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Wednesday, 17 September 1958


Mr BEAZLEY (Fremantle) .- The honorable member for Wilmot (Mr. Duthie) said that one of the problems in Commowealth and State relations is that the Commonwealth has defined powers which were given to it by the -States. He implied that if the Commonwealth :had ante-dated the States and had .conferred powers on 'the States, we would have had fewer problems. However, we -have a Legislative Council in the 'Northern Territory at present. It is derived from the Commonwealth Parliament, and our relationships with that council seem to be presenting many of the same difficulties as those that exist in our relationships with the States. So I think that what we really have is a problem in division of power which would exist whether, as is the fact, the Commonwealth derived from the States or the States derived from the Commonwealth, which is virtually the situation in relation to the Northern Territory.

There has been a tendency in the course of the debate to regard Commonwealth grants to the States as favours conferred upon the States. Some suggestions have been made that we need a new analysis of the constitution. It seems to me that one of the most urgent problems in Australia is the need for a rationalization of taxation. Certain things in our relations with the States are completely foolish. For instance, we impose pay-roll tax on the States. Some of the States pay millions of pounds to the Commonwealth in pay-roll tax. The Commonwealth makes grants to the States so that the States can pay it back to the Commonwealth as pay-roll tax. What earthly sense is there in that! A much more intelligent development would be for us to exempt the States from the payment of pay-roll tax altogether. The Commonwealth would lose absolutely nothing, because it has to grant money to the States so that the States can pay it. But there would be a reduction in the States' costs.

We also impose sales tax upon the States. It would be very difficult to assess exactly how much the States ultimately pay on the commodities that are used by their departments, but it is quite clear that, as this amount is included as an additional cost to the States, the Commonwealth eventually must grant it to them. Then we impose tariffs on the States. The States wish to import, say, locomotives, railway rolling stock, diesel engines or diesel buses. The tariff is imposed when they are imported. This increases the States' costs, and the Commonwealth then grants to the States the money necessary to pay the tariff.

What we need to do is to return to what I think was the intelligence of the original idea in thinking on the problems of federation. I refer to the doctrine of the immunity of instrumentalities, which meant that Commonwealth instrumentalities were immune from State tax and State action, and State instrumentalities were immune from Commonwealth tax and Commonwealth action.

The report of the Royal Commission on the Constitution, which was presented in 1929, and the evidence that was presented as an accompanying volume, provide an absolute mine of information on the working over the years of the Federal taxation system in relation to the States. There was a stage when, shall we say, a State like Western Australia, which was laying thousands of miles of railway lines, was forced by the tariff to purchase railway lines in Australia at a much higher price than it could have obtained them from the United Kingdom. That may be right, or it may be wrong, but it increased the indebtedness of the State and increased the cost of all its public works. Though that is clearly shown in the heavy capital expenditure on railways in the first 25 years of federation, as set out in the evidence given before the Royal Commission on the Constitution, it must be equally true to-day that in the Federal taxes imposed on the States there is the same tendency, and because the Commonwealth Government must grant to the States the means of paying these taxes, there is absolutely nothing to be said in their defence. The Commonwealth Government gains nothing from them because it is a self-balancing item; to the States, they increase costs. There is an urgent need for a rationalization of these taxes.

The second matter with which I want to deal is the problem of some of the purely agricultural States. I imagine that what I am going to say applies to Tasmania, but I wish merely to make the point in relation to Western Australia, whose relationship with the industrialized eastern seaboard is precisely the same as New Zealand's relationship with the industrialized eastern seaboard. New Zealand sent to this country, if I remember the round figures of the last year's trade that I looked at, about £6,000,000 or £7,000,000 worth of goods and it received, really from the industrialized eastern seaboard of Australia, about £42,000,000 worth of goods. There is a six or seven to one trade ratio in Australia's favour.

Western Australia's relationship with the eastern States is precisely similar. For the last year that I looked at, Western Australia imported £93,000,000 worth of manufactured goods, mainly from Victoria and New South Wales, and it sent back to them £19,000,000 worth. I am not saying that that is an anti-Western Australian plot. It rests simply on the fact that Western Australia does not possess the kind of goods that the eastern States want. But the truth is that Western Australia conducts its trade with the eastern seaboard of this country in exactly the same way as New Zealand does - in a triangular manner through London. In other words, we have a favorable trade balance in our agricultural exports to the United Kingdom, and that ultimately accumulates the funds which balance the trade of the western seaboard of this Commonwealth of Australia with the eastern seaboard. I am not making any point about that.

Previously in the House I have made the point that the whole tariff policy of the Commonwealth favoured the development of industries in two States and that uniform taxation, if it gives back to Western Australia more than Western Australia pays in taxation, is only now a belated compensation for the fact that the way federation worked over the years before uniform taxation was exactly the opposite. Every cost that the Western Australian community had to meet was increased by federal tariffs, and at that, stage they gained nothing commensurate from having entered the federation. Now, to an extent, that is offset by uniform taxation. I feel that Mr. Bolte, Mr. Cahill and others who constantly speak about the gains of the claimant States under uniform taxation ignore the extent to which federal tariffs have created industries within their States that are sources of taxable revenue and overlook the fact that, without the federal fiscal policies, the industries would not have been located in those States.

I do not want to labour that point. What I do want to speak about is the enormous cost to Western Australia of our heavy transport charges. I raise this matter to re-inforce my point on sales tax. I have heard many denunciations in this House of the Australian overseas shipping combines, but I have never heard an explanation that satisfied me of why it cost more to shift trochus shell from Cairns to Brisbane than from Cairns to Hamburg on a Commonwealth Government ship - never mind about a private enterprise ship - when the Commonwealth was running its own line. Why does it cost more to ship wool from

Fremantle to Melbourne than from Melbourne to London? Transport costs between points on our coastline are enormous. Consider the position of Western Australia, which receives £93,000,000 worth of goods interstate and sends away only £19,000,000 worth interstate. Federal sales tax is calculated after transport costs have been added.

It has been well said that Australia produces some of the finest and cheapest steel in the world. It is cheap until you try to move it. The moment you try to move anything in Australia, fantastic transport costs begin to show themselves. The honorable member for Isaacs (Mr. Haworth) has said that our transport costs are one third of our gross domestic expenditure, and that they are higher than anywhere else in the world. Western Australia, in importing £93,000,000 worth of goods, has to contend with freight charges between Melbourne and Fremantle that are higher than the freight charges between Melbourne and London. On top of that comes the federal sales tax. If you buy a pair of sandshoes in Sydney at a certain price, the sales tax is lower than if those sandshoes are shifted to a New South Wales country town. If the price is higher, the amount of sales tax is higher. Western Australia pays more sales tax on a particular article that is shifted interstate because of the freight component that has gone into its price as it is moved around the Australian coast.


Mr Graham - Is not the cost of living in Western Australia lower than in the Eastern States?


Mr BEAZLEY - Yes, but I do not think that the manufactured goods that people buy and live with to-day affect the assessment of the cost of living to a very great extent. 1 am speaking about the imposition of sales tax on State governments. I think that sales tax is bad altogether, but I am not at the moment, since we are discussing a States grants bill doing anything more than reinforce my point that the Government of Western Australia pays more in sales tax to the Commonwealth for the goods that it buys, because of interstate freight, and then has to be reimbursed for that expenditure by the Commonwealth. The sales tax nevertheless adds to the cost of government of the State without in any way being to the advantage of the Commonwealth. lt' is. time that a- committee was. set up.- to inquire into, the whole-, field, of taxation, to consider the: rationality, of, taxes, and the extent to which .they, are. competing with one another.. We must ask ourselves whether it is. any use imposing taxes, on the. States, and them granting them- money to. pay. those, taxes. Australia is- beginning to get like pre-revolutionary France; which had innumerable imposts internally - all sorts of taxes - and as goods moved they got dearer and dearer. There is no difference in principle between a sales tax- imposed on top of freight costs, and actually putting tolls along the roads and asking for payments. The further the goods move, the higher the tax you pay. A sales tax that is imposed on top of freight operates in exactly the same way as tolls on the road. The further the goods move, the higher- is the amount of tax paid. I feel- that as well as just looking at this question of how generous we are in making grants to the States, we should look intelligently to see how far, with no advantage to ourselves, we are impeding the work of. the State Governments by irrational taxes. Let us see if we cannot get back to the earlier federal doctrine that State instrumentalities shall be immune from Federal taxes. That would be a step towards rationalizing our tax relationship with the States.







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