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Tuesday, 31 July 1906

Copy of a Memorandum by Sir John Forrest, dated 25TH September, 1905.

The Honorable the Prime Minister.

In my Budget speech of the 22nd August, I said - " Unless some arrangement can be made under which a fixed sum shall be returned to the States each year, it seems to me that we have no alternative but to continue the bookkeeping method - at any rate until the expiration of Section 87 of the Constitution." (Hansard, p. 121 1.)

And again - " I am of opinion that the bookkeeping system will never be acceptable as a permanent system to the people of Australia. It hampers both States and' Commonwealth, and, although it has beer serviceable and will do good service for years to come, it cannot be looked upon as a permanent arrangement." (Hansard, p. 1211.)

And again - " My judgment leads me to believe that it will be found advisable to consider whether it is not possible to adopt the Canadian plan or some scheme which will be equitable and acceptable, under which' it might be agreed that a fixed' amount, subject, if necessary, to periodical adjustment, should be annually returnable to each State. If some such- proposal could be given effect the Commonwealth and the States' would be in a position of. financial independence, and would be able to work out their financial 'problems in their own way." (Hansard, p. 1217.)

2.   The more I have considered this question the more I am convinced that the plan outlined in my Budget speech, and now proposed by the Premier of New South Wales (Mr. Carruthers), is the only one that will be permanently satisfactory to the Commonwealth and to the States.

3.   It is scarcely likely that the Federal Parliament will continue the Braddon Clause beyond the 31st December, 1910, and, therefore, after that date, the whole Customs and Excise revenue will be at the disposal of the Commonwealth, subject only to the provision in Section 94 of the Constitution that " the Parliament mayprovide on such basis as it deems fair for the monthly payment to the several States of all surplus revenue of the Commonwealth."

4.   The taking over by the Commonwealth of the State Debts is not necessarily connected with the return of any surplus revenue to the States, as, whether the Debts are taken over or not, the States will have to pay the interest. The necessities of- the States in this respect cannot, however, be ignored by the Commonwealth, as they have at the present time to pay £8,400,000 annually in interest on their Public Debts, and largely rely upon the surplus returned' by the Commonwealth to enable them to do so. There cannot in any case, I think, be any doubt as to the accuracy of the statement in my Budget speech - " That the Commonwealth, with its great and exclusive 'power over Customs taxation, is .in a far stronger and better position to deal with- this great financial matter than are the States, either collectively or separately." (Hansard, p. 1216.)

5.   But the taking over of the States Debts under Section 105 of the Constitution will in no way limit the spending power of the Commonwealth after the 31st December, 19 10, as Section 105 provides that- " The States shall indemnify the Commonwealth in respect of the debts taken over, and thereafter the interest 'payable in respect of the debts shall be deducted and retained from the portion of the surplus revenue of the Commonwealth, payable to the several States, or if such surplus is insufficient, or if there is no surplus, then the deficiency or the whole amount shall be paid by the several States."

It will be noticed that the Constitution even seems to infer the possibility of there being no surplus returnable to the States by the word's used, viz., "or if such surplus is insufficient, or if there is no surplus then the deficiency or the whole amount shall be paid by the several States."

6.   Unless, therefore, some mutually satisfactory arrangement is arrived at between the Commonwealth and the States before the end of 1910, the States will have to rely solely upon the Commonwealth Parliament, and not upon any legal obligation, in respect of the return of surplus revenue.

7.   That being so, it is manifestly a very urgent and important matter for the States that no time should be lost in endeavouring to make a binding arrangement with the Commonwealth in regard to the amount to be annually returned to them after the end of 1910.

8.   The duty of the Commonwealth and the States is, of course, to do that which is best for Australia as a whole, and viewing the question solely from that stand-point, the proposal foreshadowed in my Budget speech, and now submittedby the Government of New South Wales, seemsto me the only possible satisfactory basis for the future in the interests of boththe Commonwealth and the States.

9.   The proposals of the Premier of New South Wales (Mr. Carruthers) are -

(a)   The return of an adequate fixed amount of the Customs revenue to each State on the expiration of the Braddon Clause.

(b)   The continuation of the bookkeeping period to the end of 1910 (the expiration of the Braddon Clause).

10.   The effect of this proposal would be that -

(1)   The States would be no longer under any financial obligation to, the Commonwealth, and would know exactly what amount they were to annually receive.

(2)   The Comomnwealth would have the responsibility of making its own financialarrangements, and of raising what revenue it required to carry out its obligations.

(3)   Both the Commonwealth and the States would have the burden of making both end's meet, and not as would be the case in the future if no arrangement is come to, that burden beingaltogether (as it is at present) placed upon the States.

11.   The solvency and prosperity of the States must always be of vital importance to the Commonwealth Parliament, and, therefore, although it may be thought by some that in giving favorable consideration to the proposals of the Premier of New South Wales (Mr. Carruthers) the Commonwealth is relinquishing some of its powers, I am of opinion that to do so will be to the advantage of Australia, and I also believe that to do so will not be acting contrary to the real spirit of the Constitution.

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