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Wednesday, 17 September 1958


Mr TURNER (Bradfield) .- The honorable member for Port Adelaide (Mr. Thompson) has looked upon the complexities involved in the financial relationship between the Commonwealth and States and has arrived at a solution. His solution is to cut the Gordian Knot. He is a unificationist. He agrees with those simple minds who believe that if you have a lot of troubles, you put them on the shoulders of one man or one body of men and he or they produce the answer. The thing is much more difficult than that. I have not the time to pursue that argument as far as I would like to go, but I would say simply that if all the problems of government in Australia were laid on the shoulders of one government, the electors would be much more, bewildered than they are now. They would have to vote for one party or another;, for one set of policies or another set. An. elector might believe, in the policy of a. party on education but completely dis? believe in its policy on immigration,, for example. He would not be able to exercise any real choice at all. It, is not without reason. that the complex issues that.confront a country, like this are divided/ between two sets, of governments. If there were no other - reason, that, would be sufficient but I have not. the time, to pursue these argu-ments.

The honorable member for Port- Adelaide also discussed another matter which was first put- forward by- the honorable member for Stirling (Mr. Webb)' who led for the Opposition, in this debate. It should be answered because it has not' been answered yet. He complained that- when the Commonwealth Government; having raised money by taxation, provides it for- the States capital works, it then> charges these States interest on- the money. He considered that that was unjust. I> think the honorable member for Stirling said; in effect, "We are all' one family, so why should' the Commonwealth charge any interest to the States? " The reason' is that the money does not belong to the Commonwealth Government It belongs to- the taxpayers. The taxpayer is providing, that money for development in the States^ - development that presumably will increase the productivity of those States. If that money had to be raised in the normal way on- the loan market, the States would have to pay interest. They could1 afford to do so because of. the increased productivity aris-n ing. from its expenditure. When the. Commonwealth lends the taxpayers' money, it is entitled to a return on that money on behalf of the taxpayers so that it does not have to go back to the taxpayers to raise more taxes, than, is necessary. That is sufficient justification for charging interest.

L should, like to refer to another complaint by. the honorable member for Stirling before I get to my main, thesis, and that- is the paramountcy, if I may put it that way, of. the Commonwealth Govern.ment, at Australian Loan Council meetings. He seemed to indicate that if the Loan Council considered that it ought to raise not £210,000,000,, but £250,000j000 or £300,000,000, the Loan Council, having reached that decision by. the. vote of the majority, of. the. States, fixed that figure. He- overlooks^ the fact that the. loan market will yield in, the current, financial year perhaps £110,000,000,, and. the. balance, has to be. made good by the Commonwealth out of" the taxpayers' money. In other words, he believes apparently that the majority of the States should be able to tell the Commonwealth Government how much money it should' be. compelled to raise from the taxpayers for the capital works of. the States. Such a proposition, is, absolutely absurd; It is quite plain that the last word must rest with the Commonwealth.

I do not propose- to deal- f further with the matters raised1 by the Opposition because there, is. no time, and I turn to the- hill before- the: House. What does the bill' purport to do? Under the formula that dictates the- reimbursements the States shall receive- from the Commonwealth for ordinary purposes of government, the States will gee a certain sum of money. That amount- will' be increased' by the bill. The amount to be provided for the States this year is £205,000;000, including £30;400,000 that has been added' by this measure. Last year, the sum provided for the States was £190,000,000. Then £24,145,000 had to be added by- legislation on a parallel with the bill before the House now.

The fact is that this is not a new and extraordinary ad hoc allocation to the States. This is something that has happened year after year, I think, almost ever since this Government was elected to office. That' means- that ever- since about 1950-5-1', a sum has been provided under bills similar to this one in addition to what has been owing to the States under the reimbursement formula.

In almost every year also, the Commonwealth has sustained the loan raisings by the addition of a further sum for capital works for the States.

Almost every honorable member who has spoken on this measure is convinced, by reason of these votes, that there is something badly wrong with the financial relationship between the Commonwealth and the States. Something is badly wrong when we find that every year since this Government came to office, there had to be a further allocation in addition to the reimbursements and a sum had to be provided for capital works besides what the Loan Council could raise on the market. You do not have to be very perceptive to realize that there is something fundamentally wrong under the present arrangements.

The formula has failed; that is evident. Honorable members may ask why. Anybody hearing this debate or reading it in " Hansard ", might suppose that the formula was out of date because it did not take account of the growth of population, the decline in the value of money and other factors which have varied since the formula was first devised, but this is not a fact. The fact is that the formula does take into account the rise in the population of the States. It does take into account the change in the value of money. It takes into account the changing average wages. You might suppose that if the formula was unsatisfactory, something might have been done to revise it, but the fact is that existing legislation provides for this. Section 10 of the States Grants (Tax Reimbursement) Act 1946-1948 states -

If, at any time -

(a)   after the thirtieth day of June, One thousand nine hundred and fifty-three; or the Government of any State so requests, the Government of the Commonwealth shall enter into consultation with the Governments of the States with a view to determining whether any change is desirable in the method provided by this Act for calculating the aggregate grant and the distribution thereof amongst the States.

So if at any time the States were not satisfied with the formula, any one of them could have approached the Commonwealth with a view to a revision of it. That has not happened. Is that because they are satisfied' with it? Not at all! They are continually complaining about the formula.

Now I want to deal with a rather different aspect from that which was raised by thehonorable member for Chisholm. Mostly, those who have spoken in this debate have taken the view that " the hungry sheep look up and are not fed ", and that the States deserve to have more than they get, but there is also a different view upon that matter. I look, for the sake of illustration, to the situation in the State of New South Wales.


Mr Daly - You are always looking that way.


Mr TURNER - Naturally. I come from that State, I am familiar with its affairs, and it provides a very good example of the point I am trying to make. Naturally. I am looking to the State of New South Wales. Transport losses in that State since the war and up to the present time amount to over £100,000,000. That is a substantial sum of money. I do not want to go into too much detail, but lest, say, the honorable member for Dalley (Mr. O'Connor) should disbelieve me and think that I cannot prove the figure, I point out that this £100,000,000 odd is made up of annual transport deficits which aggregate £54,000,000, and in addition various hidden subsidies. For example, there is a road tax imposed on road hauliers which is paid to the railways to compensate them for loss of business. The honorable member for Chisholm did not seem to know about that. There is the annual subsidy provided towards losses incurred by the railways on developmental lines. There is the contribution from Consolidated Revenue to the railways superannuation scheme. There was a special grant made for losses incurred during the 1948 coal strike. Special freight concessions are given to primary producers; at least, the Government compensates the railways for freight concessions given to primary producers in certain circumstances. In addition, out of Consolidated Revenue is provided some compensation for coaching concessions to various classes of travellers.

The same thing happens with regard to road transport. There is a contribution from Consolidated Revenue to the superannuation fund. There was a special grant in respect of the coal strike. There was a special grant for the removal of tram tracks and the restoration of roads, and a special compensation for certain travelling concessions. There is no need for me to go into detail, but all of these add up to £100,000,000 since the end of the war.

Then again, there is another charge upon the State of New South Wales, which ought not to be, and would not be imposed upon it if it were properly conducted. That is to be found in interest charges upon uncompleted public works. An amount of £28,000,000 has been spent since the war on public works begun years ago that have not yet been completed, and therefore there is no return on the £28,000,000 that has been invested. I refer to such works as the Eastern Suburbs railway, the Sandy Hollow-Maryvale railway, and the Keepit, Burrendong and Glenbawn dams. Again, £90,000,000 has been spent since 1951, in providing for the generation of electricity in New South Wales, and I have no doubt at all that a great deal of that £90,000,000 might have been obtained from private sources if the Government of that State had been prepared to invite private enterprise into that field. In a country that is so short of savings as Australia is, and that requires development as badly as Australia does, surely it is wrong that a State should embark upon a policy that excludes the savings that might have been available from outside this country.

The Government of New South Wales has embarked upon costly policies, such as basic wage adjustments. Each ls. increase in the State basic wage costs the New South Wales Government £300,000 annually. The State basic wage to-day is 6s. above the Commonwealth basic wage, which means an annual cost of £1,800,000. In addition, the Government of New South Wales is proposing to introduce equal pay legislation, which will affect at least 20,000 women employees in the public service of that State. I do not want to go into great detail about all these matters. They are all costly things upon which the State has embarked and upon which it need not have embarked, and they all have to be paid for by Commonwealth grants, for example, by the particular grant with which we are concerned in this measure. I will not say that the Commonwealth is blameless, either, and I shall have a word to say about that before ! conclude.

Meanwhile, I say that there is much the matter with the present financial relationships between the Commonwealth and the States. That is something which is very apparent in all that I have said and in what all of us have heard in the course of the debate. What is the answer? Surely, as the honorable member for Chisholm said, there is room for a revision of the existing formula and strict adherence to a revised formula. The honorable member for Chisholm, as I understand him, has suggested that the Commonwealth Grants Commission might be a suitable body to decide how much the States should receive each year, just as it adjudicates each year on the applications of the claimant States. I should like the Commonwealth Grants Commission, or some other arbitral body jointly agreed upon by the Commonwealth and the States, to revise the formula itself. I do not suggest a special inquiry each year, or from year to year, but rather an inquiry by the Commonwealth Grants Commission or some other arbitrator agreed upon by the governments concerned, which would revise the formula.

Of course, it might be that after a certain length of time, say ten years, it would need further revision, and it could be revised in the same way again. There is no need even for the agreement of the States to do this. If we feel that nothing can be done unless the Commonwealth and the States agree, and therefore no attempt is made to do anything, we have reached the position of immobilism of the former French government. There is no reason on earth why the Commonwealth should not set in motion such an inquiry. I imagine that the States would co-operate in the appointment of an arbitral body or committee, but if they did not do so the Commonwealth could still go ahead and make grants on the basis of the recommendations of a committee of that kind, which might very well receive general acceptance throughout the country - whether the States co-operated or whether they did not. On that basis, grants could be made in the future and adhered to. I would not suggest that that would solve the whole problem, because reimbursements are not the beginning and the end of the financial relationships between the Commonwealth and the States. There is also the problem of some subvention, some underwriting - call it what you like - of public works expenditure by the States. Of course, a revision of the formula would not solve that problem. That would still remain.

Now I come to a second point with regard to the solution of this problem. That is a proposal that the honorable member for Chisholm made, and that I also intended to raise, for either a redivision of the tax field between the Commonwealth and the States or a re-allocation of the functions of the Commonwealth and the States to bring them into conformity with the present tax resources of each, or some revised arrangement of the tax field between the two. The honorable member for Chisholm suggested, for example, that the States might be given access to the whole, or a part of the field of excise on beer, petrol, and perhaps tobacco. I think that that raises some difficulties, because obviously from a practical point of view, a single rate would have to be struck for excise for the whole of the Commonwealth, and that would still leave it open to the State of New South Wales, for example, to say that it would not consider imposing such and such an excise on beer, but that it was compelled to impose that rate because the other States insisted on it; and so the States could still pass the buck amongst themselves. In any case, the transfer of some of these taxation powers, at least by way of an agreement by the Commonwealth to collect on behalf of the States, might still not solve the problem of a subvention for capital works. An argument that might be raised is that although the Commonwealth might agree to accept the rate fixed by the States in respect of excise, the States might say, " We would not raise the money by way of excise at all. We would rather raise it by direct taxation. We would rather have access to the field of income tax." So, again, they would pass the buck to the Commonwealth Government and say, " We would have raised this money not by excise but by income tax ".

Again it is possible that the States might be given access to the field of income tax. They might take back from the Commonwealth as much as 40 per cent, of the income tax field.

This is the system which existed before uniform taxation was introduced. Both Commonwealth and :State Governments had access to the one field and it worked fairly well except for one thing - 'the difficulty of assessing taxation on income derived from more than one State. This raised a very great difficulty. A second difficulty was involved with regard to assessment of tax. Under a State law certain moneys might be regarded as income but under the Commonwealth law they might or might not be. That could be overcome by an agreement upon a uniform assessment formula. The difficulty in regard to income derived from more than one State would at least be less of a problem in the case of individual income tax than in the case of company tax. Under no circumstances could one envisage company tax being handed over to the States because it would involve the problem of income earned in more than one State.

I -mentioned a second aspect. I have already dealt with the redivision of the taxation field. Now I wish to refer to the redistribution of responsibilities. There has been an agitation of late from the teachers unions for the handing over of education to the Commonwealth. That is not the kind of solution I would advocate but nevertheless it is possible that there could be a redistribution of responsibilities as well as a redistribution of taxing fields. Some of these things could be done without reaching a full agreement between all the States and the Commonwealth. For example, section 96 of the Commonwealth Constitution could well be used so far as the division of responsibilities is concerned. It has been used already. As for a formula, I said earlier that the Commonwealth could go ahead on that without necessarily having a complete agreement with all the States. Therefore, there is an opportunity to do something about these problems.

The subvention of capital works by the States involves two very grave problems. The first is the tremendous demand for capital in a strongly developing economy as a result of the dynamic of immigration and other things. This strong demand for capital makes it difficult for the Commonwealth and any other body which needs capital to get as much as they would like and at a rate that is satisfactory to them. The second factor in the situation, apart. from this demand for capital which cannot be satisfied by savings, is the continuous, creeping, -inexorable inflation which has been part and parcel of the economy since the war and which, I believe, is likely to continue as far as we can see ahead. It is trite to -say that no man in his sane senses would lend £100 to the Government on a promise to receive back in ten years' time a nominal £100, which might be worth only 100s. As a consequence governments are not in a strong position to get people to lend money so long as they can put it into shares that are not so inflatable. This is the reason behind the growth and strength of unit investment companies.

Until the burden of developing the Commonwealth can be shifted off the backs of the taxpayers more on to the shoulders of the investors, the whole problem of financial relations between the Commonwealth and States will be bedevilled by this additional amount of money which has to be raised from year to year. I cannot suggest a solution to this problem at the moment, but I believe that a solution must be found. Our fundamental problem is that, at the present time, there is no one authority in the Commonwealth which takes a collective view, a conspectus, of the whole range of the requirements of Australia. There is no one authority which balances up the requirements of things such as defence on the one hand and the requirements of, say, education on the other hand. The Premiers conference might have become such a body, but it has not. The result has been, above all, the demoralization of the States. I have referred to wasteful government expenditure and quoted New South Wales as an example, and also to this sort of extravagance in the Commonwealth field.

Here let me observe that there were those, in the past, who argued that if a proportion of the cost of capital works was met from taxation revenue this would result in greater vigilance on the part of governments. It was said that no government would wish to raise money by taxation and risk the hostility of the community by wasteful expenditure, but would be very careful as to how it husbanded and spent the money. Although that argument was attractive at the time, experience showed that it had no substance at all. I believe that 'because money is raised by way of taxation, the feeling of this Government, or of a State government for that matter, is, " Well, we do not have to pay any interest on the money; it is raised by way of taxation; it is taken from the taxpayer for all time; we do not have to pay interest on it, and it does not matter how we spend it". When you have to pay interest on money, you do 'have some concern that you spend it in such a way that you increase the productivity of the community. That is a strong argument in support of the statement that we -suffer from a great deal of extravagant expenditure both by Commonwealth and State governments because so much tax revenue is devoted to government purposes.

I believe that where there is a will there is a way. If we really wish to put financial relations between Commonwealth and State governments on a proper basis, I believe a solution can be found. The fact is that we have not tried very hard because the present arrangement has suited the Treasury. The Government has been so hardpressed that it has not had time to think about these minor issues, and the Labour party is all in favour of unification anyhow. Therefore, we have not really bent our minds and energies to the task.

But it can be done. Although a thousand objections may be raised to any course that is suggested, I believe that a solution can be found. What has not been done in this twenty-second Parliament remains as a task for the twenty-third Parliament. We can no longer burke this issue. It must be settled as well as that of getting the cost of capital works off the backs of the taxpayers and on to the shoulders of the investors. These are fundamental problems which must be solved and if this Parliament has not succeeded in doing so, then the next must tackle them.







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