ON THE first day of the twentieth century the six Australian colonies became united as a federal Commonwealth, under a constitution of their own making but formally enacted by the Parliament of the United Kingdom. The stimulus to closer cooperation was manifold. During the second half of the nineteenth century certain foreign Powers had taken an interest in the islands of the Pacific that was by no means to Australia's liking. France, already established in New Caledonia and suspected of designs upon the New Hebrides, began in 1864 to use the former island as a prison for her récidivistes; Australia returned to the path of righteousness in 1867 with the final abandonment of the transportation of convicts as a means of increasing her scanty population, and in her newly acquired respectability resented the existence of a foreign jail so close to her shores. In 1875 the United States and Germany acquired interests in Samoa, and soon afterwards it was rumored that the latter Power was casting covetous eyes on northeast New Guinea. In 1883 Sir Thomas McIlwraith, then Premier of Queensland, sought to forestall German designs by annexing that territory in the name of the Queen; but the English authorities, in repudiating the annexation, plainly intimated that if the Australian colonies desired to extend their territorial limits they must first create a responsible all-Australian government.

But the internal factors were of more importance than the external as an inducement to union. Secondary industries were being established in Australia, the volume of exports and imports was steadily increasing, and the commercial classes began to object to the tariff barriers which most of the colonies were raising against the products of their neighbors. Trade unionism, growing in strength in the closing years of the century, regarded colonial boundaries with indifference and tended itself to seek a national basis. In 1893 Australia had its first taste of genuine depression; public extravagance and private speculation led to a disastrous inflation of land values; the bubble burst, and all but the strongest banks were compelled to close their doors and then to reconstruct at the expense of their shareholders and depositors. The whole of Australia suffered; but out of that suffering there emerged a realization of Australia's economic unity, and a determination to seek the union in which lies strength.

Constitutional conventions were held intermittently during the last decade of the nineteenth century. It was generally agreed that if federation was to come and to endure, the bad old days of the intercolonial tariff war must be brought to an end. But that would involve the transfer to the new federation of the sole power to levy duties of customs and excise, and this form of indirect taxation was the source from which nearly all the colonies drew the bulk of their public revenues. How was freedom of intercolonial trade to be reconciled with the financial needs of the federating colonies? The latter insisted that even after federation had become an accomplished fact they must still receive a share, and the lion's share at that, of the customs and excise revenue. The first proposal submitted to the constitutional convention was that for all time the federal government should not be allowed to use more than one-quarter of the net revenue from customs and excise duties, the balance to be refunded to the States or used to pay interest on State debts taken over by the Commonwealth.

New South Wales, warned by American experience of the difficulty of securing constitutional revision, was uncompromising in its hostility to a financial modus vivendi which looked as though it would be permanent. This had been the first of the Australian colonies to be settled. Comprising a relatively compact territory in the more temperate zone, it had all the advantages of an early start. For a generation it was partially eclipsed by the industrial and mercantile expansion of Victoria, whose progress was stimulated by the gold discoveries of the fifties, but at the end of the century New South Wales was developing more quickly and with greater variety than the remainder of Australia. It was the original home of Australia's greatest asset, the merino sheep, its land and climate were eminently suited for agricultural and pastoral pursuits, it was well endowed with minerals, and by the end of the century it had achieved a reasonably balanced economy.

New South Wales had no vested interest in the maintenance of a protectionist system; but its opposition to the financial clauses of the constitution was not based on the long view that free trade is preferable to tariffs. As the most populous State it would make the largest contribution to the federal revenues, and, fearing a distribution of those revenues on a territorial basis, it had no intention of becoming a milch cow for its poorer but larger neighbors. It disliked a proposal which would give to the States an opportunity to spend or waste money for the raising of which they incurred no responsibility; it opposed a system which would restrict the future extension of federal activities -- no matter how desirable or necessary such an extension might prove to be -- by limiting federal revenues. It pointed out very forcibly that if the federal Treasurer should require an additional sum of one million pounds for federal purposes, and should decide that the sum could best be raised by an increase of customs and excise duties, he would be compelled to budget for four millions in order to comply with the constitutional obligation to restore three-quarters of such revenues to the States. Unless these objections were met it seemed useless to proceed with the proposals for federation. Federation without New South Wales would be an absurdity, in the light of that State's wealth, population, and political predominance.

Ultimately a compromise was reached at the suggestion of Sir Edward Braddon, a Tasmanian delegate. The right of the States to share in the customs and excise revenue was to endure for ten years only; thereafter the federal Parliament was to gain full control over those funds, subject only to the duty to restore to the States, on a population basis, its surplus revenues during each financial year -- but it was under no duty to budget for a surplus or to limit its expenditure so as to produce one. The exceptional position of Western Australia, a primary-producing State which had been accustomed to raise practically the whole of its public revenues from its tariff, was recognized by a provision which empowered it, for a period of five years, to impose duties on a constantly diminishing scale on goods imported from other parts of the Commonwealth. Subject to these variations, constituting "the Braddon compromise," the draft constitution was now voted on in all the States except Western Australia, which was still dubious of the widsom of entering any federal scheme.

The constitution, having been approved by the other five States, was sent to England for enactment by the imperial Parliament, which inserted a clause enabling Western Australia to accede thereto with the status and privileges of an original State should it hold a referendum before the Act was proclaimed. Western Australia was in a quandary; it wanted a tariff of its own, but for revenue purposes only -- not for protection, because it had no industries to protect. There were other factors to be considered. A few years previously gold had been discovered in large quantities in the Kalgoorlie district, and the announcement of rich finds had attracted large numbers of speculators and prospectors from the other States. These new arrivals, colloquially described as "tothersiders," greatly outnumbered the locallyborn population of the goldfields area; they were strongly in favor of the federal scheme that had been accepted by their relatives and friends in the other States, and openly demanded the severance of the goldfields from Western Australia and their incorporation in the new Commonwealth if Western Australia as a whole failed to come in. The latter, not desiring to run the risk of losing the goldfields, reluctantly made a virtue of necessity and submitted the federal constitution to referendum. In the goldfields, federation was carried by a majority of nearly fifteen to one; in the metropolitan districts, the voting was three to two in favor, in the country areas three to two against. However, the total vote throughout the State revealed a majority of more than two to one in favor of federation, and Western Australia thus became an original State in what the preamble to the Act described as "one indissoluble federal Commonwealth."

Disputes between the members of the federal partnership began towards the close of the ten-year period during which the States received three-quarters of the customs and excise revenue. In 1908 the Commonwealth took upon itself additional financial burdens by passing an Invalid and Old Age Pensions Act. This example of social legislation, which is exceedingly common in Australia, relieved the budgets of those three States which had paid such pensions in the past; but, partly owing to the greater liberality of the federal Act, partly because of its universal application, the net result was to create a charge upon federal funds greater than the collective relief afforded to State finances. The Commonwealth at the same time announced that it did not intend to continue the operation of the Braddon compromise, or as its critics preferred to describe it, the "Braddon blot." Conferences between federal and State ministers were fruitless. The Commonwealth's stand was based on the ground that the customs and excise duties now formed the largest part of its revenues, and that as long as it was under a duty to pay three-quarters of those duties to the States its tariff policy would necessarily vary with the year-to-year fluctuations in its financial needs. It appreciated the necessities of the States, and was prepared to assist them by taking over a portion or even the whole of their public debts, or alternatively to subsidize them in agreed amounts each year. The States, like Oliver Twist, still wanted more. But they were not in a position to hold out, for they were soon to lose the constitutional protection afforded by the Braddon clause, in place of which they could only claim to share in any federal surplus. They would then be completely at the mercy of the Commonwealth, which could stop all State subsidies by the simple expedient of lowering taxation or increasing expenditure so as to ensure that there would be no divisible surplus. But decreased federal taxation meant, primarily, a lowered tariff; the States could not operate in that sphere, and in the meantime Australian manufacturers had enjoyed protection long enough to make them staunch supporters of high tariffs, so that they used their influence against any proposed change that might expose them to keener competition from overseas.

Ultimately it was agreed that the States should abandon their claim to a share in the customs revenue, and should receive in its place an annual subsidy calculated at the rate of 25 s. per head of population; to make their position reasonably secure it was proposed that the new arrangement should be incorporated in the constitution. This involved a constitutional amendment. The new scheme was accordingly submitted to referendum, but was defeated. Nevertheless the Commonwealth proceeded to implement the plan by passing the Surplus Revenue Act; the per capita payments therefore depended upon the good will of future federal parliaments instead of becoming unalterable except by constitutional amendment. The amount payable on the per capita basis was less than three-quarters of the customs and excise revenues; had the States been able to foresee that within the next few years there would be a great increase in those revenues, they might have been far more recalcitrant in their opposition to any change in the basis of distribution. At the same time Western Australia and Tasmania, which had suffered disproportionately from the federal high tariff, were recompensed by the grant of special subsidies for a period of ten years.

Hardly had this readjustment been made than the World War broke out. "Defense" is a matter exclusively within the competence of the Commonwealth, which financed its participation in the war partly out of revenue, but for the most part out of loans raised in Australia and in England -- the bulk of the war indebtedness being incurred at home. Commonwealth expenditure was greatly increased; but the federal government nevertheless continued to make the per capita payments to the States. On many occasions since the war it has endeavored, but without success until recent years, to induce the States voluntarily to accept some new arrangement. It suggested, for example, that the per capita payments should cease, and that in return the Commonwealth should abandon taxation on land and incomes. But the States preferred a system of subsidies that automatically increases with the growth of their population and spares them the unpopularity always caused by heavy direct taxation. In 1927 the federal government cut the Gordian knot by securing the passage of the States Grants Act, which terminated the per capita system and substituted -- for one year only -- special grants to the States calculated on the old basis, with additional subsidies to Western Australia for five years and to Tasmania for two years. There was no promise to renew the States Grants Act in later years; the States were now in the unenviable position of being compelled to listen favorably to any proposals that the Commonwealth might make as to the future.

In all fairness it must be stated that the federal proposals were equitable and statesmanlike. They were subsequently made the basis of an agreement, and were incorporated in the Financial Agreement Validation Act of 1929, passed after the electors by referendum had approved the insertion in the constitution of a new section enabling the Commonwealth to enter into financial agreements with the States and making any such agreements unalterable except by consent of all the parties thereto. The "financial agreement" which is now in force was in fact signed in December 1927 (before the referendum was held), and subsequently ratified and confirmed. Payment of per capita grants has ceased; to recompense the States, the Commonwealth took over State debts as at July 1, 1927, and undertook to apply to the payment of interest thereon the sum of £7,584,912 [i] per annum for 58 years. During the same period the Commonwealth also pays the sum of 2 s. 6 d. percent to a sinking fund, the States contributing 5 s. percent and further indemnifying the Commonwealth against liability to payment of interest in excess of the federal contribution. For the future, all borrowing is to be coördinated, and money raised only by Commonwealth securities issued by authority of the Australian Loan Council; this body consists of one federal representative and one member from each of the six States, but the federal representative has two ordinary votes and a casting vote. A sinking fund is to be established in respect of all new issues authorized by the Loan Council, to which the Commonwealth and the borrowing State contribute 10 s. percent per annum in equal moieties.

No sooner had this agreement been confirmed by all parties than Australia received the full blast of the depression. The overseas loan market abruptly closed, thus depriving the public finances of an increment which for some considerable time had averaged £30,000,000 per annum; and the local investor was chary of assisting governments to add to their internal obligations. The Loan Council was not required to exercise supervision over new external loans, because that source had completely dried up; but it did play an important part in devising, with the coöperation of the Commonwealth Bank and the trading banks, expedients for financing the budget deficits which were clearly inevitable. The "Premiers' Plan," introduced in 1931 for the rehabilitation of Australian finances, contemplated a gradual return to budgetary equilibrium; governmental expenditure was reduced, wherever possible, by an average of 20 percent; and the burden of internal indebtedness was lightened by a conversion loan which though nominally voluntary was virtually an enforced surrender by the bondholder of one-fifth of his interest. One important item, however, could not be affected by the reconstruction plan, namely, Australia's external indebtedness. A portion of the latter debt has since been converted to a lower rate of interest in the London market, thanks to the untiring efforts of Mr. Stanley Bruce; but the burden is still heavy. Interim budget deficits have been financed by bank overdrafts, strictly supervised by the Commonwealth Bank, and by Treasury Bills.

The Premiers' Plan aimed at the rehabilitation of "Australian" finances; it has had the desired effect of stimulating the recovery of budgetary equilibrium in the federal sphere, while State finances, for a variety of reasons, continue to languish. A year after the inauguration of the Plan there was a partial return of confidence; overseas trade began to increase, bringing more grist to the federal mill in the form of customs duties. Federal loans for the most part had been raised in Australia; the internal conversion loan gave relief to the federal exchequer. On the other hand, most of the State loans were raised abroad, only a fraction has been converted to a lower rate, and the States must also find the exchange on their overseas remittances. Furthermore, the federal government has received another windfall in the form of the temporary remission of interest and sinking fund contributions on the war debt owed to the British Government, a saving of approximately £7,000,000 per annum in Australian currency. In the result, federal finances are in a remarkably healthy condition. This is poor consolation to the States, whose combined deficits for 1932-33 amounted to £8,609,000. State appeals to the federal government for assistance out of the latter's surplus have fallen on deaf ears; Prime Minister Lyons has stated that the policy of his government is to reduce taxation with the object of stimulating trade and industry. It is hoped thus to increase employment and the aggregate income upon which the States can levy taxation, and at the same time relieve State budgets of part of the heavy charges now incurred by them in unemployment relief, for which the States are solely responsible.

The apparent unconcern with which the federal government regards State difficulties has added fuel to the smoldering fire of discontent among the States, and particularly in Western Australia, always an unhappy and uneasy partner in the federal alliance. Western Australia has the largest area and the smallest population of the five mainland States; its chief resources are agriculture and the pastoral industry, together with gold mining, which lay moribund for nearly twenty years and then received a sudden fillip from the high price of gold and the depreciation of the Australian pound. Of secondary industries there are none of any great importance, and the lack of good coal, water power, and minerals other than gold means that for decades Western Australia will be a primary producer and little more. It is a State that must always rely far more upon the energy of man than upon the bounty of nature. Its system of communications is artificial; the monotonous configuration of the country does not lend itself to natural development; its soil is on the whole poorer than that of the other States; the summer rainfall is negligible, and high temperatures make water conservation a difficult problem in the outback areas. Thus geographical isolation and the federal tariff have combined to make Western Australia the Cinderella of the Australian States, but a Cinderella with little hope or prospect of the arrival of a Prince Charming to rescue her from her humble condition.

One effect of the federal tariff is to increase the farmer's costs. In New South Wales and Victoria its incidence is offset by the opportunity afforded to local manufacturers to monopolize the not inconsiderable home market for secondary products. But in Western Australia there are few secondary industries to benefit; and it is commonly alleged that if industry does seek to establish itself there, it is promptly countered by the machinations of manufacturers in the "eastern" states, who dump their products in Western Australia at prices with which the local industry cannot compete. When the latter has been successfully squeezed out of existence, the price of the "eastern" article soars once again. Communication between the east and west of Australia is infrequent; there is a bi-weekly train service each way by the transcontinental system, which crosses the vast desert of the Nullabor Plain, and a weekly mail and passenger service by air. The federal Navigation Act restricts the coastal trade to Australian vessels by prescribing rates of wages and conditions of employment with which overseas ships find it unprofitable to comply. There is a weekly passenger service and a slightly more frequent cargo service; but Western Australians cannot make use of the overseas liners which constantly call at the main ports. Commissions of inquiry have invariably commented upon the disadvantages put upon Western Australia; the reply of the federal authorities has been to dole out another subsidy which the State regards as hopelessly inadequate.

The upshot has been the growth of a movement aiming at secession from the Commonwealth. Its sponsors, assisted by a section of the less responsible press, became so vociferous as to succeed in inducing an expiring government to make secession a vital issue and to hold a referendum thereon at the State elections early in 1933 The result was in some ways surprising. Secession won the day by a two to one majority. The retiring government, a liberal-agrarian coalition, had hopefully declared itself in favor of secession; but it was defeated at the polls. Its Labor successors, elected to office by a large majority, are in principle opposed to secession and in favor of unification in place of federation. During the campaign the Labor candidates astutely avoided the bait dangled before them by their opponents; they steadily refused to make secession an election issue, advising their supporters to vote as they thought best. It is possible that a firm stand against secession would have cost the Labor party what was largely a "stunt" election, but would have made the majority for secession much smaller or even have converted it into a minority. Many of the electors openly stated that they intended to vote for secession, not because they wanted or expected to get it, but as an emphatic protest against federal indifference to local disabilities.

After the election, the Labor Premier, Mr. P. Collier, who had previously informed his constituency that he was opposed to secession,[ii] announced that he regarded the result of the referendum as a mandate to seek the release of Western Australia from the federal compact. With that end in view he secured the consent of the legislature to the appointment of a non-parliamentary committee charged with the duty of preparing a statement of the reasons why Western Australia will benefit by becoming a separate "Dominion" under the Crown. The committee, after several months' work, recently produced "The Case for Secession," a voluminous and at times highly controversial document which is a medley of facts, statistics, assertions, and hopes. Shortly before the "Case" appeared, an abortive conference of State and federal ministers had met to consider the readjustment of the financial relations of the parties, and to recommend such constitutional changes as might be thought necessary. The States were not agreed as to what they wanted and how it should be given to them; while the federal government showed a sorry lack of statesmanship by using the dissensions of the States as a pretext for doing nothing.

The Parliament of Western Australia now proposes to move further in the matter of secession. It is inconceivable that the electors throughout the Commonwealth would approve a constitutional amendment designed to permit the western State to withdraw. The alternative is to place hope in London. A petition is to be addressed to the King, the House of Lords, and the House of Commons, asking for the introduction of a Bill into the Parliament of the United Kingdom for the purpose of amending the Commonwealth of Australia Constitution Act by omitting all references therein to Western Australia and effecting necessary incidental changes. In vain have constitutional lawyers in England and Australia insisted that the time has gone when the Parliament of the United Kingdom can exercise a benign influence over colonial (or more properly, dominion) affairs. For the Balfour Declaration of 1926 recognized the legislative independence of the dominions, and that declaration was implemented in 1931 by the Statute of Westminister, whereby the Parliament of the United Kingdom expressly renounced the last vestige of its right to legislate for the British self-governing dominions. Secessionists assert that the "mother of Parliaments" has never denied justice to her overseas suppliants, and that the merits of Western Australia's claim for independence are so obvious that London will hasten to do everything that she asks.

Vague predictions are also made of an age of plenty in which Western Australia will grow vast quantities of wheat, wool and other primary products for the English market, when, in return for the concession of a privileged position in that market, Western Australia will grant a substantial preference to English manufactured goods. The low tariff which it is proposed to impose on such imports will enable the farmer to make a profit once more, and at the same time will produce sufficient revenue for the needs of government. If the development of an "independent" Western Australia is bound up with the conclusion of agreements with England for the mutual interchange of primary products and manufactured goods, the future is indeed gloomy. The Mac-Donald government in Great Britain is not showing the least indication of a desire to encourage the importation of primary products in exchange for trade preferences, and there is no reason to suppose that the near future will bring a reversal of the present policy of stimulating agricultural production in England itself. The autarchy which is so popular throughout the world today is a bad omen for those countries which must rely on a steady growth of the export of their primary products to increase their population and wealth. But if, as the present writer believes, the reply of the British Government to the Western Australian petition will consist of a policy of delay and inactivity, the federal government will none the less find it necessary to show more sympathetic understanding than it has in the past regarding the undoubted disabilities which the isolation and the economic limitations of Western Australia do impose on that State as a member of the federal Commonwealth.

[i] The amount which the States would have received in 1928 if the per capita system had been continued.

[ii] Mr. Collier was able to do this with impunity because he represents a mining constituency, and the goldfields are still faithful to federation.

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