Nearly 100 years ago, a thumping majority voted to change the Constitution to stop the states borrowing crazy amounts of money.

The Roaring ’20s had fuelled roaring state spending on new railways, roads, housing projects and electricity commissions, all against a backdrop of rising inflation and increasingly nervous lenders.

Premier Jacinta Allan is up for a conversation about broadening Victoria’s tax base.Credit: Joe Armao

If this sounds familiar, what happened next seems quaintly removed from contemporary Australian politics.

The state premiers and the prime minister sat around a table, considered a difficult problem and came up with a solution.

Part of the fix, known as the Financial Agreement, was the establishment of a loan council which in effect, gave the Commonwealth a veto over state borrowing. The 1928 referendum, which was backed by a majority in all states including a whopping 87.8 per cent of voters in Victoria, removed constitutional hurdles to the agreement.

The loan council was abolished long ago by the Hawke government but economist Saul Eslake believes the story has relevance today, at a time when runaway state borrowing and spending are the $900 billion elephant in the room at Treasurer Jim Chalmers’ economic reform roundtable.

As Eslake points out, any serious conversation about tax reform needs to include the states and territories and an examination of how our broken federal/state financial arrangements are contributing to the debt binge unfolding up and down Australia’s east coast.

GST changes, including........

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