UNIFORM TAXATION CASE PUT BY COMMONWEALTH TO PREMIERS

The proposal by the Commonwealth Government for uniform taxation for 
the duration of the war and 12 months after was put to the Premiers' 
Conference on April 22 [1942] by the Prime Minister (Mr Curtin). Mr 
Curtin said:

"The Commonwealth Government had hoped that the principle of one income 
tax authority for the duration of the war and one year thereafter would 
have been accepted by the Premiers; but I think that it is very clear 
that the principle is not accepted. Had you accepted the principle, the 
Commonwealth Government, would have been quite ready to have consulted 
with you in respect of the ways and means to give effect to it. There 
would have been on the part of the Commonwealth Government the broadest 
outlook in dealing with the problem.

"In justice to the men who composed the special committee appointed by 
the Commonwealth Government, I am obliged to say that its very 
personnel indicated the broadness of the view which the Commonwealth 
Government took of this problem. One of them was the assistant 
Treasurer of the leading State for some years, and was prominent at 
Loan Council meetings. He was also associated with the financial policy 
of the Government of which he was a member, and had long experience in 
State administration. Another member had been Prime Minister and 
Treasurer for some time, and in addition, sat for twenty years in the 
Commonwealth Parliament as the representative of one of the most 
important electorates in what I shall call the second most important 
State of the Commonwealth. The third member is the present chairman of 
the Commonwealth Grants Commission. He has never been associated with 
any political party. I question whether there could be found in 
Australia a body, on balance, more competent to deal with the problem.

"What are the facts today? The States speak of post-war problems; of 
present programmes which have to be carried on; of unforeseen 
expenditure. The Commonwealth Government has had to face unforeseen 
expenditure; it has had to face unforeseen calamity. In the last three 
years an unforeseen calamity has demanded an expenditure of 
$515,000,000. Expenditure on the war at the end of June, 1940, amounted 
to $55,000,000. The amount expended during 1940-41 was $170,000,000. 
For the ten months of the present financial year the expenditure has 
been $220,000,000, and by the end of the present financial year it will 
be $290,000,000. That makes a total expenditure of $515,000 that has 
been incurred by the Commonwealth Government. Next year, because we are 
obliged to do all that we possibly can, that is, to make our utmost 
effort physically, my present advice is that our expenditure will 
exceed $1,000,000 a day. That is the rate of our present expenditure, 
but I take the figure at $360,000,000 for the next financial year. That 
makes a total of $870,000,000 of unforeseen expenditure which the 
Commonwealth Government has had to find.

I submit to you that that is the primary obligation upon the taxable 
capacity of this country, that it comes in front of plans of 
development, whether they be State or Federal plans. But that 
expenditure of $515,000,000 to the end of this financial year is not 
the only expenditure that the war has caused the Commonwealth 
Government to incur. It has had to provide very substantial sums of 
money to maintain the industries of the States due to the problem which 
war imposed upon them. And it has had itself, out of loans, to provide 
the States with their loan accounts. There was no other source from 
which that could be provided. We faced that problem.

"Any plan to organize Australia effectively for all that lies ahead of 
it will engross the whole of the resources of the country. Some States 
have looked at what would happen in the post-war period, and have said 
that however sincere might be the Commonwealth to terminate this 
arrangement a year after the war, its commitments would be so great as 
to induce it to hold on to the taxable resources. I do not think that 
that will be the case. I am quite certain that the post-war period will 
not be for us to determine unless we are capable between now and then 
of completely organizing the resources of this country for the 
prosecution of the war. The issue of what will happen afterwards will 
not be resolved by conferences between the present Government or its 
successors and the governments of the States. I say that to you quite 
frankly.

"We recognize frankly that this is a period of acute difficulty in 
regard to social services, having regard to what we wish to do in 
respect of the war. But we have taken into account the fact that 
disparities in the requirements of the States from a common tax are 
rooted in the variations between their systems of social services. We 
feel that one means of getting a better equilibrium in this matter 
would be for the Commonwealth, having got the principle of one 
authority applied, and having in that way fixed the amounts which the 
States should receive for their existing services, to say that the 
problem of some States would be helped if we were able as a 
Commonwealth Government to have a national plan in relation to widows' 
pensions as against the present situation. The plan would be, broadly 
speaking, a slight improvement upon the present New South Wales plan, 
which is one reason, of course, why New South Wales taxation is much 
higher than that of certain other States. As thousands of men have been 
compelled to leave their jobs and accept less pay than they earned in 
their civil occupations it is important for the Commonwealth to 
shoulder a national obligation to provide for women and children. We 
have regarded that as a contribution to morals of incalculable merit. 
But we have also said that should the Commonwealth engage in any 
further national social services which would relieve a State of a 
service which it is now rendering out of its tax yield, the 
Commonwealth Government may apply for a reduction of the amount payable 
to the State. It is only in those circumstances that the Commonwealth 
would ever make a claim for a reduction of the payments contemplated to 
the States.

"Why does the Commonwealth Government and the special committee declare 
that $34,450,000 is an adequate total amount for the Commonwealth to 
pay to the States annually for the period of the war? The reason is 
that it is the amount which, during the past two financial years, the 
States have found adequate for the purpose of carrying on their public 
administration from taxation.

"I cannot for the life of me regard a proposal which guarantees to the 
States for the duration of the war an annual payment of $34,450,000, as 
their revenue from taxation, as involving the forfeiture of sovereign 
rights. The States will still be called upon to pass estimates of 
expenditure and to introduce budgets. The only item that will not be 
discussed will be the Income Tax Assessment Bill. The contention that 
the Commonwealth has put a pistol at the States' heads appears to me to 
be without regard to all that has preceded this deliberation. 
Uniformity in the method and procedure of taxation was examined for the 
three years 1933-36, and that examination culminated in the interstate 
conference in 1936 upon uniform taxation. Bills were introduced by the 
Commonwealth and all States. The best results that could be achieved 
still left a very great difference between the various Governments. 
Since 1936, those differences have been widened because the 
Commonwealth and the States have legislated separately without regard 
to the decisions upon uniformity. In many respects, there is less 
uniformity in method and procedure than before the conference in 1936.

"It is a fact, that a great part of the $515,000,000 has been expended 
in Australia. It has flowed into the hands of those who previously had 
no incomes at all, or who were not included in the taxable field, 
either State or Commonwealth. They now come into that field and a part 
of that revenue which the States now get under present rates is the 
result of expenditure which the Commonwealth has made possible by 
providing employment in the States. True, it has not found employment 
on a per capita basis, because in the very nature of things the problem 
of defence and strategy cannot be evolved on a per capita basis. That 
is in respect of military operations. It is also true in respect of 
defence needs that we have to take the position as we found it and 
concentrate upon quick production, using necessarily the larger scale 
industries, which were so as to ensure greater self-reliance and 
defensive capacity for the country. That involved a decrease of 
Commonwealth revenue from customs. In the very nature of things, the 
inability of the Commonwealth Government to command the taxable 
capacity of the nation in war-time must be an impairment of its conduct 
of the economic organization essential for war. Nothing that has ever 
gone before and no comprehension of what may lie ahead in respect of 
the relationship of the States to the Commonwealth are of importance in 
the examination of what we now have to do in order to get the maximum 
capacity out of Australia.

"If the States would accept the principle of one taxing authority I 
should say: 'Let us get down to tin tacks and see what we can do.' But 
the States have rejected it, proclaiming it to be an invasion of the 
sovereignty of the States and said that it took the heart out of State 
governmental structure. The States do not give us any hope of doing 
other than going to the Commonwealth Parliament and saying: 'Gentlemen, 
yours I the responsibility for making the requisite financial provision 
for the conduct of the war; here are the proposals which the Government 
has formulated.'

"The proposal which the Commonwealth Government has placed before this 
conference is that the States shall suspend the right to impose income 
tax for the duration of the war and twelve months thereafter and that 
the Commonwealth will pay to the States for that period the amount that 
they broadly received in the two years during which the States affairs 
were examined, so that a fair figure could be secured. What everybody 
leaves out of account is, that, as the result of the increased 
Commonwealth expenditure on the war by $120,000,000, comparing the year 
1940-41 with 1939-40, there has been a great increase or the taxable 
capacity of the country. The proposal of the Commonwealth is that the 
States shall not share that increase, which will be made available to 
the Commonwealth Government for the prosecution of the war.

"The Commonwealth has to cope with many commercial shipping and 
transport problems not only external, but also internal. There has been 
a tremendous increase of army expenditure for transport, some of which 
is not wholly related to the movement of troops, because of the 
deficiencies of the railway systems compelling us to use roads and 
provide trucks. All that goes into the war cost. I put it to you, 
without any political idea whatsoever, as a cold and, I believe, a 
rational way to look at the problem of this nation. That is as much 
your concern and your interest, as it is mine or that of my colleagues.

"The fact is that this nation has not expended enough money on 
preparations for war, with the result that we now have to improvize, 
which is always more costly than a carefully-considered plan. I do not 
know how the States will be able to look electors and parliaments in 
the face and say: 'We have rejected this principle of uniform taxation 
because it strikes at the sovereignty of the States.' The sovereignty 
of the nation calls for a reform of this nature during wartime for the 
purpose of conducting the financial obligations of the national 
government rationally.

"I do not see how the schedule of taxation which we might ultimately 
have to increase if the war lasts three, four or five years, can be 
soundly conceived in a competing field such as the present position 
discloses. Company taxation, which is in itself a complicated problem, 
is rendered six-fold more perplexing because of the way in which the 
companies are organized in Australia in their interstate relationships 
and the varying impact of varying State company taxes upon those 
instrumentalities in relation to the very high rate of tax which the 
Commonwealth considers that it should impose. As the result of all 
that, you have a maddening maze and the taxpayer is unable to know 
precisely what his burden is. For the purpose of the war, every 
Australian should know precisely what is the taxation contribution that 
he should make out of his income; and he ought to know that that is the 
identical amount which every other man in Australia in receipt of the 
same income has to bear.

I do not see any other basis on which you can get justice in war-time.

"The States have said that the States may never regain their power to 
levy income tax. I deeply regret that the States have taken that view 
of the position, because there are very great bodies of the public who 
may be inclined to feel the same way about it; for it is not the States 
alone as States that the Commonwealth Government has approached with a 
proposal that they should forego certain rights in the interests of the 
conduct of the war. We have asked large bodies of employers and 
employees to forgo rights which they claim, shall I say, to have been 
written in the Constitution. They regard them as traditional rights. We 
have asked those sections to waive their rights and we have as decent 
and honest Australians, said to them, 'we ask you to give up these 
things for the duration of the war.' They have agreed to do so. I 
confess that we cannot give to them an absolute assurance that the 
subsequent life of this nation will see those rights restored to them, 
but we have at least promised them to do our utmost to ensure that they 
are restored, and they have accepted that undertaking of the 
Commonwealth Government. But the Premiers of the States, are not of the 
same mind. They have doubts, which the employers and the employees did 
not entertain. That is unfortunate.

"The Commonwealth will not deprive the States of the yield obtained 
from income taxation. The State will receive that money to distribute 
for civil purposes in any manner that they think fit. If the amounts 
should be insufficient, the States have the right to appeal to a 
competent authority to revise the figure, and the Commonwealth gives to 
the States an undertaking that the decision will be carried out. I 
regard all that as being reasonable. I am the Prime Minister, and I say 
that that is what the Commonwealth Government will do. This is our 
proposal. We shall set up the necessary authority.

"If the States accept the principle of one authority we are quite 
prepared to discuss the details. If the States inform me that they 
cannot accept the principle of one taxing authority I have only to say 
that I shall refer the whole matter to the Commonwealth Parliament.

"The Commonwealth Government must be able to obtain the money it 
requires to meet defence needs and to conduct the war effort. If the 
States agree to the principle we are quite prepared to consider with 
the States, the composition of the proposed special tribunal to deal 
with issues that might arise.

"The objections of the Premiers have been stated, and the views of the 
Commonwealth have been put during the course of the proceedings. We 
know now that the proposal is not agreed to at this meeting; and, as I 
have said, we shall submit it to the Commonwealth Parliament."