PM Transcripts

Transcripts from the Prime Ministers of Australia

Transcript 2431


Photo of McMahon, William

McMahon, William

Period of Service: 10/03/1971 to 05/12/1972

More information about McMahon, William on The National Archive website.

Release Date: 01/06/1971

Release Type: Media Release

Transcript ID: 2431

PM No. 62/ 1971
Like the Conference in April the discussion at today's
Premiers' Conference was both frank and extremely fruitful.
In my opening statement to the Conference ( copies of which
have been circulated) I said that the Commonwealth accepted the
States' need for some greater flexibility and freedom in revenue
raising. However, the constitutional position clearly debars
the States from imposing virtually any form of sales tax and,
on broad grounds of economic and social policy, the Commonwealth
Government has decided that it would. not be advisable to re-open
the field of personal income tax to the States. In these
circumstances, I indicated that the Commonwealth was willing to
transfer pay-roll taxation to the States on the basis set out in
the detailed Commonwealth offer on that matter which was
circulated to the Premiers following my opening statement.
The Premiers re-affirmed their previously expressed views
that the States need access to a new area of " growth" taxation
to assist them in financing improvements in the services which
State Governments provide. They indicated that, while some of
them would prefer that the States be given access to income tax,
they accepted that pay-roll tax would constitute-. a useful
addition to their resources for revenue-raising purposes.

The Premiers pointed out, however, that the amount
of revenue that they might be able to raise from the tax
in 1971-72 would not in itself be sufficient to enable them
to deal with the large deficits facing them in that year,
even after taking account of other possibilities for
improving their budgetary outlook.
The Premiers emphasised strongly that, in these
circumstances, they would find it very difficult to cope
with their prospective 1971-72 budget deficits which, they
said, are abnormally high due largely to the unavoidable
" full year" costs of the extraordinary wage and salary awards
granted in 1970-71.
The Treasurer and I both indicated that the Commonwealth
recognised that the States were again faced ñ n 1971-72 with
abnormal budgetary problems. At the same time we pointed out
that the Commonwealth is itself faced with a very difficult
budgetary problem in 1971-72, and this in circumstances where
there is a need to do everything possible to combat
inflationary pressures. . I also again emphasised that public
authority expenditures are undpubtedly playing a leading role
in the generation of these pressures. After careful
consideration the Commonwealth came to the view that, as part
of a co-operative effort, it should be prepared to play
some further part.
On these grounds the Commonwealth agreed that it should
assist the States to meet their prospective revenue
deficiencies by providing total additional revenue

assistance in 1971-72 estimated at $ 62.7 million.
Of this amount, $ 40 million will take the form of a
non-recurring grant to be distributed between the States in
proportion to their financial assistance grants. A table showing
the approximate distribution of $ 40 million is attached.
The remaining amount of about $ 22.7 million represents
the difference between the amount the States will receive from
pay-roll tax collections in 1971-72. and the amount by which the
1971-72 formula grants will be reduced that is,, the-deduction
from the 1971-72 grants will be-smaller by this amount, This
smaller reduction of about $ 22.7 million will also be made in
the " base" used to determine the formula grants for 1972-73 and
subsequent years so that the States will continue to benefit
from it in those years. Over the remaining four years of the
financial assistance grants the States should receive an
additional 8100 million or so in this way. The method by-which
the estimated amount of $ 22.7 million will be distributed
between the States is described in' more detail in the
attachment. A feature of the agreement betwebn the Commonwealth
and the States to transfer pay-roll tax to the 6tatee, and

which is referred to in the detailed Commonwealth offer,
is that, as from the date of transfer sometime in 1971-72,
wages and salaries paid by local authorities, other than
in respect of their business activities, will be exempted
from pay-roll tax. The cost of providing this exemption,
which I feel sure will be greatly welcomed by local government
authorities throughout Australia, will be met entirely by
the Commonwealth. The cost in 1971-72 will depend on the
date of transfer and the cost in a full year is estimated
to be of the order of $ 8 million.
Further idetails of how the transfer will be'
effected are included in the attachment andithese and: other
technical and administrative aspects are tolbe the subject
of further early discussion between Commonwealth and State
Treasuries. However, there are two points I mention especially
in relation to the transfer.
First, it will be entirely up to each State to
decide at what rate it will levy its own pay-roll tax and
to decide what exemption and other assessment provisions it
should adopt. For that reason it is not possible to say
what additional amount of revenue the States might gain
from pay-roll tax'in 1971-72 or subsequent ryears. It is
one of the great advantages of the scheme" that each State
is able to determine for itself the extent to which
it should gain extra revenue

from this source, having in mind its particular budgetary
circumstances. Secondly, I make it clear that# while pay-roll
tax will be transferred to the States, the Commonwealth
will continue to operate the export incentive scheme so as
to give exporters the same benefits, based on the existing
rate of 2J per cent, as they now enjoy. The Acting Minister
for Trade and Industry will be making a separate statement
about this scheme*
The Commonwealth Government believes that, with
access to this new field of taxation and with the substantially
improved arrangements for the payment of financial assistance
grants to the States settled at the June 1970 Premiers'
Conference, the States should be well placed, after the
difficulties of 1971-72 have been overcome, to meet their
financial responsibilities fully in future. In saying
that I am conscious, as I indicated in my opening statement
to the Conference, that no system of public authority
finance can reasonably be expected to contend with the
consequences of wage awards in fields of partidular importance
to public authority ! employment if they are going to be of the
well-nigh crippling kind which has beset the States in
particular, but alad the Commonwealth, in the course of the
present financial year.
It is fair to say that the severe restrictions
which have had to be placed upon ithe growth of much-needed
public authority works and services in the latter months of
1970-71, and which will have to be maintained and perhaps
intensified in 1971-72, have their origins in the events
in the field of wage ldeterminati6h to which I have referred.

The additional revenue assistance of about
$ 62.7 million which the Commonwealth has agreed to pay to
the States in 1971-72, when added to the large increase
in payments under existing arrangements, gives an
estimated increase in total allocations to the States
from the Commonwealth, including the amounts the States
will receive from pay-roll tax, of over $ 340 million in
1971-72. This would be 12 per cent higher than in
1970-71. Further details of the estimated amounts
involved in 1971-72 are set out in the second table attached.

New South Wales
Victoria Queensland South Australia
Western Australia
Tasmania Total 13.1 9.8 6.2
4.7 1.9
Total of $ 40 million to be divided between
the States in proportion to their fihancial
assistancelgrants, including additional grants
of $ 2 per head to New South Wales and Victoria
and of $ 9.5 million to Western Australia as
well as the additional grants to Queensland
resulting from the $ 2' million addition to its
base. The distribution between the States is
approximate only.

1970-71( a) Increase 1970-71
Over 1969--/ 0 1971-72
Freilnary Estimates Increase 1971-72
Over 1970-71
Seneral Revenue Grants
Financial Assistance Grants
Receipts Duty Compensation
Special Grants
Special Revenue Assistance
Net Gain to States From Pay-Ro11
Tar( e)
SDebt Charges Assistance
Specific Purpose Payments( f)
* Works and Eousing
Borrowing) Programmes
TOTAL ALLOCATIONS 1,358.8 59.7 18.7
43.0 11.5
1,491.7 524.5
2,016.2 823.0
2,839.2 217.5( b)
59.7 -3.2( b)
17.0 11.5
302.5 51.3
353.8 65.0
418.8 Per Cent
19.1( b)
-14.7( b)
65.4 S
25.4 10.8 21.3 Per Cen
1,534.9( c)
100.1( c)
18.7( d)
40.0 22.7
23,. 0
1,739.4 581.3
_ 2.320.7
8.6 860.0
17.3 3,180.7
The figures shown for the various general revenue grants are final in all cases.
for specific purpose payments is not.
Comparisons with 1i -70 fectedy the transfer of $ 10 -million from Tasmania's
its financial assistance grant in 1970-71. 176.1 -3.0
247.7 13.0 67.7 t-O
400.0 16.6
56.8 10.8
304.5 15.1
541.5 12.0
That shown
special grant to-
Based on the assumptions that the increase in average wages in the year ending March 1972 is 9.0 per
cent and that percentage increase in each State's population in the year ending December 1971 is the
same as in the previous year.
Based on the bitrary assumption that these-grants ( which are paid to South Australia andTasmania on
the recommendation of the Grants Commission) are the same in 1971-72 as in 1970-71.
Net gain to States in 1971-72 as a result of deducting an estimated $ 22.7 million less from the
financial assistance grants than the States will receive from pay-roll tax in 1971-72.
Excluding natural disaster relief payments.

Transcript 2431