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Tuesday, 25 October 1949

Dr GAHA (Denison) .- The time for the discussion of this measure is somewhat short as this Parliament is about to come to an end. I wish to draw the attention of the House to one or two aspects of this legislation which I think are worthy of comment. This measure is designed to give effect to the recommendations of the Commonwealth Grants Commission which was appointed many years ago for the purpose of establishing a balance between the State and federal economies. It is appropriate that I should refer to the somewhat curious machinery that has been established to deal with this matter over the years, and to outline some of its possible future dangers. The Commonwealth

Grants Commission was appointed for the purpose of establishing a balance between State and Federal economies on the basis of a formula which had been laid down and which may or may not have proved satisfactory over the years. With the passing of time the system of uniform income tax was devised and with the adoption of that system the function of State grants became very materially altered.

At present there are two distinct financial arrangements under which finances are provided for State development. In the first place Commonwealth and State Ministers meet and determine the amounts of money raised by way »f income tax which should be allocated among the Commonwealth and: the States. In the last four years an extraordinary change has taken place. The first allocation to the States in the year after the uniform income tax system was adopted amounted to £49,000,000. In the following year the amount was £45,000,000 and in the next year it was £53,000,000. This year the combined allocation and grants will reach the astronomical figure of £72,000,000. No machinery has been provided for the control of this vast expenditure. In the second place the Commonwealth Grants Commission determines the grants that shall be made available to the less populous States. The commission, which has the final say on this matter, has recommended that £11,000,000 should be made available this year to South Australia, Western Australia and Tasmania. It seems extraordinary that despite the adoption of uniform taxation it should still be necessary to have two separate "financial bodies to decide these matters. At one time we would have called a body that exercised such vast controls a bureaucracy, but to-day, as long as some States get something out of the arrangement they do not criticize it. I warn this Government and its successors that if the present system is retained it may cause a split between the Commonwealth and the States. The expenditure of the States is increasing at a tremendous rate. In four years it has risen from £39,000,000 to £71,000,000. The Commonwealth has been able to make available to the States this year £71,000,000 and £11,000,000 because the national revenue is buoyant, but what would happen if it were asked to increase taxes in order to finance additional State expenditure and refused to do so? If that occurred, the State Premiers would band together against the Commonwealth, 'because the State governments have no responsibility in relation to taxation and their rate of expenditure is not subject to control by a necessity to determine a taxation policy each year.

If any pressure were brought to bear upon the State governments to take action that might result in an increase of their expenditure, they would be far more likely to yield to it and to ask the Commonwealth to find the necessary money than they would be to resist it. They have already yielded to pressure to such a degree that in four years their annual expenditure has increased from £39,000,000 to £71,000,000. At this stage T do not propose to discuss the effect of the expenditure of £71,000,000 a year by State governments upon the present inflationary trend in this country, but the effect must be great. The Premiers have asked for £71,000,000, and they have got it. I do not propose to discuss that matter; but I point out that if a Commonwealth Treasurer who was asked by the State Premiers to increase taxes in order to provide for additional State expenditure said, in effect, " Thus far and no further ", a clash would occur. The State Premiers, both Labour and Liberal, would combine together to attack the Commonwealth. It is also probable that if the present system is continued the Commonwealth will have trouble with organized political bodies, because it is unlikely that organizations of supporters of either the Labour party or the Liberal party in the States would support the Commonwealth against the States. I warn the Government that a clash will occur if the present system is retained. If that clash does occur, it will he extremely interesting to see whether the outcome of it is that the Commonwealth will continue to allocate money to the State governments and allow them to expend it as they wish without exercising any control over the expenditure.

In the immediate future the best brains of this country must 'be utilized to devise a satisfactory method of regulating Commonwealth and State financial relations. Either the Commonwealth Grants Commission should cease to function altogether and State expenditure should be reviewed by Commonwealth and State Ministers, or governmental expenditure in every field should be the responsibility of the Commonwealth Grants Commission. 1 do not care which of those courses is adopted, but I do not see how we can continue to have two separate authorities to determine the allocation of revenue as between the States and the Commonwealth.

As a result of the tremendous expenditure of money by the Commonwealth during the war, the position of the States in relation to each other now is different from the position that obtained before the war. The cost of the considerable developments that occurred in Queensland during the war was charged to Commonwealth revenue, but that fact cannot be taken into consideration by the Commonwealth Grants Commission, although Tasmania, for instance, has not enjoyed similar benefits. I am not so much concerned with what is happening at a time when Commonwealth revenue is buoyant as with the crisis that is bound to arise when State expenditure reaches the point at which the Commonwealth cannot provide the necessary money without increasing taxes. That time cannot be very far off. When it arrives, many very interesting developments will occur in this country. I do not dispute the ability or competence of the Commonwealth Grants Commission, but I do not see how we can permit the present system to continue. Under the present system, this year the conference of Commonwealth and State Ministers has determined that the States shall have £71,000,000 and the Commonwealth Grants Commission has determined that they shall be allotted another £11,000,000. In order to avoid a serious clash between the States and the Commonwealth, some machinery must be evolved under which Commonwealth and State economic relations can be regulated in conformity with a reasonable policy.

The matters to which I have referred do not arouse great 'public interest in Aus- tralia, but I venture to say that when thecrisis occurs we shall see " State-ism " asserting itself. That crisis will occur if something is not done to avoid it. Now is the time to take the action necessary to avoid it.

Question resolved in the affirmative.

Bill read a second time, and passed through its remaining stages without amendment or debate

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