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Friday, 9 October 1936

Senator ALLAN MACDONALD (WESTERN AUSTRALIA) - For which there is no formula.

Senator Sir GEORGEPEARCE.I invite the honorable senator to frame one.

Senator ALLAN MACDONALD (WESTERN AUSTRALIA) - I admit that I cannot; neither can the commission.

Senator Sir GEORGEPEARCE.The effects of the disabilities on the finances of the States are apparent; but the solution of the problem is not apparent.

In 1933 the Commonwealth Grants Commission Act was passed by this Parliament and under that act the commission was established. It was hoped, at the time, that the commission would be able to formulate a policy which the Government could adopt, under which the grants to the States could be placed on a more stable, and possibly a more permanent, basis.

The commission has two tasks. One is to assess the amount of the grant that should be made to a State, and the other is to ascertain on what basis grants could be made more stable and possibly more permanent. Anybody who has read and studied the last three reports of the Commonwealth Grants Commission will sympathize with it in respect of its inability to complete the second task. In one year what might appear to be a fair basis and desirable to be accepted as permanent, may be reached, but in another year that basis might be found to be unfair and to require amendment.

The commission has: now submitted three reports, the last of which, as I have mentioned, was recently tabled. The recommendations of the commission for the last two years, 1934-35 and 1935-36. were adopted by the Government and grants were passed by Parliament in accordance with those recommendations. On each of those occasions the grants recommended were an appreciable increase on the grants of the preceding year. Although in two instances the grants for this year will be less than those made last year, it is proposed that tha recommendations of the commission this year should similarly be accepted. The bills now before the Senate give effect to these recommendations.

As has already been mentioned, prior to the appointment of the Grants Commission, the claims of the States were based on the grounds of " disabilities " and were considered from that aspect. The commission has, however, since its first report, stated that it found itself unable to assess the grants on the basis of " disabilities ", and has consistently based its recommendations on financial " needs ".

I invite the attention of honorable senators to its comments on this subject in the second report, and suggest that if they do not agree with the commission, they should support their disagreement by stating where its comments are either unjustified or incorrect -

The adverse effects of federation may be the cause, in whole or in part, of the inferior financial position of a State. It is, however, the relative financial .position (i.e. of any one State compared with the other States) which determines whether a grant is justified. (Paragraph 72.)

Special grants are only an extension of the normal system. The problem of recommending them is to determine how much the transfer should be for any particular State in excess of the amount provided by thu normal system. We rind that this should be the amount necessary .to enable the State Government to function at some minimum standard, and that this amount must be determined by a searching examination of the comparative financial position of the Statu.

We have found no ground for compensating the people of a Statu for disabilities due tn federation or any other causes. Disabilities due to federal policy may be the cause of the inferior position of a State's finances, but a variety of other causes may have thu same effect. (Paragraphs 78 and 79.)

In its third report the commission has repeated its opinion that the grants payable to the States should be based only upon financial needs, as will be seen from the following extracts from paragraph 164:-

In our second report we developed the tentative principles "f the first, and concluded that the relative financial position of the States, when analysed with sufficient care and understanding, was the only basis on which special grants should hu ninda Further consideration and another year's experience have led us to the following conclusion : -

Special grants are justified when a State through financial stress from any cause is unable efficiently to discharge its functions as a member of the federation and should be determined by the amount of help found necessary to make it possible for that State by reasonable effort to function at a standard not appreciably below that of other States.

The view is still held irc certain quarters that payment of grants to the States should, be based upon the financial effect of disabilities due to federation or federal policy. This is borne out by evidence submitted as recently as this yea.r, to the commission by the representatives of certain of the State governments concerned. On this point, it is interesting to note what the commission, in its latest report, has had to say upon that phase of the subject. The attitude of the commission has been that, in considering the effects of federation or federal policy on the accounts of the States, it is necessary to take into account not only the adverse effects, but also the benefits which a State may derive from federation or federal policy. The commission has made a genuine effort to place a .monetary value upon the net effects of federation. Let me quote from paragraphs 126 and 127 what that body has to say in this connexion lt follows, that unless the adverse, effects of federal policy on the claimant States exceed the benefits due to the allocation of Commonwealth revenue and expenditure, there are no adverse net effects of federation.

The measurement of the total net effect of federation is clearly an impossible task - . . . We can, however, make some rough approximation.

L invite those who dissent from those views to show to the Senate, by facts and figures, how they estimate the effect of federal policy, how they arrive at their conclusions, and how they justify them, and to state whether they have made any allowance, as the commission has done, for some or all of the possible benefits of federation. The commission made an attempt to ascertain the approximate effects of federation, and, after considering all the aspects of the case, which are tet out at some length in the third report, it reached the following conclusion, which is contained in paragraph 146: -

It appears then that without reckoning any benefit from exchange, benefits and burdens from federation almost balance for South Austin Iia and Western Australia, while, for' Tasmania, there is a net benefit of nearly £] per bead, lt follows that no substantial part of the special grant received was made necessary by the effects of federation. We may conclude that these States, unfederated, would have been, at least, in the same financial difficulties as at present.

Senator Hardy - They might have been worse.

Senator E B Johnston - And they might have been much better.

Senator Sir GEORGE PEARCE - These are merely suppositions. The commission, which consists of qualified men had before it representatives of the claimant State governments, who, in turn, were buttressed by all the information, statistics and data that those States, after careful examination, could bring before it The task of the commission was to analyse, dissect, weigh and assess all those facts, and arrive at a conclusion. Its conclusion should not lightly be brushed aside. I suggest that the obligation lies on those who differ from its recommendations to build up before the Senate a case to take the place of that presented by the commission after its exhaustive examination.

Sufficient has been said, I think, to indicate the reasons why the commission bas accepted the basis of measured financial needs in arriving at its recommendations as to the ~ ants to be made.

I wish now to indicate, very briefly, the manner in which the financial needs of the States have been measured. The commission holds that special grants are justified when a State, through financial stress from any cause, is unable, efficiently to discharge its functions as a member of the federation, and that such special grants should be determined by the amount of help necessary to make it possible for that State, by reasonable effort, fo function at a standard not appreciably below that of other States. Those views are contained in paragraphs 164 and 201 of its third report. For the purpose of arriving at this standard the commission has adopted the plan of comparing the financial results of the claimant States with those of the non-claimant States, after making such adjustments as are necessary to put them on a comparable basis. In making this comparison the commission has decided that the nearest approach to an Australian standard would be obtained by taking the simple average of Victoria and Queensland, as was done in the previous year, 1935-36. I shall not go into the elaborate reasons given by the commission for choosing those States, but I invite honorable senators who have not read them, to do so, and then, if possible, to show where they are wrong, or not justified. I imagine that they would have difficulty in doing so.

Senator E B Johnston - Had New South Wales been included, the standard would have been raised considerably.

Senator Sir GEORGE PEARCE - The commission gives the reasons why New South Wales was not included.

I wish particularly to bring to the notice of honorable senators the result of this method of comparison. In those cases in which the claimant States disclose less improvement than do the nonclaim ant .States, a larger grant is recommended', whereas should the finances of the claimant States show an improvement greater than the degree of improvement revealed by the finances of the nonclaimant States, the amount of the grant is reduced. In its third report the commission bases its recommendations for the year 1936-37 on the finances of the States for the year 1934-35, for the obvious reason that they were the latest figures available at the time of its inquiry. In that year the budget results of South Australia and Western Australia revealed a degree of improvement greater than that shown by the budgets of the nonclaimant States. Accordingly, reduced grants for those two States are recommended. On the other hand, the finances of Tasmania during 1934-35, whilst better than for the preceding year, did not disclose an improvement equal to that revealed by the non-claimant States. The grant recommended in the case of Tasmania is therefore greater than that for 1935-36.

I anticipate criticism by reason of the fact that the recommendations for this year are based upon the budget figures for 1934-35, which represents a time lag of more than a year. But as the commission has pointed out in its reports, this factor is not open to very serious objection. Whilst admittedly paving the way for some degree of error, the commission points out that the error is no: cumulative. It adds that, while general conditions are deteriorating, the grant on those lines will be too small, but that on the other hand, when conditions are improving it will be too great. The differences will balance over a term of year?. As, during the last two years, condition."5 have been improving, it will be seen that: this principle operates to the advantage of the States concerned at the present, time.

The Government makes no apology for its acceptance of the recommendations of the commission for this year, notwithstanding that the aggregate grants recommended are £320,000 less than the total grants recommended for 1935-36. The Grants Commission was appointed as an independent body to make complete and thorough investigation of Commonwealth and State financial relations insofar as Commonwealth grants to the claimant .States are affected. The commission has been confronted with an arduous and difficult, task and has carried out its responsible duties in a painstaking and thoroughly impartial manner. When the commission recommended increased grants in each pf the last two years, involving in the aggregate for the two years £890.000 more than would have been paid had the 1933-34 grants been continued, the Government accepted those recommendations without question, and obtained Parliamentary approval of them. The total grants now recommended are £320,000 less than those approved last year, and the Government sees no reason why those recommendations should not be accepted also, particularly in view of the improved conditions obtaining in each of the claimant States. I commend the bills to the favorable consideration of honorable senators.

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