Australian governments, both those of the colonies after the introduction of responsible government in the 1850s and the national government since federation in 1901, have had the power to fix and change tariff rates. This power resides in the respective legislatures, with tariffs, being a tax law, is required to originate in the lower house of the legislature.
Tariffs have always been a contentious issue in Australian politics. At times they have been the focus of an intense debate. This was particularly true in the debate in the colonies leading up to the Australian federation and the ensuing debate in the federal Parliament when it was necessary to establish a uniform Australia-wide schedule of tariff rates. It was true also in the period of the 1970s and 1980s when reforms began the process of lowering tariff levels. The outcomes of these debates have had an effect on the growth of the Australian economy and the distribution of real household income.
Pre-federation The first tariffs in Australia were imposed on the import of alcoholic beverages by Philip Gidley King, the Governor of the Colony of New South Wales, in 1800. Tariffs were imposed on tobacco, cigars and cigarettes in NSW in 1818. New South Wales included the territory of the modern states of Victoria, Queensland and Tasmania during this period; other colonies also imposed tariffs on imported goods after they became self-governing.
These duties were revenue duties. In the 19th century, taxation of these two groups of goods yielded large revenues for the colonies. In fact, revenue from these two groups, which were known as "narcotics and stimulants", accounted for most of the tariff revenue in Australia for almost all of the century; in 1900 they still accounted for 48% of total tariff revenues from the colonies.
In all colonies, the range of goods subject to tariff duties steadily expanded during the century. The passage of the Australian Constitutions Act 1850 by the Imperial Parliament introduced responsible government in the colonies, allowing each colony to determine its own tariff policies. Increasingly, some of the new tariffs were introduced from a protective motive. In 1866, Victoria added a wide range of goods to the list of dutiable items, most of them manufactured items, all subject to an ad valorem rate of duty of 10%. Economic historians generally agree that these tariffs were intended to provide employment for miners who had become surplus after the end of the Victorian gold rush. However, a recent study found no statistically significant evidence that Victoria's embrace of protectionism in the 1860s had any effect on its manufacturing sector. All colonies, except New South Wales, followed Victoria in adopting tariffs for protective purposes rather than to raise revenue.
As the range of goods subject to import taxation broadened, the average levels of duty, in ad valorem terms, showed increasing divergence among the colonies. New South Wales continued an explicit policy of limiting import duties to a small range of goods for revenue purposes (with the notable exception of sugar which was heavily protected). In the debates about forming a federation, New South Wales was known as the "free trade" colony and Victoria, the second of the "large" colonies, as "protectionist". By the end of the century, Queensland and Western Australia had average rates which were more than double that of Victoria but revenue motives predominated in these colonies.Lloyd, 2017
In the colonial era goods imported into one colony from another colony were also subject to duty at rates fixed by the importing colony. In general, goods imported from other colonies, mainly agricultural products, coal and machinery, were subject to lower rates than goods imported from other countries. However, they were still significant. The average ad valorem rates on imports from other colonies in 1900 ranged from 3.7% for imports into New South Wales to 19.3% for inter-colonial imports into Tasmania. Inter-colonial imports were a deterrent to inter-colony trade and, more importantly in the debate before federation, a major irritant in inter-colony relations.
From the point of view of the form and structure of tariffs, the colonial systems had developed features which carried over to the first Australian customs tariff. This applied to the mix of specific and ad valorem rates, the more favorable tax treatment of intermediate inputs, the complex differentiation of tariff rates within product groups or industries, and to differential rates on imports of excisable items and the excise tax rates on similar domestic products, which gave a protective margin to imports of alcoholic beverages and tobacco.
Whereas a tariff-growth correlation has been documented across countries for the late nineteenth-century "first era of globalisation," the tariff-autonomous Australian colonies did not exhibit any positive tariff-growth correlation in the decades prior to federation, irrespective of whether the economy-wide or manufacturing tariffs are considered.
After federation
Establishing uniform tariffs
In framing the Australian Constitution two requirements relating to imposition of tariffs were set out. Firstly, all tariffs are required to be uniform throughout AustraliaSection 88 of the Constitution of Australia and secondly that there not be tariffs on interstate trade and commerce (i.e., that all inter-state trade to be "absolutely free").Section 92 of the Constitution of Australia
To break the deadlock in the pre-federation debate as to the level of tariffs on imports from other countries, it was resolved that these would be determined by the federal government within two years of federation. In the first and second Commonwealth parliaments, from 1901 to 1906, there were three political parties — the Free Trade Party, the Protectionist Party and the Labour Party — with the level of tariffs being a major issue between them. New South Wales had been in favour of a free trade approach while Victoria was protectionist. Parliament passed the Customs Tariff Act 1902, which was a compromise position.Lloyd, P. J. (2015) "Customs Union and Fiscal Union in Australia at Federation." Economic Record, 91: 155–157. Estimates suggest that the 1902 rates increased the average rate of customs duties from other countries from 13.1% in the colonies to 17.5% under the new Commonwealth rates.
Federation entailed both the adoption of a Commonwealth-wide common external tariff schedule, with respect to overseas imports, and also the elimination of tariffs on interstate trade. The former, insofar as the first Commonwealth tariff was more protectionist than most of the pre-federation tariffs, was welfare-reducing, while the latter was welfare-enhancing. One study by Varian and Grayson found that the welfare gains from internal trade liberalisation dominated the welfare losses from the protectionist first Commonwealth tariff, such that net static welfare gain from federation was, conservatively, 0.17% of GDP. The shift in tariff policy resulting from federation altered the sectoral structure of the colonies. For example, employment in Queensland's manufacturing sector contracted in the wake of federation and the inflow of duty-free manufactures from New South Wales and Victoria.
The Protectionist Party, which was the largest party in the federal parliament and formed the government with Labour support, was still dissatisfied with the level of tariffs, and established a Royal Commission on Customs and Excise Tariffs in 1904.List of Australian royal commissions The commission reported in 1907 and recommended a further increase in customs rates. The average rate of duty in 1907 was 26.2%. Deakin's Protectionist Party introduced into Parliament in December 1907 an explanatory memorandum setting out its New Protection policy. This was a declaration of intention to raise the levels of protection from imports in Australia and also, importantly, to ensure that this protection was passed on to workers in the import-competing manufacturing industries. The party combined with the Labour Party, now firmly committed to higher tariffs, to pass the Customs Tariff Act 1908, which was called the Lyne Tariff, following the practice of naming a new act after the Minister who introduced it to Parliament. This act, more than the Customs Tariff Act 1902, propelled Australia into high levels of protection for manufactured goods. It increased tariff rates on many items, particularly on woollen goods, iron and steel products together with agricultural machinery. The 1908 act represented a triumph in Parliament of the protectionists over the free traders. The average rate of duty increased in 1908 to 30.6%.
The Free Trade Party was dissolved in 1909, and in 1910 the two non-Labour parties, Deakin's Protectionist group and the remnants of the Free Trade Party, combined to form the Liberal Party. In the same year the first majority Labour Government was formed, and both parliamentary parties proclaimed their support for protectionism and higher tariffs.
From steadily rising tariffs to reform Tariff rates on some items were increased during World War I and piecemeal in the Tariff Acts every few years after the war. The tariff of 1922, known as the Greene Tariff, increased many rates, particularly on industries that had grown during the war. The tariffs of 1926 and 1928, known as the Pratten Tariffs, further increased many rates.
During the Great Depression, the Scullin Labor government raised many rates. The period leading up to and including the Great Depression was a particularly important period in the history of tariffs in Australia. It established high barriers for imports of manufactures overall. For instance, in 1931/1932, the average duty on all imports was 37% and on dutiable imports only it was 72%. Since then there has been an unwinding of the very high rates of the Great Depression era.
Tariffs stayed at very high levels, with the average rate on dutiable imports only remaining over 40% until after World War II. Changes in tariff rates and the method of valuation for duty purposes in 1947 reduced the average level of tariffs to 30%.
In the 1970s piecemeal reform began to lower tariff rates in some industries. In 1973 all tariffs (except those on excisable items) were lowered by 25% by the Whitlam Labor government. This was the first across-the-board tariff cut ever in Australia, although the policy motive was to reduce the rate of inflation, not to improve the efficiency of production. However, the cuts to major industries were undone within two years as the government restored their rates to the pre-1973 levels. An immediate impact of the 1973 tariff cuts was the rapid decline of local semiconductor and consumer electronics manufacturing, which was already under severe competitive pressure from Japanese and other foreign manufacturers and was facing investment decisions associated with the introduction of colour television to Australia.