The Evaluation of Federal Grants

Abstract

The financial problems of federalism arise whenever the authority for collecting taxes and receiving other revenues differs from the authority constitutionally charged with dispensing services. They arise most obviously in the five federal members of the Commonwealth, the United States and Switzerland, to mention only the best known examples in the Western world. On a different scale, however, exactly analogous central and regional situations appear wherever local government is financially aided from the national revenues. In the United Kingdom, for example, the average county raised barely 40 per cent. of its total expenditure from local sources, while more than 6o per cent. was received from national grants for specific purposes and for general expenditure.2 The political dangers of such close dependence on senior legislatures are obvious, and it will be difficult to prevent the localities becoming purchasing and spending agents for the various ministries if the national share becomes larger. There is a third sphere wherein federal finance will bear close attention. The projected unions of colonies in Central Africa and in the West Indies will inevitably need to make constitutional provision for the restitution of revenues lost when local tariffs are abolished, from the new central customs to the local treasuries. How are such transfers to be made ? Every system which can be evolved implies arbitrary assumptions about the satisfaction of local rights and local needs. This tariff-transfer problem is, however, merely the customsunion stage of federation. A true federation will need a central taxation system to pay for administration, defence, and national capital development projects, while more local government services will need more local revenues.