14 November 1950

19th Parliament · 1st Session

The President (Senator the Hon. Gordon Brown) took the chair at 3 p.m., and read prayers.


Assent to the following bills reported * -

Loan (Housing) Bill 1950.

Customs Tariff Bill 1950.

Customs Tariff (New Zealand Preference) Bill 10S0.

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Senator ARNOLD:

– Has the Minister for Trade and Customs seen the statement in to-day’s issue of the Newcastle Morning Herald that the President of South Korea, Singhman Rhee, stated at a press conference that when the Communists are driven back across the Yalu River, it will not mean the end of the war and that there cannot be ‘peace until after ‘the world struggle between democracy and communism has been settled and Communist leaders are convinced that they should not try to rule the world? Does the Australian Government agree with that statement 1 Is it the intention of the Government to use the Australian forces at present in Korea in any other possible sphere of warfare?

Minister for Trade and Customs · QUEENSLAND · LP

– I have not seen the statement to which the honorable senator h*s referred. The use of Australian troops in spheres other than Korea has not been considered by the Government.

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Senator COOPER:
Minister for Repatriation · QUEENSLAND · CP

– On the 17th October, Senator Robertson asked me the following question -

Will the Minister representing the Minister for Health consider the taking of a census for the purpose of ascertaining the number of disabled children, including spastics, cripples and those suffering from rubella, so that a unified form of treatment and education may he provided in each State?

The Minister for Health has supplied the following reply: -

In order to obtain the desired information it has been necessary to refer the honorable senator’s question to the State Departments of Health, which have now furnished the following figures in regard to disabled children in the categories of spastics, cripples, sufferers from after-effects of poliomyelitis and those having congenital defects following maternal rubella: - Victoria, 2,665 known cases; New South Wales, 2,433 known cases; South Australia, 1,253 estimated cases; Western Australia, 500 known cases; and Tasmania, 950 known cases; no information is available from Queensland.

It will be appreciated that these figures are incomplete and, in ‘the main, assess only known cases in institutions. It is .probable that there are at least as many cases again which arc unknown and have not been reported.

No figures are available which would shed further light on the position.

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Senator O’BYRNE:

– Is the Minister representing the Minister for Works and Housing aware that many ex-servicemen are dissatisfied with the undue delays being experienced in obtaining advances, and action in other directions, from the War Service Homes Division, and that for some time recently the Tasmanian branch was short of funds for advances? Will the Minister have inquiries made into this matter, through the medium of ex-servicemen’s organizations in the various States, and seek evidence of specific cases of dissatisfaction and delay, ‘with a view to clearing up the criticism that is being levelled at the war service homes administration?

Senator SPOONER:
Minister for Social Services · NEW SOUTH WALES · LP

– I am not able to give an undertaking that the Minister will be prepared to hold an inquiry into the administration of the department. T know that he has given the subject a great deal of attention, and that he has taken appropriate action as the result of complaints that have been made. Not all of those complaints have been justified, because the War Service Homes Division generally provides very good service to ex-servicemen. The division has made extraordinary expansion over recent years. I have not the figures in my mind, but as evidence of the growth of the department, I inform honorable senators that the grant this year represents an increase of more than 50 per cent, over the appropriation for last year. When the number of transactions dealt with increases as rapidly as that, an expanding organization is required to deal with them, and there may bc some consequent delays from time to time. By and large, however, the War Service Homes Division is performing an effective job.

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Senator AMOUR:

– Can the Minister representing the Postmaster-General state whether it is a fact that in December, 1949, the general manager of the Australian Broadcasting Commission recommended that week-end penalty rates be paid to journalists, typists, and announcers employed by the Australian Broadcasting Commission? Is the Minister able to say whether the general manager of the commission has since recommended that the payment of weekend penalty rates be discontinued? the Minister aware that the Australian Broadcasting Commission Staff Association is incensed by the action of the general manager and intends to take a vote on the holding of a strike on the 2nd December? If the foregoing statements are true, will the Minister tak action to restore the payment of weekend penalty rates in order that industrial peace may be maintained within the Australian Broadcasting Commission?

Senator COOPER:

– The Australian Broadcasting Commission, as an independent body, controls its own affairs. It has done an excellent job. One of its duties is to ensure that the organization shall be run as well and as efficiently as possible. It expends over £2,000,000 of the taxpayers’ money each year. I shall bring to the notice of the PostmasterGeneral the question that the honorable senator has asked and supply an answer to it as soon as possible.

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Senator COOPER:

– -On the 1st November, Senator Robertson asked the following question: -

As broadcasting and television are affected by atmospherics and land contour, will the Minister representing: the Postmaster-General reconsider the decision to install only one experimental station at Sydney, New South Wales, and consider the provision of a second station, situated’ at Perth, to enable a better overall experiment to be conducted?

The Postmaster-General has supplied the following answer : -

At this stage, there would be no advantages from a technical view-point in adopting the honorable senator’s suggestion. As already announced, it is the intention of the Government to develop television on a gradual scale in Australia, and the desirability of extending the service to other capital cities is to be considered from- time to time in the light of experience with the proposed Sydney installation.

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Senator COOKE:

– Does the Minister for Trade and. Customs recollect that approximately six weeks ago I requested that a copy of the minutes of the last conference of Commonwealth and State Ministers be tabled, for the information of the Senate, and’ that he said then that the minutes would be printed ultimately? Since then I have inquired on several occasions whether copies of the minutes are available and have been told, that they are not. Will the Minister, before introducing bills relating’ to- the reimbursement of the States in respect of taxation revenue, table a copy of the minutes of the conference?


– I recollect the honorable senator asking the- question, to which he has referred. I believe that in replying to the question I was corrected by Senator McKenna, who pointed out that reports of the proceedings of conferences of Commonwealth and State Ministers are public documents. If the report, of the conference to which Senator Cooke has referred has been published, a copy of it Can be obtained from the Clerk of the Papers.. I do not think it has been the practice in the past to table documents of that kind. I have- not made inquiries regarding the availability of the report, but I shall do so.

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Senator SCOTT:

asked the Minister representing the Minister for Commerce and Agriculture, upon notice -

Is it a fact that, in order to ensure greater production of primary produce in Western

Australia, there must tie made available to the producer a greater quantity of superphosphate; if so, (ft) will the Minister consider the possibility of importing superphosphate until the1 manufacturing companies are in a position to cope with the demand, and (8) will he consider spreading the price so that all superphosphate of the same grade can be charged to the consumer at the same price?

Senator McLEAY:

– The Minister for Commerce and Agriculture has supplied the following answer: -

From information available to the Common,wealth, it is understood that the present shortage of superphosphate in Western Australia is not sufficiently significant to seriously interfere with agricultural production in that State. The importation of superphosphate into Australia rs not considered to be an economic proposition at present for the reasons that superphosphate made overseas is a lower grade than superphosphate now being made in Australia and that it would probably need reprocessing on arrival. The Commonwealth Government has no control over the selling prices of superphosphate.

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asked the Minister representing the Minister for Commerce and- Agriculture,, upon notice -

  1. Is it a fact that there is a shortage of white sugar in parts of Queensland, especially in the north, and that many people can only obtain brown, sugar?
  2. If so, will the Minister ascertain the reasons for this shortage?
Senator McLEAY:
Minister for Fuel, Shipping and Transport · SOUTH AUSTRALIA · LP

– The Minister for Commerce and Agriculture has supplied the following answers : -

  1. I have no particular information concerning the refined sugar supply position in individual towns and districts- in Queensland’.

Sugar distribution is, of course, in the hands of wholesalers, and retailers and it would require a most extensive investigation to ascertain the exact position in each area.

My information is that Queensland is in a better position than, other States in regard to stocks of- refined sugar.

  1. Production, and- distribution: of refined sugar in Australia, have been affected by transport difficulties, shortages of coal, insufficient labour and industrial disturbances. These are the main reasons which account for shortages occurring from time to time in different districts.

Delays have occurred recently in shipments of refined sugar from Brisbane to Townsville due to ‘industrial disputes on certain ships. However, cargoes- of refined sugar have been despatched to. Townsville and’ Cairns during the last few days which will relieve the position in northern Queensland’.

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Motion (by Senator Annabelle Rankin) - loy leave - agreed to -

That leave of absence for four weeks be granted to Senator Wright on account of absence overseas.

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Bill received, from the House of Representatives:

Standing Orders suspended.

Bill (on motion by Senator Spooner) read a first time.

Second Reading1

Senator SPOONER:
Minister for Social Services · New South Wales · LP

– I move -

That the bill be now read a second time.

Provision is made in the 1950-51 budget for expenditure from loan funds of £25,000,000 for war service homes, and £4,000,000 for war service land settlement. This bill seeks parliamentary authority for the raising and expending, of these moneys. The amount of £25,000,000 for war service homes is required for expenditure under the War Service Homes Act to assist exservicemen to obtain homes. Under that act, the War Service Homes Division purchases and develops estates for housing, finances both individual and group: housing projects, and makes advances for the purchase, of existing properties, or the discharge of existing mortgages. War service homes expenditure, in the* financial year 1949-50,. amounted to £16,000,000 from consolidated revenue and trust fund balances. The expenditure now proposed thus represents, an increase of 55 per cent, over that of the previous year. It is expected that about 15,000 houses will be made available to ex-service personnel in this financial year.

The amount of £4,000,000 included for war service land settlement is to be paid to the States as financial assistance for the settlement of ex-servicemen on the land. This expenditure is designed to assist the States of South Australia, Western Australia and Tasmania in acquiring, developing and improving land, for subdivision into holdings, which will be allotted to ex-servicemen, and in providing’ credit facilities for the settlers. In the other States, the provision of capital moneys for these purposes is a. responsibility of the State Government concerned. Financial assistance to all the States for other expenditure on war service land settlement, such as living allowances for settlers, the writing down of the value of holdings, &c, amounting to £1,180,000 in 1950-51, will be paid by the Commonwealth from the Consolidated Revenue Fund.

Debate (on motion by Senator Armstrong-) adjourned.

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Second Reading

Debate resumed from the 9th November (vide page 2141), on motion by Senator Spooner -

That the bill be now read a second time.

Senator ASHLEY:
Leader of the Opposition · New South Wales

– This bill provides £5,000,000 to reimburse the States for the cost of collecting income tax. There is general dissatisfaction amongst all the States with the compensation that they are receiving for having vacated the’ field of income tax. The States Grants (Income Tax Reimbursement) Act was passed in 1942 to provide for the payment each year of compensation to the States for having vacated the income tax field. The act provided that, each year, the States should be paid the following sums of money, less amounts equal to any arrears of tax collected by the States: -

Every year since that time there has been disputation between the States and the Commonwealth over the compensation grants. The States have claimed that the grants have been insufficient. The State Premiers, regardless of their political persuasion, have agreed unanimously on that. Section 6 of the act provided that the Treasurer of any State could inform the Commonwealth Grants Commission if he considered that any payment under the act was insufficient to meet the revenue requirements of his State. After inquiring into the matter, the commission was to advise the Treasurer of its opinion on the justice of granting additional assistance to that State. The Treasurer of Tasmania availed himself of that provision, and applied for additional grants in respect of the years 1942-43, 1943-44 and 1944-45. In each instance, however, the commission considered that an increased grant would not be justified. Following an application in 1944-45 by the Treasurer of South Australia, an additional grant of £553,172 was recommended by the Commonwealth Grants Commission. Additional assistance was also granted in the following year, 1945-46, as follows : -

The States Grants (Income Tax Reimbursement) Act came into operation on the 1st July, 1942. It was repealed by the States Grants (Tax Reimbursement) Act of 1946. The latter legislation revised the basis of determining the reimbursement grants for 1946-47, and subsequent years. It provided that the following reimbursement grants be paid to the States: - (a)1946-47 and 1947-48-

  1. 1948-49 and subsequent years. - An amount is to be determined by increasing the aggregate grants paid in 1947-48 (£40,000,000) by the same proportion as the aggregate population of the six States at the beginning of the financial year increases over the aggregate population of the six States at 1st July, 1947. This amount is to be further increased by a percentage equal to half the percentage increase in average wages per person employed in thefinancial year preceding the year in which the reimbursement grants are to be paid over the average wages per person employed in 1946-47. The amount so determined will be the aggregate of the reimbursement grants and is to he distributed to the States in the following proportions : -

    1. 1948-49 to 1956-57- The weighted, mean of -
    2. the proportion indicated by the “ adjusted “ population for each State, and
  2. the proportion indicated by the distribution of the aggregate reimbursement grant in 1946-47 and 1947-48, giving the latter a weight of 9/10 in 1948-49, 8/10 in 1949-50 and thus decreasing each year to 1/10 in 1956-57.

    1. 1957-58 and subsequent years - the proportion indicated by the “ adjusted “ population for each State.

It is provided that, if the application of the foregoing formula for distribution of the aggregate grants causes the amount of the reimbursement grantfor any State to fall below the grant for 1946-47, the grant payable will be the same as that for 1946-47 and the balance of the aggregate grant is to be distributed between the remaining States in the proportions mentioned above.

An amount equal to arrears of State income taxes collected by the States in any year is to be deducted from the reimbursement grants for that year. The aggregate amount so deducted, less any refunds of State income taxes made by the Commonwealth is to be repaid in the event of uniform taxation ceasing to operate. This amount bore interest at 3 per cent, up to the 30th June, 1946, but thereafter, under the new arrangement, it will bear no interest. That indicates the confusion that has been caused and the reasons why the States have complained about the treatment that has been accorded to them. It is claimed that the payment to the States of the additional £5,000,000 provided in this bill will have a great bearing on the balancing of State budgets. At the last conference of Commonwealth and State Ministers; which was held at Canberra, the States claimed that, despite the attempts by the Australian Government to convince the taxpayers and the States that no surplus funds were available and that consequently it was not in a favorable position to meet the claims made by the States, the Commonwealth had earned a surplus of at least £90,000,000. It was said that surpluses had been hidden by various devices, one of them in particular being the debiting of capital charges to revenue. It was claimed that during the last financial year capital charges amounting to £47,000,000 or more had been financed in that way. In prosperous years it might be a reasonably fair business transaction to meet charges of that kind from current revenue, but the action of the Commonwealth in so doing is not seen in that light by the States which are fruitlessly seeking grants for development purposes. It was also claimed by the States that the accumulation of the big surpluses in the National Welfare Fund concealed the true budgetary position. The Minister may be able to explain the reason why that has been done. It has been said that the surplus in the National Welfare Fund at the end of last financial year was not less than 30,000,000 and “ that the accumulated surplus at the 30th June, 1950. amounted to £131,000,000. At the last conference of Commonwealth and State Ministers the Treasurer was challenged to deny the accuracy of the claim that if the Commonwealth had been required to disclose its true budgetary position the financial returns last year would have revealed that it had a surplus of at least £90,000,000. The Minister should be in a position to answer these charges because be was, I understand, present at the conference at which they were made. 1 have not seen a report of the proceedings of the conference, but I have read in the press that that challenge was not accepted, and that in fact the Prime Minister has admitted that the Commonwealth had mer, a large portion of the cost of its capital works from revenue.

Another claim made by the States at the conference was that since the uniform income tax system was introduced in 1942. Commonwealth revenue from that source lias increased fourfold. That statement may be accepted a3 correct. Last year the Commonwealth derived from income tax £202,000,000 more than in the year in which the uniform income tax system was commenced but last year the States received only £34,000,000 more than .when the system was introduced. In other words, the Commonwealth has retained for its own use five-sixths qf the additional revenue that it has drawn from the taxpayers in the form of direct income tax. As a consequence, the States have been forced to finance capital expenditure of all kinds from interestbearing loans. Last year New South Wales provided from loan moneys more than £27,000,000 for capital works. Since the end of the war the public debt of New South Wales has increased by £70,237,961. The national income is now more than double what it was when the uniform income tax system was introduced in 1942. Had New South Wales remained in the field of income tax its revenue from income tax this year would have exceeded £50,000,000, but in tax reimbursement it is to be granted only £30,533,000. It is claimed that the Commonwealth has expropriated State rights in the income tax field and has never adequately compensated the States. The State Premiers contend that the tax reimbursement formula has completely broken down. I understand that the Prime Minister has promised to arrange a further conference of Commonwealth and State Ministers for the purpose of devising a formula which will operate move satisfactorily to the States. Ever since the States first vacated the field of income tax, attempts have been made to devise such a formula, but no success has been achieved. The States claim that the formula has been a. handy instrument for the Commonwealth to use in order to show what the States would have received under the formula, and that the Government invariably proceeds to add a little to the formula amounts so that the States will appear to have gained a. little extra from the Commonwealth. At the last conference of Commonwealth and State Ministers the Premiers became so incensed at the attitude taken by the Commonwealth that the proceedings became unruly and the Prime Minister had to be called in to restore order.

Senator Spooner:

– That has happened each year at conferences of that kind.

Senator ASHLEY:

– I agree that the Premiers apply pressure on the Commonwealth each year but I do not know of any occasion on which greater pressure was applied by the Premiers than was applied at the last conference.

Senator Spooner:

– These conferences are not in the nature of mutual admiration societies.

Senator ASHLEY:

– I agree with the Minister. The States claim that the uniform income tax system is a complete negation of the responsibilities of government. They have suggested that the Commonwealth should either return to the States their rights to impose income tax, retaining as far as possible the administrative advantages of single tax administration, or seek a referendum of the people in order to ascertain whether or not the people want the federal system of government to be retained. I could mention at length the disadvantages suffered hy the States as the result of their vacation of the income tax field. They claim that they have insufficient revenues to develop the areas under their control. Education and the provision of hospitals are of great importance to the States and to the Commonwealth.

Senator Robertson:

– I wholeheartedly agree with the honorable senator.

Senator ASHLEY:

– The Australian Government should at all times make adequate provision to enable the States to provide those services. To-day the hands of the States are tied so tightly that they are no longer in a position to obtain revenue from the Commonwealth for developmental purposes. In fact, they have somewhat more limited powers than the local governing authorities in the various States which have, in effect, facilities almost equal to those of the State governments for borrowing money required for the development of shires and municipalities. I understand that the Prime Minister (Mr. Menzies) has promised that the State Premiers will be summoned to Canberra and that an endeavour will be made to produce a formula that will be acceptable to the States, whereby they will receive sufficient revenue to meet the costs of develop-‘ mental projects proposed to “be undertaken by the various State governments. As the Minister has stated, the State

Ministers do not regard a conference of Commonwealth and State Ministers as a mutual admiration society. I admit that invariably they ask . for a much larger amount than they expect to receive, but that is human nature. I suggest that if the Minister were seeking money in similar circumstances that also would be his attitude. He would be out to get as much as he could. When I was a mayor I always endeavoured to secure as much money as possible, but on several occasions, when the brother of the Minister for Social Services (Senator Spooner) was concerned, he saw to it that one did not receive too much.

Senator Spooner:

– All the other mayors disagree with the honorable senator’s statement. They say he gave them too much.

Senator ASHLEY:

– I do not wish to elaborate that statement, but I could go very much further.

The Opposition is not opposing this measure. There will, of course, be criticism from representatives of the various States, because the measure provides an opportunity for honorable senators to discuss the disabilities under which the States claim they labour. I do not overlook the responsibilities of the National Parliament concerning the protection of revenues, and the extent of the services it must perform for the Commonwealth. Its responsibilities are much greater than are those of the States, especially during a period such as this. Particularly when there is a prospect of war, the National Parliament has grave responsibilities, and I do not suggest that the State governments should be given, willy nilly, the amounts for which they ask, but I do suggest that every State of the Commonwealth should be adequately provided with funds to enable it to meet the needs of development- and progress.

Western Australia

– I do not oppose this bill, but I ask that at least the State of Wes: tern Australia should receive all the money for which it asks, and perhaps something more. In dealing with a measure of this kind, one is struck forcibly by the peculiar system of government in Australia. The determination of boundaries gives rise to continuing and recurring problems which are aggravated from time to time because of the way in which Australia has grown and because of the system of federal government in combination with the State governments. I have often stated that I sympathize with the people of Australia when they endeavour to work out the manner in which they are represented in the various parliaments and local governing bodies. Every person in Australia is represented by a member on a shire council or municipal council, by a member in the lower house of his State parliament, and by another member in the upper house of that parliament, except in the’ State of Queensland and, in addition by a member in the House of Representatives and by a senator in the Senate. An individual might well feel honoured that it should require all those people to represent his point of view in the various legislative bodies throughout Australia.

No doubt because of the way Australia was founded, and the fear that parts of the continent might be annexed by other peoples, we grew up to be a country in which there are five States on the mainland, with accidental borders in some cases, and arbitrarily drawn boundaries in others. That has always been a good argument for those people who advocate the establishment of new States. The boundary of the State of Western Australia was decided when some one, not even in Australia, at some period of history took his ruler and pencil and drew a line so as to cut off approximately one third of the continent. There was no consideration of geographical boundaries, economic units, population, or potential expansion. The result is a State which occupies one-third of the area of the continent but has only one fifteenth of the total population. Also because of those arbitrarily drawn boundaries other States possess very rich areas, such as New South Wales, which possesses one third of the richest coal basins in the world, and the pocket handkerchief State of Victoria, with all the richness within iia small area. The fortunate position of those two States indicates the problem facing a State such as Western Australia.

Fortunately, South Australia was able to shed the Northern Territory and hand it’s administration over to the Australian Government.

In spite of the Commonwealth Grants Commission, and uniform taxation, there is a growing need for some authority, perhaps an all party body of honorable senators, to analyse the projects which must of necessity be developed, not necessarily for the State in which the project may be located, but for the development of the whole of Australia. The Minister for National Development (Mr. Casey) should consider the possibility of setting up such a body which, if it were an allparty body of senators, could make recommendations to this Parliament. There are natural environments and physical characteristics in Australia which should be developed within the States for the benefit of the whole of Australia. I have in mind a town such as Albany , in the southern part of Western Australia. It is a place which is geographically suitable for development as a naval base. In addition, it has other advantages such as a rapidly growing population and good soil, and large timber resources in the surrounding areas. But Commonwealth financial assistance would be required to develop it sufficiently to induce private organizations to establish themselves there and provide one important thing that it lacks - that is, an adequate workshop. Before a town can be used as a naval base, it must have secondary industries that can be employed to repair and maintain naval vessels. It would be difficult for the Department of the Navy to establish its own workshop. When things were going well, ships were new and the country was not at war, the workshop would be working far below its capacity, but when ships became old or the country was forced into a war, a huge labour force and adequate machinery would be required in the port to enable the Navy, to use its own parlance, to strip for action. I believe that there is a great need for developmental projects along those lines.

The Commonwealth Grants Commission, in its seventeenth report, pointed out that its powers are derived from section 96 of the Constitution, which reads as follows : -

During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.

It is clear that the Commonwealth can assist, not only the claimant States hut also any other States. Paragraph 115 of the commission’s report reads as follows : -

Since 1933 claims made by States under this section– that is section 96 of the Constitution - have been referred to the Commonwealth Grants Commission for examination and report. After an initial two years of considering the competing principles -

compensation for disabilities arising from federation; and

financial needs, the commission, in its Third Report (1936), adopted the principle of financial needs, which it then expressed in the following terms: - “ Special grants are justified when a State through financial stress from any cause is unable efficiently to discharge its functions as a member of the federation and should be determined by the amount of help found necessary to make it possible for that State by reasonable effort to function at a standard not appreciably below that of the other States.”

It is clear that, under the Constitution, this Government has the power to give to any State the assistance that it considers to be desirable, but it is equally clear that the Commonwealth Grants Commission does not consider that it has authority to make recommendations outside the narrow concept that it has enunciated. It is apparent from the report that the commission has been continually confronted by problems arising from that position. Paragraph 176 of the report states -

The vital question is whether each claimant State is making full use of resources available to it to meet its own financial requirements. The commission has not reached any conclusion on this matter: it is now mentioned in order to direct attention to its implications for future discussion.

I shall return to that matter later. At this stage, I point out that the commission is concerned with its own limitations and with the fact that, although it can contribute to what may be termed the maintenance of the status quo, it cannot contribute to the developmental projects that are so essential in this country.

It will readily be seen that a State government, worried but not embarrassed about the amount of money for. which it has asked - it is only human nature to ask for more than we think we shall get - would be reluctant to advocate a developmental project to which an element of risk was attached. Although, under the Financial Agreement of 1927, a State can obtain automatically from the Commonwealth 50 per cent, of the money needed for any project that it may undertake, State governments realize that if, as the result of engaging in an undertaking, thousands of pounds were, so to speak, thrown down the drain, they would be subjected to political ridicule and the Commonwealth would view with scepticism other projects which they wished to undertake. In a country like Australia, risks must be taken in relation to development. We shall not make much progress if we adopt the parsimonious but businesslike attitude, “ We have expended so much money upon this project and we expect to receive so much money from it “. If a committee of the kind that I envisage were established, any projects undertaken would be undertaken with the concurrence, first, of the State government concerned, and secondly, of the major political parties, and before they were undertaken, the committee would have taken evidence from experts.

Australia is in the process of changing from a purely primary producing country to a country with many secondary industries. That process was accentuated by the recent war. An unfortunate aspect of the establishment of secondary industries is that they are usually established close to capital cities, where they find home markets for their goods. If a secondary industry finds a sufficiently large market in the State in which it is situated to ensure its financial stability, it then devotes its attention to finding markets for its goods in other States and eventually overseas. In this small country, with a population of approximately 8,000,000 people, we have built one of the largest cities in the southern hemisphere, and that is very illogical. We are concentrating our population in a few areas.

Our capital cities Lave increased in size but there has not been a proportionate increase of the population of country areas. It is hoped that our population will be trebled in the next few years, but I do not think that anybody would wish to see Sydney, Melbourne, Adelaide or Perth grow to three times their present size. That would be undesirable from the social and developmental viewpoints. The Commonwealth has an obligation in this connexion. I pause here to say that, irrespective of the legal and technical obligations of State governments and State government instrumentalities, the people of Australia look to this Parliament for a lead. The use of phrases such as “ This is a job for the State government “, or “ That is a job for a municipal authority “, should be discouraged, and more impetus to development should be provided by the National Parliament. Because of the acute shortage of labour in this country at present this aspect of the matter must be examined carefully. Fairly big manufacturing industries were established in the rich areas of the Gippsland in days gone by when there was a plentiful supply of young labour.

I remember that when opening the present session of the Parliament His Excellency the Governor-General outlined what the Department of National Development intended to do in connexion with this problem. I consider that the time has arrived when there should be greater development of irrigation projects in Australia. Main arterial highways should be constructed by the Commonwealth, in addition to road work that is undertaken by the States. Only by these means can real progress he made. Although in the past successive governments have had good intentions in this respect, they have rarely succeeded in advancing beyond the talking stages. I should like to bring to the notice of the Senate the position in relation to the town of Carnarvon in Western Australia, on the Gascogyne River, which is dry for about ten months of the year. During that period the water flows underground for a distance of about 400 miles. The settlers on the banks of that river are still using very primitive means of tapping this water, which is thrown up by spears on to the plantations. The population of Carnarvon has grown from 500 to about 2,000 in recent years, and, as honorable senators are aware, the Commonwealth has established there the most modern whaling station in the world. By the expenditure of a relatively small amount of money, experiments could be conducted to determine whether the water flowing underground could be conserved by means of weirs. If that could be done, settlement would extend for many miles. Even now, crops are produced in that area in. winter time that cannot be grown in any other part of Australia. Beyond Carnarvon is a “solid” wool district, although I doubt whether the woolgrowers are very happy at present about the Government’s proposed wool deduction plan. That is a subject with which I shall deal fully at the appropriate time. Carnarvon is in the unique position of having an abundant supply of water, literally flowing past its front door, which enables intensive agricultural pursuits, in addition to being adjacent to the whaling station that I have mentioned. The development of an irrigation scheme in that area is one way in which the Australian Government could implement its decentralization plan, which is becoming increasingly important in view of our immigration policy. It is imperative that we should take steps to encourage New Australians to settle in country districts, rather than remain clustered around the cities. Of course, it is inevitable that the secondary industries in the various States will attract a proportion of the additional labour that will become available, but there is no gainsaying the fact that Australia will remain principally a primary producing country. In addition to assisting the weaker States by means of grants annually, as recommended by the Commonwealth Grants Commission, I consider that the Commonwealth should finance developmental projects on a longterm basis. For instance, following investigation, the Government may consider that although an expenditure of £1,000,000 or £2,000,000 on an irrigation project in a particular area may not result in greatly increased development in that area in the immediate future, success in that direction would flow ultimately as the result of the improvement of the texture of the soil. In other words, ultimate success would be achieved despite an initial failure. Although in the early days settlers in the south-west of “Western Australia lost their money, as a result of their efforts tine towns came into existence.

Germane to a consideration of this subject is the necessity for tariff revision, which is linked very closely with many problems confronting Australia. I do not consider that this aspect of the inflationary trend has received sufficient attention. As Senator Armstrong has stated, Australia has become afraid of its wealth. Although it is admitted on all sides that Australia had achieved prosperity on the backs of the sheep, the Government is apprehensive because of the high prices at present being obtained overseas for Australian wool. Surely the prosperity of the country should be shared even by its humblest citizens. Australia is enjoying the present wave of prosperity because of the economic state of the world. We are a protectionist country, and successive governments have assiduously applied themselves to developing our secondary industries. However, I consider that we have built our tariff wall so high that we have destroyed the equilibrium between exports and imports. It is a corollary that the higher the prices obtained for our exports, the more goods we can import. But because of our high tariff wall, we are discouraging imports, which provide a means of absorbing the large amounts of money that are in circulation. I am not convinced that all sources of supply outside the dollar areas have been tapped in order to obtain capital equipment and other goods that we need. One could develop the theme of what is happening in Australia to-day ad nauseam.

The Australian manufacturer, selling on the home market, enjoys natural protection because Australia is separated from other manufacturing centres by thousands of miles. He also has the protection of Australia’s depreciated currency, besides the more direct protection of the tariff. I do not say that all tariff duties should be reduced. Members of all political parties are agreed that our fiscal policy is one of protection, but the existence of a protective tariff inevitably encourages inefficiency among some manufacturers. These are to-day operating on what is virtually a cost-plus system, because high tariff duties keep competitive goods out of the country. We are experiencing difficulty in balancing our economy because we are not importing enough. Moreover, development is retarded because we cannot import the equipment that we need. Finally, the Australian people are being held to ransom, and are being required to pay more for goods than they would have to pay if import duties were lower. Obviously, tariff reform is overdue.. Because of political considerations, some of the State governments are committed to the payment of various subsidies. It is pointed out that although primary producers as a class are prosperous, State railways as a form of subsidy on primary production are carrying superphosphate at a loss. That is one of the matters regarding which reform is overdue. The Minister, in his second-reading speech,, said -

After considering all the circumstances, including the present and prospective financial commitments of the Commonwealth, the Premiers were informed that the Commonwealth could not agree to amend the formula but that as a special measure this year it would supplement the amount payable under the present act by on additional grant of £5,000,000 in 1950-51.

At the same time, the Commonwealth suggested that a complete review be made of the financial relations between the Commonwealth and the States. The Premiers agreed to participate in such a review and a Special Premiers’ Conference will be convened by the Commonwealth for this purpose.

It is obvious that, in spite of all our efforts, no one is completely satisfied with the way Australia is developing. I have no wish to over-simplify the problem by suggesting that it could be solved if we were to do this or that. We cannot expect the Commonwealth Grants Commission to do much more than it is doing now. The people of Australia are fortunate to have upon the Commonwealth Grants Commission three such capable men. Professor Wood is a man of outstanding ability. Mr. J.. J. Kenneally, of Western Australia, one of the claimant States, enjoys the confidence of all classes of the community, irrespective of their political affiliations. The commission has prepared an excellent report.

When we consider the position of the State governments, we realize that, even though up to -50 per cent, of their revenue is derived from the Commonwealth in one form or another, they cannot be expected to embark upon ambitious developmental projects without Commonwealth backing. Some of the schemes may be important for defence purposes, and may be part of ‘the general programme df decentralization, but State governments cannot take the risk of initiating them. No one can be right all the time, and if a -project should prove a failure, the government concerned would incur the scorn of the people in the .area, and the political opposition in the State would not hesitate to make capital out of the .situation. I suggest that this Government should set up an all-party committee to work in conjunction with the Commonwealth Grants Commission and the State governments in the examination of developmental projects. That is not a radical suggestion as the principle has already been applied in regard to such notable projects as the Snowy Mountains scheme, the development of the Murray Valley, the Burdekin Valley scheme, the Clyde coa.1 deposits, and the Ord River scheme in “Western Australia. Rightly or wrongly, the people of Australia are committed to a federal system of government. Whether or not the existing number of States will be increased only the future will reveal. Unfortunately, political differences have delayed development in the past, but all political parties are now agreed upon the .urgency of developing Australia. We hope that the population of Australia will be trebled, but that desirable end cannot be achieved if the great coastal cities are allowed to go on growing at the expense of the country districts. I am sure that if the Government were to adopt my suggestion that a permanent, unbiassed authority be appointed to direct national development, an important step forward would be taken in promoting the welfare of Australia as a whole.

South Australia

.- This bill, like the States Grants Bill with which we dealt last week nas important implications. There is general recognition, I believe, of the need for members of this chamber, as representatives of the States, to consider legislation of this kind in the” light -of State interests. Consideration of measures such as this within the Parliament is a vastly different matter -from viewing them as an ordinary member of the public. My association with politics prior to -entering this chamber involved only a limited consideration of the -subject matter of this bill. Only when one is confronted with an obligation to participate in a debate such as this ‘does one realize how much -there is to know. As a newcomer to this chamber, I frankly admit that I have always viewed -Commonwealth and State financial relationships in a somewhat detached manner. I realize now the importance of measures such as this in our legislative programme.

The Minister for Social Services (Senator Spooner) set out only the bare essentials of this bill in his second-reading speech. It is clear, however, that the sum which the measure provides for grants to the .States, is supplementary to .grants made available under the formula now in operation. The formula has been referred to by the Leader of the Opposition (Senator Ashley), but, being no mathematician, as he apparently is, I am not prepared to discuss details of it. Commonwealth and State financial relationships have become increasingly important ever since federation, and gradually the Commonwealth has assumed the dominant role. That has led to considerable dissatisfaction among the States. That unrest culminated recently at a conference of Commonwealth and State Ministers. I do not know exactly what occurred at that conference, but I gather that .the meeting was not altogether happy. The discord resulted from a cleavage of opinion between the Commonwealth and the States over the distribution of tax revenue. The uniform income tax scheme was introduced in 1942. Lt was .followed by the passage of tax reimbursement .grants legislation. The uniform income tax scheme was intended originally .to operate only for the duration of the war and one year thereafter.

Speaking from memory, I think that. the scheme was challenged unsuccessfully in the courts on one occasion, and that finally it was established that the Commonwealth was acting within its constitutional powers. In 1946, the States Grants (Tax Reimbursement) Act was passed by this Parliament. That measure repealed both the States Grants (Income Tax Reimbursement) Act of 1942, and the States Grants (Entertainments Tax Reimbursement) Act of the same year, and laid down a formula for assessing future grants. As Senator McKenna said when speaking on the States Grants Bill last week, that formula never really worked satisfactorily, and it is gratifying to learn that consultations will be held in the near future to endeavour to evolve a more satisfactory system.

As a representative in this chamber of South Australia, I was interested to read in the Adelaide Advertiser of the 6th October, a report of a statement by the Premier of South Australia, Mr. Playford, who, as honorable senators are aware, attended the recent conference of Commonwealth and State Ministers at Canberra. According to the newspaper report, Mr. Playford said that if the Commonwealth reduced its income tax levies to the average of the pre-war State rates, the States would be able to re-enter the income tax field and, with rates appreciably lower than those operating pre-war, they would be able to obtain sufficient revenue for their necessary purposes. The Premier went on to say it was a regrettable anomaly that while State revenues were increasing much less rapidly than was unavoidable governmental expenditure due to rising wages and other costs, Commonwealth revenues, derived largely from the income tax, the pay-roll tax, and customs and excise duties, were extremely buoyant. He added that to preserve responsibility in State finance, certain revenue sources must be transferred back to the States to permit them to regain financial equilibrium and to retain financial responsibility. State re-entry into the income tax field could easily be carried out by existing staffs with no additional impost on taxpayers, and without involving additional returns. Mr. Playford concluded by expressing the hope that his proposal would be examined seriously at the conference that the Prime Minister (Mr. Menzies) had promised to convene to consider Commonwealth and State financial relations. Mr. Playford’s view may not be that of any of my colleagues or of any honorable senator opposite, but consideration should be given to it. It has been advanced by the Premier of a State that has shown itself to be extremely capable in the field of government.

Dealing with legislation similar to this in the House of Representatives some time ago, the present Prime Minister expressed the opinion that apart from the points then under consideration there was a matter of principle involved. If we were to have a federal system with a central government and a central parliament, and State governments and State parliaments, and if those parliaments were to have independent powers, then their financial powers also should be independent. It was undesirable to have independent legislative authority with dependent financial powers. That proposition may or may not be practical. Personally I believe that at present it is not practicable. ¥e are all agreed however, that some workable plan must be evolved. Senator Willesee has suggested, as did Senator McKenna last week, that a committee of the Senate should be appointed to review Commonwealth and State financial relations, and I believe that suggestion to be worthy of consideration. We cannot continue as we are going at present. There must be some variation of the present arrangements because it is necessary for the States to have adequate financial resources. I am sure that every member of this chamber, as a State representative, is convinced that his State must have, additional revenue. Although at the recent conference of Commonwealth and State Ministers the State representatives asked for much more than they are to receive under this bill, the additional £5,000,000 that the measure provides will be welcomed, and will help the States out of some of their difficulties. I do not suggest that the allocation of £429,000 to South Australia will meet the needs of that State, but it will help. As State representatives we can do no less than express our appreciation to the Commonwealth for making this additional sum available. The amounts proposed to be granted to the States under this bill are additional to those granted to them under the tax reimbursement formula. As I said at the outset of my remarks, my knowledge of this subject is somewhat limited. I believe, however, that even if an honorable senator is not able to make a noteworthy contribution towards this debate, he should express his views on this subject to the best of his ability. As a representative of one of the claimant States I am sensible of my responsibility to place before the Senate the viewpoint of that State on this vexed subject. Honorable senators on both sides of the Senate have unanimously expressed their appreciation of the proposal of the Government to call a further conference of Commonwealth and State Ministers to consider the financial relations of the Commonwealth and the States. We hope that it will ,be possible for such a. conference to devise a workable arrangement that will be agreeable to both the Commonwealth and the States.

Senator KATZ:

.- I listened with a great deal of attention to the speech made by Senator Hannaford. It gave further proof that all honorable senators are prepared, to deal with this measure on a non-party basis. All those who have participated in the debate have considered this measure from the viewpoint of the States. After all, we should be the true representatives of the States in this Parliament. We represent not any particular constituency but all the people of the .State that sent us here.

The additional £1,160,000 proposed to be allotted to Victoria under this bill is totally inadequate having regard to existing high costs. There is nothing magnanimous about this proposal. A few weeks ago the Commonwealth Arbitration Court increased the basic wage by £1 a week. From the 1st November the basic wage was further increased by the appropriate quarterly adjustment. These increases will bring many additional wage-earners of Australia into the income tax field. It has been estimated that these basic wage increases will yield an additional £25,000,000 in income tax. Thus the additional grants to be made by theCommonwealth under this bill will be recouped fivefold by additional income tax collections resulting from basic wageincreases alone.

The States have responsibility for the development of the areas which they control. Victoria has undertaken ahydroelectric scheme, mainly in theKiewa Valley, which is probably of greater importance than the Snowy Mountains project because it will be in. operation long before the latter project has been half completed. The States have to engage in extensive development schemes in order that their primary producers may be able to produce the maximum wealth from the soil. In northern Victoria, in areas adjacent to Mildura,, irrigation has made possible the establishment of the dried fruits industry on a larger .scale than has been possible in any other area of’ the Commonwealth. Inthe Bendigo electorate, which wasformerly represented by Senator George Rankin, the Government of Victoria has also undertaken a vast scheme of irrigation works. The States have to find therequisite capital to finance these great undertakings.

Honorable senators have a commonduty to protect the interests of the States. Senator Hannaford has indicated his agreement with Senator Willesee’s proposal for the appointment of an all party committee to consider the financial relations of the Commonwealth and theStates and to inquire into all developmental projects. We should go further than that. I believe that the time isripe for the holding of a federal convention, not only to review existingfinancial relations between the Commonwealth and the States but also to overhaul the Constitution. Such a convention may be able to. devise means of” avoiding the ever recurring troubles of” the States that result from increased costs which have forced the States almost intoinsolvency. The States should not haveto go cap in hand to the Commonwealthfor assistance, as they do now. Although Mr. Playford, the Premier of South Australia, is not a member of the political’ party to which I belong, he was not afraid to complain bitterly to the Commonwealth representatives at the conference of Commonwealth and State Ministers about the unjust treatment which his State has- received from the Commonwealth. I have no doubt that he would agree that all other .States are being similarly treated. Because honorable senators realize that the States are being unjustly treated by the Commonwealth this bill has’ the unanimous support of the Senate.

The subject of the financial relations of the Commonwealth and the States concerns not only members of the Parliament and of political parties, but also every citizen of the Commonwealth. Victorian taxpayers are not only being unjustly treated by the Commonwealth but also two-thirds of them have been denied a voice in the selection of members of the Victorian upper house. Victorians have suffered more as the result of the adoption of the uniform income tax system than have the citizens of other States. Let us consider their position in comparison with that of the people of New .South Wales. Prior to the introduction of the uniform income tax system the Government of New South Wales made provision for child endowment and widows’ pensions. Widows whose- children were boarded out to them, foster mothers and deserted wives in Victoria received only one half of the amount paid to their counterparts in New South Wales. When the uniform income tax system was adopted Victoria’s tax reimbursement’ quota was determined in part on the basis of its actual expenditure for that purpose. Victoria has suffered other disabilities as the result -of the adoption of the uniform income tax system. When the Australian basic wage was lis. a day the Victorian Government paid its railway employees only 9s: a day. After a great deal of agitation the employees’ were successful in influencing the government of the day to establish the Railways Classification Board for the rectification of the grievances of the men. That board was so impressed by the case presented by the men that it recommended increases of pay to bring their wages approximately to the rates paid to railway employees in all States, except Tasmania-. Pay- ment of the higher rates was made retrospective for more than eighteen months. Under the uniform income tax formula Victoria- is’ penalized because its railwaymen were underpaid prior to the introduction of that system.

Although I am not a legal man I unhesitatingly say that there is no law to prevent the States from imposing income tax if they desire to do so. Let us consider some of the reasons why the uniform income tax system was adopted. In Victoria there was State income tax and there was also federal income tax. For a considerable time> there were separate administrations, but they were eventually combined. The taxpayer in those days was incensed because he received a taxation assessment from the State authorities, and another one from the Commonwealth authorities. There was dissatisfaction throughout the Commonwealth because of the system of collection of taxes, and it was necessary for the National Parliament to do something to remedy the position. As I have said earlier, I am in favour of a convention being held to consider the operation of uniform taxation.

I do not wish to speak from any party angle, because I believe that members of all political parties consider that the State of Victoria has not received terms as favorable as those accorded New South Wales, Queensland, Western Australia and possibly South Australia. To support my statement that I do not speak from a party viewpoint, I refer honorable senators to statements of men who occupy responsible positions in the present Government. The Prime Minister (Mr. Menzies), in discussing the Income Tax (War-time Arrangements) Bill then before the House- of Representatives, stated -

I consider that we shall never achieve complete ease in the decentralization of functions in Australia until we have a high degree of centralization, of power.

At that stage of the Prime Minister’s, remarks, Mr. Calwell interjected -

Paradoxically, the right honorable gentleman is1, preaching- Labour policy.

The Prime Minister went on to say -

L’ am preaching my own .policy, and I did not obtain it from a platform that was provided for me. I have arrived at it by a slow progression over a considerable number of years. … I come now to a point a little nearer to the matter under discussion - that there should be the fullest access by that Commonwealth Government and Parliament, which are charged with the conduct of the war, to the financial resources of all Australians, wherever they may live.

That bill was a war-time measure-, andit was necessary to consolidate the efforts of the people of Australia. I wish .to quote- to honorable senators the utterancesof other members of the Government. The Minister for Commerce and Agriculture (Mr. McEwen) stated -

I find myself on no new ground in saying that I” entirely agree that there should be a complete re-alignment of the constitutional authorities in this country - the Commonwealth and State Governments. I have always held the view, and often expressed it here, that the States should be subordinate to the Commonwealth, and that they should legislate and administer in respect of matters delegated to them ‘by this Parliament.

The present Minister for External Affairs (Mr. Spender) stated -

Personally, I am satisfied that the Government is not introducing some form of unification but is- resolutely facing its responsibilities for the conduct, of the war.

I make no apology for supporting this measure. If this were a step towards the centralization of power in the Commonwealth Parliament, I should support it on that ground alone. If it were only on the ground of unification which is so condemned by many members of my own party, this legislation, would be a majestic stop forward to nationhood.

It appears that, despite all the differences there may be in this chamber- and in the House of Representatives, the representatives of the people in the National Parliament desire to protect the interests of the citizens of the Commonwealth. In discussing the same measure, the present Minister for the Interior (Mr. Harrison) stated-

Some opponents of the bill (uniform tax), when driven into a corner, have asserted that the Commonwealth should be the sole taxing authority. A few minutes ago the honorable member for Fawkner (Mr. Holt) was challenged upon this point. He was opposing the bill to the best of his ability when he was asked whether he would support a scheme of uniform taxation. Thereupon he stated that he preferred a uniform taxation scheme to a uniform income taxation scheme. That is the general attitude of honorable members who are opposing the bill. I subscribe wholeheartedly to that view, but I believe that this- legislation is the first step to unification. Because of that, I wish to take that initial step.

It may be gathered from the remarks of those three leaders of the Government parties that they realized at that time that something had to be done to> solve taxation problems.

The amount of £1,165,000^ which Victoria will receive from the grants to the States, will be quite inadequate. The increase of the basic wage will involve the Government of that State in the expenditure of millions of pounds. The Australian Labour party has a programme, and it may be news to members on the other side that that party is the only political party ever to evolve a scheme for the unification of Australia. It provided the framework of governing provincial, councils of Australia. That plan was drawn up by the late Mr. Daniel McNamara, who was general secretary of the Australian Labour party prior to his death a few months ago. The programme stated -

Complete Australian self-government as a member of the British Commonwealth of Nations, the Federal Parliament alone controlling administration, with a Vice-Regal representative at all times and acting on the advice of the Common wealth Ministers, except where such powers are inconsistent with Imperial Treaty obligations. Amendments of the Commonwealth Constitution (a) to invest the Commonwealth Parliament with unlimited legislative powers and authority to create or re-order States or provinces with delegated powers.

I think I may safely assert that I express the views, not only of Victorian representatives in the Senate, but of all members of the Australian Labour party, when I state that its members are loyal to that policy. Although honorable senators may say that they agree with the amounts suggested by the Minister, they are at liberty to hold that the treatment being accorded the States they represent is not satisfactory. We are living in a world where costs of production are increasing to such an alarming degree that people all over Australia to-day are gravely discontented with the prices that they are called upon to pay for ordinary household needs. People in all walks of life are complaining of the huge increase of the cost of upkeep of a home. In the same way, the cost of upkeep of Government instrumentalities in the various States has increased. Victoria is a small State, and I admit that it has- been neglectful of social services in the past, so that its taxpayers are at present being required to pay for the dereliction of duty by past governments. But that does not mean to say that they must suffer for all time. Since the introduction of uniform taxation, Victoria has lost approximately £20,000,000 because of social services that should have been introduced in previous years.

There should be very little difference of opinion among honorable senators concerning this bill, and the statements of Senator Hannaford contain nothing to which I can take exception. All honorable senators must be imbued with the idea that the interests of the States that they represent should be protected, because, if that is done, the interests of the Commonwealth also will be protected.

Senator MAHER:

– I support this bill, the object of which is to authorize the payment to the States in 1950-51 of an additional tax reimbursement grant of £5,000,000. “When representatives of the Commonwealth and the States meet at conferences to discuss monetary matters, there are bound to be difference of opinion between them. The analogy that springs to my mind is that of two men bargaining over an article that one of them is offering for sale to the other. The States make demands that seem to the Commonwealth to be excessive. It was a pity that at the last conference of Commonwealth and State Ministers some very hard words were spoken.

Senator Spooner:

– The same thing occurred the previous year and the year before that.

Senator MAHER:

– As the Minister for Social Services (Senator Spooner) has reminded me, that occurred previously. Sometimes State Premiers and Treasurers become embittered and indulge in personalities, but that is to be deprecated. It is clear that the differences that arose between the Commonwealth and the States at the last conference were due to the serious financial difficulties confronting both the States and the Commonwealth due to changing economic conditions. Costs have risen seriously during the last twelve months, and the recent decision of theCommonwealth Arbitration Court in the basic wage case will impose additional stresses and strains upon the finances, not only of the Commonwealth and the Statesbut also of local authorities. All governmental authorities in this country will be seriously affected by that decision. In those circumstances, the States claim that they are entitled to some additional consideration, and the justice of their claim has been recognized by the introduction of this bill.

Of the many things that could be said upon this subject, the most important are that the Commonwealth recently suggested to the States that a review of thefinancial relations between the Commonwealth and the States be made and that the State Premiers agreed to participate in it. A special conference will be convened by the Commonwealth for that purpose, and I understand it will be held in the near future. “We have not a sufficiently detailed knowledge of Commonwealth and State relations to enable us to come to definite conclusions and we can only discuss it generally, but at the forthcoming conference differences can be hammered out and a solution of the problem found. The fact that arrangements are being made to hold that conference has made it unnecessary for honorable senators toraise some of the contentious points that they might otherwise have raised in discussing this measure.

According to the Brisbane CourierMail, Mr. Gair, the Queensland Treasurer, speaking in the Queensland Parliament a few days ago, said that the State was obliged to budget for a deficit owingto rising costs and the fact that the tax reimbursement received from the Commonwealth was not sufficient to meet its needs. The report of Mr. Gair’s remarks is as follows : - “ If a fair share of the Commonwealth income tax collections were diverted to the State, there would be no State deficit “, Mr. Gair said.

Under the uniform tax scheme it was logical that the Commonwealth Government should’ bear a proper share of the co°t of essential’ services and amenities for the State.

In 1038-39. the Commonwealth collected, about £12 million in income tax, and the- States £30 million.

In 1049-50, the States, by way of tax reimbursement grants, received £704 million, while the Commonwealth had £209 million for its own purposes.

Mr. Gair said that of the income tux grant for 1950-51 (£12,277,500), the cost of education would require 38%, hospitals 18%, mental hygiene, maternal, and child welfare, State Children’s Department, etc., 13%, and the police department 1U%. These services accounted for about 85% of the total of the grant, Mr. Gair said.

The Queensland Government is faced with serious difficulties in carrying out its functions, and the State Treasurer was entitled to direct attention to that fact. He used the term “ a fair share Who is to determine what is a fair share? The Commonwealth must recognize that the States have their places in the constitutional sun, and that, having regard to the tremendous inflow of money in payment for our exportable products and the abounding prosperity that this country is now enjoying - one might say that Australia is almost embarrassed by riches - they are entitled to a fair share of the tremendously buoyant Commonwealth revenue. I have not checked the figures given by Mr. Gair, but I accept them as being correct. In 1949-50, the States received £70,500,000 by way of tax reimbursement grants, while the Commonwealth had £209,000,000 for its own purposes. The Commonwealth retained a very large proportion of the revenue from taxation, and the States believe that they are entitled to receive more than they have been given. It is likely that Commonwealth revenue in the current year will be even higher than it was last year. Therefore, having regard to the rising costs with which the States must contend at the present time, I believe that the States are entitled to claim what Mr. Gair has described as a “ fair share “ of the mounting Commonwealth revenues in order that they may be enabled to meet their rising expenditure caused by Commonwealth Arbitration Court decisions and other factors.

The mounting costs of government are causing serious concern. It is becoming increasingly difficult to get public works carried out at a reasonable cost, and I fear that we are fast approaching a chaotic state of affairs in which the returns derived from many important undertakings will not justify the tremendous expense involved in carrying them out. However, we must, if we are to develop this country successfully, proceed with many works, irrespective of the cost. Of all the States, Queensland offers the greatest scope for a sound return from large sums of money expended upon developmental works. There are many large schemes of great potential value that could be undertaken in that State, but finance must be found and labour and material made available. I suppose that other honorable senators could submit claims on behalf of the States that they represent. In this boom period, every State seems to be eager to obtain the largest possible sums of money to carry out its proposals, but we are all conscious of the fact that great sums of public money expended upon developmental undertakings are adding to the inflationary pressure and promoting the difficulties that we are studiously trying to avoid. The position is like a difficult jig-saw puzzle. Nevertheless, the reasonable demands of the States in this important matter must be met.

Senator Katz, in dealing with unification, said that, in his view, Australia would be better governed if the powers of the States were curtailed and those of the Commonwealth extended. I assume that the honorable senator advocates the eventual abolition of State governments and the institution in this country of a unified form of government. I hope that that will never come to pass. My experience of Canberra has confirmed my view that a federal government, functioning from this city, is too remote from the people of Australia generally.

Senator Large:

– The establishment of provincial councils would meet that objection.

Senator MAHER:

– Why this desire for change? Why the desire to abolish States, properly organized and governed, the governments of which function to the satisfaction of the people, and to substitute for them a series of glorified shire councils under the name of provincial councils ? Some persons do not seem to be satisfied unless they are pulling down something that is good and useful. In their desire for change, for something new or different, they are prepared to undo the great work that has gone on for over a century in relation to the organization and government of the Australian nation. I say to those honorable senators who advocate unification that, having had experience of Canberra, they know that members of Parliament who stay in this city for long, lose touch with the people that they represent. Their presence in Canberra for many months of each year keeps them away from their States or electorates for so long that they do not have their ears to the ground and are not conscious of what the people in those States or electorates are thinking. Members of State parliaments, being close to the people that they represent, are better able to judge public opinion and, therefore, to give general satisfaction. I see no future at all for Australia under unification, but I see a great future for it under the federal system. It is the special function of the Senate to protect the States from the attacks that are made upon them from time to time and to uphold the federal system, which is the principle of a number of States delegating to a central authority power in respect of matters of national importance such as external affairs, customs, defence and postal services, and retaining power in respect of matters of a domestic nature. Let us retain the States in the form in which they exist to-day.

The Constitution makes provision for the creation of additional States if the demands of industry and an increasing population require them to be established. There is a need for new States. I read in the press this morning that the people of Alice Springs feel that they are not getting a fair deal from :governmental authorities in Darwin. They have suggested that there should be separate administrations of the northern and southern divisions of the Northern Territory. They are seeking the means of self-expression, because they do .not consider that remote control from Darwin is in the best interests of Alice Springs and the southern portion of the Northern Territory. In my opinion it would be of advantage to divide Queensland south of Townsville, and to expand the northern portion of that State in order to embrace a portion of the Northern Territory. By that means what might be termed a tropical State could be established, and be administered by men having a knowledge of the needs and requirements of the people living in that portion of Australia. In the main the legislators that are concentrated in Canberra have been drawn from the densely populated areas of the southern portions of Australia, and could not, therefore, have a thorough appreciation of the problems that confront the people in the tropical areas of this country.

I was privileged to serve in the Queensland Parliament for a period of 21 years, and I venture to say that the majority of the members of that Parliament did not fully understand the problems of the north. The tropical areas of Australia are potentially very rich. Although Darwin is referred to as the back door of Australia., in view of the vast populations of countries to the north, it should be regarded as Australia’s front door. I earnestly stress the need for serious consideration to be given to the subject of establishing a new State in the tropical portions of Australia. The soil and rainfall in those areas are conducive to extensive primary production, and the heat there is not nearly so enervating as many southerners believe. I urge an extension of the principle of federation rather than the development of unified government control centred in Canberra. Many people in Queensland strongly advocate a move in the direction that I have indicated, and I am convinced that they .strongly favour the retention of the sovereignty of the States. In days gone by, well-informed people considered that a unified system of control operating from a single centre of power, such as Canberra, would be in the best interests of the people of this country. However, experience has shown that they were wrong. It has been proved during the last few years that legislators in Canberra are unable .to appreciate fully the problems of people living in the remote parts of Australia. For that reason the people have rejected a number of referendums which sought to increase the powers of the Commonwealth.

Arising from the aspects of this matter with which I have already dealt, the time is overripe for the summoning of another national convention, to consider the strains and stresses that have been imposed on the Constitution during the last 50 years. Such a convention could resolve differences that have become manifest between the Commonwealth and the -States. It is only logical to expect that during that lengthy period some friction would be engendered in connexion with the relationships between the Commonwealth and the States. It may be possible for such a convention to hammer out differences of opinion, in order to reduce the clamour for unification and pave the way for more co-operation between the Commonwealth and the States. During the last few years, the Commonwealth has tended to invade the domains of power that properly belong to the States. It has sought to encroach on fields in respect of which the Constitution specifically reserved power for the States. I have in mind particularly the establishment of national service offices by the Department of Labour and National Service. The subject of employment is one properly to be administered by the respective States. Yet the Commonwealth has entered that field in competition with the States. It has established big offices in Brisbane and many of the provincial towns and cities of Queensland.

Senator Wood:

– That resulted in a duplication of service and a consequent waste of public money.

Senator MAHER:

– I agree with Senator Wood, that an additional expenditure of public funds was involved. I do not think any honorable senator would claim that the States had not exercised properly their sovereign powers in relation to employment. During the last election campaign, when I travelled through Queensland, I saw many national service officers in the large inland cities and towns.

Senator Ashley:

– Has the Government since abolished .them?

Senator MAHER:

– I presume that they are still in existence. I remind the Leader of the Opposition (Senator Ashley) that the mills of government grind exceedingly slowly. If those offices are still in existence I urge the Government to seriously consider whether their retention is justified. Would it not be possible for the States to carry out any functions that the Commonwealth required in this connexion? I recollect that when I entered a national service office in an inland area in Queensland last November, the officer in charge yawned and came towards me literally through the spider webs in the office. In reply to my questions he informed me that there was full employment in the town and that consequently few ever called seeking a job. He said that he did not know what he and his secretary were being paid for, complained of having nothing to do, and asked to be transferred to a more useful sphere of labour. He said further, that at the time that the national service offices were established he had been informed that the former Government considered that it would be necessary to conscript labour to implement its full employment policy and these offices had been established as depots for the recruitment of labour for service elsewhere in Australia. This is one instance of unnecessary duplication.

I am not convinced of the need for a department in Canberra to administer matters associated with agriculture. The Department of Agriculture and Stock in Queensland caters for every phase of agricultural activity, including animal husbandry, which is specifically a State function. To my mind it does not make sense that there should be a Commonwealth department centred in Canberra to deal with similar problems. The Commonwealth has appointed officers on big salaries to build administrative staffs around them, although there already existed State departments that were exercising their powers efficiently.

Then there are the departments of public health and immigration. Every State has a health department, which is functioning efficiently. Although there may be some phases of health administration that have to be administered from Canberra I find it increasingly difficult to understand why, year after year, large amounts of public money are expended by the Commonwealth Department of Health. One could be pardoned for believing that successive governments have resorted to this means of popularizing their administrations with the people. The rallying cry during election campaigns has been the provision of national and social welfare schemes, although powers in that connexion specifically reside in the States. Some phases of immigration are administered by the States, and others by the Commonwealth. As I am not sufficiently informed on the subject, however, I shall refrain from commenting on the necessity for the Commonwealth Department of Immigration. There has been a general tendency in recent years for the Commonwealth to expand its public service into fields that were already capably administered by the States. In my opinion the activities of the Commonwealth should be restricted to essentially Commonwealth fields, such as external affairs. In view of the sorry plight of the world to-day, this subject alone could occupy the thoughtful study and application of every member of the Parliament. The Commonwealth should be content with the powers assigned to it under the Constitution. Since the termination of the last war the Commonwealth has been reaching out avariciously to seize more and more of the powers which, under the Constitution, properly belong to the States.

Senator Hannaford:

– The Chifley Government began it.

Senator MAHER:

– I am not blaming the present Government. After all, it has hardly been in power long enough to draw breath, and it has been consistently hampered by the Senate, which has delayed the passage of bills that ought to have been passed with no more than reasonable criticism.

In order to assist the Commonwealth to finance the war, the States handed over to the Commonwealth exclusive power to levy income tax. I was at that time a member of a State parliament which was sharply divided on the question of referring this power to the Commonwealth, and I was one of those who supported the proposal. I thought that the Commonwealth would act in good faith, and return the power to the States when the war ended. Unfortunately, the Government in power refused to do so. However, although I believe that the power should be returned to the States, I realize that the present system is favoured by a majority of taxpayers because of its simplicity. It would be futile, in the face of public opinion, to fight for the restoration of the power of the States to levy income tax. The fact remains that the States surrendered under duress to the Commonwealth the power to levy income tax, and it’ is all the more important, therefore, that some way should be devised to meet the financial needs of the States. A special meeting of Commonwealth and State Ministers is to be held to go into this matter, and it is to be hoped that a scientific formula, will be worked out under which the States will receive a proper share of the buoyant revenues now being collected by the Commonwealth. We recognize that the Commonwealth has to meet heavy obligations, particularly for defence, but it should be possible to hammer out an arrangement that will he mutually satisfactory. I have pleasure in supporting the bill.

Senator O’BYRNE:

– Tasmania has not been treated generously under the States Grants (Additional Tax Reimbursement) Bill. It is to receive only £160,000, which is a small amount having regard to the many developmental works which the Government of Tasmania has in view. Senator Maher discussed the creation of new States, and suggested that a new state should be formed in northern Queensland. Later in his speech he complained bitterly of the duplication of Commonwealth and State services. I remind him that if a new State were set up in Queensland, existing State departments in Queensland would have to be duplicated. It is ‘ also proposed that a new State should be established in northern New South Wale’s. That, again would necessitate the duplication of existing New South Wales services. I can see no advantage in the creation of additional States except that it might make Australia seem more important to outsiders. A few years ago, I travelled through Queensland, and visited the area which Senator Maher said should be incorporated in a new State. I realize the need for developing that area, but I cannot see how its development can be hastened by the creation of a duplicate set of government departments. What is needed is more money for municipal and shire councils in the area. The men in control of those councils know the people, and know what needs to be done. There is a movement in the Northern Territory for having that area declared a new State, but that of itself would be of no advantage to the people of the Northern Territory. Indeed, Senator Maher unwittingly made out a case for unification rather that for new States. I believe that the establishment of spheres of regional development under a central government would be the best method of promoting the rapid development of Australia. The existing States are a “ hang-over “ from pre-federation days. At every conference of Commonwealth and State Ministers, the representatives of the States complain that administration costs are inflated because of the duplication of Commonwealth and State services. At the last such conference, the Premiers said that, because of constantly rising costs, they would have to budget for deficits. I regret that, the report of the proceedings of that conference are not yet available. From press reports, it is apparent that feeling between the Premiers and the Prime Minister (Mr. Menzies) ran high at times. The Premiers resented the fact that they had to beg the Commonwealth to alloca te more money to the States. Of the additional £5,000,000 that is to be granted in response to their representations, Tasmania is to receive only £160,000. Australia’s national income has been inflated because of high prices for wool, meat, wheat, metals, &c, and the Commonwealth has benefited through increased taxation returns. The expenses of the States have increased, but their incomes have not increased correspondingly. The fixing of Commonwealth grants to the States has resulted in the pegging of State expenditure. There i3 a popular demand for hydro-electric schemes, improved roads and other amenities which are necessarily a part of our decentralization programme, but the States can do little without more revenue. Senator Maher mentioned election promises, but I remind him that political parties in the sphere of State politics also make promises at election time, and the people expect them to honour those promises when they are returned to power.

Sitting suspended from 5.58 to S p.m.

Senator O’BYRNE:

– Tasmania’s programme of expansion and development has gathered momentum. The Premier appealed unsuccessfully to the Commonwealth for sufficient funds to carry on with that programme. The division of opinion between the Commonwealth and the States on the retention of uniform taxation came to a head at the last conference of Commonwealth and State Ministers. The time is opportune, if not overdue for a complete review of the whole machinery of tax reimbursement grants. The present formula is outmoded. That was amply demonstrated by the disappointment and the outspokeness of various Premiers at the last conference. There must be a new approach to this problem. Some people believe that it could be solved by dividing the States up into smaller regions, and allowing the Commonwealth Government to act as a unifying instrument and a master authority carrying out the various developmental projects. Such a plan would of course shear the State governments of much of their present power. I believe that there should be a conference between Commonwealth and State authorities to endeavour to reach a better understanding, and to establish a closer liaison between the various State and Commonwealth instrumentalities and departments carrying out work in the same field. For instance, there is overlapping to-day between the functions of the Department of Works and Housing and the Department of National Development in the Commonwealth sphere, and the various State departments controlling housing, lands, irrigation and water conservation, and other developmental work. In housing particularly, duplication of activity is most noticeable. In addition to housing authorities in each State, there are several Commonwealth instrumentalities including the Department of War Service Homes, and the Department of Works and Housing itself. The result of this overlapping is competition for building and other materials, as well as staff.

At present, technical staff is most difficult to obtain anywhere in the Commonwealth. Those are all problems awaiting solution. Only by agreement between the Premiers and Commonwealth Ministers can we expect better Commonwealth and State relations generally. The suggestion that some honorable senators favour developmental schemes only as a means of furthering their socialistic aims, or that they wish to break away from the old Commonwealth and State relations for party political ends, is typical conservative thought. “We must all face up to the fact that conditions have altered since federation, and that the position of the States in relation to the Commonwealth must be considered in the light of the changed conditions. The State governments and the Commonwealth Govern.ment have their own individual commitment? and responsibilities. Each State has its own Ministers administering various departments. Unfortunately there has never been any serious attempt to avoid overlapping ‘between Commonwealth and State Ministers with similar responsibilities. I believe therefore that much good could be achieved by a convention or even a royal commission to investigate, not only an equitable distribution of fields of taxation, but also Commonwealth and State financial relations generally. The States can only plan their development in accordance with their means. Tasmania wants to hasten its own development as much as possible, but it is being hindered by the Commonwealth’s refusal to make sufficient funds available.

The need to establish friendly and mutually beneficial relations between the States and the Commonwealth is becoming more urgent every day, and we can only hope that, at future conferences, States that have embarked on developmental work will be treated as generously as possible by the Commonwealth. Social services in Tasmania are second to none in the Commonwealth. The hospitals and the education system of that State have been favorably commented upon by many authorities, not only from the mainland, but also from other parts of the world. The standard of education and of’ schools is exceedingly high. Unfortunately the mere fact, that Tasmania has raised the school leaving age to sixteen years places an added burden on the finances of that State. There is a widespread belief that such matters have not been given full consideration by the Commonwealth in determining tax reimbursement grants. The University of Tasmania is in need of funds. Although Tasmania’s population is 271,000, there is still no faculty of medicine or of veterinary science at the university. To a rich agricultural State, the lack of facilities for training veterinarians is a serious disability. All those arguments have been advanced by the Premier of Tasmania at conferences in justification of his claims for larger grants. The claims are sound, and it appears to me that the deadlock that was reached at the last conference resulted from the growing tendency for the Commonwealth to absorb more and more tax revenue, and not to make the necessary allowance for the increasing needs of the States. I hope that before next year’s tax reimbursement grants fall due, the whole field will have been surveyed and an amicable agreement reached. It is in the national interest that the existing unpleasant feeling between the State Premiers and the Commonwealth authorities should be dispelled.

Senator McCALLUM:
New South Wales

.- This bill is the result of the financial agreement which was reached through bipartite action. Therefore, we can discuss it largely as a non-party measure. It was realized early in the war that the Commonwealth would require full control of the taxation field. Steps were taken to that end by Mr. Fadden when he was Treasurer of the Commonwealth in the first Menzies Ministry. The arrangements were not completed, but it was discovered that the Commonwealth Treasurer was not getting the co-operation that was desired from the State Premiers. If, in discussing this matter, one is inclined to lean towards the side of the States, and to be an advocate of State rights, one should admit that there has not been sufficient constructive thought coming from the States. The Curtin Government carried on the work that had been begun by the Menzies Government, and the uniform tax scheme was ultimately introduced by

Mr.. Chifley as Treasurer. The scheme was founded on the report of a committee consisting of three very able men appointed by the then government to consider the matter. One might call it a committee of all the talents. Its members were the Eight Honorable J. H. Scullin, Professor R. C. Mills, and the Honorable E. S. Spooner. As a result of the committee’s recommendations, four bills were passed in 1942 giving legislative effect to the proposal. It is right to emphasize, however, that the committee’s opinion was that the uniform tax scheme should operate only for the duration of the war and one year thereafter. I shall not attempt to blame Mr. Curtin or his Government for the attitude that developed subsequently, although I think there was something in it that was inherent in the platform and policy of the Labour party. As I have said before, the scheme was partly the result of the want of imagination and want of constructive proposals on the part of the State authorities. At every stage, so far as I have been able to ascertain, the State Premiers objected to the scheme but did not put forward any proposal by which certain authority could be handed to the Commonwealth temporarily and then returned to the States. I think it is fair to say that because unification is a part of the platform of the Labour party, and because members of that party are socialists and believe that, with centralized control, it would be easier to socialize industry, they determined that the uniform tax system should come to stay. Speaking as Treasurer on the 15th May, 1942, Mr. Chifley said -

National rights must take precedence over all State rights. The rights of the sovereign people arc paramount to the sovereign rights of the States.

That, I submit with all respect, is what the logicians call the fallacy of false opposites. The national rights are not opposed to the rights of the States, and the rights of the sovereign people are expressed just as much through the State governments as they are through the Federal Government. To speak of the Commonwealth Government as the “ National Government “ instead of calling it the “ Federal Government “ as the founders of the Constitution did, is quite wrong. Both the Federal Government and the State governments are national governments. The nation operates through the federal system and, I believe, is determined to operate through that system. My view is that the Federal Government has it own sphere, and the State governments have their own spheres. Unification must not be brought about by indirect measures, by financial pressure on the States, or by a mere policy of drift. The Australian people have a perfect right to have a unified government as have the people of the United Kingdom and South Africa, or to have a federal government as have the people of the United States of America and Canada. If we wash to follow the development of finance and other aspects of government of other countries the only two countries from which we can learn much in regard to procedure are the United States of America and Canada. It must be remembered that greatly as the power of the federal government in the United’ States of Aim erica has increased the people of that country have never thought of unification. The American States still exist and each has its own taxing power and is determined to keep it. Even under the long-continued regime of the Democratic administration, which, in the old days was the champion of state rights, federal power in the United States of America greatly increased. There has been no intention to reduce the American States to the position of mere satellites of the federal government. In Australia, on the contrary, there has been an increase of the dependence of State Treasuries on the Commonwealth. I shall quote only one set of figures to illustrate my point. Before the war approximately £16,000,000, or about one-eighth of the total expenditure of the States, was paid from the federal Treasury to the States. To-day, the amount paid to the States has increased to approximately £111,000,000, or nearly one-half of the total expenditure of the States. The States are no longer independent authorities which raise their own revenues. Using a figure of speech and not an exact legal term, the States may be described as vassals of the Commonwealth. They cannot lay down a policy without first having obtained a guarantee that the Australian Government will finance it. That state of affairs leads to a number of evil results. The first of them is lack of responsibility. Nothing could be worse than want of responsibility in an individual or a group of individuals. In the Army, the establishment of autocratic central authority is absolutely necessary, but every intelligent commander tries to pass as much responsibility as he can to his subordinates. “We must remember that we deliberately established the federal system, and that whenever the people have been asked whether or not they want it to be retained, they have unhesitatingly affirmed that they wish the federal system to continue.

Throughout this debate on whether federal powers should be increased or reduced we must keep in mind the fact that only three proposals to alter the Constitution have been carried, and, in each instance, they were not opposed by the Opposition of the day. Whenever there has been powerful opposition to a proposal to alter the Constitution, no matter from which party the opposition came, the people have always rejected the proposal. They have rejected requests to increase federal powers, whether they have been proposed by the Australian Labour party or by any of the political parties that oppose Labour. There can be no doubt whatever that the people of this Commonwealth still regard the States as important. The sentimental argument of “ parish pump politics “ can be discarded. As honorable senators opposite have said, the parish pump may be obsolete, but I remind them that the type of society that gathers round the parish pump is not obsolete. I do not think that society can endure if we have nothing but great agglomerations of people in great cities, as we have had in the nineteenth and twentieth centuries. Future development will be possible only if we abandon the practice of having great aggregations of p_eople in the cities. Local society should be encouraged and every little community should have the fullest possible rights of self-government. This country can be well governed only if we have the Commonwealth, the States, and strong local governments. There is, I believe, a good case for the establishment of new States but I am not an adherent of any particular new State movement. I believe that the people in any given area must demonstrate that they really want a new State to be established. There must be almost a dominant feeling in that direction in the locality concerned. Certainly some new States will eventually be established. As Senator Maher has said, northern Queensland provides scope for the establishment of new States. It may be possible to reduce the size of New South Wales. The only objection I have had to such proposals as I have seen is that they do not offer a satisfactory basis for the division of existing States. If in any part of New South Wales, or any other State, there 19 a strong united demand for the establishment of the new State, a new State should be established ; but no value will be gained from the establishment of a new State if it is to be a mere mendicant, existing on the bounty of the Australian Government.

I concede a number of points that were made by honorable senators on both sides of the House who strongly favour centralized taxation. The first is that the Commonwealth must retain absolute right in the field of taxation in the event of war. I believe that any alteration of the Constitution which prevented it from doing so would be wrong; but I do not believe it is right for the Commonwealth to use its defence power to bring about a change in Commonwealth and State relations, and to. continue the changed arrangement when the conditions that justified it no longer exist. The uniform collection of income tax, I concede, has so demonstrated its superiority over the former method that it would be reactionary and retrograde for us to revert to the former system. There should be one and only one income taxing authority throughout the Commonwealth. I do not think that a good case can be made out for reverting to the pre-war system, of having two taxing authorities competing with one another. It is possible with uniform collection of taxes to devise a system under which the States could be given their own revenues.

I have no objection to people who believe in unification striving to attain it.

Those who believe in unification are logical when they say that having obtained a power from the States, the federal Government is never eager to give it back again. Let us consider the factors, not all of them political, which have made it difficult for the Commonwealth, once having obtained power from the States, to hand it back again. The first is the desire of public servants to extend their powers. Every one who has experience of government admits that that is one of the greatest forces in modern politics. The not very pleasant term “ bureaucracy “ has been given to it. I shall not use that term, because it is not in any way to the discredit of public servants that they seek to make their departments as important and efficient as they can. That tendency is seen by every observer of modern public services. It must be guarded against, and it is the duty of the Cabinet and of the Parliament to be continually on guard against it. The second is a belief which some honorable senators undoubtedly quite sincerely hold that socialism is inevitable and that it can be most quickly achieved by centralization.

Senator Cameron:

– Hear, hear!

Senator McCALLUM:

– That interjection was exactly the response I wanted. There are some of us who believe that socialism is not inevitable, and we shall naturally do our best to oppose it. Socialism is one method of organizing society; individualism is another, and we cannot settle the differences between them by mere phrases. Many people in this community - I believe the majority of them - are sincerely opposed to socialism and do not want it. They will see that power is properly distributed between the Federal and State governments. The third ‘ reason why there is continual pressure for centralized power, particularly of financial power, is the desire of certain State Ministers to avoid responsibility. The Minister for Social Services (Senator Spooner) mentioned that aspect in an earlier debate. Desire to avoid responsibility should not he encouraged. A State Premier who wishes to avoid the odium of imposing taxes, but wishes to obtain credit for the spending of money, is not the right sort of person to be appointed to such a position. Power should not be divorced from responsibility. Those who wish to secure the support of the public should be prepared to incur whatever criticism comes naturally to those who have to impose taxes. It is a common taunt that public servants like to pass the buck. That tendency is, of course, also noticeable in other than public service circles. We all have read in David Copperfield of the famous firm of Spenlow and Jorkins and how when David approached Spenlow and asked ‘him for an increase of salary, Spenlow replied, “ Yes, my boy, there is nothing more I should like than to give you a rise, but I have my partner Jorkins to contend with “, and how when David went to Jorkins. and put the proposition to him, Jorkins replied, “ Yes, my boy, I agree that you should have a rise ; but you do not know what a hard, grasping fellow Spenlow is “. It should not be possible for public authorities to be able to play one against the other. Each should take its full share of responsibility.

I propose briefly to state my reasons for saying that the States should have their own separate taxes, and that they should not be mendicants dependent on doles from the Commonwealth. The first is that the federal system which was approved and endorsed by the people more than fifty years ago, has been reaffirmed by them again and again whenever they have had an opportunity to vote on the matter. Unification should not be dragged in through the back door. If we cannot get a mandate to abolish State governments and reduce the States to the status of provinces, we have no right to bring about such a change by financial coercion. The second reason is that I believe that the smaller the area administered the easier it is to check extravagances and inefficiency. As a servant for many years of the wealthiest and -richest State of the Commonwealth, I found a much easier attitude to finance in the federal sphere than in the State sphere. I always thought that the department in which I served was cheese-paring,” and that checks imposed by it were very severe; but I believe that that -is the right policy to follow. In the federal sphere we unconsciously get the idea that £1,000,000 or so does not matter. It is always easy to be prodigal with, other people’s money. Since I have been a member of this Parliament this Senate has voted millions of pounds for various purposes. Although I read the relevant bills as closely as I could in the time available to consider them, I cannot say that I was always sure that the provision of every one of the millions of pounds that we voted was justified. If it were in the .State of New South Wales those millions would be scrutinized carefully; if it were in the State of Tasmania they would be scrutinized even more carefully ; and if it were for a shire or a municipal council the money would be scrutinized very carefully indeed. That is a principle of finance that overrides any consideration of the ease with which money may be obtained and paid out. As I stated before, the responsibility of the person spending the money is an essential feature of government. I do not see how we are to continue this unsatisfactory state of affairs in which the Premiers promise all manner of things and expect the money to be provided by another authority over which they have no control. If what a State receives is to be determined by need - and as far as I can understand the various formulas that have been laid down in reports state that as one of the principles - a State that needs will get what it needs. But is not that penalizing efficiency? It seems to me far better to allow the States to cut their suits to their cloth.

I come now to the difficulty. How is it to be done? I have myself expressly ruled out double taxation in the sense that each State should have its own taxing authority. I believe that uniform collection of income tax is essential to good government of the Commonwealth. Various proposals have been made, and I think that all of them are worthy of consideration. It has been suggested that certain of the taxes, other than income tax, should be earmarked for the State services. I have not had leisure to examine that proposal. Although I do n<>t profess to be a financier or an accountant, I do not care for most of the specific proposals that have been put forward. The proposal that sales tax should be allocated to the States does not appeal to me, because that would mean that sales tax would be permanent. If the time ever arrives when taxation can be considerably reduced, I should prefer to abolish sales tax altogether. A tax that directly affects price levels and the consumer is a bad type of tax from the point of view of the general wealth of the community. Unfortunately, according to one sinister canon of taxation, it is a good tax because it is necessary that the goose be plucked with a minimum of squealing. However, needy treasurers are obliged to follow that canon.

We must face the problem of whether we can collect income tax by a uniform method, through one office, and so allocate it that each State as well as the Commonwealth receives a fair share. A very able man, the honorable member for Mackellar (Mr. Wentworth), speaking in the House of Representatives, referred to a plan which I think should be carefully considered by members of both Houses of this Parliament and by any other interested body. I shall not attempt to explain it in detail, but, briefly, his idea is that there should be uniform collection of taxes, that the Commonwealth should have a uniform rate of income tax, and that each State should proclaim its own rate according to its needs. I believe that that could be done. There are probably difficulties that have not occurred to me, since I am not a treasury official or an accountant, but I have come to the determination that it could be done, although it would no doubt involve a good deal of conferring between the parties, legislation, and perhaps even amendment of the Constitution.

I desire to warn those honorable senators who believe that it is possible to continue to increase the powers of the Commonwealth. This Parliament already has sufficient power for the well-being of the community. We should look on the States not as our rivals and not as our subordinates, but as co-partners, administering the common affairs of this great Commonwealth.

Senator McKENNA:

.- I think that all honorable senators should be pleased with the interest that has been displayed in this bill by representatives of the various States. In introducing the measure, the Minister for Social Services (Senator Spooner), in his second-reading speech, referred to the fact that the amount appropriated by this bill, some £5,000,000, was additional to the sum of £70,393,000 to be paid to the States this year. It may appear strange to honorable senators that there is no appropriation before this chamber for the £70,393,000 to which the Minister referred. The explanation, of course, is simply that in 1946 the States and the Commonwealth jointly believed that they had reached a formula which would bed down this very vexed question of Commonwealth and State financial relationships for a considerable period. The formula was embodied in legislation, and section 12 of the 1946 Act provided that payments in accordance with the act should be made out of the Consolidated Revenue Fund, which was thereby appropriated accordingly. So that in fact, the appropriation of the £70,393,000 has been already effected by the 1946 legislation and does not come up directly for consideration by the Parliament in this year.

I wish to refer to what Senator McCallum said. I can agree with the honorable senator that this matter should be approached upon a non-party basis, but he immediately departed from that high level when he claimed that sponsorship of the scheme of uniform income taxation by the Labour Government was induced by its idea of achieving its socialistic objective and by its desire to press on with unification. In making that statement, he became completely partisan. He also puts his own Government in a very ridiculous position, because if the scheme of uniform income taxation is socialistic and makes for unification, by reason of his Government’s very strong support of the scheme - as was evidenced at the last conference of Commonwealth and State Ministers - the Liberal-Australian Country party Government is socialistic and is also tending towards unification and the abolition of the States.

In the course of his speech Senator Maher made some statements that I thought were truly extraordinary. He claimed that the States passed over their powers to the Commonwealth in good faith, and he added that the States surrendered to the Commonwealth the taxing powers over incomes. Nothing could be further from the facts. Far from the States handing over the powers or surrendering them, the powers were assumed by the Commonwealth in the teeth of the fiercest opposition that the States ever presented. I lead into a consideration of that matter by referring briefly to the committee to which Senator McCallum made reference. The Treasurer of the day appointed a very excellent committee in the persons of Mr. Scullin, Mr. Spooner and Professor Mills, to study the vast financial problem that was facing the Commonwealth early in 1942, when it had to marshal the whole of the resources of this country for war, with the Japanese coming down through the islands, right to the coast of Australia. That committee presented an excellent report, which is available to everybody, because it is an official document of the Parliament. Following on that report, Mr. Curtin called the Premiers of all six States into conference in Melbourne, pointed out the financial difficulties that faced the Commonwealth, demonstrated beyond doubt that there was not sufficient elbow room for the taxation measures that the Commonwealth must impose in those circumstances, and made an offer - and I underline the word “ offer “ - to the six State Premiers that if they would voluntarily vacate the field of income taxation for the period of the war and for one year thereafter, the Commonwealth would surrender the scheme at the end of that time. The point that I ask Senator Maher, in particular, to recall is that every State Premier, representing every State government, rejected that offer in its entirety, despite the perilous plight in which this country was placed at that time. The Premiers realized, what has eventually proved to be the case, that if that scheme were embarked upon, it was most unlikely that it would ever be withdrawn. It was in the teeth of the opposition of the whole six States that the Commonwealth, faced with the dire necessity for the preservation of this nation, and the marshalling of all its assets in order to resist total Avar, embarked upon the legislation of which Senator McCallum spoke, in four measures, without the concurrence of the States.

To show that the States were in complete opposition to it, five out of the six attacked the legislation immediately in the High Court of Australia. Tasmania refrained, and New South Wales, which began proceedings, later discontinued them ; but four States fought the validity of that legislation to finality in the High Court of this country. The High Court, in due course, upheld the validity of the legislation, and pointed out that it did not rest for its validity upon the defence power at all. The court held that there was unlimited power of taxation in the Federal Parliament, that whilst the States enjoyed Concurrent jurisdiction with the Commonwealth in the field of taxation, section 109 of the Constitution - which binds both Commonwealth and States - applied and provided that where there was conflict between the laws of the States and the Commonwealth in a field where this concurrent jurisdiction was exercised, the Commonwealth laws should prevail. By a simple device, on the advice of its experts, the Commonwealth provided that Commonwealth assessments in the income taxation field should have priority over those of the States. Accordingly, that law overrode State law and, from a practical point of view, left no room for the States in the taxation field. Coupled with section 109 and the power over taxation is section 96 of the Constitution, which enables the Commonwealth to make grants to the States either with or without conditions. I therefore say to Senator Maher, in particular, that uniform income taxation was born, not only without the concurrence of the States, but despite their best efforts, both in conferences with the Commonwealth and in the High Court of this country, to prevent its coming into being.

Senator MAHER:

– There was a big body of opinion in the States in favour of the Commonwealth having control, although the governments took a stand. The States finally surrendered their powers under duress.

Senator McKENNA:

– The States objected to it from the very beginning and have continued to do so at every conference of Commonwealth and State Ministers held since, including the most recent one. They have never ceased to object to the principle of uniform income taxation. One can have a great deal of sympathy with the Premiers who, while representing sovereign States which are partners in a federation, must come to the dominant financial body and ask for a major portion of their revenue. One feels that, to a degree, the States demean themselves by doing that, and one must have sympathy for them. That was one reason for the plea that I made in this chamber last week, when I said that there was an obligation upon the Commonwealth to approach the needs of the States, not only with flexibility and sympathy but also with generosity. I repeat that plea now. The States are the bodies that led to the formation of the Commonwealth. They are constituent elements of it. I agree with the honorable senator who said that they were an integral part of the federation, and. accordingly, should be respected and treated as such.

I pass to the entertainments tax. When the High Court upheld the validity of the Commonwealth law, the States relaxed in the face of the inevitable and, when they were approached by the Commonwealth and asked to agree to vacate that field for the period of the war and for one year thereafter, they did so. Because that matter was the subject of agreement and not of coercion or unilateral action on the part of the Commonwealth, to-day the Commonwealth, although it remains in the entertainments tax field, does not impose the condition that the States must stay out of it if they wish to benefit from the total grant that is made. The position in relation to entertainments tax is different from that in relation to income tax. Under the income tax reimbursement scheme, if a State seeks to levy any income tax at all, it immediately loses its right to participate in the grants made by way of income tax reimbursement.

In 1946, an agreement was reached between all the State Premiers and the Commonwealth. In the intervening years, an extraordinary thing had occurred. Under the income tax reimbursement grants that were made, the

States had worked themselves into a splendid financial position. Their adjusted budgets and surpluses at the end of the war showed that they had between them approximately £75,000,000 -cash resources. Their budget surpluses amounted to approximately £56,000,000. Although the grants made by way of income tax reimbursement were at a much lower level in those years than they are now, there were very good reasons why the States were in such a happy financial position. They had benefited by vast war expenditure. Their railways were, perhaps for the first time, great revenue earners for .them. They were unable to expend money for civic purposes owing to shortages of men and materials. Every able-bodied person having a job to do. the States were not under an obligation, as they had been previously, to expend money upon unemployment relief and their budgets were relieved of that burden entirely. The growth of federal expenditure upon social services also relieved their budgets. The States came through the war years in a happy financial position.

The legislative provision made by the Commonwealth that uniform income tax should continue for the period of the war and for one year thereafter had more than a year to run when the Commonwealth called the States together in. an endeavour to reach some kind of agreement for the future. I took , Dart in all the conferences that ensued. I attended conferences of Commonwealth and State Ministers, and I believe that I have the distinction of being the only parliamentarian ever to take part in, let alone preside over, a conference of the States’ officers with the Commonwealth’s officers. My own approach to the problem of CommonwealthState financial relations became fairly well known, and it transpired that I was persona, grata to all parties, even the officers. That was a unique position for a parliamentarian of any party to achieve. In 1946 a very high degree of agreement was reached between the States and the Commonwealth. There was complete agreement as to the total amount of the grant- £40,000,000. There was complete agreement as to the basis upon which that sum should be distributed amongst the States. There was complete agreement between the States and the Commonwealth that all parties had settled a base that would stand for at least seven years. I invite honorable senators to refer to section 10 of the 1946 legislation which records that honorable agreement. It was not in a form that bound any State, because no government could bind its successor. The section reads as follows: -

If at any time -

after the thirtieth day of June, One thousand nine hundred and fiftythree . . . 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.

It was provided that if during that period of seven years there were major constitutional changes the parties were entitled to come together again. I emphasize that, almost for the first time in the history of Commonwealth-State financial relations, there was laid down a base acceptable to every body, which all parties believed had solved the problem and would eliminate acrimony, at least on that subject, from Common.wealthState conferences for many years.

Two formulae were incorporated in the legislation. They were expressed in very technical language but, in fact, were very simple. The first formula related to how the grant should increase from time to time. It was determined that £40,000,000 would suffice in each of the financial years 1946-47 and 1947-48, and that thereafter the grant should increase according to two measurements. First, it was recognized that the population of Australia would grow, and it was agreed that the grant of £40,000,000 should increase pro rata with the increase of the population. Secondly, it was agreed that the States should participate to some degree in any growth of the national income and it was provided that the grant should increase at the rate of onehalf of the percentage increase of average wages from year to year. That was. to be conditioned by the rise or fall of pay-roll tax. That formula determined what, after the first two years, should he the total amount of the grant to be distributed. The second, formula provided for the distribution of the grant after the first two years. In the first two years, during which the grant was to be £40,000,000 a year, the proportions were fixed in the legislation itself. Section 7 of the 1946 legislation laid down the base that should apply.

An interesting point arose there. It was recognized that the grant should be distributed according to the populations of the States, but it was also recognized that the small States - Tasmania, South Australia and “Western Australia - would suffer if there were too heavy or too early an insistence upon the population element. Accordingly, it was provided that, whatever the total amount of the grant in the first year of the ten-year period, 90 per cent, of it should be distributed upon the arbitrary basis that had been selected for the distribution of the £40,000,000 itself, and that in each succeeding year a lesser proportion of the total grant should be distributed upon that basis. In the second year it was to be 80 per cent., in the following year 70 per cent., and in each succeeding year a smaller proportion. As the proportion of the grant to be distributed upon the arbitrary basis became less and less, more and more of the grant was to be distributed according to the adjusted populations of the States, until at the end of 10 years the total amount of the grant was to be distributed amongst the States entirely upon a population basis. The formulae conceived the idea that the population basis for the distribution of the total grant would be reached gradually during a. period of 10 years.

I should record the very interesting fact that the formula, in dealing with the adjusted population of a State, took two interesting elements into account. It was realized that children, especially those between five years and sixteen years of age, made heavier demands upon the resources of a State in respect of education, health and other facilities than did any adult. Therefore, it was provided that, in computing the population of a State, the number of children between five and sixteen years of age should be taken out and multiplied by four, and the resulting figure added to the total of the population. The second factor of which account was taken was that in some States there were people living in very sparsely settled areas. A very interesting formula was determined, which honorable senators will find in the schedule to the act. Under it, population of a State was, for the purposes of the calculation, to be increased by a percentage, to be determined by the number of people living in certain sparsely populated areas. Account was taken of the number of juveniles in a State making heavy demands upon its financial resources and also of the difficulties of States such as Western Australia, where people are scattered over vast areas.

That was the first true, sound basis upon which financial relations between the Commonwealth and States have rested. It was prepared in a truly scientific manner, and was intended to last for .a long period. But what was the result ? In the economy of a State, situations do not stand still. In 1947-48, the law had to be altered. The £40,000,000 which it was thought would be adequate for 1946-47 and 1947-48 was found not to be adequate, and in 1947-48 the Commonwealth had to come to the assistance of the States by altering the base from £40,000,000 to £45,000,000. Again everybody thought that the position was bedded down for a long time, but a bad trend developed in State finances, and in the very next year, 1948-49 the law had to be altered once more. Then £45,000,000 was settled as the permanent base and it was agreed that, instead of that amount being increased by one-half of the percentage increase of average wages, the full percentage increase of average wages was to be added to the base. I am emphasizing that in the sphere of CommonwealthState financial relations things will not stand still to permit anybody, no matter how ingenious his mind may be, to evolve a formula, that will stand the test of time. Apart from 1946-47, the first year, and 1948-49, when the base was altered, the original formula has never been adhered to. Honorable senators will recall that last year a special addition of £8,000,000 was made to the total arrived at under the formula because of the difficulties from which the States were suffering owing to the coal strike. This year the figure of £70,000,000 arrived at under the formula is to be supplemented by a special grant of £5,000,000. That is the purpose of this bill. That supplementary grant was discussed by the Commonwealth and the State Premiers in September, but the figure of £5,000,000 became completely out of date shortly afterwards when the Commonwealth Arbitration Court announced its decision that the basic wage should be increased by £1 a week. That increase will throw on to State bodies a burden amounting to many millions of pounds a year. Although the Opposition does not oppose the measure before the chamber it realizes, as the Government must, that the sum to be provided is already inadequate, in view of representations that were made to the Commonwealth at the last conference of Commonwealth and State Ministers.

I agree with those honorable senators who have stated that the Government should make a psychological approach to this problem. Hitherto there has been an aloofness by the Commonwealth in this matter until applications have been made by the States. In this respect all former governments were equally blameworthy. Realizing that a psychological approach should be made to this subject the Commonwealth should say to the States, in effect, “ “We realize that the situation has altered and that you now require more money. “We suggest that so much should meet the emergency that has arisen.” That would show a degree of flexibility on the part of the Commonwealth and would inspire a degree of confidence by the States that has hitherto been lacking. It would have the ultimate effect of improving Commonwealth and State relationships. I proffer that thought to the Minister and trust that, in conveying it to Cabinet, he will stress the necessity for an approach at the next conference between Commonwealth and State Ministers that will eliminate a lot of acrimony that has characterized such conferences in the past, when the cut-up has been considered, and when additional amounts have been sought to he torn from the Commonwealth by the States but the Commonwealth has been unwilling to yield a penny more. It may be that an approach that took account of the psychological effect would yield far better relations, with resultant, benefit not only to the Commonwealth and State governments but also to the people of Australia. After all, neither State governments nor the Commonwealth are allimportant; they are both the servants of the people of this country and should work towards the interests of the people. That is the joint problem that confronts both the Commonwealth and the States.

I shall now refer to the subject of uniform taxation. I was rather intrigued to hear Senator McCallum state in the early part of his speech that he approved of the principle of uniform taxation because of its simplicity and economy, and because of its advantages to the wage-earners of this country. But presently I was amazed to hear him advancing reasons why the States should be allowed to collect their own revenues !

Senator McCallum:

– I stated that I favoured two distinct income taxes, with the uniform collection of taxation.

Senator McKENNA:

– The honorable senator’s meaning was not previously clear to me. However, I invite him to consider what kind of a predicament the taxpayer would be in if the State, exercising the sovereign right that he wishes it to exercise, decided to impose a tax of 15s. in the £1 on the income of an individual or a company, and the Commonwealth decided similarly ; in other words, that the Commonwealth and States decided jointly to impose taxes of 30s. in the £1. I merely pose a problem that is obvious, and I advise the honorable senator to come in solidly behind what is the policy of the Government that he supports, as we’ll as that of the Labour Opposition.

We should be quite frank in our recognition that the system of uniform taxation is here to stay, and that we should not allow it to be altered, because of its great advantages to the people of Australia, for reasons that I shall enumerate. Prior to 1942. when the system of uniform taxation was introduced, there were 26 separate taxes imposed on income in this country. One can imagine the bother and the complexity to people who had business with Australia-wide ramifications, of having to observe the requirements of 26 separate taxation laws. Their position was hopeless. The second great advantage arose from the abolition of the system by which people paid different amounts of federal taxes, according to where they resided. Under the old system men living in different States, with exactly the same income, family responsibilities, and expenditure on all matters subject to taxation deductions, paid different amounts of federal tax. The reason was that State taxes paid were allowed as deductions from federal assessable incomes. As State taxes were graduated on different levels the results were extraordinary. I shall mention a few of the anomalies that arose. In the first instance let us consider the taxes that were paid by two men, one living in Victoria, and the other living in South Australia, each in receipt of an income of £300 per annum, and living under identical conditions. The Victorian paid £26 federal tax, and the South Australian £24. Two men living in different States, each with an income of £800 per annum, in identical positions, paid different amounts. The man living in Victoria paid £331 federal tax, while the South Australian paid £120 federal tax. In the case of two men living in different States, with an income of £1,500 per annum, and similar conditions applying to each, the Victorian paid £38S while a Queenslander paid £347 federal tax. The great divergence was more apparent in connexion with much higher incomes. A Queenslander with an income of £40,000 a year was required to pay £20,074 federal tax, compared with £25,395 payable by a Western Australian, that is a difference of £5,321.

Senator MAHER:

– Not many men in Australia would have such large incomes.

Senator McKENNA:

– I know of one instance in which a man on the land has an income of £40,000 a year, and another instance of two men who run a cattle property, who have a joint income of £80,000 a year. However, I am merely pointing out the different amounts of federal tax that were payable by men enjoying similar incomes and conditions but living in different States. The third great advantage of uniform taxation is thai there is now only one taxing authority, one income tax return to be furnished, one assessment, and one set of allowances and deductions throughout Australia. The fourth great advantage, which is of .particular value to the wageearners of this country,” is that uniform taxation made possible the “ pay as you earn “ system, which could not have been introduced effectively under the old system. The fifth advantage is that it is possible for one taxing authority to negotiate with other countries in order to eliminate the evils of double taxation both here and abroad. The uniform taxation system has made possible a high degree of agreement between Great Britain and Australia, and has opened the way for similar negotiations with other countries, including the United States of America.

It must be conceded readily that the States are growing bodies, dynamically and vitally concerned with providing services and amenities for their people. Accordingly, their financial needs are constantly rising and expanding. On the other hand there has been a vast increase of Commonwealth commitments, which must be recognized by the States. For instance, the Commonwealth has a commitment of £50,000,000 per annum arising out of interest and sinking fund charges in connexion with World War II. That commitment will recur annually for the next 53 years. There has been a vast increase of expenditure for defence, which, both during the latter portion of the term of office of the former Government, and since, has involved an expenditure of £50,000,000 per annum. There has been also an enormous increase of developmental work in this country, and the cost of providing social services has increased during recent years to an annual expenditure now of over £100,000,000 per annum. Senator McCallum has referred to the colossal increase of the amounts of Commonwealth grants to the States, with which I dealt fully last week. Honorable senators will recall that the total amount of Commonwealth grants to the States in 1938-39 was £20,000,000 compared with a total of more than £100,000,000 now. As the bill before us indicates, the amounts of grants are still increasing. According to statistics recently published, reimbursements to the States from collections under the uniform taxation system amounted to £40,000,000 in 1946-47; £45,000,000 in 1947-48; £53,750,000 in 1948-49; £62,500,000 in 1949-50, plus £8,000,000 special grant in connexion with the coal strike. It is reasonable to assume that the tendency towards increased grants to the States will be maintained.

I now wish to refer to Mr. Alfred Deakin’s approach to this subject in the early days of federation. He studied the Constitution and found that vast taxing power had been vested in the Commonwealth. He found, also, that Commonwealth laws could prevail over State laws, and that, under section 96, the Commonwealth was empowered to make grants to the States, with or without conditions. In summing up the position in the Parliament he stated that the States were financially bound to the chariot wheels of the Commonwealth. He saw that that was implicit in federation, and that the machinery to meet that situation had been embodied in the Constitution by people who perhaps did not see the future as clearly as we are now able to judge the position in considering the matter retrospectively over the last fifty years. Section 87 of the Constitution, known as the “ Braddon clause “, provided that for the first ten years of federation three-quarters of the customs and excise duties should be paid to the States. Therefore, from the outset of federation, the Commonwealth had to grant financial aid to all the States - not merely selected States. Clearly, at the end of the first ten years, the Commonwealth had to make another provision. That was done by means of the per capita system, under which 25s. per head of population was granted to each State. That system operated until 1927 when, as a result of a referendum, the Commonwealth took over State debts and entered into a financial agreement. It made a contribution towards the funding of all State debts incurred before July, 1927, and has made a fifty-fifty contribution to all State debts incurred since that time. That arrangement is still in operation, and will continue in futuro. The Commonwealth also pays £7,500,000 each year towards meeting interest charges on State debts for which the Commonwealth assumed responsibility on the 1st July, 1927. In 1933, the Commonwealth Grants Commission was instituted to ‘help the three applicant States, Tasmania, South Australia and Western Australia. In 1944, uniform income tax was instituted and income tax reimbursements have been made to the States ever since. In 1942 an agreement was reached under which the Commonwealth took over fresh burdens from the States. Provision for the making of grants by the Commonwealth to the States is written into the Constitution itself, and the provision has been freely and generously availed of during the last 50 years. If a State borrows money with which to embark upon a developmental project, it must borrow through the Loan Council, and the Commonwealth is immediately committed to pay half of the sinking fund contributions to redeem the loan. If, in addition, the Commonwealth gives special assistance in the carrying out of the project, its commitments increase correspondingly, as happened in the case of the water reticulation scheme in the south-west of Western Australia. In South Australia, the Commonwealth helped the State Government in the development of the Leigh Creek coal-field. In Tasmania, it joined with the State Government in the aluminium project. In New South Wales, the Commonwealth co-operated with the State Government in establishing the Joint Coal Board, and made money available for the development of open-cut mines. It also co-operated with the Queensland Government in the Burdekin Valley developmental scheme, and in the development of the Callide coal-field. Such co-operation will continue so long a3 the federation lasts. Fresh claims for Commonwealth assistance are constantly being put forward, a fact which makes it difficult to lay down a formula which will hold good for even a year. Relations between the Commonwealth and the States should be flexible, and the attitude of the Commonwealth should be generous.

The Minister for Social Services (Senator Spooner) said that the Commonwealth, after considering the prospective commitments of the Commonwealth and the States, had agreed to offer the States an additional £5,000,000. In view of the recent increase of the basic wage by £1 a week, it is now clear that the Commonwealth did not foresee all the prospective financial commitments of the States. It would be well for the Commonwealth to approach the States now, and say, “ The situation has altered substantially since we offered an additional £5,000,000, and we now make a further offer.” There would be a great virtue in that approach. I shall be interested to see what happens at the next conference of Commonwealth and State Ministers, when this subject will be discussed. If the Commonwealth persists in the attitude that it wants to save every £1, and that it will make the States fight and scratch and scream, as they have always had to do-

Senator Spooner:

– A Daniel come to judgment !

Senator McKENNA:

– Well, as they have always had to do, except in 1946, when there was real unanimity between the Commonwealth and the States. Senator Maher said that the Commonwealth was encroaching on fields better left to the States.

Senator Maher:

– Fields that belong to the States.

Senator McKENNA:

– The honorable senator mentioned migration as one of the things that might well be left to the States. Paragraph 27 of section 51 of the Constitution provides that immigration and emigration are matters specifically entrusted to the Commonwealth. If ever there was an instance of excellent co-operation between the Commonwealth, and the States it is to be found in our present immigration policy. The Commonwealth did not embark on that policy without calling into consultation all the State governments. I was present at some of the conferences, and there was an agreed division of Commonwealth and State functions. The honorable senator did not make a fortunate choice of subject when he mentioned immigration.

Senator Maher:

– I said that the Commonwealth and States were competing in that field.

Senator McKENNA:

– They are not competitors; they are partners working in complete amity towards a common end. An elaborate formula has been worked out in regard to such matters as social services, accommodation, direction to work, &c.

The honorable senator also said that agriculture should be left exclusively to the States. The Commonwealth has special responsibilities in regard to overseas and interstate trade, and agriculture plays a vital part in both those activities. The Commonwealth is concerned with such matters as grade, quality, price, overseas contracts, import and excise duties, and international agreements.

Senator Maher:

– Such matters come under the heading of commerce.

Senator McKENNA:

– They also affect agriculture. As the honorable senator is well aware, sugar is the subject of an international agreement, as well as of interstate agreements. The same applies to wheat. The States have referred certain powers to the Commonwealth to enable it to promote stabilization schemes. The Commonwealth Scientific and Industrial Research Organization is engaged in research into agricultural problems, and the responsibility for quarantine protection rests upon the Commonwealth. Wherever possible, the Commonwealth uses the staffs of the State Departments of Agriculture. Measures for tick eradication are administered by State officers, the Commonwealth meeting a considerable part of the expenditure incurred.

Senator Maher:

– That represents the correct approach to the matter.

Senator McKENNA:

– Yes, and I approve of it. The honorable senator criticized the Commonwealth Employment Office, and condemned certain alleged happenings, but he did not say where they had occurred. I maintain that the Commonwealth Employment Office has played a major part in the success of the migration scheme by arranging for the employment of immigrants, and in finding accommodation for them.

Senator Maher:

– The State labour departments could have done that.

Senator McKENNA:

– Not all the States have an organization of the kind that exists in Queensland. I invite the honorable senator to look on this matter from the point of view, not of Queensland alone, but of Australia as a whole.

Senator McCallum said that there was a tendency on the ‘part of public servants to extend their power, but I join issue with him on that statement. It was he and his colleagues who applied the term “ bureaucrats “ to men of the most singular ability, who, for salaries far loss than they could have commanded outside, devoted themselves to the service of the country during the war, some of them even to the point of death, and others at the cost of their health. I have met many public servants of all kinds, particularly those in the higher grades whom Senator McCallum would describe as “bureaucrats “. I found that they were all concerned to apply the policy of their government, and I am certain that not one Minister of the present Government would have the slightest hesitation in saying that he gets absolute loyalty from his departmental head, and from the officers close to him. The one desire of all public servants in executive positions is to get a clear indication of government (policy. I do not suggest that Senator McCallum sought to slander officers of the Public Service, but his remarks tended in that direction, and I felt impelled to take him up on them.

I now come to the provocative part of my speech. The costs of government are constantly rising, and the functions of governments are becoming more complex. These factors have created problems in Commonwealth and ‘State financial relations, but one very simple remedy can be applied, and the Government knows what it is. The Government has only to honour its promise to restore value to the £1. If the Government wishes to make a real contribution to State budgets, it will honour its promise, which it made without qualification during the election campaign, to arrest rising costs, and restore value to the £1. Of course, the Government cannot restore the value of the £1. If will be very lucky if it can hold (prices where they are now. If the Government deplores the persistent claims of the States for bigger and bigger grants, let it discharge its solemn obligation to the people to arrest rising costs. Such action would be more appreciated than the making of bigger grants, and would be certainly less humiliating to the repre sentatives of sovereign States, if the acceptance of Commonwealth grants can be regarded as a humiliation.

Senator SCOTT:
Western Australia

– It is gratifying to note that grants to the States this year total £70,393,000, or £12,000,000 more than last year, and almost double the 1944-45 figure. This measure, which provides a further grant of £5,000,000, is the outcome of the recent conference of Commonwealth and State Ministers at which, by all accounts, there was considerable bitterness. At every such conference, of course, the Premiers are out to get as much as they can from the Commonwealth and under the system of uniform taxation that is quite understandable.

Senator Large:

– It is their job.

Senator SCOTT:

– That is so. If they went along to the Commonwealth and said that they did not require any more money, their governments would hardly be likely to be returned to power at the next elections. Much publicity is given to the demands that the Premiers make, but not nearly so much to the Commonwealth’s reply to those demands. I believe that the States should have their own field of tax revenue to ensure to them sufficient funds to carry out their developmental work. Under the uniform tax system, the States are absolved of the responsibility to collect revenue. There is a tendency for them to budget for deficits, and then to come cap in hand to the Commonwealth for sufficient money to balance their budgets.

This measure provides an additional £5,000,000 for the States but, as Senator McKenna has pointed out, since the decision to make this money available was made, the basic wage has been increased by £1 a week, thus involving the States in further commitments. It would seem, therefore, that the States will require a further grant to enable them to balance their budgets.

I believe that, as the area of Western Australia is one-third of that of the entire Australian continent, that State is entitled to special consideration in the allocation of grants for developmental purposes. The northernmost railway town in Western Australia is Meekatharra, which is only about 700 miles from the south coast of the State. There is no land transport system covering the 1,000 miles between Meekatharra and the north coast. There is an urgent need for a rail link from Meekatharra northwards. From the defence point of view the danger of the isolation of the northern portion of Western Australia can be gauged from the fact that it is nearly as .big as Victoria, but has a population of only 1,000. Its rainfall is almost as great as that of Victoria, and a large population could be supported. Unfortunately, the State government has not sufficient money to carry out the necessary developmental work. It is regrettable too, that various Commonwealth Governments in the past have preferred further to develop already populated areas in the eastern States. There is an urgent need to develop the neglected northern areas of Western Australia if this country is to prosper. At present, the only link between the south and north is by sea, and it is the duty of the Commonwealth to assist to extend the rail transport system by linking Carnarvon, Broome, Wyndham, Derby, and perhaps Darwin, with Perth. If Australia were attacked at the start of the wet season a foreign power could land an army by sea and consolidate his position for three or four months without any opposition except in the air and on the sea. The Commonwealth has a national duty, I believe, to make available sufficient funds to develop the remote regions of the Commonwealth.

Senator McKenna mentioned that this Government had undertaken to put value back into the £1. We accept that responsibility, and we are endeavouring to discharge it, but to do so greater production is required. The Western Australian Government is experiencing the utmost difficulty in providing a water supply to the Great Southern area and to the northern wheat belt towns. The Commonwealth Government has agreed to join with the State Government on a 50-50 basis in financing a water supply scheme to cover nearly 50,000 acres at an estimated cost of £3,400,000. This requires the installation of a 30-in. water main from the Wellington Dam near Collie. Unfortunately the material required is in short supply in Western Australia.

Senator HARRIS:

– What material isthat?

Senator SCOTT:

– Steel plate. Theestimated quantity of steel plate required is 3,500 tons. It will have to beimported by the Government of Western Australia and will cost double the price of local steel which, unfortunately, cannot be obtained. Value can be put back into the £1 in only one way and that is by each of us doing his best to improve production. The effort must, be made not only by the coalminers or the wharf-labourers, but by every one in the community. If there is a need to put value back into the £1, then clearly value must have gone out of the £1, and the Menzies Government, which has been in office for only ten months, cannot be blamed for that. The value went out of the £1 largely during the reign of the notorious Chifley Government.

I repeat my earlier suggestion that the States should have their own field of tax revenue so that they may carry out developmental work in their own way. Certain projects, of course, would still have to be undertaken by the Commonwealth, but I have yet to be convinced that developmental work, generally cannot be carried out more efficiently by the States. I believe that local governing authorities can get more value out of each £1 that they spend than can State governments, and that State governments in turn can get more value for their expenditure than can the Commonwealth Government. I should like to see more money made available to the local governing authorities for developmental purposes. Although local authorities have played a very important part in the development of Australia, they have always been handicapped by a shortage of money. It is not right that in this land of plenty local governing authorities, which have very limited sources of revenue should be prevented from carrying out their proper functions by lack of the requisite finance. If local governing authorities were given increased grants they could improve our road systems very much better than can either the Australian Government or the State governments.

Proposals for the granting of funds to the States and to local governing bodies for developmental purposes should be reviewed by a special committee of this Senate to which the fullest information should be made available. The Senate was established principally for the purpose of protecting the interests of the States. For many years large sums of money have been provided for expenditure in the more populous areas of the country to the detriment of sparsely settled areas. If all developmental projects were referred to and considered by a special committee of the Senate, the Commonwealth would be developed more expeditiously and more efficiently. The adoption of such a policy would go a long way towards giving effect to a policy of decentralization.

Senator COOKE:
Western Australia

– The last remark made by Senator Scott appealed to me more than did any other part of his speech. I regret to say that since the present Government has been in office it has shown a tendency to deny to this Senate information concerning the financial relations of the Commonwealth and the States. Only when legislation of the kind now before us is presented to the Senate are we given a.n opportunity to discuss this important matter. Eight weeks ago I sought information relating tn that portion of the proceedings of the conference of the Commonwealth and State Ministers which dealt with the allocation of moneys by the Commonwealth to the State.0. That information has not yet been furnished. The Minister for Trade and Customs (Senator O’sullivan) refused to table the relevant report. The Government has evaded its responsiblity to the Senate by refusing to release the report, and, as a result, honorable senators have had to rely on a press report, which the Government will not accept as accurate. We have been told by the press that the financial relations of the Commonwealth and the States are in a most unsatisfactory position. It had been reported that the Premiers had unanimously asked the Commonwealth for a more generous allocation of Commonwealth revenue. When I sought information on this subject the Minister for Trade and Customs said that Mr. Hanlon, the

Premier of Queensland, had been very rude. I understand that Mr. McGirr, the Premier of New South Wales, commenting on the proposal to grant only £2S,000,000 to that State, said-

This is very unsatisfactory ami I regret that my time should have been wasted to come hero just to be told that is what we are to get. The six men present hold up their hands but when one hand goes up that one vote is more than C. Another conference would be a gross waste of time.

New South Wales asked that the whole of the proceeds of the petrol tax be distributed to the States and made available for road purposes. Four States voted in favour of that proposal and three against it, and once again the federal veto was applied. As the result of the demands of the Australian Government for the road transport of wheat and other primary products to Western Australian ports, many of the main roads and country roads which come under the jurisdiction of Western Australian local governing authorities are in a very bad state of repair. Local authorities are unable to carry out repair and maintenance works because they have not the requisite plant and equipment, yet the Prime Minister vetoed a proposal which, if it had been approved, would have enabled them to do so.

Senator Scott has expressed his pleasure that the Government has introduced this bill to grant an additional £5,000,000 to the States. It does not please me. In my view it is further evidence of the parsimonious attitude of the Commonwealth to the States, and indicates that the Commonwealth has no sense of the realities of the situation. The total revenue collected by the Commonwealth for this year is far in excess of that collected last year. In 1948-49 collections of customs and excise duties alone amounted to £126,199,000. This year it is estimated that collections from that source’ will yield £162,000,000. Senator McKenna has reminded us that under the Surplus Revenue Act which operated in earlier years 75 per cent, of the revenue collected by the Commonwealth was made available to the States. If the States now received that percentage of the revenue collected by the Commonwealth they would be in a very sound financial position. Senator

Scott has said that the grants made to the States have increased by 100 per cent. That may be true, but I remind him that the revenues of the Commonwealth have increased by very much more than that percentage. Prior to the adoption of the uniform income tax system the total amount of revenue derived by the Commonwealth from all sources was £177,783,000. In 1949 the total receipts from all sources amounted to £417,538,000. In the present budget the Government has indicated that it expects this year to receive from all sources a total revenue of £789,658,000. Having regard to the enormous increase of Commonwealth revenue this proposal to grant the States an additional £5,000,000 is, to say the least of it, mean. State services have been cut to an absolute minimum. When the report of the conference of Commonwealth and State Ministers is tabled we shall probably find that the representatives of the Commonwealth sought to cut State expenditure to such a level that the States would be totally unable to carry out their programme. Since the present Government took office the number of Commonwealth employees has considerably increased. It is possible that some increase of the size of Commonwealth staffs is justifiable, but the numbers of public servants and departmental expenditures are increasing every day. The contention of honorable senators opposite that the States should collect greater amounts in taxes from the fields left to them by the Commonwealth is absolute hypocrisy and cant. The Commonwealth has virtually taxed the people to saturation point. It has explored every field of taxation both direct and indirect, in order to finance a phenomenal budget providing for £789,658,000. What taxation fields have been left to the States? The powers of the States to impose taxes are very limited and the fields in which they can operate are very small. Apart from revenue from land tax the States have very little opportunity to increase their direct earnings. The funds available to them are totally inadequate to enable them to meet their sovereign responsibilities. All the formulas and rule of thumb methods that have been applied in order to assess what allocation should he made to the States have been completely upset by inflation. The Government has completely forgotten the slogans which its leaders coined prior to the general election. How often then did we hear about the Canberra “ grab “, the prostitution of State rights by the Commonwealth and strangulation by Canberra restrictions? At the conference of Commonwealth and State Ministers, the representatives of the States were denied an opportunity to discuss State disabilities arising from inflation. They were refused an opportunity to submit a case for a more reasonable allocation of Commonwealth revenue. It is hypocritical for honorable senators apposite to suggest that the States have not already fully explored the limited fields of taxation that have been left to them. This Government has increased indirect taxation in many ways. In his greed for revenue the Treasurer has even sought out the purchaser of a bicycle. He dips his hands into the handbags of our womenfolk in order to extract additional sales tax on cosmetics. Even children’s toys have not escaped his attention.

The States have been treated with shameful parsimony by this Government. State Premiers have been humiliated in the conference room and no opportunity has been given to them for negotiation with the Commonwealth. In the last year in which the Labour Government was in office, notwithstanding that inflation had not then reared its ugly head, it increased grants to the States by £8,000,000 or £9,000,000, irrespective of the formula.

I consider that the Government should be open about the matter of Commonwealth-State financial relations, so that when development works are to he discussed the necessary papers should be available in the chamber. The Government has deliberately delayed the printing of papers in relation to those matters so that they will not be available to the Senate when appropriation measures are being debated. In this matter, as in every other matter since the present Government has been in office, the members of the Opposition are forced to seek in the newspapers for information as to Government policy. There are statements made by responsible Ministers and reported in the press. Then they are denied,. The press is able to give the full story of Commonwealth-State relationships, but there has been no opportunity in this chamber to discuss those statements. The Government places before the people of the country, through the medium of the press, propaganda alleged to be its policy, but when the members of the Opposition ask for information they are unable to obtain it. Appropriation bills of this nature must be passed because there is nothing else that we can do. The official documents have been purposely delayed in printing by the Government so that the position of the States cannot be presented in this chamber. I say that that is a shameful thing. I am not at all pleased with this appropriation measure, despite all the back-scratching that has occurred during the debate, and I am thoroughly displeased with the Government for having wilfully kept from the members of the Senate official minutes which should be made available to them so that they may discharge their duty to the people.

Senator SPOONER:
Minister for Social Services · NEW SOUTH WALES · LP

in reply - Prior to Senator McKenna’s entry into the debate, the discussion had been mainly along the lines of State interests, State rights, and the inadequacy of the grants to the States. I have had prepared some details concerning that aspect of it for the information of honorable senators, because it appeared to me that in the excess of zeal which each senator was showing for the State that he represented, the point of view of the Commonwealth was being overlooked.

I propose to make reference to the point of view which Senator MeKenna expressed, but before doing so I feel that it is necessary to reply to Senator Cooke’s accusation that the Government had deliberately withheld the printing of the proceedings of the last conference of Commonwealth and State Ministers. It is really silly and childish to make that charge against the Government, because the facts are that most of those proceedings were open to the members of the press, who were present, and the proceedings were reported in the newspapers. In the face of circumstances such as those, the fact that an honor able senator, representing a State in this chamber, should say that the Government is deliberately suppressing the printing of the documents, would have its humorous aspect if it were not that the charge is apparently made seriously. It is a matter for regret that the documents have not been printed. I do not know the reason, but I take it that the answer is the plain and simple one which everybody in this chamber appreciates: that there is such tremendous congestion of work in the Government Printing Office that it has not been possible to do so.

Senator Cooke:

– “What was the objection to tabling the type-written papers for the information of the Senate, as I asked? “Why was the responsibility evaded?

Senator SPOONER:

– I do not know the answer to that. At best, the honorable senator’s accusation could be only one of discourtesy on the part of the Government in not tabling it. If there was discourtesy, I regret it, but I say that it does not enhance the dignity of the Senate for an honorable senator to make such a fantastic accusation.

I wish to- touch upon what Senator MeKenna said, because he put his case with great force and with considerable ability. I consider, however, that he overstated it and that the wish is father to the thought. The honorable senator approached the problem according to the beliefs that he holds and the principles that he supports, and those beliefs and principles favour a unified government rather than federal government. I do not consider that uniform taxation necessarily is irreconcilable with a federal system of government and with State financial responsibilities. In my reply during the debate on a previous bill, I stated that I am one of those who support uniform taxation. I have always done so, but I do not think that that means that necessarily State financial responsibility disappears. “When Senator MeKenna quoted the possibility of both State and Federal authorities assessing a tax in excess of 20s. in the £1, he again carried the illustration to a stage of over-exaggeration, because on this side of the chamber we believe that there is a great deal in favour of the

State governments having responsibility for taxing, but that if those circumstances should occur such as Senator McKenna mentioned, both the governments would pay heavily in forfeit to the electors concerned. If governments do something so outrageous in normal circumstances as to impose taxation exceeding 20s. in the £1, they will be brought to judgment by the people who elect them. The same principle applies when taxation is at a lower scale than that. This topic is not by any means exhausted, and it is not sound arbitrarily to dismiss the problem.

The weakness of Senator McKenna’s argument was that he would give no thought to alternative methods. As far as he was concerned, it was uniform taxation and nothing else; uniform taxation with no variation which would admit and encourage the federal system of government. I suggest that there is a variety of alternatives. I admit that there are difficulties in the implementation of those alternatives, but there is a possibility for the State and Federal governments each to assess its tax upon the one uniform tax assessment. That possibility was not canvassed by Senator McKenna. There is the possibility that there can be a division of the various fields of taxation, so that some fields may be reserved for federal governments and some for State governments, or, alternatively, that each government may strike its rate of tax, both being collected’ on the same assessment. There is a further possibility of some division of the tax results by some body such as the Commonwealth Grants Commission, or, more probably, there is the possibility that the solution will come by some variation, or amalgamation, or the utilization of portion of those ideas and perhaps other ideas. As I stated on the last occasion I replied to a similar measure, thi9 problem to-day, with all its difficulties, is probably somewhat similar to that which confronted the authorities when the Commonwealth Grants Commission was formed. At that stage of the history of the financial relations between the States and the Commonwealth, the difficulties looked insuperable and incapable of solution. Yet the Commonwealth Grants Commission was evolved and it has given satisfaction ever since. The members of the Government believe that some solution will be found which will result in the State governments being responsible to the electors for the taxes imposed on them. From that will follow the benefits that have been enumerated earlier in the debate.

On the question of State and Commonwealth relations, there has been much criticism to the effect that the grants to the States have not kept pace with the Commonwealth receipts from taxation. First, it is necessary to look at increased Commonwealth responsibilities over the years in order to see whether the case has been established that the State grants should increase in ratio to the Commonwealth receipts. I shall deal with that matter later on, but the facts are that the federal grants to the States have increased at a greater rate than have Commonwealth tax collections. In 1945-46 the tax reimbursement grant of £33,500,000 was H per cent, of the Commonwealth tax collections of £351,200,000. In 1949-50 the tax reimbursement grant of £62,300,000 was 12.3 per cent, of the Commonwealth tax collections. Those figures alone, over those two comparative periods, show that the Commonwealth has given to the States an increased proportion of its total tax collections. But that merely carries the argument to a certain stage. If it is taken to the next stage and all Commonwealth direct grants to the States are taken into account, it will be seen that the proportion of those grants to the States rose from 14.4 per cent, in 1945-46 to 20.6 per cent, in 1949-50. Those direct grants are set out in the budget papers and include road grants, contributions under Commonwealth-State financial agreements, interest and sinking fund charges on loans, special grants and cost of prices control. In general terms, I consider that that is an effective reply to the allegation that the States have been badly treated or have not been adequately treated in relation to the Commonwealth revenue.

The other main point was that whereas the Commonwealth has been able to finance capital works from revenue, the States have had to use loan funds for that purpose. That must be examined against the background of the extraordinary expenses incurred by the Commonwealth, during the war and the postwar years. All those expenses, irrespective of whether they related to capital works or current expenditure, were charged to Consolidated Revenue and the deficiency between revenue and total expenditure was charged to the loan fund for war and post-war services. Under that system, expenditure upon capital works and services was shown in the budget as a charge to revenue. It was the only practical system to adopt, in view of the extraordinarily large expenditure during the war period. Despite that, during recent years, the Commonwealth had to borrow on a very large scale. Since the war began, its revenues have, with the exception of two years, been insufficient to meet expenditure. In some years, the deficiencies reached enormous proportions and had to be financed, by loans from the Commonwealth Bank or with treasury-bills. Consequently, the public debt of the Commonwealth has increased tremendously, and the annual liability for interest and sinking fund charges has increased with it. “When the States say that the Commonwealth financed its capital works from revenue while they were forced to finance a proportion of their capital works from loan funds, it is interesting to compare the growth of Commonwealth and State debts during the last decade. The public debt of the Commonwealth increased from £356,000,000’ in 1940 to £1,831,000,000 in 1950- on increase of £1,475,000,000. During the same period, State debts increased from £906,000,000 to £1,079,000,000- an increase of £173,000,000. The increase of the State debts has been small in comparison with the increase of the Commonwealth debt. As a result of large Commonwealth borrowings in the last decade, the annual interest liability of the Commonwealth has increased by £37,800,000 a year, while the annual interest liability of the six States combined has increased by only £200,000 a year.

It will be seen that the Commonwealth is carrying a large share of the burden of responsibility in this matter. It bore the cost of the war and all that the war entailed. Its interest liability and sinking’ fund commitments have increased tremendously. It has financed a great expansion of our social services, and is now faced with the prospect of large expenditure in relation to defence, stockpiling, repatriation, immigration and developmental works. The interest liability of the States has increased only nominally, and the fact that the increase has been so small is due in no small measure to the favorable arrangements for borrowing that the Commonwealth has made through the Commonwealth Loan Council. At conferences of Commonwealth and State Ministers, the State Premiers descend upon the Commonwealth and voice their comments and criticisms of it, but I think it will be agreed that the figures that I have cited show that there is another side to the story.

I join issue with Senator O’Byrne, who, I think unfairly, accused the Commonwealth of competing with the States not only in relation to finance but also in relation to men and materials. There is a high degree of co-operation between the Department of National Development and the State authorities. A good deal of the criticism that has been uttered can be answered adequately. Under the present system,’ with all its imperfections, the Commonwealth has done its best to treat the States fairly. Every formula that has been agreed upon has been subsequently varied. This year, the Commonwealth will make available to the States £5,000,000 in addition to the sum to which they are entitled under the tax reimbursement formula. The present system is not perfect, and we on this aide of the chamber hope that it will be varied. A conference will be held early in the new year to discuss Commonwealth-State financial relations. To be quite frank, I believe that it would be very optimistic to expect that conference immediately to find a solution of the problem based upon the principles in which we all believe, but at least it- will be a step in the right direction.

Question resolved in the affirmative.

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

page 2308


The following papers were pre sented : -

Apple and Fear Organization Act - RegulationsStatutory Rules 1950, No. 74.

Australian Soldiers’ Repatriation Act- War Pensions Entitlement Appeal Tribunal No. 1 - Report for year 1949-50.

Commonwealth Debt Conversion Act - Regulation? - Statutory Rules 1950, No. 72.

Commonwealth Public Service Act -

Appointments - Department of Works and Housing - E. C. Brown, E. B. Crimmins, C. E. Giese, D. C. O’Connor, R. Pullen, R. V. Sullivan.

Regulations - Statutory Rules 1950, No. 73.

Defence Act - Regulations - Statutory Rules 1950, No.65.

Defence (Transitional Provisions) Act - Regulations - Statutory Rules 1950, No. 75.

Lands Acquisition Act - Land acquired for Postal purposes at Kempsey, New South Wales.

Meat Export Control Act - Regulations - Statutory Rules 1950, No. 76.

Senate adjourned at 10.25 p.m.

Cite as: Australia, Senate, Debates, 14 November 1950, viewed 22 October 2017, <>.