The Auckland Star: WITH WHICH ARE INCORPORATED the evening news, morning news and the echo. MONDAY, FEBRUARY 15, 1904. THE COMMONWEALTH AND THE STATES.

Auckland Star, Volume XXXV, Issue 39, 15 February 1904, Page 4

The Auckland Star: WITH WHICH ARE INCORPORATED the evening news, morning news and the echo.

MONDAY, FEBRUARY 15, 1904. THE COMMONWEALTH AND THE STATES.

For the cause Utat lades assistance. For the wrong that ncaiti resiatamet, For the future in the distance, And the good that toe can do.

It is now three years since the Australian Commonwealth was inaugurated, and it should have been found possible within that time to devise some way of adjusting the financial relations between the Federal Government and the States. But the conference of State Treasurers, which has just discussed the question, does not by any means seem to have reached finality. It has always been assumed that the Federal Government would ultimately take over the State debts; in fact, one of the arguments in favour of Federation was the greater financial stability that would be thus attained. The constitution provides that the Federal Parliament may take over ! the whole of any State's debt or some fraction thereof; and the States con- , eerned shall indemnify the Commonwealth in respect of any debts taken I over. The interest due on such debts shall be deducted from the " surplus revenue " due from the Commonwealth to the States; and if such surplus is insufficient the balance must be made up by the several States. It has all along been merely a question of the specific terms on which the debts should be transferred, and for the last two years the question has been frequently discussed in public by members of the Federal Ministry and the State officials. But Sir George Turner, the Federal Treasurer, has not been able to see his way to fall in with the proposals of the State Trea- ! surers, and the present conference is an I attempt to settle the difficulty by a com- ! promise before the nest Federal session > begins. The conditions now suggested by the representatives of the States are not, we fear, likely to meet with much favour in the eyes of the Federal Government. j Our readers are probably aware that the . chief safeguard against excessive expenditure by the Federal authorities is coni tamed in the so-called " Braddon Blot " —a clause in the conetitution which compels the Commonwealth to hand over to the States at least three-fourths of the Federal revenue from Customs and excise. It was originally provided that the Braddon clause should remain in force

for ten years; but the State Treasurers! now propose that it should be retained in perpetuity. The States would, therefore, always be sure of getting back 75 per cent, of the revenue raised within their borders; but how could the Federal Government be sure of the interest on the State debts after they were transferred? The constitution already makes the balance of State revenue liable for interest on State loans; but there is always the possibility tbat it may prove insufficient. In that case the States are prepared to " guarantee " the amount required to cover the annual charge. But as the States refuse to assign their railway revenues—infinitely their most valuable asset —as security for this call, it is not easy to see what hold the Federal Government would have over defaulters. Moreover, the sinking fund of one-half per cent, to be applied to the extinction of the debts is only half of the amount suggested by Sir George Turner. Even if these proposals were unr-nimous, it is not likely tlnit they would be considered satisfactory; but as Mr. Waddell, the New South Wales Treasurer, has refused to adopt them, on the ground that the States have not yet had sufficient experience of the Commonwealth's financial methods, the question must await a more convenient season for settlement. It is clear that, as was freely predicted before the constitution w;is tested by practical experience, the Braddon clause is a serious obstacle to the successful financial administration of the Commonwealth. It is, of course, in one sense a valuable safeguard to the States, as ; not more than one-fourth of their Customs revenue can be expended by the Federal Government. * But it unfortun--1 ately follows that, whatever sum the Federal Treasurer may require, he must frame his Budget so as to raise four times that amount that he may fulfil the conditions laid down in the Braddon clause. Three-fourths of the amount raised, minus Federal charges, of course, goes back to the States; but it is obviously a cumbersome and expensive method of raising revenue. The Federal Government would gladly get rid of it as soon as the 10 years'limit has expired; but the States now require that it shall be a permanent clause of the constitution, so that they shall not be compelled to devote what they might consider a disproportionate share of their revenue to the liquidation of their transferred debts. At the same time they show no disposition to offer any substantial security for their debts or for the payment of interest; and the " guarantee " that they propose will not appeal very strongly to the imagination of a hard-headed financier like Sir George Turner. On the whole, we fear that the financial complications that distract the Commonwealth are as interminable as the political and local rivalries that divide the States; and once again we may be permitted to express our thankfulness that , his colony saw fit to stand aside and observe the development of the young Federation solely from a spectator's point of view.