Australian Federation

The economic consequences of federation

Australian federation entailed the creation of both a customs and a fiscal union. With respect to the customs union, tariffs were abolished on interstate trade (although this process occurred on a phased basis in Western Australia), while all of the colonies adopted the Commonwealth's common external tariff schedule in October 1901. The first federal (Commonwealth) was widely regarded as protectionist; indeed, with respect to imports from outside of Australia, the average tariff increased relative to the average of the individual colonies' average tariffs prior to federation, according to estimates produced by Melbourne economist Peter Lloyd. Nevertheless, the welfare-enhancing effect of the elimination of tariffs on interstate trade dominated the welfare-reducing effect of higher tariffs on overseas imports, such that the net static welfare gain from Australian federation was actually positive and estimated to have been 0.17% of GDP. With respect to the fiscal union, there was a harmonisation of excise duties at approximately the mid-level of the colonial excise duties.