive at an agreement on a different basis. I spoke for the Government during the election campaign in Western Australia, and 1 have here a report of my speech io opening the campaign, in that State, as published in the West Australian, of 9th October, 192G. I said - 7 pass now to an outline - and it can be only an outline - of some of the proposals in th§ policy for the future. The financial relations existing 'between the Commonwealth mid tlie States arc becoming extremely intricate and involved. The raising by the Common wealth of a greater amount of taxation than is required foi- its own purposes, and handing back to the States a portion of the money so raised, in the shape of grants for specific purposes, the payment of interest by the States to the Commonwealth on account of .moneys borrowed by the Commonwealth for the States, tlie per capita payments, and the special grants, all need to come under review in order that a satisfactory and less involved relationship may exist in future. It is proposed, at an early date, to convene a conference of the Federal and State Governments, to deal with these matters.

That conference was held, and the States were invited to consider the Government's proposals. Honorable senators know what they were. They have been discussed in the Senate many a time. What was the attitude of the States? They said, in effect, " We will not consider these proposals. We claim that we have a moral right to share in the Customs and excise revenue." An examination of the position will show that the attitude of the States was not ' a reasonable one. I have here some figures showing that the commitments of the Commonwealth for invalid and old-age pensions, interest on war debt, maternity allowances, and the ordinary governmental activities, total over £50,000,000. Wo political party, nor, as far as I know, no politician in the federal arena, has ever proposed that those commitments should he interfered with; and, since there is no escape from those obligations, it is clear that the revenue from Customs and excise duties is not sufficient to meet them by many millions sterling. In the circumstances, what is the use of talking about the moral right of the States to a portion of the Customs and excise revenue? The financial obligations of the Commonwealth are clearly set out in the following table : -


In the face of those figures, how can any person talk about the States having a moral right to Customs revenue? There is no Customs revenue available. Moreover, the Commonwealth Parliament itself - not the present Parliament alone, but previous Parliaments as well - has long recognized that tho per capita distribution is not equitable and does pot meet the position. That is shown, not by the acts of the Government, but by acts that- have been, passed by both Houses of the Parliament. Owing to the special grant that has been made to Western Australia, and the arrangement by which every State contributes towards it, the per capita payment works out at £1 4s. lOd. per head of population in the case of every State except Western Australia, in which it is £1 5s. per head. In addition, there is a special grant to Western Australia and Tasmania, which represents £1 3s. 7d. per head of the population in the case of the former and £1 14s. 5d. per head of population in the case of the latter. Then there is the Federal-aid roads grant which works out as follows : -

New South Wales -4s. 9d. per head of population -

New South Wales is not yet taking the grant; but it is available.

Victoria - 4s. 2d. per head of population.

Queensland - 8s. 7d. per head of population.

South Australia - 8s.1d. per head of population.

Western Australia - £10s.1d. per head of population.

Tasmania - 9s.1d. per head of population.

That is not a per capita distribution.

The grant to the States for the provision of wire netting is as follows: -

New South Wales -1s.1d. per head of population.

Victoria - 6d. per head of population.

Queensland - 2s.9d. per head of population.

South Australia -1s. 9d. per head of . population.

Western Australia - 5s. 4d. per head of population.

Tasmania - 7d. per head of population.

The total grants to the States from the Commonwealth are as follow: -

New South Wales- £3,592,424 = £1 10s. 8d. per head of population.

Victoria- £2,548,585 = £1 9s.6d. per head of population.

Queensland - £1,592,936 = £1 18s. 2d. per head of (population.

South Australia - £978,058 = £114s. 8d. per head of population.

Western Australia- £1,412,659 = £3 14s.0d. per head of population.

Tasmania - £758,157 =£38s.11d. per head of population.

The average for the Commonwealth is £115s.8d. per head of population. It will be seen that the Commonwealth Parliament has deliberately, after consideration, broken away from the idea of a per capita distribution of the surplus revenue. It has recognized that it is its duty to assist in the development of the weaker States, and by its legislation has given a varying grant to the States.

It has been said that in this matter the Government is doing something that is not approved by the people. It is very easy for persons to assume that they can speak the mind of all the people of Australia; it is not always so easy to furnish proof of that capacity. There have been some opportunities of testing this question in an informal way. I notice, for instance, the statement that the organizations which support the Government are in every case opposed to the attitude which it has adopted on this question. As a side-light on that assertion,I may tell the Senate that last September the annual conference of the National Federation of Victoria was held in this city. Mr. Bruce being absent from Australia, I was asked by the conference to make one of the opening speeches as the representative of the Commonwealth Government. I did so. Whilst at the meeting I was told that the honorable Mr. Eggleston, acting for the Treasurer of Victoria (Sir Alexander Peacock), was to speak on the question of the per capita payment on the following day. Notices of motion had been sent in by various branches disapproving of the proposal of the Commonwealth Government to terminate the per capita payment. When I responded to the vote of thanks, I suggested that it might be as well to hear also the views which the Commonwealth Government held upon the matter. To my dismay, about half an hour before the conference met on the following day I received a note from the secretary inviting me to attend and place before the meeting the views of the Commonwealth Government. I attended under the great disadvantage of not having had an opportunity to prepare a speech. I have in my hand the report of the conference. This body of men had had only the press reports to guide them as to what the Commonwealth Government proposed to do. To illustrate the state of mind in which the dele- gates met, I shall read to the Senate motions that were sent in by different branches. The Wendouree branch gave notice that it would move the following motion : -

That inthe opinion of this conference the per capita payments, instead of being discontinued, should be doubled, and . that the Commonwealth should leave the States to attend to their own roads.

The Daylesford branch sent along the following notice of motion: -

That the question of the abolition of the per capita grant to the States be submitted to a referendum of the people.

A further motion by the Wendouree branch read as follows : -

That the action of the Commonwealth in abolishing the per capita payments on the pretext that the taxation should not be imposed by one authority and spent by another, and at the same time imposing a petrol tax to provide money to be spent by the States on roads, is illogical, and a contravention in policy, that it will only result in overlapping and wasteful expenditure, and increase in the burden of taxation, and that no real benefit will result.

Tlie report continues: -

At the invitation of tlie conference, Senator the Right Honorable G. F. Pearce and the Honorable F. W. Eggleston delivered addresses explaining tlie views of the Federal and State Governments respectively, after which the above motions were debated.

The Wendouree branch amended its motion (a) to read - That this conference proposes that the per capita payments should not be discontinued.

That motion was rejected by, I am informed, a large majority. A further amendment was then moved, reading: -

That, in the opinion of this conference, there should be full consultation between Federal and State Governments before any action is taken with respect to the existing per capita payments.

That was carried, and the others were withdrawn. That is exactly what the Commonwealth Government is doing.

Senator GREENE (NEW SOUTH WALES) - Not quite.

Senator PEARCE - We are inviting the States to discuss this question fully.

Senator GREENE (NEW SOUTH WALES) - After the per capita payments have been withdrawn.

Senator PEARCE - Certainly ; but I am pointing out that we are open to discuss the whole financial position with the States. I reiterate that the Senate is not being asked to express the opinion that the Commonwealth should retire from the field of land taxation, the entertainment lax, probate and succession duties, or 60 ner cent, of the income taxation field. lt is being asked to agree to the termination of the per capita payment on the 30th June, 1927. A distinct undertaking is given to the Senate and to the country that for twelve months thereafter the Government will continue to make payments to the States on the existing basis, in the interim seeking an early conference with the States, and informing them that it is prepared to discuss any alternative proposals that they care to put forward. We are prepared to explore the question of whether the Commonwealth should take over either the whole or a portion of the State debts, and the provision of a sinking fund for State debts. We shall meet the States in any way that is reasonable.

Senator Sir Henry Barwell - When the Minister refers to the Commonwealth taking over State debts, does he mean the shouldering of the whole of the liability in respect of interest payments?

Senator PEARCE - We are prepared to explore that question, and to consider any equitable scheme by which it can be done. Personally I think that it oan and should be done.

Senator Sir Henry Barwell - It was not the original idea that the Commonwealth should take over State debts. The proposal was that there should be only one borrower, under which the liability would remain with the States.

Senator PEARCE - We are not bound by that, or any other, arrangement. The whole field is open to be explored without any qualification. We are genuinely anxious to arrive at a settlement of this question which will not leave with the States a feeling of irritation. We realize that anything calculated to create that feeling would be both foolish and unwise. We are not approaching the States in the role of a dictator. But we do say that the present system of per capita distribution is inequitable and unwise; that it has already broken down, and that the Commonwealth has in the past departed from it. The view of the Commonwealth Government is that, if it has any surplus revenue, it should assist the States financially, more especially those in which the need for development is greatest and the financial need most pronounced. That is a principle which the Commonwealth Parliament has recognized in legislation that it has passed.

Senator Sir Henry Barwell - Surely it would be wiser to postpone the passage of this bill pending the holding of the conference ?

Senator PEARCE - We say that it is not. The history that I have read proves that the adoption of that attitude gets us nowhere. From 1910 onwards the course suggested by Senator Barwell has been followed, and on every occasion it has failed. Mr. Hughes, Mr. Watt, Mr. Bruce, and later Dr. Earle Page worked along those lines, and nothing eventuated.

Senator Sir Henry Barwell - Because the Commonwealth Government would neither discuss nor agree to any proposal other than that which it put forward.

Senator PEARCE - That is not so. I have quoted from a speech which was made by Senator Barwell at one Premiers' Conference, in which he urged his fellow

State Premiers to come to an agreement with the Commonwealth. Sir Arthur Cocks, Treasurer of New South Wales, stood out, and brought the whole thing to the ground. If, in dealing with this question, we were to shut our eyes to the teachings of history we should resemble the ostrich that put its headin the sand when pursued by an enemy. The passage of this bill will show to the States that this Parliament is in earnest in its intention to have a different basis established. The States are very well aware that the Commonwealth Parliament will see that justice is done to them. If at the conference the States advance a proposal that is equitable and just to them and to the Commonwealth, and this Government refuses to give fair consideration to it, it will receive short shrift at the hands of this Parliament.

Senator Needham - Who is to be the judge of whether the proposal is fair ?

Senator PEARCE - This Parliament. It will meet in September or October of the present year, when the attitude that the Commonwealth Government has adopted towards the States and that the States have adopted towards the Commonwealth will be fresh in the minds of members. If the present or any other Commonwealth Government shows a disinclination to meet the States reasonably and fairly, the Commonwealth Parliament can pass a very effective judgment upon it.For that reason, I ask the Senate to agree to the bill and enable the Government to meet the States in such a way that they will realize that they must toe the line and come to a reasonable agreement.

Senator GREENE (NEW SOUTH WALES) - Do I understand the Minister to say that any arrangement which the Government makes with the States will ultimately come back to this Parliament for ratification?

Senator PEARCE - That is so. It is obvious that something must be done during this year. Whether the arrangement be for the establishment of a sinking fund or one under which the Commonwealth will take over either a portion or the whole of the State debts, or the abandonment by the Commonwealth of certain fields of taxation and the assumption of those fields by the States, it is absolutely certain that legislation by the Commonwealth Parliament will be necessary.

Senator J P Hayes - Would it be competent for this Parliament to vary any arrangement that had been come to if it did not consider it to be a fair one?

Senator PEARCE - Certainly. This Parliament must be the final arbiter, and it will be competent for it to accept, reject, or amend any agreement that may be entered into with the States.

Senator Chapman - What would happen if some of the States stood out and could not be induced to enter into an agreement ?

Senator PEARCE - It would be for the Commonwealth Government to decide whether it should proceed with the balance of its proposals. That is to say, if it was found impossible to arrive at an agreement with the States, we would have to tell Parliament when next it met and advise it what it ought to do. This Parliament would still be arbiter, and would have the advantage of knowing whether the States had met the Commonwealth in a reasonable spirit, whether the fault was due to the unreasonable attitude of the Commonwealth, or whether negotiations had failed because of some motive on the part of State Governments or State Parliaments. The present system is, and must remain, a disturbing factor in the relationship between the Commonwealth and the States. We have now an opportunity to end it, and Parliament has also the opportunity to see that the Commonwealth Government acts with justice and even generosity to the States in making a new financial arrangement with them. On the assurance that the Government will approach the question in that spirit, and do its utmost to bring about a just and equitable arrangement with the States, I ask the Senate to agree to the second reading of the bill.

Debate (on. motion by Senator Needkam) adjourned.

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