Watt started winning respect for his work on the state’s finances. He travelled to England and, in the role of treasurer, ‘negotiated a large conversion loan of 3 million pounds in a difficult money market, leaving behind a favourable impression of Victoria and his own abilities’.7 He also successfully engineered the next Victorian Budget and access to finance to fund regional development—this in a state that had been suffering from depopulation of its rural areas for some years.
Watt played another key role in the negotiations over federal–state financial relations that marked the expiration of the compact that had determined the distribution of funds between the two. It had been agreed as a grand compromise at the time of Federation that the states would receive two-thirds of the Commonwealth’s customs and excise duty for the next decade, after which Commonwealth–state financial relations would be reviewed. Failure to reach agreement on this issue had very nearly derailed Federation, and now it fell to Watt and his contemporaries to strike a new settlement.
Initially, Watt strongly opposed a simple per capita payment from the Commonwealth to the states. He saw this as a way of making the states mendicant, and he knew that the customs and excise revenue would continue to grow strongly. The desire of the states to have access to a growing tax revenue base was no less in the first decade of the twentieth century than it is in the twenty-first century. In the end, Watt accepted a per capita payment, but only on the basis that there would be a referendum to ensure that the payments were enshrined in the Constitution and could not be changed at the whim of the Commonwealth. Watt struck this agreement despite the fact that it meant a loss of revenue to Victoria. Unwilling to wind back his commitment to state development, Watt had to develop new revenue sources, leading him to attempt to introduce a land tax in Victoria for the first time; he was also motivated to beat a federal Labor government to this, ensuring that the land tax field was covered by the states and not the Commonwealth. Negotiating the introduction of land tax in a parliament dominated by rural members required considerable political skill, which Watt displayed as he guided the Bill through the Legislative Assembly. But he could not win the day in the Legislative Council, where you still had to be a landholder to be a member. The Upper House killed Watt’s proposal.
Ultimately, the people also killed the proposal for per capita grants to the states to be enshrined in the Constitution. Despite Watt throwing himself behind the ‘Yes’ campaign, the Australian people were already showing the type of reluctance to approve referenda that they would exhibit for the next century, and the proposal was defeated, including in Victoria. In response, the Commonwealth Government agreed to guarantee a 25-shilling-a-head payment for each state for the next ten years, meaning that the vexed issue of Commonwealth–state financial relations was again put in the ‘We’ll sort it out another day’ basket. In addition, the new federal Labor government under Andrew Fisher imposed a Commonwealth land tax, which made Watt’s push for a state land tax redundant.
Watt ‘built on his successful management of Victorian finances during this period, and his grasp of national finance as a dominating figure in Commonwealth–state relations’.8 He fiercely resisted attempts by the Fisher government to take over functions of the state governments—interestingly, this resistance would ebb when he became the Commonwealth treasurer—but he did lead discussion at the 1912 Premiers’ Conference about how powers could be voluntarily transferred from the states to the Commonwealth. Watt was a strong supporter of state rights within the federation. He held the view that more powers would and should evolve voluntarily to the federal government over time as the new nation matured.
Watt successfully introduced preferential voting in Victoria for the first time. He saw this as an important mechanism for the non-Labor forces to be able to work together to ensure the defeat of Labor. He would later be instrumental in its introduction at the federal level, at the behest of the emerging Country Party.
As premier, Watt also took the initiative on a truly national immigration scheme. Despite the Constitution giving responsibility for immigration laws to the Commonwealth, the administration of immigration was still largely a state affair. Watt convinced NSW premier William Holman to amalgamate the NSW and Victorian immigration offices in Great Britain, from where the vast majority of immigrants were drawn. As Watt’s biographer John Anderson writes:
this was not only an optimistic first step towards ending the costly competition for immigrant settlers among the various states, but also towards eventual Commonwealth responsibility for immigration. The Victorian Premier could recognise the practical advantages of giving the Federal Government the lead in order to assist the states, however much he remained opposed to Federal activity which weakened them in other spheres.9
The 1914 Premiers’ Conference was Watt’s last, and ‘in several aspects it was the crowning point of Watt’s career at the state level’.10 He dominated the conference. Watt was instrumental in negotiating the Murray Waters Agreement, which determined the respective rights of NSW, Victoria and South Australia to water from the Murray River. He also proposed a National Debt Commission, which would include two representatives from the Commonwealth and three from the states, and which would
