HISTORICAL NOTE.-The Commonwealth Bill of 1891 contained no guarantee to the States, though the desire for some guarantee was prominent throughout the financial debate. It was specially emphasized by Sir John Bray in his proposal to make the Commonwealth liable for the public debts of the States. (Conv. Deb., Syd., 1891, pp. 836-49.)

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In the Finance Committee appointed at the Adelaide Session of the Convention of 1897-8 to frame financial resolutions for submission to the Constitutional Committee the guarantee question was raised at once, and various forms of guarantee were suggested. Almost the first of them was the following, moved by Mr. Holder:-That, until a uniform tariff has come into force, each State . . . . shall receive from the federal authority, in monthly instalments, a return of 70 per cent. of the customs and excise duties contributed by the State." (Minutes of Committee, p. 5.) Mr. Holder's proposal, which was almost identical with this section, was negatived, and the guarantees resolved on by the Committee, and agreed to by the Convention, were a limitation of federal expenditure, and a provision for the return of a minimum aggregate surplus (see p. 170, supra). (Conv. Deb., Adel., pp. 889, 1053-67.)

At the Sydney session, 1897, in the general financial debate (p. 176, supra) the question of guarantees was prominent, but no definite proposition was made.

At the Melbourne session (Debates, pp. 2378-9, 2422-31, 2456-7), on the discussion of the Finance Committee's report, which recommended the omission of the Adelaide guarantees, Mr. Holder again (pp. 890-3) suggested a return of a fixed proportion of the revenue, stating that he had put it before both Finance Committees, and now wished to put it before the Convention. He read a clause which he had drafted to carry out his views, and discussed the objections which had been raised. The proposal was referred to by Mr. Solomon (pp. 1056-7), by Mr. Reid (p. 1070), by Sir John Downer (p. 1074), and by Mr. Lyne (p. 1082). The Adelaide guarantees were excised; but various substitutes were unsuccessfully proposed. First came Mr. Henry's "financial assistance" clause (see Historical Note to sec. 96). Then, on the discussion of the West Australian clause (guaranteeing to Western Australia a subsidy which would equalize the "proportionate net loss" of that colony with the "average proportionate net losses" of the other colonies), Sir John Forrest moved an amendment to make the clause apply to all the States--which he afterwards withdrew in favour of a clause of Sir George Turner's, guaranteeing to each State a return equal to its so-called "net loss," calculated on the customs and excise revenue collected in the State under the federal tariff and the amount which would have been collected on the same trade under the superseded provincial tariff. This also was withdrawn, but Mr. Isaacs afterwards brought it up again in a modified form, and it was finally negatived. (Conv. Deb., Melb., pp. 1122-90, 1244-9.) At last, on the second recommittal, Sir Edward Braddon brought forward and carried the first draft of the "Braddon clause," which, after being twice recommitted, was ultimately agreed to (p. 198, supra). (Conv. Deb., Melb., pp. 2378-9, 2422-31, 2456-7.) After the fourth Report it was verbally amended.

After the failure of the Convention Bill to secure the statutory majority in New South Wales, both Houses of the New South Wales Parliament asked for the omission of the clause (see p. 216, supra). This would have been agreed to by the Premiers' Conference, 1899, if another form of guarantee could have been suggested which would have been equally satisfactory; but all alternative suggestions were thought by Mr. Reid to be more objectionable than the clause itself. By way of compromise, the words "During a period of ten years, and thereafter until the Parliament otherwise provides” were inserted.

§ 368. "During a Period of Ten Years after the Establishment of the Commonwealth, and thereafter until the Parliament otherwise Provides."

These words were inserted at the Premiers' Conference (p. 219, supra). Compare the amendment proposed by Mr. Barton. (Conv. Deb., Melb., p. 2424.) For ten years after the establishment of the Commonwealth this section is a constitutional provision, alterable only by the process of constitutional amendment. At the expiration of that time, it will, in effect, descend to the level of an Act of the Federal Parliament; that is to say, it will, by virtue of the words "until the Parliament otherwise provides" (see sec. 51—xxxvi.) become subject to alteration or repeal by simple federal legislation. If the Parliament is satisfied with its operation, it will remain in force, but always on sufferance.

This limitation removes one of the chief objections to the section, namely, its want of elasticity. For the present, and in the near future, the section is not likely to cause much inconvenience, but in the unknown future, when conditions have changed-as they must change-it may seriously hamper federal finance. It fixes an arbitrary and unalterable proportion, on one side, in the apportionment of customs and excise revenue between the central and local governments. Should it be desired to increase the proportion of customs and excise revenue paid to the States, the section would not stand in the way; but should it be desired to increase the proportion which may be spent by the Commonwealth, it would offer an insurmountable barrier. There is no "'eternal principle" in the three-to-one proportion, which is based merely on present financial conditions; and its loss of constitutional protection after ten years obviates the danger of undue rigidity.

NET REVENUE.-The "net revenue

from duties of customs and excise is the total receipts from those sources after deducting the cost of collection. No attempt is made in the constitution to define the deductions which may be made in order to arrive at the net revenue; this is a matter of book-keeping, which is left wholly to the Executive Government The Federal Parliament, under its incidental legislative power (sec. 51 -xxxix; sec. 52-ii.) will presumably have power to regulate the matter; but it is hard to see how the High Court could be invoked by any person or State that might happen to be dissatisfied. It seems to be one of those political matters with which the judiciary have no power to interfere.

EFFECT OF THE SECTION. -The object of this section is to secure a constitutional guarantee that, during the period named, at least three-fourths of the net customs and excise revenue raised by the Commonwealth shall be devoted to State purposes; and its explanation is found in the fact that whilst the transfer of customs and excise duties deprives the federating colonies of a large revenue, the estimated expenditure of which the colonies are relieved, or with which the Commonwealth is saddled, are not more than one-fourth of that amount. (See Historical Introduction and Historical Note.)

The probable effect of the clause on the finances of the Commonwealth and of the States has several aspects, which may be dealt with separately. The chief questions are:- How will it affect (1) the amount of federal revenue, (2) the amount of federal expenditure, (3) the mode of federal taxation, (4) the finances of the States?

(1) The Amount of Federal Revenue.-One of the most effective arguments against the Constitution in New South Wales, in the campaigns of 1898 and 1899, was that the Braddon clause would necessitate an immense burden of taxation-the stock phrases being that it required "four times as much taxation as was necessary," or that the Federal Treasurer "for every £1 he wanted, would have to raise £4." The fallacy of this ingenious perversion of the clause was that it utterly ignored the requirements

of the States. The Convention found, from the figures before them, that the Commonwealth, without Queensland, if it raised the very moderate revenue of £6,000,000, would not need, for federal expenditure, more than one-fourth of that sum, whilst the States would need the rest. The representatives of all the colonies except New South Wales asked for some guarantee - first, that the Commonwealth would not raise too little; next, that the Commonwealth would not spend too much. Looked at apart from the circumstances, it seems that this section operates in both these ways, but a few figures will show that it is practically no guarantee at all of the amount to be raised through the customs, because the amount which, owing to other circumstances, will inevitably be raised through the customs, is more than four times the ordinary expenditure of the Commonwealth.

The net customs and excise revenue raised in the six federating colonies for the year 1899 was £7,402,333 (Coghlan's Statistics of the Seven Colonies, 1900, p. 23). It may be taken for granted--without any guarantee-that the federal tariff will be framed to bring in not less than this amount. Of this the Commonwealth would be able under this section to spend, for federal purposes, one-fourth, or £1,850,000; an amount which exceeds the most lavish estimates of what will be required.

The Braddon clause, therefore, will not, under ordinary circumstances, increase the revenue which the Commonwealth will require to raise; even assuming--what will doubtless be the case for many years--that practically the whole of the federal taxation will be raised through customs and excise. Any great emergency, such as an increase of defence expenditure in time of war, might greatly increase the necessities of the Commonwealth; but these necessities, should they arise, would probably be met by temporary direct taxation. It should be noticed that the Constitution does not explicitly require that a single penny should be raised by customs and excise, but only that three-fourths of whatever is so raised should be devoted to State purposes.

(2) The Amount of Federal Expenditure. -The chief influence of the section will undoubtedly be in the direction of ensuring economy of federal expenditure. The Federal Parliament will be subject to two opposite forces: the national impulse, which will tend towards enlarging the scope of federal operations, and therefore of federal expenditure; and the restraining influence of the States, and of their representatives in the Federal Parliament, which will make for limiting federal expenditure so as to ensure an adequate subsidy to the States. The chief merit of the Braddon clause is that it fixes the maximum ratio of federal to provincial expenditure, and thus checks, during the early years of Federation, any attempt at an undue encroachment of the federal power. If the vast revenues of the Commonwealth were entirely at its disposal, subject only to such political pressure as the States could bring to bear, there might be a serious temptation to federal extravagance, and a serious risk of the diminution of the State revenues. But when extra expenditure by the Commonwealth meaus extra taxation by the Commonwealth, all the checks of representative and responsible government will be strengthened, and the temptations of the Federal Treasurer will be correspondingly reduced.

(3) The Mode of Federal Taxation. —It has been argued (see for instance Mr. Reid's speech, Conv Deb., Melb., p. 2424) that this section would be a strong temptation to the Federal Treasurer to resort to direct instead of indirect taxation, in order that he might spend on federal purposes the whole of what he raised. If it were not for the fact that the Federal Treasurer will have ample revenue under the section, and the further fact that the fiscal circumstances of the States will make it politically necessary for the Treasurer to raise through the customs at least as much as the aggregate raised in all the colonies before Federation, this argument would have much weight. If the section were permanent, a time might come when it would have even greater weight. But during the first ten years of Federation it is most unlikely that any resort will be made to federal direct taxation. The real problem will not be the finances of the Commonwealth, but the finances of the States. Taxation difficulties will arise, not

in respect of federal expenditure, but in respect of State expenditure; and if any increase of direct taxation is required to meet the varying needs of the States, local taxation proportioned to the needs of each State will be a much easier policy than uniform federal taxation which would fall equally on the States which required more revenue and on those which did not. The federal tariff will be framed to meet the wants of the Australian people; and if, when the desirable level of customs and excise taxation has been reached, any States require more revenue for provincial purposes, which it is thought fit to raise by direct taxation, provincial direct taxation and not federal direct taxation is the obvious resource.

(4) The Finances of the States.-To the States, the section will doubtless be some guarantee of a substantial return of revenue, but it is by no means a guarantee that each State will be fully compensated, through its share of customs and excise duties, for the difference between the revenue which it has surrendered and the expenditure of which it has been relieved. In framing the federal tariff, the interests of each State will be considered; but when the tariff is framed, each State will have to cut its coat according to the cloth. Some States may have to resort to a reduction of their local expenditure, or an increase of their local taxation, or both. The different financial requirements of six States cannot be met solely by uniform taxation; and it can hardly be doubted that one result of Federation will, sooner or later, be that provincial taxation will be increasingly resorted to for provincial purposes.

§ 370. "Not More than One-fourth shall be Applied Annually by the Commonwealth towards its

Expenditure."

The "expenditure " here referred to is the expenditure other than the cost of collection, which has already been deducted in order to arrive at the net revenue. It follows that the total amount which the Commonwealth can spend is made up of (1) the cost of collecting the duties; and (2) one-fourth of the net revenue.

This amount can only be expended under appropriation made by law; and the question arises whether, if such appropriation should exceed the specified proportion of the revenue, the courts could pronounce the law to be invalid. It is submitted that the answer must clearly be in the negative. As a matter of practical politics and invariable constitutional usage, appropriations are made in advance of the receipt of revenue, on the basis of the Treasurer's estimates of what the revenue will be. It would be a grave constitutional impropriety for the Governor-General to recommend, for Ministers to submit, or for the Parliament to vote, expenditure in excess of the proper proportion of the estimated revenue. It would also be a grave impropriety for the Treasurer to wilfully over-estimate the prospects of revenue. At the same time, the most capable Treasurer, with the very best intentions, may be over-sanguine; and it would be absurd to hold that the validity of an appropriation might depend on the accuracy of a Ministerial forecast. The validity of a law must be absolutely determinable at the moment it is passed; a law which appropriates the year's revenue before the revenue is received, and whilst its amount is matter for conjecture, cannot depend for its validity upon subsequent events.

$871. "The Balance Shall, in Accordance with this

Constitution, be Paid to the Several States."

"The balance" is the balance of the net revenue from customs and excise. This section does not affect any revenue of the Commonwealth which may be derived from other sources; but merely requires that three-fourths of the net revenue from customs and excise shall either be distributed among the States, on the basis of secs. 89 and 93, or expended in payment of the interest on the debts of the States, under sec. 105.

$372. "Or Applied towards the Payment of Interest."

These words were added at the suggestion of Mr. Nicholas Brown, to meet Mr. Barton's objection that the clause as it then stood would make it impossible for the Commonwealth to take over the debts. (Conv. Deb., Melb., pp. 2428-31.) This addition does not in any way touch the principle of the section, that the customs and excise revenue shall be shared between the Commonwealth and the States in certain proportions; it merely provides that when the Commonwealth has taken over any of the debts, payment of interest on account of a State shall, for the purposes of the section, be equivalent to payment to the State.

This provision suggests that the ultimate absorption of the federal surplus will be effected by devoting it to payment of the interest bills of the States. Sir Samuel Griffith, in a paper presented to the Government of Queensland in 1896 (entitled "Notes on Australian Federation: its nature and probable effects ") pointed out that the interest bills of the several colonies, both individually and in the aggregate, showed a striking correspondence in amount with the customs and excise revenues; and he expressed the opinion that, though the correspondence was no doubt accidental, it was likely to have some element of permanence. This fact at once makes it clear that the States require the unexpended balance of the customs and excise revenues not so much for the purpose of current expenditure as to meet the interest on their debts. That explains why they cannot, as did the American States in 1787, surrender the customs and excise revenues wholly to the union; and it points to the probability that when the debts have been taken over by the Commonwealth, and a few years' experience of the working of the Constitution have been gained, the difficulties in the way of a final settlement of the financial problem will be far less than at present.

Uniform duties of customs.

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88. Uniform duties of customs373 shall be imposed3 within two years after the establishment of the Commonwealth.

HISTORICAL NOTE. -This provision was first suggested by the Finance Committee at Adelaide, and was first drafted as part of the " 'exclusive power over customs' clause. Sir George Turner suggested that the uniform tariff, instead of coming into force suddenly, should be led up to by a sliding scale. The Drafting Committee afterwards placed the provision as a separate clause. (Conv. Deb., Adel., pp. 835, 838.) debate took place under cover of

At the Sydney session, 1897, a general financial

this clause. (Debates, pp. 35-222.)

At the Melbourne session Mr. McMillan, while sympathizing with the intention of the clause, thought it a mistake to fetter the discretion of the Parliament. Mr. Reid replied that New South Wales wanted a definite assurance of intercolonial free-trade, and without this there would be no guarantee that the tariff would not be deadlocked. (Conv. Deb., Melb., pp. 1011-4.)

§ 373.

"Uniform Duties of Customs."

UNIFORM. The word "uniform" here is merely descriptive. The absolute constitutional requirement that all federal taxation, whether through the customs or otherwise, shall be uniform, is contained in sec. 51-ii., where the gift of federal powers of taxation is expressly qualified by the words so as not to discriminate between States or parts of States."

DUTIES OF CUSTOMS.-Customs are here mentioned alone, and not in connection

with excise, for a very simple reason. It was necessary to define the time at which