§ 399. “For the Monthly Payment to the Several States of all Surplus Revenue of the Commonwealth.”

Although the basis of fair apportionment is left to the Commonwealth, two things are laid down by the Constitution: (1) that all surplus revenue must be paid to the States; (2) that such payments must be made monthly. The proportions in which payments are to be made to each State are to be controlled by the Parliament; the provisions for crediting revenue and debiting expenditure may be superseded by any other means of arriving at the respective shares of the surplus; but on one basis or another, the whole surplus must be distributed monthly among the several States.

Customs duties of Western Australia.

95. Notwithstanding anything in this Constitution400, the Parliament of the State of Western Australia, if that State be an Original State, may, during the first five years401 after the imposition of uniform duties of customs, impose duties of customs402 on goods passing into that State and not originally imported from beyond the limits of the Commonwealth; and such duties shall be collected by the Commonwealth.

But any duty so imposed on any goods shall not exceed403 during the first of such years the duty chargeable on the goods under the law of Western Australia in force at the imposition of uniform duties, and shall not exceed during the second, third, fourth, and fifth of such years respectively, four-fifths, three-fifths, two-fifths, and one-fifth of such latter duty, and all duties imposed under this section shall cease at the expiration of the fifth year after the imposition of uniform duties.

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If at any time during the five years the duty on any goods under this section is higher than the duty imposed by the Commonwealth on the importation of the like goods, then such higher duty shall be collected on the goods when imported into Western Australia from beyond the limits of the Commonwealth.

HISTORICAL NOTE.—Throughout the sittings of the Convention of 1897–8, it was recognized that the abnormal position of Western Australia would for some years necessitate special treatment. With her large unsettled mining population, and her resources in other directions comparatively undeveloped, she was compelled to rely more largely than any other colony on her customs revenue, and direct taxation to any great extent was out of the question. Moreover, a large part of her customs revenue was levied on produce from the other colonies; and it was estimated that her receipts from the federal tariff, on imports from abroad only, would be inadequate for her needs. The expected shortage, though large per head of the population, and therefore a serious matter for Western Australia, was not a very large matter from the point of view of the Commonwealth.

At the Melbourne session, the Finance Committee, in their report, brought up a somewhat complicated clause to provide compensation to Western Australia for five years after the imposition of the uniform tariff. It provided that an account should be kept of Western Australia's “net loss” of revenue due to the substitution of the federal for the provincial tariff. This “net loss” was to be calculated on the difference between the amount of customs and excise revenue actually collected in Western Australia during each year under the federal tariff, and the amount which would have been collected if the old provincial tariff of Western Australia had been applied to the actual imports, produce, and manufactures of that year. The “proportionate net loss” of Western Australia was to be the ratio between the amount of the “net loss” and the amount of revenue collected in Western Australia. The “proportionate net loss” (if any) of each of the other States was to be similarly calculated, and if the “proportionate net loss” of Western Australia was greater than the average, the Commonwealth was to pay to that State a sum which would equalize her proportionate net loss with such average. That is to say, an arbitrary method was fixed for determining the ratio in which the customs and excise revenue of Western Australia was reduced; and if that ratio exceeded the average of similar ratios in the other States, Western Australia was to receive such a subsidy as would equalize her with the average.

Sir John Forrest objected to this because it made a special case of his colony, and he would have preferred a clause of general application. A general “financial assistance” clause moved by Mr. Henry had already been defeated (see Historical Note, sec. 96), and Sir John Forrest now proposed to extend the benefit of the Finance Committee's provision to every State whose “proportionate net loss” was above the average. Moreover, he proposed, in striking the average, to take account of “net gains” as well as “net losses”—which would greatly decrease the average “proportionate net loss,” and so increase the amount to be made good. After some discussion, Sir John Forrest withdrew his amendment in favour of one by Sir George Turner, providing that the Commonwealth should pay to each State the whole amount of its absolute net loss. The discussion thus drifted from the question of a provision for Western Australia to the general question of guarantees to the States—and guarantees on the highly artificial basis of applying a non-existing tariff to actual imports and manufactures. Accordingly Sir John Forrest, to diminish the artificiality, proposed to add to Sir Geo. Turner's clause a proviso that no payment should be made, under the clause, to any State in which the customs and excise revenue collected was greater after the uniform tariff than before. The whole proposition, however, was strongly opposed by the New South Wales

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representatives on the ground that the whole series of payments must come out of the pockets of that colony—a contention in which they were borne out by Mr. Holder and others. Sir John Forrest's mitigating amendment was rejected by 25 to 19, and Sir George Turner then withdrew his clause.

Meanwhile the Finance Committee's West Australian clause had been criticized as being based on a false principle. The loss of revenue to Western Australia would be purely a Treasury loss, resulting from the remission of customs taxation in that colony; and it was contended that it ought in fairness to be borne, not by the Commonwealth, but by the tax-payers of Western Australia. Direct taxation being for the present impracticable, it had been suggested in the Finance Committee, and was again suggested in debate, that Western Australia should be allowed for a time to levy customs duties on a provincial tariff, in addition to those levied by the Commonwealth. There was a difficulty about this, however. Taxation on imports from abroad would not, Sir John Forrest averred, produce the revenue required; whilst the proposal to allow Western Australia to levy duties on intercolonial imports might give rise to a similar demand on the part of other colonies, and so endanger the vital principle of intercolonial freetrade. Besides, the free markets of Western Australia were one of the substantial benefits of Federation to which her next-door neighbour, South Australia, looked forward.

Sir Geo. Turner's clause being disposed of, Mr. Deakin proposed a clause allowing the Commonwealth, by agreement with Western Australia, to levy additional duties on imports from abroad into that colony; and also allowing the intercolonial duties of that colony to remain in force, subject to the reduction of one-fifth every year, till they disappeared at the end of five years. Western Australia did not like the first part of this proposal, and South Australia did not like the second. It was pointed out that if the intercolonial duty were higher than the Commonwealth duty, there would be a preference to foreign over Australian goods; and also that there ought to be some more elastic provision which would enable Western Australia to deal independently with every item of the tariff, in the way of making further reductions. After a long debate, and the defeat of several amendments, Mr. Deakin's clause was carried by 30 to 10, it being understood that the Drafting Committee would modify it to meet some of the objections raised. (Conv. Deb., Melb., pp. 779, 1122–1243.)

On the first recommittal the redraft was submitted and carried, practically in the form of the first two paragraphs of the section. The third paragraph, preventing a preference to foreign imports, was added on the second recommittal, at Mr. Holder's suggestion; and after the fourth Report some final drafting amendments were made.

In the Bill as introduced in the Imperial Parliament, the words “if that State be an Original State” were inserted.