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Wednesday, 17 September 1958


Sir WILFRID KENT HUGHES (Chisholm) . - I congratulate the honorable member for Stirling (Mr. Webb)on having shown the House that he is a very capable spender. I am not sosure that he is an equally efficient earner, because he did not tell us where all the money is to come from to finance all the extra works that he wants to put in hand. He has very good backing from the Labour party, which isrepresented in this chamber at the moment by only two of its members.


Mr Duthie - The others are watching a division in the Senate.


Sir WILFRID KENT HUGHES - They would be better employed looking aftertheir own interests in this House. To a certain extent I agree with the honorable member for Stirling that this bill is very important. With all due respect to honorable members, I wish it were not being treated in this House as merely a formal measure. The attitude seems to be that this is just a bill consequent upon the Budget and that it has to be passed. Like many other honorable members, I do not think that the financial relations between the Commonwealth and the States are in a very healthy state. For a long time past, there have been arguments about uniform income tax and discussions about the formula. I am one of the few honorable members in this House who have sat in this chamber as a State representative at Premiers conferences and been told by the Prime Minister of the day - not the present Prime Minister - that the vote on a proposition by the States is in the affirmative but that the answer to the proposition - the provision of funds - is in the negative. In other words, the Corn, monwealth Government has complete control at present over the whole of the business of the States. I think all honorable members will agree that that is not a healthy state of affairs, and that they would like to see restored to the States at least a larger measure of responsibility for raising the money that they say they want to spend.

I do not think that we can hope for any alteration in the present uniform income tax system. This matter has been before the Parliament and before the public for up to ten years. Committees of inquiry set up to investigate the matter have submitted reports and have asked for guidance on certain matters, which was never forthcoming. After all the endeavours that have been made to change the present system, if we are honest with ourselves we must admit that, despite what we may advocate, there is no real chance of getting any alteration in the system of uniform income tax as we have come to know it since the days of the last war. On various occasions State Premiers and Treasurers have met in conference with representatives of the Commonwealth Government and have suggested alterations to the formula. But having regard to the way the voting goes at Premiers conferences, I do not think anybody believes that there is any chance of the formula being altered. When the Commonwealth Grants Commission recommends the handing out of a further £20,000,000 or so to three States after the original allocation has been made, there is no reason why those three States should want an alteration of the formula. Let us be honest: As a practical measure you cannot get the unanimity of opinion among the State Premiers which would encourage any Commonwealth Government to alter the present formula. Not only has the Commonwealth Government complete power over how much is to be allocated, as we can see by the amount of additional special financial assistance that has been granted each year for the last few years over and above the formula, but we also are now invading many new State spheres of administration.

This bill, which was introduced by the Treasurer (Sir Arthur Fadden) does not seem to have aroused the interest of any senior member of the Government, because not one of them is present in the House. I am not criticizing the Minister for the Interior (Mr. Fairhall), who is at the table. He is doing a good job. There seems to be a complete lack of interest in what I regard as the most important domestic problem in Australia to-day, the financial relations between the States and the Commonwealth. Each year the Commonwealth Government says that the formula is out of date and that it provides only a rough basis on which the Government can decide how much the States are to get. This year the Government goes to the extent of giving an additional £30,000,000 over and above the formula, which represents one-sixth of the amount already granted to the States under the formula. Could anything be more explicit? Could it be said in any more direct form that the formula is woefully out of date and inadequate for the purposes of the States? Tt is now not a matter of operating under the formula; it is a question of how much the Federal Government decides the States need.

In these circumstances we find various things happening. I direct attention to the universities grants legislation. Although T am not complaining about the amount of £20.000,000 or £22,000.000 that we granted to the States for universities expenditure. I remind honorable members that in each State the general public contributes a certain amount towards university funds, and sometimes towards their upkeep, bv the establishment of various trust funds or scholarships. Then the Federal Government contributes a certain amount, but the State governments are mainly responsible for the running of the universities. Any one who studied the relevant figures would agree, I think, that Adelaide had done a better job for its university than the other cities had at the time the University Grants Bill was passed. I believe Melbourne had done a reasonable job; but if one examines the figures and sees what the public has subscribed and what has been done, one must agree that Adelaide, or South Australia, had done most for its university. But under the universities grants legislation Adelaide was given the worst deal of all from the Federal Government, simply because the community in that State has made the finest effort. That is not a fair way for the Federal Government to deal with the States. Without mentioning names, I may say that the State that I consider to have done the worst for its universities, having in mind the resources that were available to it, has received the best deal of the lot.

At the same time we told the States that we felt that salaries of university professors should be increased by £500 a year or some similar amount. We generously said to the States, " We will contribute £1 for every £2 or £3 contributed by you". We offered to pay either a third or a quarter if the States contributed the rest of the money needed to increase these salaries. After the salaries were increased, the Federal Government received back iri increased taxation from those professors more than the amount that it contributed to enable their salaries to be increased. Quite frankly, we put a confidence trick over the State governments. I am not saying that an increase in the salaries was not justified, but we said to the states, "We will be magnanimous and pay a proportion of the amount required ", and then we received in revenue more than we gave to the States.


Mr Turnbull - But the professors got a higher net result.


Sir WILFRID KENT HUGHES - I am simply saying that the increased taxation they paid to the Federal Government was greater than the amount contributed by this Government to enable the salaries to be increased.


Mr Brand - Would the honorable member call that high finance?


Sir WILFRID KENT HUGHES - Well, I do not think it was quite a fair thing to do to the States.

The other day in this House the Minister representing the Minister for Civil Aviation (Mr. Townley) made a statement that I had been wanting to hear for a long time. I mentioned this matter during the last Budget debate, but I did not know the actual amount involved. The Minister said, quite clearly and distinctly, that we are already subsidizing civil aviation to the extent of approximately £10,000,000 a year. He made the statement, I think, in answer to a question as to how the airlines were going to finance the purchase of new aircraft. Some suggestion was made of giving them extra financial assistance, and the Minister said quite clearly that we are subsidizing the one form of transport under the control of the Federal Government by £10,000,000 a year. This amounts to just over £3 for every passenger stepping on a plane.

I, like every other honorable member in this House, want to see air transport used to develop and assist the outback. I hope that Australia can and will remain in the front line in the field of modern transport facilities. But do not let us forget that we do not run the State railways. When we subsidize inter-capital city fares to the extent of over £3 a passenger, we are taking away a lot of revenue, whether rightly or wrongly, from the State railways. I am merely telling honorable members the result of this practice; I am not criticizing the subsidization of air travel. In the result, a good deal of revenue is taken away from the railways, which cannot compete if air fares are almost as low as rail fares. Here again we step in and very vitally affect the State governments. I know that honorable members will tell me that the State railways are subsidized because their deficits are financed through the State budgets. This does not alter the fact that the Federal Government's subsidization of air travel is as high as £3 a passenger, which has a very important and damaging effect on the State budgets.

There are other ways in which we are making money available to the States. We are financing the States in the housing field. We are assisting them in projects involving standardization of rail gauges. Of the total amount required for rail gauge standardization in Victoria and South Australia, the Federal Government pays 70 per cent, and the States 30 per cent. We do other things which result in upsetting State budgets to a considerable extent. Without offering any criticism or suggesting that the practice is right or wrong I remind the House that we set a standard of public service salaries that cannot be followed by the State governments because the amount of money we allow them is not sufficient. The salaries in the Commonwealth Public Service become higher and higher. Greater and greater pressure is brought to bear on the States to increase their own public service salaries, and to do so they must incur deficits.

For these reasons, I feel that the time has arrived when the whole question of financial relationships between the Commonwealth and the States should be reviewed. I know of only one expert body that has had sufficient experience in this field to carry out such a review. Although man\ persons would say that this particular organization is not perfect, I- suggest that no human commission is ever perfect, and I suggest that the Commonwealth Gran*Commission could do the job, either under the powers given to it through its present charter or by further powers conferred upon- it if necessary. The commission's charter now empowers it to inquire into and report upon: -

(a)   - applications made by. any State to the

Commonwealth for the grant by the Parliament' of financial assistance in pursuance of section 96' of the Constitution;

(b)   ; any matters relating., to grants- of financial assistance made in pursuance of that section by the Parliament to any State which are referred to the Commission by the Governor-General; and

(c)   ! any-1 matters relating to- the making of any grant of financial assistance by the Parliament to. any State in pursuance of that section, which are referred to the Commission by the GovernorGeneral (section- 9).

I' should very much like to see the commission undertake the review that I have sug-gested. Honorable members may suggest another body to carry out the task. I do not say that the Commonwealth Grants Commission is; the only- body that can do it,, but it has had wide experience in investigating the finances of Western Australia, South Australia and Tasmania over a long period of years, ft is in close touch with State budgets and State finances, because it compares what is happening, in the way of State taxation, in the claimant States with what is happening in the same fields in Queensland'. New South Wales and Victoria. These States are not yet claimant States, although I frankly told the Victorian Government, " If you feel that you are not getting a fair deal from the Commonwealth, it is no use waiting for an alteration in the uniform, tax. provisions,- and it is no use thinking, that there wilh be an alteration of the formula. My advice is to take your case to the' grants- commission, which is the only independent body capable of deciding whether you are getting a fair deal at present or not ".

Sitting, suspended from 6 to- 8 p.m.


Sir WILFRID KENT HUGHES - Mr. Speaker,,before the sitting was suspended for. dinner, I was appealing to honorable members of. this- House- to take a greater, interest in the Commonwealth-State financial relations. Not many honorable members have had the benefit of even a short period' of service in State parliaments and, as a result, I think there is a general tendency on the part of federal members - as shown by the honorable member for Went' worth (Mr; Bury) in his question earlier to-day - to fail to appreciate the difficulties in which the States become involved' under the existing Commonwealth-State financial arrangements.

I did: not criticize- the amount allocated for this year. I did: not feel that I had sufficient figures or that I- had made sufficient investigation to be able to- say whether that amount, in- the aggregate, was sufficient: or not. But- I pointed out that the formula- itself- is- obviously completely outmoded', owing, to the fact that-,, during the last eight" years or- more,, the- Federal Government has, in every case,, allocated considerably larger sums than those which would have gone to the States under the formula. I pointed out how the State finances had' been affected by the subsidy of £10,000,000- a year, paid by the Federal Government for State civil- aviation, without saying that I did not approve of such subsidies or that we did not want to- see aviation advanced, so that the outback areas might have better transport. I merely stated the facts.

II pointed out what had happened with regard to the universities. For instance, the State of South. Australia had done more in community effort for its university than had any other State. As a result, when we made extra grants for the universities, Adelaide came off worse than any other city. The State that did least for its university got the biggest grant. I pointed' out that we had said to the States, in effect, " If you raise the professors' salaries by £500, as we think they should be raised, we will pay £1 in £3 towards the extra cost ". The result was that the increased income tax which the Federal Government, or all of us as members of the Federal Parliament, obtained in the federal coffers was greater than the proportion that we paid of the increased salaries. In other words, we said to the States, " You have to increase the professors' salaries, but it will not cost us anything. Although we are giving you this amount towards the increase, we will make a profit."

I have referred to the standardization of railway gauges, in respect of which we are helping South Australia and Victoria. It all points to the fact that we are tending every year more and more towards unification, as distinct from a federal system of government. In Canada, the British North American Act gave the original powers to the Federal Government which then allocated certain powers to the States, which is the reverse of the position under our Constitution. Yet, the provinces of Canada are better off with regard to their finances than are the Australian States. The Canadian provinces have been given a wider field in which they can operate and be responsible for raising their own finances. The provinces fix the amount that they want from either sales tax or excise duties - I forget which - and the Federal Government collects it for them.

If the Australian States genuinely want to raise their own revenue and to be responsible for its expenditure, why could not some system of this nature be arranged? But there seems to be no sign of anybody wanting to do this. The position is very largely the reverse. I suppose that we have given some sort of rough justice to the States, but there is no standard of measurement by which the States know what they are going to get. Everybody admits that the Premiers conference are just a waste of time. The Federal Government decides before the Premiers come to Canberra what allotment will be made to them. It would be much cheaper to do it by telegram than to bring all the representatives of the States here and have their civil servants sitting around in what might be called, in a debating society, " A Mock Parliament ". I appeal to all honorable members to try to understand a little more about the difficulties of the States.

I feel that 'this Government has done a first-class job in the economic field. I am not criticizing it or the amounts that -have been allocated to the States. But I am suggesting that with this system of " by guess or by God ", under which allocations to the States are made each year, the States are not getting a fair deal. I do not think that uniform taxation will ever be altered by any government. I do not think that the formula will be altered by any conference of Premiers. There are too many people profiting at the expense of others -to get a vote in favour of altering the formula.

As I said earlier, before the suspension of sitting, the only independent expert body to which this question could be sent for report is the Commonwealth Grants Commission. Whether the charter of the commission would have to be enlarged slightly or not would not matter. The members of the commission could be appointed a committee of inquiry instead of sitting as .the Grants Commission. These people have had a lot of experience. They have investigated the budgets of three States every year and have compared them with those of the other three States. They have stated in their reports how much the States raise in taxes per head of population. Except for Tasmania, Victoria has raised the highest amount of taxation per head, yet that State is one of the worst off at present.

These people, as an expert body, could furnish an independent report to inform us and the public of their opinions. The onus would still remain on the Federal Government and the Parliament to either accept or reject their recommendations. But it is no good going on blaming uniform taxation, the formula, or anything else for the difficulties of the States. I have said to Victorian State authorities, " The only body that you can appeal to is the Commonwealth Grants Commission. You should ask it for a grant. If your case is good, a grant will be made. The Federal Government has never yet turned down the commission's recommendations. If you can get a grant, that will bust the whole show wide open because then New South Wales and Queensland will apply for grants and the Grants Commission will have to report as to what it thinks is a fair allocation for all the States ".

But it would be far better if, as I suggested in the first place, we asked the commission to report on methods and fields of taxation and name some of the fields in which the States could set the rate of tax even if the Federal Government had to collect it. I do not care whether this would need a constitutional amendment or not. I believe that we will not get responsible government under the federal system as long as one government collects the taxes and other governments spend them. Collecting their own taxes would make the States more responsible. It might result in a rate of excise on liquor in one State different from that in another, or something of the kind, but we should achieve what I think has happened in Canada to a much greater degree, namely that the States would have a wider field in which to collect their own taxes, and they would have a far greater sense of responsibility because they were raising more of their own taxation.

Let me refer to the pay-roll tax in order to give one instance of what is happening. The Commonwealth collects, I think, about £12,000,000 to £15,000,000 in pay-roll tax annually from State and municipal authorities. We then hand it back to the States in the extra amount over and above the formula that we give them. Why should we go to the bother, and accept the responsibility, of collecting it only to hand it back? There are many facets of taxation in respect of which this sort of thing happens and in respect of which procedures could be simplified with a saving of expense to the taxpayers.

Let me quote the example of the Olympic Games in Melbourne in 1956 in order to indicate what happens now. The Federal and State governments were to share equally any profit or loss on the Olympic Games. In mentioning this, I do not suggest that I, as the chairman of the Games, was affected personally, because I was not. Neither government would do as had been done in England, and forgo taxation in connexion with the Olympic Games, because each government was afraid that the other would gain some advantage from such a course. As a consequence, the Olympic Games Organizing Committee paid out some £80,000 in amusement tax and nearly £100,000 in sales tax, customs and excise duties, and other taxes. It even went so far as double customs duty on films. We had to get special film from Germany for the filming of the games, and we paid customs duty on its entry. After the film had been used, it had to go back to Germany for processing, and we paid customs duty on it again when it was returned to Australia after processing. I mention these things in order to emphasize that the Victorian Government could not afford to forgo any taxation. It had to get all it could. Each government, as I have said, was afraid that the other would get some advantage.

In the light of these circumstances, Mr. Speaker, I ask members of the Government, and members of the Parliament generally, not to look on the States as a lot of crybabies. They have big responsibilities. When the reimbursement formula was devised, there was no such thing as immigration, which imposes a much greater burden on the States than does the natural increase of the population. The influx of migrants creates a great demand for schools, hospitals and other social services immediately. Other circumstances also have changed in recent years. Surely, after the time that has elapsed since the introduction of the formula, we are not afraid to have the best, available independent expert body report to us and give reasons for its recommendations so that this Parliament may at least understand better the position in which the State governments find themselves. If we understood their situation better, they would not feel that we were treating them just as outlaws - or as teenagers, as it were, dependent on an allowance of so much a year provided by way of these grants. They would feel that we had a genuine interest in their needs. A report such as I have suggested would probably enable us to devise a satisfactory scheme. Even if we did not accept all the recommendations of the expert body, we could probably allow the States a wider field of taxation within which they could vary their taxation revenue according to the dictates of their individual governments, good or bad as they might be. At any rate, we should have greater responsibility all round.







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