Bert Kelly, The Bulletin, June 2, 1981, p. 102.

Before 1939 the States used to raise their own income tax and we used to fill in two income tax forms — one for the Commonwealth and one for the State. During World War II the Commonwealth used its defence powers to take over all State income tax, then handed some of it back to the States under a formula that changed often and with much ill-feeling.

After the war, and indeed well into the 1960s, the States were always asking for their income taxing powers back and our South Australian Premier, Sir Thomas Playford, was loud and eloquent in this plea.

Soon after I became a Federal MP, and was still wet behind the ears and all dewy-eyed when I sidled up to the great man who had again been thundering away on his subject. I gave him the good news that, from now on, I would be his staunch ally in his brave battle to get his taxing powers back.

Sir Thomas was rather startled to hear this and, after looking anxiously around to make sure we had not been overheard, he hurried me into his room, locked the door, then said:

Thank you, Bert, this is very kind of you, I am sure. But if you don’t mind I would rather you left things as they are.

At present the Commonwealth gets the odium for raising the money and I get the credit for spending it. And if I don’t think we are getting a fair go, I get the Advertiser to twist the tails of you Federal members. The sympathies of South Australians, and indeed in all other States, are always with their State and against the big, bad Commonwealth.

The present system suits me so please don’t try too hard to change it. It is true I make powerful speeches about wanting it changed but I don’t really mean it.

So the system remained unaltered and every now and again the State Premiers would go to Canberra, breathing out fire and brimstone, then return home absolutely ruined. But they would continue to splash their money around with cheerful abandonment. You can always tell a man who is dining out on an expense account by the enthusiasm with which he summons the waiter.

After the dust had settled, and if a really popular band-wagon came rolling past, the Commonwealth would be on it in a flash, ostentatiously handing out your money and mine for rural roads, education, hospitals, soil conservation, anything that was nice and noble we helped with enthusiasm by making Section 96 grants to the States.

Then in 1975 we have birth to our new Federalism policy: we were now going to return to the States a limited amount of money and if they wanted more we would help them raise some income tax of their own. They could use the Commonwealth income tax machinery if they wanted to. This change it was hoped would make the States more responsible.

However, the new system did not work any better. For one thing, the Commonwealth still could not resist the temptation to continue to make Section 96 grants if a popular cause turned up. And the States, with consummate cunning, even while proclaiming their poverty, took shelter behind the excuse that they would not inflict a dual income tax on their people. What they wanted was the Commonwealth to raise more money so that they could spend it; the Tom Playford system.

This system was working badly before the recent row between the Premiers and the Commonwealth about the missing 11 percent. I doubt if, with this experience behind them, any of the parties will be able to make the system work even moderately well ever again.

Why not go back to the old system by returning to the States the income taxing powers they used to have?

It is silly to talk about the evils of double taxation. The State tax money would come from different pockets of the same people, after all is said and done. The States could use the Commonwealth’s income-tax machinery, even the same tax form if they so desired, so the extra cost of collection would be small.

Certainly the odium of raising the money would make the States much more careful about the way they spent it. And they would be better at administering grass-roots functions — such as schools, hospitals, roads, soil conservation and things like that — than is the Commonwealth.

What are the arguments against it? Would it make it harder to keep the economy on an even keel? But we don’t seem to have been particularly successful at this using the present system.

And at least with the States raising more of their money there would be less likelihood that at each Federal election we will all feel a dam coming on.