SUMMARY: DEVELOPMENTS TO THE END OF THE SECOND WORLD WAR
THE end of the Second World War was in several respects a turning-point in the history of federalism. It is therefore worth while pausing to see what general conclusions can be drawn from the study of the development of federal institutions to this date. This will be easier in regard to systems of public finance than in regard to social legislation, because the problems involved are more nearly the same in each country. There are, in fact, four general points that emerge from the study of the development of financial relations in these three federations.
First, it is clear that the main factor determining the nature of financial relations was the financial position of the states at the time of federation. If the states derived a sufficient proportion of their revenues from sources other than customs duties, they could remain financially independent after the transfer of these duties to the federal government; if the proportion was small, they could not. In the United States the states were able to finance themselves by property taxes, together with one or two indirect taxes, in the early decades of federation, and later they developed sales and excise taxes, death duties, and income taxes to meet rising expenditures; whereas in Canada and Australia the sources of revenue left to the states after federation were inadequate to finance their activities. In consequence the American states were financially independent until as late as 1930 (the specific grants that they accepted before that being supplementary rather than essential), while in Canada and Australia federal payments were necessary from the beginning.
Second, it is clear that the differences between the systems of federal aid adopted in the two Dominions also had their