§ 406. “Grant Financial Assistance to any State.”

The interpretation of these very wide and general words is a matter of great importance, and also of considerable difficulty; and before discussing the words themselves, and their relation to the rest of the Constitution, it will be well to examine the intentions of the framers. Although added to the Constitution at the Premiers' Conference in 1899, the section is based on the clause proposed by Mr. Henry at Melbourne (see Historical Note) empowering the Parliament to “render financial aid to any State.” Probably Mr. Henry's proposal in its turn may be traced back to a suggestion by both Houses of the Tasmanian Parliament, providing that “The Commonwealth may from time to time lend to any State, on such terms and conditions as the Parliament may prescribe, any sum or sums of money borrowed on the public credit of the Commonwealth.”

From the debate on Mr. Henry's proposal (Conv. Deb., Melb., pp. 1100–22) it is clear that the mover and most of the speakers understood that assistance might be given by an absolute vote out of revenue; though Mr. Holder argued (p. 1113) that no such gift would be possible because the revenue was all appropriated under the clauses dealing with the distribution of revenue. Mr. Lewis claimed (p. 1112) that the clause would go much further, and would “include the power of the Parliament to guarantee a loan to a State, or to lend the money to a State, having raised it on its own security.” The only official explanation of the views of the Premiers on the clause as it stands is contained in the report of their Conference, where they state that it is intended to give effect to the opinion that “power should be granted to the Parliament to deal with any exceptional circumstances which may from time to time arise in the financial position of any of the States.” It seems clear, however, from Mr. Reid's subsequent speeches on the clause, that he contemplated that there would be power, in an emergency, to apply revenue to this purpose. See, for instance, his speech on the Address in Reply in the Legislative Assembly of New South Wales on 21st February, 1899.

“There is a new clause inserted next to the Braddon clause which gives the Commonwealth Constitution a very valuable feature of elasticity in connection with the finances. As the Constitution stood, this might happen: Take Tasmania. A small amount of money might be required by Tasmania from the Commonwealth for a limited time to place her in the same position financially as she was in before Federation; but, under the Bill as it stood, there was no power to come to the assistance of that or any other colony in a necessity of that sort; and coming to the assistance of such colonies during this transitional period of finance would in itself be a valuable power on the part of the Federal Treasurer, and all in the direction of making the taxes more reasonable—more elastic That provision has been inserted and I think it is a distinct improvement in the Bill.” (N.S.W. Parl. Debates, vol. 97, p. 48.)

That the section empowers the Commonwealth to guarantee loans of the States, and to borrow money on the credit of the Commonwealth and lend it to the States, can hardly be doubted. Any such operation would, or at least might, involve charges on the revenue, in order to pay interest and redeem principal, or make good the guarantee; and any such charges would, it seems, be included in the general expenditure of the Commonwealth, and debited per capita against the credits to the several States.

But does the section enable the Commonwealth to ease the inelasticity of the distribution clauses by making absolute grants directly out of revenue? It is hard to see on what grounds this power can be denied; though undoubtedly it is a power which is not intended to be used, and ought not to be used, except in cases of emergency. Such a grant would certainly be “financial assistance” of the most direct and substantial kind; and financial assistance of precisely the kind required to guard against the burden

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of unnecessary taxation which has been prophesied as the inevitable result of the inelastic provisions of the distribution clauses. It would in fact be, to a certain extent, a recognition that, in cases of emergency, the principle of distribution according to contributions might be tempered in the direction of distribution according to needs. The argument that there is no fund out of which to make such payments is fallacious. If the Constitution authorizes expenditure for this purpose, it is “expenditure of the Commonwealth” which can be made out of the Consolidated Revenue Fund, and debited to the States in proportion to population under sec. 89.

A more serious difficulty is to construe the bearing of sec. 87 (the Braddon clause) upon this provision. If a payment out of revenue, in aid of a State, is “expenditure of the Commonwealth” within the meaning of sec. 89, is it, for the purposes of sec. 87, to be taken out of revenues which may be applied to the expenditure of the Commonwealth, or may it be taken out of the three-fourths of the net customs and excise revenue which must be “paid to the several States?” At first sight, it seems to come equally well within either category; to be paid to a State, in accordance with the Constitution, and to be expenditure of the Commonwealth. But a closer consideration of the general scope of sec. 87, as well as of its language, seems to lead to the conclusion that payment to a State under this section does not fall within the balance which, under section 87, “shall in accordance with this Constitution” be paid to the States. That expression seems to refer to the “balances” payable under section 89, and not to include deductions which have already been made in calculating those balances.

If this construction be correct, the result is shortly as follows:—(1) Financial assistance may be granted to a State out of revenue. (2) The amount so granted is “expenditure of the Commonwealth” which is to be debited per capita against all the States — including the State to which the grant is made. (3) The Commonwealth cannot make such grant out of the three-fourths of the net customs and excise revenue which, under sec. 87, is to be paid to or on behalf of the several States.

To this it may be added that the section is intended as “the medicine, not the daily food,” of the Constitution; and that it is not to supersede or render nugatory the distribution clauses by allowing distribution according to the will of the Parliament. The Braddon clause, so long as it remains in force, is an efficient check against abuse of the financial assistance clause; but the financial assistance clause will not necessarily perish with the Braddon clause—though it may be that the Premiers' Conference meant that it should.