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Curtin's Achievements

Let it never be said that Australia has no heroes. How can that ever be truly said of a nation which produced John Curtin?

For he was an authentic hero, and a hero in a uniquely Australian mould.

His strength to make the terrible and lonely decisions of war came from a deep inner strength of spirit.

His mastery over the tremendous and tumultuous events of his time came from his mastery over himself.

His superb eloquence; his great political skills; his tolerance and forbearance towards the more turbulent of his colleagues; his clear grasp of fundamental Labor principles; his instinctive feel for the mood of the Australian people and his ability to relate to and to give expression to their higher aspirations-all these contributed to his tremendous achievements.

But the foundation of everything-the core and heart of the public man and the private man-was character, that inner strength of character which he had forged in the furnace of the hardest battle any of us ever have to fight-the battle over self.

As with so many of our chief figures throughout our history, there remains an essentially tragic element in John Curtin's life and career.

His was perhaps the most tragic-though nobly tragic-of all.

This was a man whose lifelong vision for his country was based on the ideal of peace and the brotherhood of man; but when he came to lead his country, it was in the middle of the most frightful conflict and carnage in human history.

A lifelong opponent of conscription, he had to bear the responsibility of introducing Australia's first conscription.

In the middle of the war, a Roosevelt could write to a Churchill: "What fun to be in the same decade with you." But for John Curtin, the time was out of joint, and a cursed spite had given him, literally, the power of life and death over thousands of his fellow countrymen.

And in the end, it killed him-a casualty of war as certainly as any who wore the Australian uniform.

Yet this essential tragedy-the tragedy of a man of peace who had to make war-cannot diminish his great achievements in the cause of Australian social and economic reform-the cause of social justice in Australia.

Indeed, those achievements shine with all the clearer lustre precisely because of the overriding preoccupation of saving the nation and winning the war.

Under the Curtin Government, the work of laying the foundations for the postwar reconstruction which has shaped the whole course of modern Australia right to the present day, went on side by side with the war effort.

In no area of change and reform was more crucial work done during the war than the matter with which I wish to deal tonight-the future of the Australian federal system.

Uniform Tax System

Curtin, with his mighty partner, Chifley, brought about the most significant and enduring reform in the federal system ever undertaken since Federation.

I refer, of course, to the system of uniform income taxation-the system which underpins the fiscal and economic, and to a very large extent, the social unity of modern Australia.

If Curtin saved Australia physically, he also united Australia fiscally.

At a time when the uniform tax system and the federal system itself is under unprecedented threat, it is, I trust, entirely appropriate that I should use the occasion of the John Curtin Memorial Lecture to examine the question of the future of Australian federalism; and not least, to defend the system which John Curtin called into existence 40 years ago.

The legislative framework of the uniform taxation system was established by three Bills introduced by Chifley as Curtin's Treasurer on 15 May 1942. They were the Uniform Tax (Wartime Arrangements) Bill, the States' Grants (Income Reimbursement) Bill, and the Income Tax Assessment Bill.

Sir Robert Menzies, in his book Central Power in The Australian Commonwealth, summarises-not unfairly-the 1942 legislation in this way:

The scheme of Acts did not say that the States were not to impose income tax, but said that the States should be deprived of the officials, offices and equipment by means of which they, at that time, assessed and collected income tax; that the Commonwealth would impose an income tax that would raise not only all that the Commonwealth needed but also an additional £34 million to meet the then requirements of the States; that any State that refrained from imposing income tax should receive the indicated financial assistance from the Commonwealth; that any State that imposed income tax would not receive this financial assistance; and that any State that persisted in imposing income tax should not collect any of it until the Commonwealth had been paid its tax in full.

It should be understood that the Bills did not and could not take away the Constitutional power of the States to raise an income tax.

Now, of course, the uniform tax system originated as an urgent war measure. Singapore had fallen less than three months before. As Curtin said when speaking to the Bills on 27 May 1942:

This measure is one of a group designed to enable the Commonwealth Government to take command of taxable capacity of Australia in order to obtain the economic and financial resources required for the war. That is the supreme purpose of the Bills.

It is unlikely that the States would have ever accepted the practical loss of their income tax power except for the gravity of the war situation; and indeed Victoria, which had a relatively low level of State income tax, did unsuccessfully appeal to the High Court against the validity of the legislation.

But it is clear that Curtin and Chifley looked beyond the war and sought to establish a permanent system. As Curtin said: "We must look at this matter not only in the light of immediate requirements but also in the light of the evolution of the federal system."

And the two principles underlying the legislation were equality and unity-equality of sacrifice and the indivisibility of the Australian nation. As Curtin put it:

The Bills provide for total mobilisation so that we may use everything we have to the best advantage and in the most equitable way. Whatever be the character of the Australian political structure-a structure which consists of a Federal Government and six State Governments-the fact is that all these instrumentalities are the agencies of the one people.

And now for 40 years these two fundamental principles-equality and unity-have operated to sustain a system which was initially designed to meet the exigencies of total war.

In 1946, further legislation was enacted to give the system permanency in peacetime. It rested its constitutionality not under the defence powers, as the 1942 legislation had mainly done, but under Section 96 by which the Commonwealth may make grants to the States on such conditions as it thinks fit.

The validity of the 1946 legislation was finally established by the High Court when it rejected an appeal by Victoria in 1957.

From then on, until the advent of the present Federal Government, the uniform tax system was the dominant and unchallenged feature of the Australian federal financial system.

It is no coincidence that the first serious attempt by any Federal Government for 40 years to weaken, if not to scrap altogether, the uniform tax system, has been accompanied by the most turbulent and divisive period in the history of Federal-State relations since Federation-a crisis of confidence which the Premier of Western Australia, Sir Charles Court, has described as "threatening the very existence of the Federation itself."

My first proposition is that any reform of the federal system and the financial arrangements between the Commonwealth and the States must be based on the maintenance of the uniform tax system, in its complete integrity.

As far as I am concerned-and I speak here for the Labor Government of New South Wales and the Australian Labor Party-that principle is not negotiable. It should be made very clear that there is nothing parochial in this stand. On the contrary, it reflects completely the national aspirations of the Australian Labor Party.

Indeed, in sheer financial terms, an argument can be made that New South Wales would actually be advantaged by the dismantling of the uniform tax system and a return to the prewar tax jungle.

It is the people of Western Australia who would be among the worst losers.

Let me briefly put the statistical case.

In 1981/82 New South Wales and Victoria will receive General Revenue Assistance Grants from the Commonwealth Government equal to $384 per head.

The four smaller States (Queensland, South Australia, Western Australia and Tasmania) will receive grants equalling $581 per head-$197 per head more than New South Wales and Victoria.

Looking at it another way, taxpayers in New South Wales contribute 37% of Commonwealth income tax receipts while the State Government receives only 29% of tax reimbursement grants.

It is because I give overriding priority to the principles of equality and unity that I am determined to resist the dilution or the destruction of the uniform tax system-not as Premier of New South Wales but as an Australian.

Section 96

I pointed out previously that the Constitutional validity of the uniform tax system rests chiefly on Section 96 which states:

During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.

Section 96 was inserted in the Constitution to cover contingencies which the framers of the Constitution believed might occur in the early days of the Federation, but in fact, it lay dormant until 1942.

It is an interesting example of the evolution of the Constitution and its interpretation that a contingency and provisional clause should have become the basis for a permanent revolution in the relations between the Commonwealth and the States.

But it was not until the Whitlam era that the use of Section 96, as an instrument for extending federal responsibility and for achieving better and more equal services within the States and between the States, reached its full flower.

It was part of the genius of Edward Gough Whitlam that he, first and foremost among us, saw that, just as the High Court interpretation of Section 92 had been used as an instrument of conservatism to prevent or retard social and economic reform, so Section 96 could be used constructively as a great weapon for reform, progress and equality.

It was in his Curtin Memorial Lecture here in 1961 that he first developed this theme of the use of Section 96, in the fields of transport, housing, education, health services and government and joint enterprises, which was to become the basis of his Government's program more than ten years later.

And he concluded that lecture with a statement which is as relevant to Australia and its role in the world today as it was 20 years ago. We of the Labor party, Whitlam said:

...are now more concerned with the creation of opportunities than the imposition of restraints. Within our own nation we do not have to ration scarcity, but plan abundance. There is now a greater obligation to ensure a fair distribution of goods between all nations than there ever was to ensure a fair distribution of goods within our own nation.

Let it be noted that that was 20 years before his successor as Prime Minister of Australia discovered the North/South dialogue!

For Whitlam, if Section 92 was the charter of free enterprise, Section 96 was to become the charter for public enterprise and for greater federal responsibility for the quality and equality of basic community services.

He wished to extend the application of Section 96, as it had already been developed through the uniform tax system, to the widest possible range of Government activity and responsibility throughout Australia.

It is a fallacy to describe Whitlam as a simple centralist or a singleminded unificationist. His great concern was to achieve high quality and greater equality of services within the States and between the States.

To achieve this, he had to use both the Constitution and the political and financial realities of the Australian federal system as he found them; and Section 96 was the one great practical instrument available.

It is true that he was highly critical of the performance of the States in the provision of basic services-and who will say that he was not right to be so?

He correctly pointed out that the States themselves, within their own borders, tended to be highly centralist; and his own thinking and programs were more regionalist than centralist.

It is also worth noting that for most of the period that he was developing his program for a future Labor Government, the Australian Labor Party was in a position of unprecedented political weakness in the States. Around the time he assumed the leadership in 1967, Labor held no State Government anywhere in Australia-not even Tasmania. During his Prime Ministership, Labor held office only in South Australia and Tasmania and, for a few months at the beginning, in Western Australia.

The political reality of Labor's power-or lack of it-its performance-or lack of it-and prospects-or lack of them-in the States at that time clearly influenced the development of his program.

But the core of his approach to the finances and functions of the States and the Commonwealth was the recognition of the fact that, while the Commonwealth held the commanding heights of the finances, the States had the major responsibility for the provision of the most essential and the most costly functions.

The Whitlam Government

And the whole thrust of Whitlamism was to secure a fairer, more equal distribution of responsibility, for both the finances and the functions, between the Commonwealth and the States.

He saw that, because the Commonwealth had the monopoly of the really big sources of revenue-the income tax and company tax-by virtue of the uniform tax system; and Customs and Excise by virtue of the Constitution itself-then the Commonwealth must accept greater responsibility for the provision of the most expensive of the essential services-in health, in education, in cities, in transport.

"If an essential service," he said, "is to be financed exclusively by the States, it will be either unfairly financed, inadequately financed, or not financed at all."

And the result of the application of his approach between 1972 and 1975 was the greatest advance in the quality and equality of Government services in health, education, community welfare and municipal services Australia has ever known; and the States received-at the hands of this so-called centralist-the best deal they've ever had since Federation.

Whitlam was never afraid to bring his grand design to the most mundane of matters. Some commentators and editorialists could scarcely conceal their mirth when he pronounced in 1968: "Sewerage is a national issue." But in fact the national sewerage program, now abandoned, achieved something that State and local governments in the capitals and cities had failed for a century to do.

When the Whitlam Government came to office, 83% of outer metropolitan Sydney-a great modern city-was unsewered. The situation has been transformed.

It was said of Caesar Augustus that he found Rome a city of brick and left it a city of marble. Not the least appropriate of Whitlam's epitaphs might be: "He found Sydney, Melbourne, Brisbane and Perth unsewered, and left them fully flushed." He would not, I think, reject the comparison.

Yet this significant point must be noted-for all the excitement and drama of the Whitlam years, and for all the political resistance and obstruction from the States, particularly the then Governments of New South Wales and Queensland, and for all the great new initiatives and advances in health, education and welfare, there was a fundamental continuity in the evolution of the federal principle from Curtin, Chifley, to Menzies, through to Whitlam.

Under Whitlam, there was in fact no sudden change of direction, but rather a rapid advance along a continuing and consistent course of development under both Labor and Liberal Governments during the previous three decades. And the foundation of that consistent course was adherence to the principle of the uniform tax system, by Menzies as much as Chifley or Curtin.

Even in the extension of the use of Section 96, Whitlam built on Menzies.

In the establishment of the Schools Commission he followed, in precise terms, Menzies in establishing the Universities Commission. In accepting greater federal responsibility for the funding of primary, secondary and technical education, for Government and non-Government schools alike, he followed the principle Menzies had applied to universities. And in the general matter of Commonwealth/State financial relations, he continued and improved the approach firmly established during the Menzies years.

For over 20 years under Menzies, Holt, Gorton, McMahon and Whitlam, the general purpose recurrent payments to the States were based on a formula which increased each year's funds predictably, according to the increase in average weekly earnings and the population increase in each State; plus a betterment factor to allow for improvements in the level of the services in each State, over and above the rise in costs or population.

Under Whitlam, this betterment factor reached 3% a year. The Whitlam formula provided each State with a guaranteed 3% real increase in funds each year-a modest enough increase in a growing country like Australia; but nonetheless a real increase, and above all a predictable increase which allowed State Governments to plan confidently ahead on the basis of their own priorities.

I repeat-the turbulence of relations between Canberra and the State capitals-or some of them-during the Whitlam era was essentially political. The essence of Commonwealth-State relations in that period, in its genuine financial and economic aspects, was the attempt to achieve continuity, consistency and predictability along lines already established over two decades or more.

Crisis in Commonwealth-State Relations

This brings me to the central point I want to make in regard to present day Commonwealth-State relations, and the central problem of the federal system, as operated by the present Prime Minister and the present Federal Government.

We have to ask ourselves why there is such extraordinary unanimity amongst the Premiers, of all political persuasions, that Commonwealth-State relations have now reached their nadir.

The traditional, perhaps ritual, complaints of the Premiers after each Premiers' Conference, whichever Prime Minister happened to be in the chair, have taken on a new dimension. This unanimity of dissatisfaction and concern for the future of federalism goes far beyond the old, more or less routine, complaints about federal parsimony.

The new, divisive element which has entered the Federal-State financial relations, the new element which Sir Charles Court has said threatens the very Federation itself, is the element of unprecedented unpredictability. It is this unpredictability which is at the root of the current concern and confusion.

Let me give these examples.

Every year since 1976 has been marked by erratic and almost inexplicable changes in the level of federal payments to the States. The changes in the level of payments have related neither to the rate of inflation, the rise in wages, nor the needs and responsibilities of the States.

Indeed, the only consistent pattern in federal payments since 1976 I can find is that they tend to rise more in election years than non-election years. In 1977-78-an election year-total federal payments to the States increased by 12%-roughly the rate of inflation that year. The next, non-election year, 1978-79, they were up only 6%-far less than the rate of inflation. In 1979-80, again a non-election year, up 8%. In the election year of 1980-81, up 12%. This non-election year, back to 8%.

To compound the difficulties caused for the States by the pattern of unpredictability, the Federal Government has announced major changes in the formula for payments to the States only within weeks of the beginning of the financial year. For instance, only in May this year did the Federal Government announce that the tax-sharing formula would be abolished and that the States would get a flat 9% increase in general purpose recurrent payments.

It is easy to understand how the erratic nature of these changes, the suddenness and arbitrariness with which they are presented to the States, compound the budgetary difficulties of the States and make proper forward planning almost impossible.

Secondly, the changes in federal policy on the loan program and infrastructure borrowing have been just as erratic and unpredictable as the changes in the general grants formula.

For example, on 6 November 1979, Prime Minister Fraser wrote to the State Premiers urging them to accelerate the construction of electric power stations. He specifically referred to New South Wales, saying that more generating capacity should be built to take advantage of the world energy shortage. At the same time, Mr Fraser publicly asserted that New South Wales had lost valuable new investment and a smelting project because of an alleged shortage of power generating capacity in our State.

Accordingly, New South Wales has speeded up construction of power stations. We should have done so anyway-but the fact remains that Mr Fraser did specifically press us to do so, and presumably, committed the Federal Government to support such a course.

Yet now the Federal Government has refused to approve the additional borrowings for the accelerated program of construction of power stations we have undertaken. In addition, it has cut back on approvals previously given.

Thus, at the two critical levels of the States' finances-the general grants and the loan program-the States have had to cope, not only with reduced allocations in real terms, but with an unpredictability of federal policy which has made property forward planning and the rational allocation of our resources difficult to the point of impossibility.

And whatever the differences between Sir Charles Court and me may be-and we have been known to have our differences-we share absolutely common ground that it is this unpredictability-to the point of irresponsibility-which has created the greatest crisis in Federal-State relations since Federation.

Revenue-Sharing Tax Formulas

In less than six years the Fraser Government has unilaterally changed the revenue-sharing formula four times.

In 1976 it introduced tax-sharing arrangements under which the States were to receive a share of personal income tax. However, for the first four years of tax-sharing, the States were guaranteed that they were not to receive less than the Whitlam formula would have given. The Whitlam formula, you will remember, contained and continued the three basic elements of the arrangements of the previous 20 years:

The financial year 1980-81 was the first year in which all States actually received their share of personal income taxes. But then, for 1981-82, personal income tax-sharing was abolished and instead the States were given a flat 9% increase in general revenue funds.

The Fraser Government have now promised that the States will receive a share of all Commonwealth tax revenue. However, this system can be changed by the Federal Government at any time, as they have changed the formula so frequently-and unilaterally-in the past.

The fact is that not one State Premier believes that the new system of reimbursing the States from a fixed proportion of all Federal taxes will be applied consistently or fairly.

We all believe-and the record can only confirm our worst fears-that the new formula will be changed unilaterally, whenever it suits the Federal Government.

And I repeat, it is this unpredictability, as much as the unfairness of the arrangements, which lies at the root of our current problems.

The Solution

What then is required?

First, the States require a formula which allows the increase in total federal reimbursements to be predicted with reasonable accuracy well in advance of the preparation of the State budget.

Secondly, the formula should eliminate year-to-year fluctuations in total federal reimbursements.

And thirdly, the formula should allow for State improvements in State Government services-the services like health and education which are so costly but so inescapable a part of the States' responsibility to their citizens.

In a word, the unpredictability and instability which is causing so much confusion, bitterness and resentment, must come to an end.

Beyond the need to devise a new predictable and equitable formula, there is another urgent and basic requirement on the part of the present Federal Government.

And that is, that the Prime Minister should once and for all abandon the attempt to force the States to impose a second income tax.

Nothing would clear the air so quickly, nothing would end the confusion so promptly, nothing would provide a better basis for cooperation between the States and the Commonwealth in devising a new, predictable and equitable financial arrangement, than a firm commitment by the present Prime Minister personally and the present Federal Government as a whole, to the preservation of the principle of uniform taxation.

I said before that the uniform taxation system-the system established by Curtin, broadened by Chifley, polished by Menzies and enhanced by Whitlam-rests on two fundamental principles: the principle of national equality and the principle of national unity.

What principle is Mr Fraser to set against these two great national principles?

The rationale for his determination to dismantle the uniform tax system is that it would make the States more financially responsible-that is, that all governments should accept as much responsibility for the money they raise as for the money they spend.

All that can be said about this, is that it is an assertion which mistakes utterly both the nature of State responsibilities and the nature of the Australian federal system itself.

It is an assertion which implies that State Governments have been irresponsible in their financial management and prodigal in their spending. Not the slightest evidence has ever been produced to back such an allegation.

It is an assertion which implies that the income tax revenue collected by the Commonwealth belongs as a constitutional and legal right to the Federal Treasury.

This is an assertion which finds support neither in the Constitution nor the uniform tax laws.

It is an assertion which mistakes utterly the inescapable responsibilities and unavoidable commitments which the States must make, to provide the basic services for their communities.

The overwhelming proportion of State expenditure is committed to the provision of services and the fulfilment of functions in health, hospitals, transport, police and municipal services, in which the States have virtually no discretion as to the level or distribution of funds.

The areas in which the States can reorder their spending priorities, according to the preferences, policies or philosophy of the government of the day, are severely limited.

And of course the policy of the Fraser Government of handing back to the States a wide range of functions which the Whitlam Government agreed the Commonwealth should accept, while at the same time massively reducing the Commonwealth contribution to health care, hospitals, schools and urban programs, has further drastically reduced that area of State discretion.

Further, it is an assertion which denies the reality of Federal and State Government budgets in 1981. The Federal Government insists that there is a need for restraint in all government expenditure.

All States have accepted the need for restraint.

Yet in the current federal budget the only evidence of restraint shown is in one area-in payments to the States. The federal budget papers show that payments from the Federal Government to the States will rise by 8% in the current year. Yet all other Federal Government outlays will rise by over 15%.

Where then is the sense of responsibility? Where is the exercise of restraint?

The fact is that Mr Fraser's purported offer to return income taxing power to the States is a mockery.

It would require the States to increase prevailing levels of income tax if they were to get any additional revenue-increase income tax at the very time that the Federal Government claims that its basic policy is to reduce income tax.

Yet it would still leave the States even more beholden to arbitrary decisions by the Commonwealth for the greater part of their revenue.

In short, it would perpetuate and accentuate the divorcement of responsibilities between who raises the money and who spends the money.

So on the very ground which is supposed to be the justification for tampering with the uniform tax system, the proposal fails utterly.

The end result of Mr Fraser's proposal could only be to increase the total amount of income tax raised in Australia. It would certainly allow the Federal Treasury to reduce its own level of income tax-and that of course is the real politics of this proposal. But the income tax burden borne by the Australian taxpayers as a whole would increase.

And because of the differences between the States, in terms of their population and resources-both their natural resources and their taxable resources-the result would be vast inequalities between the taxpayers of the various States.

And as I said before, it would not be the taxpayers of New South Wales but the taxpayers of Western Australia who would stand to suffer most, if the uniform tax system, the system which has served Australia well for 40 years, were to be dismantled.

There is no ground of equity, there is no ground of national unity, there is no ground of financial responsibility, on which Mr Fraser's obsessive determination to force the States to impose a second income tax, can be sustained.

Yet as long as this proposal hangs over us as a threat, it will continue to destabilise Federal-State relations.

One word from Mr Fraser, one word that he will at last abandon this obsession, would be the beginning of a new effort to restore cooperation-not to say common civility-in Federal-State relations.

I have no more desire to be at constant loggerheads with Canberra on this issue-or on the whole matter of Federal-State relations-than I imagine Sir Charles Court has.

But for three elections now, central to my appeal to the people of New South Wales for their support, has been to seek from them a declaration that Australia's most populous State will not have a bar of a second income tax; and wishes to maintain the integrity of the uniform tax system.

And three times they have done so; and twice they have done so overwhelmingly.

If the people of a State which could conceivably profit, at least in the short term, from the destruction of the uniform tax system, have so often and so convincingly declared their support for it, is it not clear that there is no mandate from the people of Australia as a whole for Mr Fraser to continue his efforts to force the States to impose a second income tax?


What all the Premiers want, but much more important, what I know the people of New South Wales want, and I believe the people of Western Australia want, and the people of all Australia want, is a system which will restore rationality, common sense and predictability to Federal-State financial relations.

And above all, what the people of Australia want is a system which will re-establish the great principles of national unity and national equality-the great principles for which John Curtin fought and for which in a very real sense, he died.

The proposal to dismantle the system of uniform tax which Curtin created is only one aspect of the divisiveness which has crept into Australian life in recent years.

I have dwelt on it at some length, not because it is necessarily the most important manifestation of the new divisiveness, but because it is certainly the most needless and avoidable, the most futile and the most irresponsible.

To seek radically to alter a system which, in its fundamental elements, has served the Australian nation and the Australian people well for nearly half a century; a system which great Australian Prime Ministers as diverse as Curtin, Chifley, Menzies and Whitlam, have all found valuable for the achievement of their purposes and ideals; and to change it for no great national purpose or indeed for any rational purpose whatsoever, is not an act of statesmanship; it is an act of political vandalism.

This proposal to dismantle the uniform tax system is not a reform; it is a reactionary proposal designed to return Australia to the inequities and inequalities of the 30s.

Sure, that is radicalism of a sort; but if that is so, in defence of the principles of the unity of the Australian nation, the indivisibility of the Australian nation and equality for the Australian nation, then I am an unrepentant conservative.

More than any other Australian to his time, John Curtin taught us what it is to be an Australian and how to think and act, first and last, as Australians.

The great monument he left when he died at his post in 1945 was a united Australia which had met and overcome the greatest peril in its history.

What John Curtin did so much to unite and protect, let no man put asunder.

Let it never be said of our generation that, from within, we undermined that national unity which John Curtin did so much to make and mould; and against which no foreign enemy could ever prevail and, I believe, will ever prevail, as long as we preserve those basic principles of national unity and national equality, for which John Curtin fought all his life and for which, in his noble end, he died.

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