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Wednesday, 16 September 1942

Mr CHIFLEY (Macquarie) (Treasurer) . - I move -

That the bill be now read a second time.

The purpose of the measure is to implement the recommendations that are contained in the ninth report of the Commonwealth Grants Commission, which was tabled in this House on the 2nd September last, and to provide for the payment during the current financial year of special grants totalling £2,175,000 to the States of South Australia, Western Australia and Tasmania.

As honorable members are aware, the commission was established in 1933 for the purpose of inquiring into and reporting upon applications by States for financial assistance under section 96 of the Constitution. The recommendations of the commission for the last eight years have been approved by the Commonwealth Government and adopted by Parliament. The grants recommended by the commission for payment in the year 1942-43 compare with those paid during 1941-42 as follows: -

The actual grants assessed and recommended by the commission for South Australia and "Western Australia were £1,220,000 and £970,000 respectively. It, however, recommended that of these amounts, £670,000 in respect of South Australia, and £170,000 in respect of Western Australia, be deferred until next financial year. . Thus, actual payments during this financial year will be £800,000- including £250,000 deferred from 1941-42 - to South Australia, and £1800,000 to Western Australia. Before explaining the reasons for these deferred payments, it is necessary to mention very briefly the principles that have been followed by the commission. In this year's report, it reiterated the principles that had been followed in the past. I quote the following paragraph from its report : -

The special grants which wc recommend are based on the principle of financial needs, aud arc determined by the amount of help found necessary to make it possible for a claimant State, by reasonable effort, to function at, a standard not appreciably below that of other States. Our methods of assessing needs are based fundamentally on comparisons between the financial position of the States, and depend, too. on the financial relations of the Commonwealth and the States.

The commission recognizes that war policy has affected State budgets unequally, and has thus created further problems in the assessment of special grants. It has made clear that it does not consider that its function is to recommend grants specifically designed to compensate a State for adverse effects of federal war policy. If, as a result of such policy, a drift occur red in the financial position of one or more of the claimant States, the commission would bring the matter immediately to the notice of this Government. Insofar as federal war policy and war finance are reflected in the budgets of the States, however, they are taken into account in the commission's methods of assessment. in its last report, the commission stated that circumstances had not yet arisen which rendered its methods invalid or impracticable for dealing with grants based upon the financial year 1940-41 ; it had therefore decided substantially to maintain for this year its existing basis of assessment.

It is important to remember that the commission's assessments are based on the budgetary results of the States for 1940-41, the latest year for which complete information was available to it. The commission takes into consideration whatever special conditions may obtain in the years following that on which the grants are assessed. Thus in past years it has at times, by means of deferred payments or advances, made allowance for any obvious disparity between the normal calculated grants and the current needs of the States. This year, the commission has recommended that £670,000 of the grant of £1,220,000 assessed for South Australia be deferred for payment in 1943-44 because the assessed grant of £1,220,000 is considered excessive in relation to South Australia's financial needs in 1942-43. Thus, the payment recommended for South Australia in 1942-43 is £550,000, which, with £250,000 deferred from last year, makes a total payment of £800,000. In 1941-42, the year following that on which the grant for this year was assessed, South Australia enjoyed a surplus of £1,2S7,000, which included the special grant of £1,150,000 for that year. This improvement in South Australia's budget in 1941-42 was due to increased revenue from railways, income tax, and succession duties. In 1942-43, under uniform taxation, South Australia will receive £458,000 less than the income tax collections in 1941-42, whilst appreciable reductions of succession duties and racing taxation may be expected. On the other hand, owing to Commonwealth war expenditure, the improvement of railway revenue occurred mainly in the "last four months of 1941-42, and may still continue, whilst returns from primary production will be favorably affected by the increase of the price of wool by 15 per cent. After taking these factors into consideration, the commission estimates that payment of £800,000 should be sufficient to meet South Australia's financial needs in 1942-43.

The commission also considers that the assessed grant of £970,000 to Western Australia exceeds that State's currentneeds and recommends that payment of £170,000 be deferred until next year. In 1941- 42, Western Australia enjoyed a surplus of £1,768 after receiving a grant of £630,000. The outlook for 1942-43 is conditioned by such factors as Commonwealth war expenditure, compensation under the uniform income tax plan, the trend of railway revenue and expenditure, diversion of man-power from gold-mining to war industries, the prospects for primary production, and the trend of costs. After considering all these factors, the commission is of the opinion that payment of £800,000 should meet the financial needs of Western Australia in

1942- 43.

The commission recommends that the grant, of £575,000 to Tasmania should be paid in full in 1942-43. In 1941-42, Tasmania , had a surplus of £1,585 after taking into account the special grant of £520,000. In 1942-43, Tasmania will receive as compensation under the uniform income tax plan £2-22,000 less than the collections in 1941-42. Other important factors are the trend of costs, Commonwealth war expenditure, and railway receipts and expenditure. Thus, prospects in 1942-43 do not warrant postponing the payment of any portion of Tasmania's special grant.

Forthe information of honorable members, I submit the following statement showing the trend of net grants paid to States in recent years : -

I shall now give to honorable members a brief explanation of the commission's assessments for each State, with particular reference to the difference between the grants paid in 1941-42 and those recommended for 1942-43. In assessing the grants, the commission's first step is to calculate the normal standard to which the claimant States should be raised. The normal standard is arrived at by averaging the adjusted budgetary results of the non-claimant States. Ever since the commission's inception in 1933, the budgets of the non-claimant States have shown a deficit standard, but for 1940-41 there was a surplus standard of ls. Id. a head. As this surplus standard arose from conditions largely brought about by the stimulus of war expenditure in the non-claimant States, the commission does not consider it a reasonable standard for their purpose. The commission therefore decided to adopt a balanced budget standard as the normal standard.

Honorable members will note that the grant of £1,220,000 assessed for South Australia is £180,000 less than that assessed for 1941-42, although, as I have already mentioned, payment of £250,000 of that amount was deferred until this financial year. Referring to the actual adjustments made by the commission, the amount necessary to bring South Australia's comparable deficit to the normal standard was £99,000 more than that required last year, but this was more than offset by a decline of that State's taxation collections in 1940-41 which, when related to the position in other States, led to a reduction from £455,000 to £152,000 in the adjustment for relative severity of taxation.

The grant of £970,000 assessed for Western Australia is £340,000 more than that assessed and paid in 1941-42. The main factor causing this increase concerns the relative severity of taxation adjustment. Due largely to a decline of the relative taxable capacity of "Western Australia, combined with a slight increase of that State's taxation collections in 1940- 41, there was an increase of £2>66,000 in the adjustment for relative severity of taxation. In addition, there was a small increase in the adjustment designed to bring the State's comparable deficit to the normal standard, whilst no penalty was imposed this year on account of "Road Debt Charges". On the other hand, an increase of Western Australia's net expenditure per head on certain social services in 1940-41 resulted in an additional amount of £29,000 being deducted from the social services adjustment.

The grant of £575,000 to Tasmania is £55,000 more than the grant assessed and paid in 1941-42. This is due largely to an increase of £147,000 in the adjustment necessary to bring Tasmania's comparable deficit to the normal standard, whilst in addition, the penalty for road debt charges was not imposed this year. On the other hand, there was a decrease of £126,000 in the adjustment for relative severity of taxation. This was due to a decline of taxation collections, accompanied by an improvement of the relative taxable capacity of that State.

The Government is satisfied that the principles and methods of assessment followed by the commission produce reasonable results, and that the grants recommended for payment to South Australia, Western Australia and Tasmania are sufficient to meet the financial needs of those States in 1942-43. As in past years, the Government has therefore decided to adopt the recommendations of the commission, and I commend the bill to honorable members.

Before concluding I take this opportunity to express the Government's appreciation of the splendid work done by Sir Frederic Eggleston, who was chairman of the commission from its establishment in 1933 until November of last year, when his appointment as Australian Minister to China compelled him to resign. The Government has been fortunate in securing the services of Pro- fessor R. C. Mills as chairman of the commission since Sir Frederic's resignation.

Debate (on motion by Mr. Fadden) adjourned.

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