Premiers' Conference
Opening Statement by Prime Minister
It is only a little more than two months since we
last met in Premiers' Conference to discuss the budgetary
situation then facing you in 1970-71o For myself, I carried
away from that meeting a feeling of genuine achievement.
The Commonwealth had, I felt, by its offer to provide special
revenue assistance of some $ 43 million, gone a long way
towards meeting the residual problem with which the States,
even after the efforts they had made in the preceding month
or so, were still faced.
So indeed it has proved. Information about your
expected financial outcome for 1970-71 ( and for 1971-72,
which I shall come to later) has been supplied to us by you
and your Treasury officers and I would like to digress for
a moment to express the Commonwealth's real appreciation
for the ready co-operation you and they have displayed. I
know that the Treasurer would join me in that expression of
thanks, The information for 1970-71 which you have supplied
indicates that, compared with the situation prior to the
April Conference, there has been an improvement of over
million in the States' revenue and loan accounts. The
special revenue assistance which we provided accounted, of
course, for the larger part of that, some $ 43 million. In
addition, the financial assistance grants payable to the States
under the formula have turned out to be some $ 13.2 million
higher than they had been estimated to be at that time a
fact of which, I understand, you were advised last week.
Finally, the estimates for all but one State show some
improvement, quite apart from these two factors, over the
estimates supplied last Aprilo Overall, whereas last April
the States as a whole had appeared to be facing deficits on
revenue and loan accounts combined of over $ 70 million, on
the present estimates the combined result, taking the States
as a whole, will be a virtual balance
All in all, Gentlemen, I think that is not a
bad outcome from what has obviously been a situation fraught
with difficulty for all parties, both the States and the
Commonwealth. When I recall that in bringing down their own
budgets the States actually budgeted for a deficit of nearly
$ 33 million on combined revenue and loan accounts; and when
I recall also that the effects on State finances of postbudget
wage awards in 1970-71 have been of the order of $ 100
million, I think the outcome that has actually been achieved
is striking. Now I hasten to add that I am well aware that this
outcome has not been achieved without cost. In part it has
been achieved at the cost of the Commonwealth, with
consequences for our own budget and the economy that I shall
come to later. In part, however indeed, in somewhat larger
part it has been achieved at the cost of sharp cut-backs in
one field or another of State expenditures or, to a much
lesser degree, of increases in State taxation. Those are
the measures, one might say, of the wage inflation that has
been imposed upon State Governments in 1970-71 by circumstances
largely beyond their control. We would all recognise that the
outcome is not, in that sense, a happy one.
So much for the 1970-71 position. Since the
April Conference, however, the States have re-examined their
prospects for 1971-72 and the figures submitted to us in
that regard show a rather depressing picture. In short,
the " full year" effects of the extraordinary wage awards
made this year will mean that the States will face in 1971-72
no less than $ 170 million of additional expenditures on that
score alone, over and above the very large increase already
suffered from that factor in 1970-71. This clearly means that
the States must inevitably face a very difficult year.
In passing, Iwantto underline one point. It relates
particularly to the field of the State budgets, but also to a
very large extent to our own Commonwealth budget.
1970-71 has been a year characterized by increased
wage awards of a startling kind. It is not too much to say
that this factor alone has served to unhinge the budgets
of public authorities throughout Australia at all levels of
government. It will continue to do so through its " full year"
effects in 1971-72. I cannot too strongly stress the
gravity with which the Commonwealth contemplates that situation.
To return to the situation facing the States in
1971-72, no doubt the figures that you have supplied to us
could be debated here and there at the margin; but broadly
speaking I can say that we accept them as constituting, to all
intents and purposes, a good indication of the order of
magnitude of the problems you are all facing. No doubt you
will all have something more to say about that when we come
to hear you on the positions of your own States.
We are, believe me, very conscious of the
problems you are facing. It is true that, with luck, 1971-72
may prove to be a passing phenomenon for the States indeed
it would be hard to contemplate another such year in 1972-73.
If so, that may provide a basis for lifting our eyes a
little beyond 1971-72 itself, and regarding the problems of
that year as somewhat more manageable, viewed from that
wider perspective, than perhaps they might appear if we
concentrate upon them alone. That, however, is as may be
the States' financial problems in 1971-72 will be difficult
viewed from any standpoint, and you should know that we
acknoiledge that fact fully.
That, very naturally, is the problem as the States
see it. We in the Commonwealth see it too, but see also
an over-riding economic problem. I refer in particular to
our own budgetary position, and the serious situation
confronting us in the field of general management of the
economy. As to our own budget, not only shall we finish
this present financial year with expenditures sharply up,
and our overall position appreciably worse, by comparison with
what we had budgeted for last August, but also the outlook
for 1971-72 is, to say the least, grim. In large part
because of the sharp increase in our payments to the States,
associated in particular with the compensation for cessation
of receipts duty revenue and with the special revenue
assistance we have provided, our expenditures in 1970-71
seem likely to be of the order of $ 1,000 million up on
1969-70. Revenues will be up also; but not commensurately,
and our overall position will, as I say, show a marked
deterioration from what we had provided for last August.
As to 1971-72, it is of course too early to be
able to gain a fully considered picture of our own budget
outlook. At this point of time we are still in process of
considering the expenditure " bids" submitted by Departments,
based as those purport to be solely on existing policies.
The Treasurer will have his pruning knife out with respect
even to those figures; but, without entering upon the detail
of them at this time, I can say that the prospective position
they reveal with respect to the likely growth in Commonwealth
expenditure in 1971-72 even in the absence of any of the new
spending policies which are being pressed upon us from all sides
( including, I have no doubt, the policy of assistance to
yourselves which you will be pressing upon us) is nothing short
of alarming. So far from reining in the increase in our
expenditures, which is and must be the central objective of
our budgetary policy at this time, it is clear that we shall
have to exercise the most extreme restraint if we are to hold
the increase below that which has occurred in 1970-71.
Such an increase in Commonwealth expenditures
would, in my mind, give rise to sharp questioning at any time.
It would be doubly open to question in the context of our
present economic situation and prospect. In brief compass,
that situation is that inflationary pressures have not abated.
Overall demand is increasing strongly with continuing strong
escalation of costs and prices, and the public sector is
contributing more than proportionately to that position.
Such a situation, if allowed to continue, and particularly given
the possibility that increased demand from other quarters
could also eventuate, would be fraught with consequences for
the economy of the gravest possible kind. You will therefore
readily see why I say that, in this context, the prospective
increases which are being foreshadowed in our own expenditures
are nothing short of alarming. As to these questions of the
budgetary and economic situations, you may want to hear
further from the Treasurer. All I will say further at this
time is that, in these circumstances, we conceive it to be
the first and foremost duty of the Commonwealth to provide
leadership in contesting this obviously disturbing state of
affairs. It has necessarily been against this background of
our own budgetary difficulties and our continuing concern
with the overall economic situation, that we have been looking
at the whole question of a growth tax for the States which
would assist you in meeting your own difficulties. I say at
the outset that we see a lot of advantage in the States having
access to a new and broadly based tax field. We have,
consequently, made a wide-ranging study of the whole field
of possibilities. One point to emerge quite early in such a study
is, of course, that there are various constraints upon the
possibilities. For example, and in some ways most
importantly, the constitutional position clearly debars the
States from imposing virtually any form of sales tax
( including, so far as we can see, a value added tax). The
unhappy history of the receipts duty is a salutary lesson.
Nor would such a tax imposed by the Commonwealth on behalf
of the States ( which would have to be imposed at a uniform
rate throughout the Commonwealth) offer a satisfactory
alternative to the States. Indeed we have always regarded
any State growth tax, to be at all satisfactory, as necessarily
offering the possibility of variations in their own rates by
individual States that wish to do so.
That narrows the field considerably. We have, as
I say, looked in detail at the remainder of the field but,
for one reason or another we find ourselves forced to the
conclusion that there are in fact only two areas which offer
scope for any move of this kind. The first is personal income
tax and the second is the pay-roll tax.
As to the first, that is income tax, we have given
close study to the possibilities, as indeed we have on several
earlier occasions, and have come to the view that it would
not be advisable to re-open the field of personal income tax to
the States. I doubt if much useful purpose will be served by
going in detail into the pros and the cons as we see them.
Our decision is, of course, based upon general grounds; I add,
however, that it has particular pertinence in the economic and
financial circumstances which we find confronting us at present.
The Commonwealth has therefore closely examined
what appears to be the sole remaining possibility, namely
that of giving the States access to the field of pay-roll tax.
We recognise that, from some viewpoints, this may not in
itself be regarded as an ideal tax although we also believe
that a good many of the arguments commonly brought against it
are not well-founded. In particular, the argument that it
adds to costs can, broadly speaking, be applied to all taxes.
However, it is broadly based, grows almost directly in line
with the economy, would be relatively simple to administer I,
( partly because employers already draw up returns on a State
basis) and certainly offers some prospect for raising
additional revenue should States wish to use it for that
purpose. We have therefore, after full and thorough
examination, decided that if the States would like to have
access to this additional taxation field, the Commonwealth
would be prepared to withdraw from the field completely ( apart
from levying a similar tax within our own Territories). In
doing so, arrangements would be made to ensure, at the
Commonwealth's expense, continuation of the export incentive
scheme based on the present pay-roll tax rate of 2' per cent.
In withdrawing from the field of pay-roll tax, the
Commcnwealth could not of course contemplate the loss of
revenue involved and we would therefore propose to offset
that loss, subject to some qualifications which I shall come
to in a moment, by commensurate reductions in the financial
assistance grants.
In considering the amount of those reductions, we
would be prepared to take into account three points:
The additional cost to the States in
administering the new tax, which would, of
course, be minor.
The fact that, since revenues from pay-roll
tax at constant rates would probably grow
slightly more slowly than the financial
assistance grants the States would be losing
would have done, the reduction in the grants
" base" for 1972-73 and subsequent years would
need to be adjusted accordingly. ( There would
be no effect of this kind in 1971-72 and the
grants arrangements as a vrhole are, of course,
subject to review in four years' time.); and
Having in mind the state of the finances of
some local authorities, the States might well
feel that, once the pay-roll tax became a State
tax, they would find it difficult to continue
levying it upon the non-business activities of
local authorities. If so, there would of course
be some loss of revenue involved, and in that
case the Commonwealth would regard it as doing
the fair thing if it were to share as to half
in that loss.
On this approach what the Commonwealth would, in
effect, be doing is to hand over to the States the pay-roll
tax on the basis that, while levying the tax at the present
rate, they would be unaffected financially by the transfer except
in so far of course as they join us in relieving local
authorities from payment of the tax in respect of their
non-business activities. The States would of course stand to
benefit from the scope for raising additional revenue that the
new tax, once in their own hands, would give them.
That, Gentlemen, is at this stage the sum and
substance of the Commonwealth's offer in this matter. The
question to which I think we need an answer is whether the
States would wish to take advantage of this offer. In order
to assist you and your officers in your consideration of
that question, we are now circulating a document in which
fuller details of a scheme along the lines I have suggested
are set out.