Federation and Common  Fiscal Policy

The key to all successful government is finance. If we have strong financial provisions we shall have strong government; if we have weak financial arrangements we shall have weak government - it is the paltry financial basis of union which will cause all the troubles under this Bill There are in its financial provisions every element of friction and inter-Colonial dissatisfaction, tensions which do not exist in the comparatively isolated Colonies of today. (Piddington, A.B. Speech at the Protestant Hall, Sydney 9 June 1899, in Crisp, L.F. 1980, 'George Richard Dibbs 1834-1904', Federation Studies, Canberra ANU, p.100.)

As the Colony of New South Wales approached the final decade of the nineteenth century serious economic, political and social dislocation accelerated discussion as to the Colony's future economic performance.

New South Wales and her Reluctance to Join The Federation

Having promoted initially the desirability for federation, New South Wales was the most reluctant of the colonies to bring the action to its conclusion; it sought union but not unity, the financial aspects of the federation providing the chief argument against its finalisation.

Sir Robert Garran a barrister from New South Wales and Secretary to the Convention's drafting committee considered the major problems were namely: adjustment of the financial resources of the Commonwealth and the States, conditions to be established with equanimity and mutual satisfaction, and the modes of adjustment and the distribution of revenue.

The Conversion of Loans was another issue for consideration. What was considered one of the most startling features concerning the State's finances was the apparent rapidity with which the public debt had increased. It was anticipated that the conversion of the States' substantial loans would be one of a federal Government first major operations.

Federation would therefore strengthen the credit of the country and with the strengthening of the laws relating to banking Bnd note issues, a more substantial security for overseas investors would be offered. The Customs Tariff provided the greatest obstacle in the path of Federation. Each colony had a different tariff and each colony treat¬ed its neighbours as if they were foreign countries with respect to taxation. Under those hostile tariffs vested interests had developed and the longer they existed the more difficult would be the task of converting to a common tariff.

The distribution of the revenue surplus, fixed federal subsidies, the transfer of departments to the federal sphere, the consolidation of debts, the disposition of the public debts and assets, all were part of the financial problem. Since federation this loss of financial independence may be ascribed to three distinct forces which have been imposed over the past century: the surrender by the states of their authority to impose customs and excise duties; later in 1927 the entry of New South Wales into the Australian Loan Council, and finally during the Second World War, the surrender of the states' unilateral right to impose personal and corporate income taxation.