Austin & Anor v Commonwealth of Australia
[2002] HCATrans 331
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M10 of 2001
B e t w e e n -
ROBERT PETER AUSTIN
First Plaintiff
KATHRYN ELIZABETH KINGS
Second Plaintiff
and
THE COMMONWEALTH OF AUSTRALIA
Defendant
GLEESON CJ
GAUDRON J
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON MONDAY, 2 SEPTEMBER 2002, AT 10.17 AM
(Continued from 20/6/02)
Copyright in the High Court of Australia
GLEESON CJ: Yes, Mr Solicitor.
MR BENNETT: If the Court pleases, there are nine matters remaining for me to deal with. If your Honours have a document entitled “List of Matters to be Covered” your Honours will see the first five of those relate to questions asked by some of your Honours in the previous occasion.
The first relates to the question by your Honour Justice McHugh about the relationship between the surcharge and the tax deductibility of contributions and the submission will be that there is no relationship between them and that it is not a quid pro quo for it but that it is quid pro quo, if anything, for the different part of the treatment.
The second relates to a question asked by your Honour Justice Hayne about other constitutionally protected superannuation schemes and it will to them ‑ we will be submitting that we can demonstrate that it is not only high officials of state governments.
The third relates to questions asked by your Honour Justice Gaudron about private unfunded defined benefits superannuation schemes and we will demonstrates that – covered in an amendment to the stated case and we will demonstrate that they are not an appropriate comparator and, in any event, there are merely a few surviving schemes which exist from former days.
The fourth relates to questions asked by your Honours Justices Gaudron and Hayne about the construction of section 15(6)(b) concerning the proper calculation of the surcharge where you have a judge who, on retirement, has for reasons personal to him or her a very short life expectancy. The fifth relates to questions by your Honour Justice Kirby about masters. The sixth and seventh deal with South Australia’s argument about the burden and the capacity of States to function, the imposition of an obligation to do work on the States. The eighth is the constitutional argument about it being arbitrary and capricious, and the ninth is section 55. They are both very short indeed.
May I then turn to the first one. We have handed to your Honours a series of flow charts. The first one is headed “COMPLYING SUPERANNUATION FUNDS, ACCUMULATION AND FUNDED DEFINED BENEFIT” and this demonstrates the overall tax treatment of various types of superannuation funds. Your Honours will need to bear in mind that although we have used a plus symbol in the final box on each page, that is slightly misleading because one is taxing at 15 per cent, then taxing the balance at 15 per cent, then the balance at 15 per cent, so it is not quite an addition; it comes to a slightly different calculation.
May I just demonstrate how this works. If one has an accumulation or funded defined benefit scheme, employer contributions are tax deductible up to certain limits and self‑employed personal contributions are deductible. Employee contributions are not deductible.
GLEESON CJ: Is there a cap now, or a cap again, on self‑employed personal contributions?
MR BENNETT: Yes, your Honour, there is. There are age‑based limits and there is a complex formula which governs that.
GLEESON CJ: It was lifted for a while, was it not, in the late 1980s and early 1990s?
MR BENNETT: Yes, it was. There was a very short period where it was lifted for various reasons and ‑ ‑ ‑
GLEESON CJ: It was removed just after I ceased to be a self‑employed person.
MR BENNETT: I am sorry, your Honour?
GLEESON CJ: It does not matter.
MR BENNETT: Now, in the next box your Honours will see the provider pays 15 per cent tax on the contributions and on the earnings of the fund and the provider pays a 15 per cent surcharge. So they are cumulative, those two 15 per cents. The members’ benefits: an eligible termination payment abbreviated ETP, that is the lump sum payment, is taxed at 15 per cent. The pension is taxed at marginal rates with a deduction, a concession of 15 per cent. So assuming maximum marginal rates, that is taxed at 32 per cent. So a person who receives a pension is worse off than the person who receives a lump sum, from the tax point of view.
Putting those together, your Honours will see subject to the adjustment one has to make because the plus is not really a plus, the eligible termination payment is taxed 15 per cent three times and the pension is taxed at 15 per cent, 15 per cent and then 32 per cent.
GLEESON CJ: Just going back to that second column, the self‑employed personal contributions: the provider pays the 15 per cent surcharge on the surchargeable contributions as the contributions are made.
MR BENNETT: Yes, your Honour. Now, those totals in the last column, if one likes accrued totals, although they are accrued, of 45 and 62, your Honours will see continue as a pattern throughout the different types of scheme.
GLEESON CJ: Just before you leave that again, in relation to the third column, can those – I would like to understand the relationship between the eligible termination payment and the pension, between those two concepts in the third column.
MR BENNETT: Yes.
GLEESON CJ: Just go back again to the self-employed personal contributions. The provider then pays 15 per cent surcharge on the surchargeable contributions. Now, what does the provider get, an eligible termination payment or a pension?
MR BENNETT: No, your Honour. Your Honour, in the second box your Honour sees an “and” has been written in or should have been written in between the two. That is just to make it clear that the two arrows to the left of that apply to the whole box – each apply to the whole box. The top arrow does not just apply to the top one and the bottom arrow to the bottom one. So whether the benefit is an eligible termination payment or a pension, both elements in the second box are paid. It is only when one gets to the third box that there is a distinction between the lump sum and the pension.
GLEESON CJ: And if there is a right of commutation in whole or in part?
MR BENNETT: The question would be whether that made it an eligible termination payment. We have not done that exercise.
GLEESON CJ: It is part of the idea of an eligible termination payment to put a limit on the amount that will be eligible?
MR BENNETT: Yes, your Honour. Now, moving to the second table, this is the unfunded defined benefit in a complying fund, and this is substantially public sector superannuation schemes other than the constitutionally protected ones. It includes the Commonwealth schemes, it includes the schemes for federal judges and includes the State not constitutionally protected schemes.
Now, your Honour sees here employer contributions does not arise because the employer does not pay tax. The superannuation fund provider pays 15 per cent surcharge on surchargeable contributions. On members’ benefits there is a 30 per cent tax on an eligible termination payment and the full 47 per cent marginal tax on the pension.
KIRBY J: You said this applies to federal judges. You meant federal judges appointed after the specified date?
MR BENNETT: Yes, your Honour.
KIRBY J: Those appointed before are constitutionally protected?
MR BENNETT: No, those appointed before do not have the surcharge paid in relation to them. The surcharge provisions exclude judges appointed before a certain date.
KIRBY J: Why is that?
MR BENNETT: In the federal sphere, it was no doubt because of section 72 of the Constitution.
KIRBY J: That is why I said they were constitutionally protected. You were drawing a dichotomy between constitutionally protected and then you said this applies to Commonwealth schemes, federal judges and State non‑constitutionally protected schemes.
MR BENNETT: Yes, your Honour. The reason why the exclusion was placed there in relation to State judges – and this involves a slight correction to an answer I gave your Honour on the previous occasion – is not so much deference to State constitutional provisions as simply a desire so far as possible to assimilate their position to that of corresponding federal judges. Whichever way one looks at it, this only applies to judges appointed after the relevant date.
Your Honours will see that when one does the crude arithmetic in the last column, one sees those same numbers of 45 and 62. It is applied at slightly different times, so there may be a minor variation. The eligible termination payment is taxed at 15 per cent, then 30 per cent, the pension at 15 per cent, then 47 per cent.
GLEESON CJ: The eligible termination payment once again includes circumstances where a person can commute a pension in whole or in part?
MR BENNETT: Your Honour, again that was something I will have to check. I understand that to be the case, but I will have to have that checked. Moving to the third one, the third schedule deals with complying superannuation funds that are constitutionally protected, the legislation we are concerned with in this case. Again, the employer does not pay tax and no employer contributions until benefit becomes payable. The superannuation fund does not pay tax. The member’s benefits, the first two of those are alternative and the third is cumulative in the third box. So on an eligible termination payment it is 30 per cent, on a pension it is taxed at a marginal rate of normally 47 per cent. In addition, there is the 15 per cent surchargeable contributions or the cap.
The point we make for present purposes – it is clearly at a different time of course, and I will come to that when I have to deal with that argument. But the important point is that the end result ‑ ‑ ‑
GAUDRON J: Well, there is another difference, is there not? We are not talking about a 15 per cent year by year. We are talking about a capital liability, a capital sum.
MR BENNETT: Yes.
GAUDRON J: So it is not strictly right to put it as a 15 per cent, suggesting it is year by year.
MR BENNETT: No, I am not suggesting it is, no, your Honour.
GAUDRON J: You really need another middle box, do you not?
MR BENNETT: Your Honour, it is payable at a different time.
GLEESON CJ: One is periodical and one is not.
MR BENNETT: Yes.
GAUDRON J: And it is payable – this is subject to another question – whether or not one gets the pension for a day, a year, 10 years or the like.
MR BENNETT: Not a day, your Honour. If one dies within a few months, it would not arise, and if one is dying, it does not arise for the reasons I have given. But if one falls under a bus after a year, yes.
GAUDRON J: Well, again, it does not seem to me accurate to put it in that box simply as 15 per cent.
MR BENNETT: Your Honour, I can only deal with one argument at a time and what I am dealing with at the moment ‑ ‑ ‑
GAUDRON J: Yes. You can deal with it when you like, but I just alert you to it.
MR BENNETT: Yes.
GAUDRON J: I do not think the diagram gives an accurate representation of the situation.
MR BENNETT: The diagram is not intended to deal with that argument, your Honour. The diagram, at this stage, is simply to demonstrate that the ultimate percentages are basically similar.
GAUDRON J: What I am putting to you is that it is wrong to talk about ultimate percentages, and that is perhaps what I find difficult about the box. That is just not the right way to do the maths.
MR BENNETT: Of course if one goes back a moment to a person who would receive a pension on the first category in the funded defined benefit scheme, if that person dies, the person does not receive the pension and does not – and the tax. So of course there are different effects of that nature, but the basic numbers are reasonably comparable.
GLEESON CJ: I wrote on sheet 2 that it includes federal judges and non‑constitutionally protected State employees. Sheet 3 that we are now looking at includes State judges, does it?
MR BENNETT: Yes, your Honour, appointed after the relevant date.
GLEESON CJ: Yes.
MR BENNETT: Now, sheet 4 is a non‑complying fund prior to 1 July 2000, and your Honours see that the employer contributions are tax deductible but the employer pays 48½ per cent fringe benefits tax, which is higher than the marginal rate. The self‑employed personal contributions are not tax deductible, so one is paying it from pre‑tax income. In other words, one can really add 47 per cent in a sense, from post‑tax income.
The superannuation fund, the provider pays 47 per cent tax on contributions and earnings. The member’s benefits are not subject to tax. So if one goes to the last column, the member is ultimately worse off if one assumes that the amount payable is worked out on the basis of what the employer or the provider has to pay, because with the employer financed benefits, it is 48½ per cent and then 47 per cent of that of the balance, and the self-employed is 47 per cent and 47 per cent of the balance, so ‑ ‑ ‑
KIRBY J: Who does this apply to relevant to this case, if anybody?
MR BENNETT: I do not think there is any evidence of that, your Honour. It would apply to a superannuation fund prior to that date that was not a complying fund. You would also have, of course, the problem that ‑ ‑ ‑
KIRBY J: But that would not involve any of the parties to this litigation?
MR BENNETT: No, your Honour. The next one is the non‑complying fund after 1 July 2000. The first two boxes on the extreme left are the same. The employer contributions are not deductible but the employer pays 48½ per cent fringe benefits tax. The self-employed personal contributions are not deductible. The fund pays the 47 per cent. The member’s benefits are not subject to tax. So here one has for the employer financed component a really heavy burden of taxation which makes it, of course, highly unlikely that anyone would ever carry on business in this way because the employer pays 47 per cent ‑ or 30 per cent if it is a company ‑ on the income plus 48½ per cent fringe benefits tax plus 47 per cent the provider pays on the contributions. So although each ‑ ‑ ‑
KIRBY J: There is not much left over.
MR BENNETT: Your Honour, each is on what is left. That was my point about not adding them.
KIRBY J: But it is still a very heavy sanction to get people out of any schemes of this kind.
MR BENNETT: Yes, it is, your Honour. Even with a self-employed, it is 47 per cent and then 47 per cent of the balance. So it is 47 plus 47 times 53 over 100 and one can work that out, but it is ‑ ‑ ‑
KIRBY J: Again, this does not affect any party to these proceedings?
MR BENNETT: No. Now, the final one is the one which I am going to deal with when I get to the second topic in a few moments and that is a private arrangement for the payment of benefits without a superannuation fund where there is – the so-called private unfunded scheme. Now, the employer may get a tax deduction for this. The member’s benefits are 30 per cent tax on the eligible termination payment, 47 per cent on a lump sum which is not an eligible termination payment and, of course, 47 per cent on the pension. So the total tax payable is just the member’s benefit. Now, I will come to the significance of that immediately when I am on the second topic.
Yes, I see. The answer to your Honour’s question about commutation is this. If one commutes the pension to a lump sum, it is in general an eligible termination payment but it is not if one commutes it for the purpose of paying the surcharge. So in that situation, one does not have to pay.
The second topic concerns the other constitutionally protected superannuation schemes. Your Honours have at table that looks like this, which is headed “Table 1 Benefits Payable From Consolidated Account”. What we have done is taken from the schedule all the funds which are constitutionally protected, listed them and explained what they are and how they work.
GUMMOW J: Are you at variance with the rather more detailed submissions for South Australia on the South Australian legislation in Schedule 14?
MR BENNETT: I do not think so, your Honour.
GUMMOW J: We had better know.
MR BENNETT: I am sorry, would your Honour just pardon me. Yes, there is a minor difference between us, apparently, about the Electricity Trust of South Australia which is being checked. Subject to that it is ‑ ‑ ‑
HAYNE J: Telephone is not working, Mr Solicitor? It was suggested as the mention that these things should have been sorted out.
MR BENNETT: Yes, I am sorry, your Honour, I was not aware of that until this moment.
Table 1 is the people who are treated the same way as judges and your Honours see there is the Judges’ Pensions Act of New South Wales which includes “Judges and Masters of the Supreme Court, the President or other members of the Industrial Commission, judicial members of the Industrial Relations Commission, judges of various specialised courts including the compensation Court and District Court.” There is the Attorney‑General and Solicitor‑General Act of Victoria which covers the Solicitor‑General. There is the Coal Mines (Pensions) Act of Victoria which is a closed scheme covering mine workers. There is the Constitution Act of Victoria which covers the Governor of the State, judges of the Supreme Court and the Director of Public Prosecutions. The County Court Act, the Mint Act, which is again a closed scheme dealing with Mint employees. There is the public ‑ ‑ ‑
GUMMOW J: When you say a closed scheme ‑ ‑ ‑?
MR BENNETT: No new members coming into it, your Honour. There is the Public Prosecutions Act which deals with the chief ‑ ‑ ‑
GUMMOW J: Is there a column saying what schemes are closed?
MR BENNETT: No, your Honour.
GUMMOW J: The first one is the mine workers, is it? Is that closed?
MR BENNETT: Your Honour, closed in the sense that no one is coming into it; open in the sense that people are being paid under it.
GUMMOW J: Yes, but is the first of these the mine workers?
MR BENNETT: Yes, your Honour. The ones which are closed as I understand it are the mine workers, the mint workers and the last one on the next page, the Tasmania public servants one. The others referred to here, for example, the Governor of Tasmania one, the second last one, that relates to a governor appointed before that date.
GUMMOW J: Yes, thank you.
MR BENNETT: I am sorry, your Honours, I am told there is one other which should be added to the list which is the Justices Act 1958 of Victoria which covers magistrates and an officer called “Chairman of General Sessions” which no doubt my friends from Victoria can explain to your Honours.
HAYNE J: I take it both of those would be closed schemes, the Justices Act having long since been repealed in Victoria?
MR BENNETT: Yes, your Honour.
KIRBY J: What is the position of magistrates? Magistrates generally do not receive judicial‑type pensions, do they?
MR BENNETT: It may well be different in different States, your Honour.
GLEESON CJ: In New South Wales they are subject to superannuation arrangements that are similar to public servants. Indeed, many of them were public servants and entered those superannuation schemes as members of the public service.
MR BENNETT: Yes.
KIRBY J: The federal magistrates, do you know their situation?
MR BENNETT: I would assume, your Honour, that they are dealt with in the same way as ‑ perhaps I should not say that without checking.
GUMMOW J: I do not think they are. I think they are treated differentially from other Chapter III judges.
MR BENNETT: Yes.
KIRBY J: They are Chapter III judges though, are they not? They are justices?
MR BENNETT: Yes. None, I think I am right in saying, would have been appointed prior to this legislation.
KIRBY J: That might be so, yes.
MR BENNETT: So that aspect of it would not apply to them.
GUMMOW J: No, I am talking about the funding. Anyhow, it had better be checked.
MR BENNETT: I will have that checked, your Honour. Table 2 consists of constitutionally protected schemes where the employer or employee makes some contribution and the balance is payable from consolidated revenue and the application of the surcharge there is that it is payable on the proportion which is not employee funded so it is payable on any proportion that is employer funded and it is payable on any proportion which comes from consolidated revenue.
We have listed some schemes. So this is includes the Western Australian Parliamentary Superannuation Act which, as your Honours see, applies to members appointed before 2000. There is the South Australian Superannuation (Benefit Scheme) Act which, as far as we can see, seems to be a catch‑all scheme. It deals with persons in relation to whom the Crown or an agency is liable to pay a superannuation guarantee charge except those who are entitled under some other Act. So it is designed to pick up any residuary groups.
GUMMOW J: Can you tell me how table 2 works again, Mr Solicitor?
MR BENNETT: Yes. Table 2, your Honour, is the same as table 1 except that some portion of the total is contributed by the employer or the employee, and the balance comes from consolidated revenue.
GUMMOW J: How does the legislation operate? It is a constitutionally protected statute?
MR BENNETT: The legislation operates so that to the extent that it is either employer funded or comes out of consolidated revenue, the surcharge applies to that proportion. To the extent that it is employee funded, the surcharge does not apply.
GAUDRON J: Is it surchargeable year by year or is it surchargeable in a capital sum, as it were, on pension day?
MR BENNETT: It is the same as the judges, your Honour.
GAUDRON J: Same as the judges. It is a capital amount to be paid on the day of your retirement?
MR BENNETT: Yes. Now, the third category is really the same again, but there is a slight variation and that is that here they are like table 2 except that instead of going into consolidated revenue directly, the employee or employer contributions are paid to a separate fund which ultimately finds its way into consolidated revenue which picks up the shortfall. So it is the same result as the second group and treated the same way.
GUMMOW J: The same way as ‑ ‑ ‑?
MR BENNETT: As the second group, your Honour. Your Honours see this is a very wide group of people including, in South Australian, members of the police force and employees in the electricity supply industry and so on.
Table 4 is the reverse process. The employer or employee contributions are paid into a separate fund and ultimately employer contributions are made when the benefits become payable to top up the fund and, in effect, they come from consolidated revenue. So it is the same as 3 except that the payment is made indirectly by consolidated revenue to the fund and then to the member, but the result is the same and the tax treatment is the same.
I was asked a question a few minutes ago about federal magistrates. Under clause 2 of Schedule 1 of the Federal Magistrates (Terms and Conditions of Appointment) Determination 2000, federal magistrates receive a Commonwealth contribution of 13.1 per cent of his or her annual salary which goes into his or her choice of a complying superannuation fund or a retirement savings account.
GUMMOW J: What is this determination?
MR BENNETT: The Federal Magistrates (Terms and Conditions of Appointment) Determination 2000, your Honour, presumably by the Remuneration Tribunal.
GLEESON CJ: Is that something that can be commuted in whole or in part?
MR BENNETT: That would depend, your Honour, on the particular fund which the magistrate directed the payment to and the way that fund operated. That is noted in the case stated in footnote 24 to paragraph 96. So the conclusion in relation to the second issue is the one sentence, I suppose, “It is not just State judges”.
GAUDRON J: A more significant question might be, at least in legal terms, whether it is predominantly directed to State officers of the kind identified in the Industrial Relations Case as outside the scope of the arbitration power. It may not be exclusively so but, if it were predominantly so, it would seem to me very interesting questions might arise in terms of discrimination and in terms of the Melbourne Corporation principle.
MR BENNETT: Your Honour, we would submit that the relevant discrimen is that they are unfunded and the money comes for the relevant part out of consolidated revenue.
GAUDRON J: That is undoubtedly one way of looking at it but I do not think that Melbourne Corporation necessary permits of that discrimen. That is a question for legal argument, but what I should like to know is would it be fair to say that predominantly the categories of employees are members of the executive and judicial arms of government and also the legislative arm of government - that much seems to be certain – and other persons who, in accordance with the industrial relations decision, would be outside the conciliation and arbitration power?
MR BENNETT: Your Honour, none of the parties to this case have done a head count. We have not gone through and seen how many members of Parliament there are in South Australia, how many members of the police force there are in South Australia.
GAUDRON J: I think we can assume, can we not, that at least the members of the legislature, the members of the Executive Government and the members of the judicial branch of government are in it and they are people who are, you might say, in a constitutionally protected position, depending on how far that goes? I mean, one obviously has some difficulty about that. Then what we have left over are a few closed schemes and the position in South Australia. That seems to be the position, is it not, a few closed schemes and ‑ ‑ ‑
MR BENNETT: It is 16⅔ per cent of the Commonwealth, your Honour. I suppose it is more than that in proportion to appearances in this Court.
KIRBY J: I would like to know how you use this quite large category for your argument. You provided this in answer to the question of the Court. Her Honour has indicated at least the genus of this group are said to be constitutionally protected, or at least you can put that umbrella over most of them, and one can see that that causes problems for you. Can you use the categories in any way to support your argument?
MR BENNETT: I use it defensively, your Honour ‑ ‑ ‑
KIRBY J: How do you ‑ ‑ ‑
MR BENNETT: ‑ ‑ ‑ in response to her Honour Justice Gaudron’s question and suggestion that this is directed at senior officers of States. My answer is it is directed at people whose pensions are paid from consolidated revenue in an unfunded way.
KIRBY J: You say just as they have to pay income tax, then when you introduce this they have to pay this tax.
MR BENNETT: Yes, and, your Honour, to the extent that one says, “But most of them are in the relevant category”, we simply refer to the approach taken in the Native Title Case, in the Western Australian Case, where it is said in effect that if you are doing something which is within power and would not be subject to Melbourne Corporation, but the persons affected by what you are doing are predominantly the States or a particular State, that is not discrimination of the relevant kind. One does not apply the sort of consideration about discrimination that was applied in Street’s Case when one talks about discrimination in this context.
GAUDRON J: Why not? Two questions. Firstly, where does this – your maths are obviously faster than mine – 16⅔ per cent of all Commonwealth employees come from in relation to the second document I have looked at which has a number of tables and identifies the persons getting – in these ‑ ‑ ‑
MR BENNETT: It does not relate to their numbers, your Honour. It relates to South Australia being 16⅔ per cent of the States of Australia. That was all. Nothing more than that.
GAUDRON J: Well, that is a very valid mathematical figure, is it not? Now, the second question is – presumably you will address discrimination at some later stage, but I do not see why, when you come to do it, I for one will need to be convinced that when one is talking about constitutional principles that there is one type of discrimination that applies in the Street‑type cases, another type perhaps for section 92 and a third type for the payroll tax. I mean, why one would construct different notions of discrimination for constitutional purposes is the first question you should address. What is discrimination in practice is one question, but theories or notions of discrimination is another.
MR BENNETT: Your Honour, let me perhaps give a very homely example. Suppose that as at 1900 all lighthouses were operated by the States but there was one private lighthouse and legislation is passed under which control is taken, under the lighthouses power, over lighthouses. One could not say that discriminates against States in some way because with one minor exception the States are the only people who run lighthouses. In the Western Australian Case there is a reference to that sort of approach.
Now, Street’s Case, of course, was a case where there was discrimination against people who did not have their principal place of business in Queensland. Now, it was possible, of course, to live in Tweed Heads and have your principal place of business in Queensland or to live in Coolangatta and have your principal place of business outside Queensland. So it was not a direct residence discrimination but it was held to be an invalid discrimination. That is why I say the test may be slightly different ‑ ‑ ‑
GAUDRON J: What, the theory?
MR BENNETT: Yes, your Honour.
GAUDRON J: The theory may be different. For my part, I cannot see how it can be. What is discrimination in practice obviously has to take account of the real situation and has to consider whether the differences are relevant or not relevant, but if there are differences whether they are appropriately treated. But when one is talking as to what is involved in the notion of discrimination, why should it be different for one area of the Constitution from another?
MR BENNETT: It is the application rather than the notion, your Honour. May I just demonstrate that from the Native Title Case 183 CLR 373 at 478 where one of the arguments put by Western Australia was, “Because we are the biggest State in area, we are affected much more in proportion to our population than other States are.” This Court rejected that argument and the judgment says this in the middle of the page:
Western Australia submits that the Native Title Act produces a more substantial effect upon Western Australia than the effect produced by the application of the Act to any other part of the Commonwealth. And, invoking the second element in the principle limiting Commonwealth power, Western Australia submits that the application of the Native Title Act to that State deprives the government of the state of the capacity to function as a government . . . The differential effect argument can be disposed of shortly. The differential effect on Western Australia arises simply because history and geography have combined in creating in Western Australia a greater area and proportion of land which might be subject to native title than the area or proportion of such land in other parts of the Commonwealth. That difference is of practical importance, but it does not indicate impermissible discrimination in the application of the Native Title Act.
Now, your Honours, this is the same. The discrimination arises because it is States and senior State officers to some extent in relation to whom pensions are unfunded and paid out of consolidated revenue, but that does not make it an impermissible discrimination.
GAUDRON J: Well, that takes you right to the heart of the nature of the federal compact, which doubtless you will deal with in the little time remaining to you.
MR BENNETT: Your Honour, we would submit it is analogous to my example about lighthouses.
GAUDRON J: I understand your submission but I think it requires somewhat more constitutional thought than that argument gives it, but there you go.
MR BENNETT: Your Honour, there is another example in the United States in Reno’s Case where they talk about it is not said to be discriminatory against States to have a rule affecting the dissemination of material in relation to drivers licences, the point being that only the States are the repositories of drivers licences and once it is within power, in that case the trade and commerce power, to restrict the use of the information, it is not discriminatory against States.
There are many examples of that sort and, in my respectful submission, this is a very clear example where what is done is to pick up things which are otherwise not picked up ‑ ‑ ‑
GAUDRON J: In a different way from the way in which they are picked up for Commonwealth counterparts, and that seems to me an aspect of discrimination that your argument simply does not deal with.
MR BENNETT: No, it does not deal with that.
GAUDRON J: And when you add to that that it would seem to be, except for the 16⅔ per cent of Australia that is South Australia, on your analysis, and it would seem to be exclusively either members of the government and persons in high administrative positions or closed schemes.
MR BENNETT: Yes. Your Honour, closed schemes can be very significant. For example, it includes all Tasmanian public servants appointed before 1993, which no doubt would be the majority of the Tasmania public service.
GAUDRON J: Who are dealt with also, presumably, differently from the way in which the Commonwealth is, their Commonwealth counterparts.
MR BENNETT: No, your Honour.
GAUDRON J: Well, do the Commonwealth counterparts ever end up with a very large debt on pension day?
MR BENNETT: No, your Honour, in that respect, no, but that illustrates the point that here we are dealing with people ‑ ‑ ‑
GAUDRON J: No, it poses the question. It does not illustrate the point at all. It poses the question which ultimately is, is there a relevant difference between these people and if so is the different treatment appropriate and adapted to that difference? Well, I would have thought they are the questions that you need to address.
MR BENNETT: Your Honour, the difference arises because of the way the States pay the pensions. In relation to the Commonwealth what occurs ‑ ‑ ‑
GUMMOW J: I think there is another problem, too, Mr Bennett. This case is not about just Tasmania at the moment. This case is about New South Wales and Victoria. Each State is entitled to invoke the Melbourne Corporation doctrine. It is no answer if it truly applies to New South Wales or Victoria to say, “Oh, Tasmania is okay”. It does not help them. So you do not answer the situation relating to New South Wales and Victoria by inviting our consideration of the quantity of operation of the closed public service in Tasmania. If it happens in New South Wales, the only people who get hit are those persons in the first box.
MR BENNETT: Because, your Honour, they are the ‑ ‑ ‑
GUMMOW J: And they look fairly and squarely within the industrial relations category.
HAYNE J: And as to Victoria, the Coal Mines Act – I may be wrong, but I thought that Victoria no longer operated any State coal mine. The Mint Act – again I may be wrong – I do not know of any Mint operation conducted by Victoria ‑ attention may have to be given to what is meant by this notion of a closed fund. Are there funds in which there are benefits accruing?
MR BENNETT: We have not put material before your Honours as to the numbers in these funds. They are closed funds which exist. They are closed funds where there are pensioners receiving pensions.
GUMMOW J: A schedule for them is crucial.
HAYNE J: Undoubtedly, but we are concerned with the levying of surcharge upon benefits that are – surchargeable contributions that are being made after the day. The fact that there are pensioners out there is undoubtedly true but are there relevant contributions that can be described as surchargeable contributions in respect of any of these people? It would surprise me.
MR BENNETT: If they became payable after the relevant date, yes.
GAUDRON J: It is the “if”, it is the “if” and it is the contributions. If, as I am invited to think is the case, there having been any persons employed in State‑owned coalmines since the closure of Yallourn which ‑ ‑ ‑
HAYNE J: Wonthaggi would be the last, perhaps.
GAUDRON J: Or Wonthaggi, which occurred well before the date on which people became surchargeable. All you would have is benefits being paid out of these funds after retirement, which would have occurred well before the commencement date.
MR BENNETT: One does not know if there were administrators who ‑ ‑ ‑
GAUDRON J: No, but if you are going to put in a document such as this you ought to make it your business to know, I think, because this document is critical to your case, on the view I take of the matter, absolutely critical.
HAYNE J: What has happened is that a list identified in another piece of legislation for reasons that are apposite to the operation of that other legislation, namely the Income Tax Act, has been taken up and used for a different purpose and its utility or its operation in that other field of discourse is, I would have thought, if I may say so, of importance.
MR BENNETT: But, your Honour, whatever the significance or insignificance of these other groups ‑ and we do stress that in South Australia it seems to extend rather more widely ‑ ‑ ‑
HAYNE J: Well, “seems to”. Why are we deciding constitutional cases on the basis of “seems to”, Mr Solicitor?
MR BENNETT: Your Honour, because, in my respectful submission ‑ I am only dealing with this defensively, your Honour. In my submission, what has occurred is that a criterion has been adopted which is that where money is paid from a consolidated revenue in an unfunded way, that creates a problem in relation to the imposition of the tax in the same way as it is imposed on others, including employees of the Commonwealth. In relation to everyone else, what happens is the provider pays the 15 per cent tax and takes it from the pension over the life of the pension. Now, in relation to these, the view was taken – this is referred to in Hansard – that there might be a problem under section 114. So, in order to achieve economic equivalence, it was done by imposing it on the pensioner at the date when it first becomes payable.
HAYNE J: By a reference to contributions identified as surchargeable contributions, present area of inquiry is who falls within the class of persons for whom surchargeable contributions are being made. It surprises me ‑ it may be right, but it surprises me if there are coal miners, it surprises me if there are mint employees in respect of whom surchargeable contributions are being made.
MR BENNETT: Your Honour, we have South Australian police officers and ‑ ‑ ‑
GAUDRON J: No, let us concentrate on New South Wales and Victoria for the moment, the two States with which this case is concerned.
MR BENNETT: But, your Honour, if one is looking at Melbourne Corporation unconstitutionality and one does not just look at those States, one looks at the overall ‑ ‑ ‑
GUMMOW J: No, no, that is not right. It is one of the arguments that was put in the Melbourne Corporation Case itself.
MR BENNETT: Your Honour, if one were putting, for example, that income tax on a New South Wales judge was contrary to Melbourne Corporation, in order to answer it one would point to what occurred with all other citizens of all other States, including New South Wales. When one is talking of discrimination, one has to look more widely and the legislation is not confined to New South Wales and Victoria.
GAUDRON J: No, but one possibility might be ‑ this is a theoretical possibility and your argument should at least encompass it – is that the legislation is invalid in New South Wales, but valid elsewhere. That is a possibility, a theoretical one. I am not talking in practical terms in this case. It is possible that you might say, “Well, the legislation is invalid in New South Wales and Victoria, whether or not it is valid elsewhere.”
GUMMOW J: That is the way the questions are framed, actually, in the case stated.
MR BENNETT: Yes, but the theoretical possibility would not arise, we would submit, in relation to legislation of general application such as this.
GAUDRON J: It is not of general application.
GUMMOW J: No.
GAUDRON J: We can get rid of that notion straight away. It is of application to persons holding high office in State government and perhaps some other persons employed by State governments or State instrumentalities; but we can discard the notion that it is law of general application straight away.
MR BENNETT: If one reads it with the legislation which applies generally, which we submit one should, it is legislation designed to create an economic equivalence across the board.
GAUDRON J: Yes, one understands that, but the legislation in question is quite specific legislation. The question whether it creates economic equivalence may or may not be relevant to the question of discrimination. One can have economic equivalence in all sorts of ways, I should have thought, and still have what it discriminatory in impact. All one has to do is look to the largely imperfect definition of indirect discrimination in the State Acts and in the federal Act to see that economic equivalence might well itself constitute discrimination. So it does not help your argument simply to say it was designed to create economic equivalence.
KIRBY J: One view is that you are then in a no-win situation if you have a general statute applying to all citizens as citizens and for taxation, then you come here and people will say that Kable or some other argument prevents you doing that to State judges. Then when you say, “We’re therefore going to have a particular provision for State judges but as from a certain date”, you then come here and people say that is just discrimination. It is a no‑win situation.
GAUDRON J: There are intermediate steps in the notion of discrimination which I assume, Mr Solicitor, you will deal with.
MR BENNETT: Your Honour, it is my submission that where the Commonwealth within power passes legislation ‑ ‑ ‑
GAUDRON J: That is the first question: within power.
MR BENNETT: Within the taxation power, your Honour, so there is not an argument we are not within power in that sense.
GAUDRON J: I had thought there was an argument that this was not a tax and it was one I had treated seriously.
MR BENNETT: The section 55 argument?
GAUDRON J: Just simply not a tax. It calls itself a surcharge, it does not call itself a tax. There are a lot of steps that you are assuming.
MR BENNETT: Let me leave that one. That is not, as I understand it, an argument put against us.
GAUDRON J: I thought it was.
MR BENNETT: That it is not a tax at all?
GAUDRON J: Yes.
MR BENNETT: The MacCormick argument I will come to. That is the argument that it is arbitrary and capricious, but I will come to that. Subject to that, it is clearly, we would submit, within the taxation power. So the issue of discrimination then arises. In my respectful submission, where within power the Commonwealth passes legislation which, because of the subject matter of the exercise of power, necessarily has a greater impact on the States or on aspects of the State government which would be constitutionally protected under Melbourne Corporation if it were discriminated against, that is not discrimination of the relevant kind.
GAUDRON J: But you see, what that argument is overlooking and which I have been trying to invite you to deal with for some time, and I think wasting my time and everybody else’s in the process, is that the relevant question once you see a difference that requires different treatment is whether the treatment in fact given to the subject is appropriate and adapted to that difference. One aspect of that is often whether – and this is accepted constitutionally in every country including Australia, I should have thought – there is some other means which can bring about the same, if you like, economic result as everybody else’s without the discriminatory impact or without the adverse consequences. The problem, it seems to me, is that once you have this capital sum on pension day as opposed to deductions from the pension in other areas, you have to deal with the issue whether there is some more appropriate way of dealing with the difference than the way you have done, or whether you can say, no, that is the way it has to be. That is the crux of discrimination theory and law, if I correctly understand the position, and not just in this country. That, it seems to me, is what you are not coming to grips with.
MR BENNETT: Your Honour, there are only two other ways of achieving the equivalence. One would be to tax the provider in the same way as the providers are taxed in relation to the Commonwealth and corresponding private schemes. The problem with that is that it was perceived that there might be a section 114 problem. The other way ‑ ‑ ‑
GAUDRON J: Is to tax them month by month the same as you do in an amount equal to or a proportion the same as that which is going to be deduced from the federal judge’s pension.
MR BENNETT: No, your Honour. In relation to the federal judge or the private person in a funded scheme, the full amount of the 15 per cent is paid on retirement day or shortly afterwards. That means that if the person dies shortly after that and no pensions are payable, it may be that the employer has paid a tax on an amount which turned out not to be payable. In order to achieve equivalence of that ‑ ‑ ‑
HAYNE J: But equivalence between whom? You have just slid between the equivalence of economic effect on the “employer” over to equivalence of an economic effect on the employee. Which mast is the set of colours flying from, Mr Solicitor?
GAUDRON J: And I would have thought if it had any relevance, economic equivalence was money in the hand of the tax commissioner, or proportionate money in the hands of the tax commissioner.
MR BENNETT: That is exactly what this achieves, your Honour, because the 15 per cent ‑ ‑ ‑
GAUDRON J: No, it does not, because the Commonwealth does not pay tax and at the end of the day all that happens is that the Commonwealth judges pension is reduced by 15 per cent and an amount stays in consolidated revenue that would otherwise have gone out.
MR BENNETT: There is a notional movement.
GAUDRON J: Notional is notional and, more particularly, I should not have thought when you are talking about economic equivalence you could answer it by notional movements.
MR BENNETT: Your Honour, the only reason it is notional is the identity between the employer and the recipient of tax.
GLEESON CJ: This is a question you will find raised between pages 100 and 102 of the transcript on 19 June. It was raised with Mr Nettle in the course of argument. As far as I am concerned, it has been hanging in the air since then.
MR BENNETT: Your Honour, if one has a situation in which the amount is paid by the provider on pension day and then deducted from the pension over the period, so far as the commissioner is concerned that is the same as the amount being paid by the pensioner on retirement day and because in either case the amount is paid, the commissioner does better if the pensioner dies a year later, the commissioner does worse if the pensioner lives to 120, and that applies across both schemes. That is the attempt to achieve economic equivalence. Your Honour Justice Gaudron asks me what are the alternatives. If one simply took it from the pension, there would not be that equivalence.
GAUDRON J: Again, we have to say what is on the other side of the scales? If you are comparing the position of a State with the Commonwealth, clearly there is not economic equivalence, the State is much worse off. If you are putting the State judge on one side and the federal judge on the other, again, should there prove to be economic equivalence, it is going to be a matter of happenstance. If you are comparing State judge with private sector employee, why? And again, if you do make that comparison, it seems to me that you get to the end of the day and there still is not economic equivalence except, perhaps, by happenstance. The laws of coincidence are not necessarily laws that are taken into account when you are working out whether or not something is discriminatory.
MR BENNETT: Your Honour, there is precise equivalence with the private sector. If one has a private sector funded scheme and the employer pays the 15 per cent on retirement day, it is equivalent from the commissioner’s point of view and from the employee’s point of view it will, of course, be passed on through deductions to the pension. That is what happens with the Commonwealth, subject to the payment on pension day being notional because the two parties are the same. But they may not be the same if one is talking about Commonwealth instrumentalities where there are separate budgets and separate funds. So, in that sense ‑ ‑ ‑
HAYNE J: But the equivalence in the hands of the judge concerned depends upon that judge surviving and otherwise conforming to the actuarially determined average.
MR BENNETT: Yes, your Honour. That is a different form of equivalence. That is the equivalence from the employee’s point of view, and from that ‑ ‑ ‑
GLEESON CJ: No, no, it is relevant. If you are looking from the point of view of a Commonwealth Attorney‑General and a State Attorney‑General competing with one another for the services of an individual as a judicial officer and they are trying to persuade this person to accept appointment as a federal judge or a State judge, this would be a critical difference, would it not?
MR BENNETT: In practice not, your Honour, because there is commutation legislation.
GLEESON CJ: That was because this forced the States to respond.
MR BENNETT: Yes.
GUMMOW J: Yes, that legislation I think does not help you. It is evidence against you.
MR BENNETT: It shows that the problem only arises because of the way these funds are set up, which does not fit with the general taxation system adopted in Australia ‑ ‑ ‑
GAUDRON J: No, the funds are not set up.
MR BENNETT: The schemes are set up.
GAUDRON J: The schemes are not set up either, they just are and have been for a very long time.
MR BENNETT: Be that as it may, they do not fit as comfortably with the Commonwealth scheme, with the taxation scheme, as all other superannuation schemes do. Therefore, one has to work out a way of achieving the best equivalence ‑ ‑ ‑
GLEESON CJ: Could you just remind me why it would not have been possible to tax State judges in an amount that would produce the result that their pensions were reduced by the same amount as federal judges’ pensions are reduced, by periodical payments?
MR BENNETT: Your Honour, it has been through the commutation legislation. Your Honour recalls ‑ this is in a sense a State/Commonwealth scheme because the ‑ ‑ ‑
GLEESON CJ: I thought we are here because they could not achieve a State/Commonwealth scheme.
MR BENNETT: Your Honour, there is a – I will just show your Honour in the stated case. There is a Heads of Government agreement at page 514 of volume 3 of the case stated book where your Honours see that what is said is this ‑ it is the last two paragraphs on the page. The paragraph beginning at line 21 deals with the Commonwealth obligation, in effect, to exempt these schemes and treat them as complying schemes, and then as the next part says:
To ensure that members of exempted public sector schemes are treated fairly and equally with their private sector counterparts, and that the Commonwealth’s retirement income policy objectives are met in respect of scheme benefits, the States and Territories undertake to ensure that members’ accrued benefits in exempted schemes are fully protected. As well, the States and Territories undertake to ensure that the exempted schemes will conform with the principles of the Commonwealth’s retirement incomes policy, as reflected in the Attachment to this agreement and from time to time in Commonwealth legislation.
So part of the overall equalisation, one would have thought, would have been passing commutation legislation.
GLEESON CJ: There may be wider considerations that I am not aware of, and if so I would like to become aware of them, but why could it not have been open to achieve economic equivalence between federal and State judges by imposing tax payable periodically that would have reduced State judges’ pensions by 15 per cent?
MR BENNETT: Your Honour, that would have meant that in relation to private sector employees with defined benefit schemes, the 15 per cent is payable on retirement day. In relation to Commonwealth schemes, Commonwealth judges, the 15 per cent is notionally paid on retirement day and recovered by what is in effect commutation, but in relation to State schemes it is not paid on retirement day and is only paid for the shorter or longer period. Indeed, can I just say this, that would result in State judges paying more if they live beyond their life expectancy at the time.
GLEESON CJ: Or in the Commonwealth receiving more.
MR BENNETT: Yes. It could result in ‑ ‑ ‑
GAUDRON J: As would be the case of a long‑lived federal judge.
MR BENNETT: No, your Honour, because the - well, yes because of the commutation, yes.
KIRBY J: This is the mischief of that horrible phrase “appropriate and adapted” because we are now getting into what is appropriate. That is a matter that belongs to the Parliament so long as it is within power.
MR BENNETT: Yes. There are different ways of achieving it and one way has been chosen which, in our respectful submission, is as close as one can get.
GLEESON CJ: Well, that is the point. That last phrase “as close as one can get” is what we are seeking to examine.
MR BENNETT: Yes, but, your Honour, it is not equivalent for the reason I have just given. It would mean in relation to private sector employees, the 15 per cent is paid on retirement day, and in relation to these officers it is paid as one goes with a ‑ ‑ ‑
GLEESON CJ: That is the sort of thing I had in mind. Your answer appears to be that you could remove discrimination between State and federal judges by adopting a particular course, but you would then exacerbate discrimination between judicial officers and private sector employees.
MR BENNETT: Yes, your Honour, precisely.
GAUDRON J: But then, really, your question is, why should they be put on the same footing as private sector employees? We are in a particular area of constitutional discourse deriving from the nature of the federal compact. Federal judges are not put in the same position as private sector employees except notionally by bookkeeping entries, where no money in fact changes hands and the Commonwealth does not tax itself.
GLEESON CJ: And no liability arises.
GAUDRON J: And no liability arises. So why, from a constitutional perspective, would you be looking even to establish the equivalent with private sector employees as distinct from federal judges?
MR BENNETT: Your Honour, as Justice Kirby has said, one does not have in these situations to select one particular path.
GAUDRON J: Sometimes one may have to for the proper application of discrimination law, but in any event, we do not have to. All we have to consider is whether the one that was selected was or was not discriminatory.
MR BENNETT: Your Honour, I have dealt with that.
GAUDRON J: Yes, but you have not really. You have not dealt with it until you say why there must be equivalence between the State judge and the private sector employee when there is not equivalence between the federal judge and the private sector employee except notionally. You have to come to say we cannot even do it notionally with the State judge, have you not?
MR BENNETT: Your Honour, we have in fact achieved it because of the commutation legislation.
GLEESON CJ: Not in Western Australia.
MR BENNETT: Yes.
GAUDRON J: And you have not achieved it. The State has achieved it.
MR BENNETT: Yes. Your Honour, the States wanted these schemes to be treated as complying funds, and that was the basis of their inclusion and the payment of the surcharge. It seems surprising that one could have a complaint of discrimination in that sort of situation.
KIRBY J: Was the reason for the States enthusiasm because otherwise under the federal legislation they would liable to those penalty provisions?
MR BENNETT: Yes, your Honour. They would have to ‑ ‑ ‑
KIRBY J: So they really had no fiscal choice, did they? They had to bring themselves within the scheme, not through any enthusiasm, but to avoid effectively penalty of taxation.
MR BENNETT: Yes. The aim of the whole arrangement was to have a particular form of taxation of all pensions and all schemes of this nature ‑ ‑ ‑
GAUDRON J: With public sector superannuation schemes the agreement it seems to have come about some time in 1993, would that be right?
MR BENNETT: 1992, I think, your Honour.
GAUDRON J: 1992, when the legislation applied to superannuation, properly so called, and not to judges’ pensions and the like?
MR BENNETT: I have shown your Honour the reference to legislation from time to time.
GAUDRON J: Yes, I know, but one might, having ordinary regard to English language, think you were talking about superannuation funds or schemes.
MR BENNETT: That is what this legislation is dealing with: dealing with a taxation of such schemes.
GAUDRON J: No, it is dealing with a taxation of things that are notionally treated as such or are defined as such but are not as a matter of ordinary language within the concept.
MR BENNETT: That is the fund argument which I have addressed your Honours on. The remaining seven of my nine topics will all be considerably briefer than the two I have addressed. The third one deals with ‑ ‑ ‑
HAYNE J: Just before you go to that, the Mint Act and the Mines Act. The Mint Act 1958 section 3 provided an appropriation of funds:
out of the Consolidated Revenue of Victoria –
in an amount –
for defraying the salaries contingencies retiring and other allowances and expenses connected with the establishment of the Victorian Branch of the Royal Mint.
Exactly what life that still has I do not know. The Coal Mines (Pensions) Act on its face appears not to be confined to persons who were employed in State coalmines but to any person engaged in the coalmining industry as at particular dates, one of which is the date of retirement if continuously resident in Victoria for a particular period is entitled to a pension of $102 per week charged on the consolidated fund. What, if any, relevance do those provisions have? What, if any, operation does the Constitutionally Protected Funds Act have to generate any surchargeable contribution in respect of sums dealt with by either of those Acts? On its face it seems to me unlikely that it would have any operation, but at some point I would be assisted by knowing the answer.
MR BENNETT: Your Honour, the answer in a sense is a debating answer which ties up with my next submission. That is that it is at least as significant as the private unfunded defined benefits superannuation scheme as referred to in paragraphs 108A and 108B of the case stated. We are dealing with survivals from former times which may or may not have much significance. I do not suggest that the mint and mine employees are a huge group of significant application; of course not.
HAYNE J: But any application? At the end of the day, Mr Solicitor, it seems that a possible point of view is that the only bite this legislation has is on identifiable high officeholders in the State. If that is so, Melbourne Corporation may have a different significance from the significance that would obtain if the conclusion were that this legislation had operation in respect of a wide range of persons holding office or employed by a State.
MR BENNETT: Your Honour, all I can say is that both ways that does not apply. We have all Western Australian public servants, all South Australian public servants, South Australian policemen. We have large groups of people and we also have some judges who are not totally included, the Tasmanian judges, in relation to whom part of their arrangements are treated differently. What that shows is that it is not simply directed at those groups. Those happen to be the groups which predominantly ‑ ‑ ‑
HAYNE J: Again, it seems to me that the answer is one which invites much closer analysis, that it is not answered by simply saying, “There is the Act”, that is, “There is the State Act amongst the lists”. Who are the people under those Acts who might be the subject of an assessment under this constitutionally protected funds legislation? Are you left with a group of persons of the kind dealt with in the Industrial Relations Act Case? Are you dealt with a wider group? Pointing to the Act seems to me to be the start of the inquiry, not its end.
MR BENNETT: Your Honour, it might take some time for the parties to make inquiries of all the State authorities and work through the numbers involved in all these schemes. That has not been done. If your Honour regarded that as significant, we can endeavour to have those inquiries made over the next couple of months and have an agreed document saying how many people there are in each category. In my respectful submission, that is not what it depends on and it is sufficient for us to say that we have adopted a discrimen which is the unfunded scheme is paid from consolidated revenue. We have listed what they seem to be, the details having been provided to us by the States. It may be that there were more or less people in some of them, more or less in some States than others, but that is the consequence of the discrimen which was adopted which is a proper discrimen and the mere fact that it may turn out that numbers are higher or lower, in my respectful submission, does not affect that. But if your Honour would be assisted by knowing how many thousand Western Australian public servants there are and how many dozen judges there are ‑ ‑ ‑
HAYNE J: No, Mr Solicitor, that is not the question I asked. Now, I am obviously having great difficulty making myself plain.
MR BENNETT: I apologise to your Honour if that is so.
HAYNE J: The difficulty is mine, obviously, Mr Solicitor.
MR BENNETT: No, it is mine, your Honour.
HAYNE J: But my question is this: if on examination of the legislation that is listed in the definition of constitutionally protected funds it is apparent that there are persons other than high office holders of the State or senior employees of the State who can in the real world be subjected to an assessment under the Constitutionally Protected Funds Act, I would be assisted by knowing that there are such persons.
MR BENNETT: Your Honour, I will have that inquiry made and I will endeavour to have agreement reached with my learned friend as to a document that can be provided to the Court.
HAYNE J: Thank you.
MR BENNETT: Paragraphs 108A and B of the case stated which were added by amendment demonstrate that:
In the past a number of Australian public companies entered into agreements, which are still on foot, with some officers or employees to pay them an annuity, or more recently, a lump sum upon or after retirement in circumstances where no fund is set aside . . . These agreements do not involve a complying superannuation fund . . . Nor do these agreements fall within the definition of “unfunded defined benefits superannuation scheme” in s 43 of the SCT Assessment Act. The taxation treatment of monies paid under these agreements will vary according to the terms and conditions on which they are paid.
All we say about them is that they are not, we would submit, an appropriate comparator. They are a small specialised group of agreements which exist which apparently were entered into in the past and, really, to rely on them is at least no better than relying on miners or mint workers in Victoria. They are in the same category, in a sense, as being schemes from the past which hung over ‑ ‑ ‑
GAUDRON J: They do have this relevance, it seems to me, or may have this relevance – your argument may have this relevance, perhaps more accurately. It may suggest that the appropriate comparator is not the private sector.
MR BENNETT: Your Honour, we submit there is no precise comparator because one has ultimately a unique situation. The only precise comparator, I suppose, of the South Australian funds and the West Australian funds and the other funds listed in the document – but there is no precise comparator. What I have demonstrated is that there is an attempt to put all people ‑ ‑ ‑
GAUDRON J: Appropriate comparator, appropriate comparator.
MR BENNETT: ‑ ‑ ‑ yes – is an attempt to produce the same overall effect as best one can and that succeeds or it fails. But, in my respectful submission, these past agreements are simply not an appropriate comparator. The important point about them, of course, is that they are not complying funds and, therefore, do not satisfy in whole or in part the employer’s obligation under the SIS Act which means that if one has them, one has to have another superannuation scheme for the employees which will be subject to the various controls.
GLEESON CJ: It may be that part of the answer to the question I asked you earlier as to why they could not just have imposed a tax on State judges that would have had the practical consequence from their point of view of reducing their pensions by 15 per cent, is that that would have exposed it as a tax and not a surcharge on superannuation contributions. This was being presented as a surcharge on superannuation contributions, not a tax.
MR BENNETT: Your Honour, I am not sure the distinction is as vivid as that.
GLEESON CJ: Neither am I, but if, in fact, a simple direct tax had been imposed on State judges that would have reduced their pensions by 15 per cent, then that would have been the end of describing this as merely a surcharge on contributions and not a tax, would it not?
GUMMOW J: Yes, the scheme would have stopped. That is what would have happened. The scheme would have stopped. This is all about spin.
MR BENNETT: I am sorry, your Honour, it was never not described as a tax. If one looks at the longer title, the longer title is “An Act relating to the assessment and collection of superannuation contributions tax on members of constitutionally protected superannuation funds”.
KIRBY J: It has to be to bring it back to the Constitution. Surely, we are not going to become monitors of spin. That is not the function of the High Court of Australia.
MR BENNETT: But this is a tax, your Honour.
GLEESON CJ: No doubt.
MR BENNETT: No one has ever disputed that. My client is the Commissioner of Taxation, effectively – well, I suppose it is the Commonwealth, but the collector is the Commissioner of Taxation, this is a tax and it ‑ ‑ ‑
GUMMOW J: That, however, is not what the relevant statements by treasurers and ministers in second reading speeches said. That is all that is being put to you.
MR BENNETT: Your Honour, in my respectful submission, that just does not affect the legal analysis.
GUMMOW J: You may be right, but the question is why something was done in one way and not another, and the answer is, for expedience.
GLEESON CJ: The problem that presented itself with a superannuation surcharge levy, if I could use a third or different term, a superannuation contribution surcharge, is that you are dealing with a group of people in respect of whom there are no superannuation contributions.
MR BENNETT: Yes, and hence the need to treat them in a different way to achieve the equivalence and that is the issue in the case ultimately.
The fourth area concerns the questions asked by your Honours Justices Gaudron and Hayne on the previous occasion about section 15(6)(b). Again, I do not want to spend much time on this beyond saying that when one looks at section 15(6)(b) the relevant words are “15% of . . . that part of the benefits payable” that accrued after the relevant date. We have provided some written submissions analysing each of the words – these are the submissions of 22 August 2002 – and they analyse each of the words of this provision in some detail and demonstrate that for the reasons I gave on the previous occasion, ultimately, if one has the judge who on retirement has a very much reduced life expectancy for reasons personal to the medical condition of that judge, then that is taken into account because the benefits payable will be the benefits payable over that shorter period and that is the correct way, we would submit, of dealing with 15(6)(b). I will not take your Honours to those submissions.
GAUDRON J: What if his or her life expectancy is, indeed, in accordance with the statistical average, but he or she is run over by a wayward bus or more likely a motor scooter, a wayward cyclist; hits his or her head on the gutter because of the actions of the wayward cyclist, and there you go.
MR BENNETT: Your Honour, no doubt the loss of benefits would be taken into account in the action against the employer of the wayward cyclist.
GAUDRON J: I do not think so. But the question is, there is no way of taking into account the unexpected, which we all know has a tendency to happen from time to time, if not normally at least extraordinarily, save you say for the judge who, on retirement day, apparently can say, “Look, I’ve got a bad heart” even that does not rule you out, does it? “I’ve got inoperable and untreatable cancer with a life expectancy of three months.” In which event what happened? I do not understand it.
MR BENNETT: In that event, your Honour, the amount payable under the cap in 15(6)(b) is only six months pension, that being the life expectancy of the particular person. There is nothing that requires one to go to general life tables in a situation where they are inappropriate for the particular person. I have conceded, and always conceded, the example your Honour puts to me about the person who is killed accidentally after the payment of the surcharge. That applies equally in the private sector situation where the superannuation provider pays the full amount. The only difference is that because of the arrangements between the provider and the employee, in that case the payment will have been commuted, so it will have been borne by the provider out of the windfall arising from the early death rather than by the employee ‑ ‑ ‑
GAUDRON J: And that too is a difference, I would have thought, of some significance.
MR BENNETT: I have accepted that, your Honour. I have always accepted that. That difference is likely to be and, in fact, avoided by commutation legislation which changes the nature of the arrangement. At that point the problem disappears. But for commutation legislation, yes, in that particular case there is a difference. I accept that. Now, I have taken your Honours on previous occasions to the tables and worked through it and I will not go through those again.
The fifth of the nine categories is the relationship between judges and masters. Justice Kirby asked about this. Again, part B of our submissions of 22 August deal with that and I will not spend time on it. We do have an article which is an extract from a book, which may be of assistance to your Honours entitled “Proceedings in the Master’s Office” by Master Jacobs, 1969.
HAYNE J: That would have been written long before the legislation governing the Supreme Court was altered to the form it now takes in which the court is constituted by the judges and masters.
MR BENNETT: Yes, your Honour. This is put not for that purpose.
HAYNE J: Is not that the key point against you?
MR BENNETT: Yes, your Honour. This is put for the purpose of demonstrating the historical development of masters, and I hand it to your Honours. What is relevant for present purposes is this, that there has always been a distinction, and still is a distinction even in Victoria today, between masters and judges. It is true that masters have a different status vis-à-vis judges in different States and that there are different degrees of differentiation between what masters do in different States, but in all States, including Victoria, masters do not do all things the judges do. They have lesser powers than judges. They receive a lower salary and they are seen as holding a different office from that judges, even though they have many things in common with judges. As a matter of English, when the word “judges” is used, one is not normally talking of masters.
GUMMOW J: Well, wait a minute. Would you say that federal magistrates are not judges?
MR BENNETT: Your Honour, for constitutional purposes, they have a particular status, but under the general English word “judges” probably not, your Honour, if that word were used in a statute of this sort.
KIRBY J: But the general English word is not really determinative here. In the case of the federal magistrates the Constitution assigns their essential status, and in the case of masters of the two States we are concerned with, they are incorporated in the Supreme Court by the statutes to which you have drawn our attention.
MR BENNETT: Yes, your Honour. If a master were to say “I am a judge”, that would not be a truthful statement.
KIRBY J: In South Australia it would be, as I understand it. I think the master there is a judge, is not he? He is called “Judge”.
MR BENNETT: Yes, and that may be a distinction there. Your Honour, we would submit, that when a federal statute uses a word such as “judge” it is simply not, unless it says so, incorporating people with another name who have the status of judges. Indeed, saying “a person has the status of” is often saying that “a person is not but has the status of”. One sees that, for example, in relation to various officers of other courts who have, for certain purposes, the status of judges.
Another example is that one sees in various forms of legislation that particular types of evidence or submission may have the same protection in relation to defamation as submissions or evidence in this Court. That does not make those bodies this Court.
KIRBY J: It seems, though, to be a terribly unfair anomaly but many tax statutes contain unfair anomalies, and the question is whether its unfairness and anomalous nature has any significance to this proceeding.
MR BENNETT: It is a question of where one draws a line, your Honour, I suppose.
KIRBY J: Well, if you are drawing a line and you exclude the masters in the two States we are concerned with, it just defies the State legislation.
MR BENNETT: In the federal sphere there are judicial registrars. There are people who have all sorts of positions which are simply not judges, and however much one says that a master is a member of the court or it constitutes the court with the judges, or anything like that, that is simply asserting that there is a different type of person who with the judges constitutes the court.
GUMMOW J: Why does not it mean – give it a sensible meaning – we are picking up State courts, as it were – it means persons those judicial officers who under the relevant State legislation constituting their respective Supreme Courts – we are talking about at the moment – are treated as composing that court?
MR BENNETT: Because it has not, your Honour.
KIRBY J: Masters can exercise the judicial power of the Commonwealth, can they not?
MR BENNETT: No.
GAUDRON J: In New South Wales they now can.
HAYNE J: A constituent judicial officer, what is wrong with that as an operative definition?
MR BENNETT: Well, it is not what has been said, your Honour. If the ‑ ‑ ‑
GUMMOW J: Why would you not construe it that way knowing that there is a miscellany of arrangements in the States?
HAYNE J: A miscellany of titles.
MR BENNETT: Yes. Because, your Honour, every State still has judges. If a State were to say ‑ ‑ ‑
GUMMOW J: Why is that an answer, Mr Solicitor?
MR BENNETT: Because, your Honour, when one has a word which is used in a particular sense, one can look at that to see the meaning of the word rather than the meaning which is suggested to me. If the Supreme Court of Victoria said, “We will abolish the office of judge and the only officers of the Supreme Court will be called deemsters or deciders or some other word”, then it may be that this legislation would apply to them, because there were no judges; there were only these people. But if there are judges and masters and the federal statute talks of judges, then, in my respectful submission, one would read it as applying only to judges.
GUMMOW J: Courts with small “j” judges?
MR BENNETT: Yes, it does, but that is appropriate, your Honour, as a matter of English when one is referring to any group. It would be appropriate to talk of the justices of this Court with a small “j” if one were doing it in general terms.
GUMMOW J: Really?
MR BENNETT: In general terms, yes. If one said ‑ ‑ ‑
GUMMOW J: Well, the question then is, what makes it general, you see?
MR BENNETT: If I could just finish that, your Honour. If one says, “A particular person is a justice of this Court” that would have a small “j” as a matter of English, although one might in ‑ ‑ ‑
GUMMOW J: I do not think so. Sir Victor Windeyer wrote an article about all this. In ordinary English it means Justice of the Peace.
MR BENNETT: There may be a difference between the definite article and the indefinite article, and there are different views on capital letters, I suppose. But, your Honour, in my respectful submission, it is as simple as that, one has judges and masters. The statute says “judges”. At a time when there are judges and masters, it does not mean “masters”. I refer your Honours, in any event, to our submissions of 22 August which I will not go through in detail.
Now, your Honours, the sixth matter concerns the South Australian argument as to the burden. One needs to separate out the two aspects of the argument here. If it is otherwise valid to have the imposition, it does not, in my respectful submission, become invalid because it requires the co‑operation of an employer or superannuation provider, who happens to be the State, in collating and providing information within its ken.
GAUDRON J: Again, though, you see, “employer”, funny word in this context, “superannuation provider”, “holding…..” “happens to be the State”. That is the critical aspect of the federal compact, that there are going to be States; that the States have to provide courts ‑ the Constitution, we have said, requires them to do that. The only court the Commonwealth was ever required to provide was this Court. It just seems to me to be missing the point to talk in terms of employer, superannuation fund provider and then rattle off “happens to be the State” and it does not matter they are your submissions.
MR BENNETT: Your Honour, it is not disputed that in relation to group tax, States as employers have to provide information to the Commonwealth and can validly be obliged to provide that information. There is no dispute about that. Here, if this legislation is otherwise valid, the State is the person which has access to the raw information which needs to be processed to enable the calculations to be made and, in my respectful submission, there is nothing disproportionate or unreasonable about imposing that obligation.
GAUDRON J: The State also provides the actuary and the actuarial calculations which we now know seem to differ as between actuaries.
MR BENNETT: Yes. I demonstrated it was a very, very minor differential, a very small differential, indeed. It was a few hundred dollars in many tens of thousands. There was not a ‑ ‑ ‑
GAUDRON J: Does one actuary do the entirety of the work that is required in each State?
MR BENNETT: No, your Honour, that is not required.
GAUDRON J: No, I am sorry, I know that is not required. Do we know whether as a matter of fact the States are required to employ just an actuary or as a matter of fact, the work is such that they have to provide more than one actuary, staff, computer time and so forth and so on, or do you simply go out and find the actuaries association and say, “We have to have some actuarial work done; here is a nice, big, fat contract. Will you do it?” I do not know.
MR BENNETT: Your Honour, there is nothing in the stated case that would answer your Honour’s question and it would not, in my respectful submission, be relevant to the issue. The fact is the State can do whatever it likes, as long as it has a qualified actuary, and that requirement which my learned friend attacks ‑ that requirement, in my respectful submission, is no different to requiring the States when they exercise their constitutional ability to appear before this Court. There might be legislation which requires them to engage qualified lawyers. The rules of this Court might say a person who is not a qualified lawyer may not appear before this Court for another party. That would not be invalid, any more than this is. In my respectful submission, once the legislation is otherwise valid, this obligation cannot prevent it from being so.
If one looks at the two limbs of the Melbourne Corporation, this does not fall within either limb because it is not discriminatory if legislation as a whole is not discriminatory and it certainly does not impose a burden which prevents the States operating as States or anything like that; it is something much less than that and the highest my learned friend gets is to say, “Well, we are imposing a function which is subject to some sort of appeal or challenge”. But all that is subject to the appeal or challenge is the conclusion and there is no reason that that cannot be done without making the person an officer in the relevant sense. It is simply that the work product of the actuary can be challenged in certain ways.
So, in my respectful submission, none of the arguments in support of the South Australian submission succeed. Again, that is dealt with in Part 3.1C of our original submissions which I will not repeat. We have dealt separately with the issue raised by my learned friend in relation to objections to section 12 statements. That is dealt with in Part C at pages 6 to 7 of our submissions of 23 August. Again, I will not go through those. What they establish, we would respectfully submit, is that there are avenues through which the calculations and conclusions of the actuary can be challenged if necessary either on a challenge to the ultimate assessment or by special procedure under the superannuation legislation. We have dealt with that.
The eighth category concerned the suggestion that the legislation was arbitrary and capricious. That is dealt with in our original submissions. Can I just remind your Honours of what was said in MacCormick v The Commissioner of Taxation (1983) 158 CLR 622. This concerned a recoupment tax. What was said there was that the laws were not arbitrary, liability is imposed by reference to criteria sufficiently general in their application which mark out the objects and subject matter of the tax. The main objection there was that it was arbitrary because it was in part retrospective and involved the possibility of double taxation.
We would submit there is nothing arbitrary here. The attack made on it here is that there are subjective elements. Two actuaries might produce a slightly different result, but that is no different to valuation. Valuation is a regular part of taxation assessment and valuers of course can frequently produce very different results. They can use different methods of valuation producing totally different results, but the court determines the appropriate one and if necessary works it out. The same applies here. Actuaries can give evidence as to how they reach their conclusions. They can be cross‑examined by numerate lawyers.
In my respectful submission, the mere fact that one can make different assumptions, as one can in valuation, does not have any overall effect. After all, in valuation two valuers may differ on what is an appropriate comparable, they may differ on the weight to be given to a comparable, may differ on whether there are comparables at all, so one should look at a different method of valuation. That is no different to saying actuaries who are bound, as the stated case illustrates, by a code of conduct and a code of practice, there are provisions which effectively circumscribe their judgment. As your Honours saw when I went through the figures on the previous occasion, the actual differences are very small indeed.
The final matter concerns section 55 and the suggestion that there are two different subject matters of taxation because the surcharge is dealt with in different ways. We would submit that that limb of section 55 is one which has very limited application. It has only been applied to strike down legislation so far as we can ascertain in the Mutual Pools Case where there was a tax which operated in some circumstances as a land tax and in other circumstances not as a land tax. But in no other case has that limb of section 55 been successfully invoked. It has been invoked of course in relation to Acts containing taxation and non‑taxation materials but never successfully in this area. The reason is that the cases make it clear that Parliament is entitled within certain limits to identify what it sees as a subject matter of taxation. Here the subject matter of taxation is reasonably clear and narrow.
GLEESON CJ: What is it?
MR BENNETT: The subject matter of taxation, your Honour, is the - we have identified it in paragraph 136 of our primary submissions. It is the annual increase in the value of the liability of an employer with respect to superannuation benefits payable to an employee.
GAUDRON J: I do not - “in the value of the liability of an ‘employer’”? Why not “increase in the liability of an employer”?
MR BENNETT: Yes.
GAUDRON J: I just want to get that down.
MR BENNETT: Subject to the word “liability” requires a certain amount of qualification of course.
GAUDRON J: That was going to be my next question.
MR BENNETT: That is why I was using the word “value”.
GAUDRON J: “Value”.
MR BENNETT: It is a future liability.
GAUDRON J: “Annual increase in the assessed” - but it is not, you see. Anyway, “the assessed future liability” perhaps “of an employer to make ‑ ‑ ‑
MR BENNETT: To pay superannuation benefits.
GAUDRON J: It is not, is it not? It is to pay pensions.
MR BENNETT: Your Honour, the ‑ ‑ ‑
GAUDRON J: I am just asking. This is a question that was seriously argued, and what you are taxing - there is no tax on the Commonwealth. Remember that, there is no tax on the Commonwealth. What are you taxing in the case of the private sector?
MR BENNETT: What you are working out, your Honour, is each year what it would cost the employer to buy a policy which would meet the future liabilities.
GAUDRON J: What is the subject of tax - I know what you are working out but that is not what is happening. So you accepted, I think, the annual increase in the assessed future liability of an employer to make pension payments.
MR BENNETT: Yes.
GAUDRON J: Now, is that accurate for private employees or is that only accurate for the State?
MR BENNETT: No, your Honour, it is accurate for both. May I just - it requires ‑ ‑ ‑
GAUDRON J: Explain to me how it works for the private employer and the private employee because I am not entirely sure - this is your identification of the subject matter of the tax. As I understand it, the subject matter of the tax has to be the same for the private sector as for the State public sector. I just want to know how you identify it in the case of the private sector.
MR BENNETT: Your Honour, there are a couple of qualifications I have to add to make it clear. The first is that because of the wording of section 15(6) the tax is imposed on two alternative bases because of the cap. Now, that cannot make it two subjects of taxation because the subject matter then becomes the combination. In other words, if one said, “We will impose a capital tax, a wealth tax perhaps, on the value of your real estate or your personal estate, whichever is the higher”, that would not be two subjects of taxation of a land tax and a personal property tax. The subject of taxation is the higher of the two in relation to the individual taxpayer, or the lower of the two depending on which one took. So the mere fact that there is an alternative bases does not make it a second subject matter of taxation.
Going back a moment, the subject matter in relation to the - where it is worked out in relation to the private sector is that the employer pays each year 15 per cent based on the incremental “value” of the future liability.
GLEESON CJ: “Value” just means quantum, does it not?
MR BENNETT: Yes.
GAUDRON J: Of future ‑ ‑ ‑
MR BENNETT: Liability.
GAUDRON J: Future liability of whom?
MR BENNETT: Of the superannuation provider I suppose.
GAUDRON J: Exactly. Future liability - well, you see we have now different definitions for the private sector and for the public sector.
MR BENNETT: No, your Honour, it is the same in both.
GAUDRON J: It is 15 per cent. The subject matter of the tax is ‑ and the private sector ‑ I have written down your words but it does not make sense ‑ that may be my writing or your words, “15 per cent of incremental value of future liability of the superannuation provider”. Is that the subject matter of tax in the private sector?
MR BENNETT: Your Honour, it requires about six qualifications to get the precise full sentence.
GAUDRON J: Of course it does. Have you written it out? Because it is your argument that it is the same subject matter of taxation dealt with in the legislation.
MR BENNETT: Your Honour, this Act does not deal with private employers. That is not the argument I am addressing.
GAUDRON J: Where is the tax imposed? You are dealing with the same subject matter of tax.
MR BENNETT: I am sorry. We are dealing with constitutionally protected funds legislation.
GAUDRON J: Does that impose the tax?
MR BENNETT: The Imposition Act does that, your Honour.
GAUDRON J: That is right. The Imposition Act ‑ ‑ ‑
MR BENNETT: It is a long name. The Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997.
GUMMOW J: And I think section 3 picks up terms used in the Assessment Act.
MR BENNETT: Yes, it does, your Honour. I am gratefully.
GAUDRON J: So we do not have to worry about ‑ ‑ ‑
MR BENNETT: About private funds, for this purpose.
HAYNE J: So it is imposed. It is payable by the member, see section 11(1) of the Assessment and Collection Act.
MR BENNETT: Yes.
HAYNE J: And what is payable by the member is capped. Leave aside “capped”, is fixed by ‑ ‑ ‑
MR BENNETT: Section 15(6).
HAYNE J: Section 15(6) gives you a cap but ‑ ‑ ‑
MR BENNETT: Section 15(6)(b) gives the cap, 15(6)(a) gives the primary imposition.
GAUDRON J: If we are taking the imposition – the 15(6) – we are assuming that the imposition takes effect, then, which is to say when a lump sum or a pension becomes payable, then what you are imposing tax on does not necessarily amount to the annual increase in the assessed future liability of an employer to pay pension payments. The judge is being taxed on the fact that he is entitled to a pension on retirement.
MR BENNETT: It is assessed each year, your Honour.
GAUDRON J: It is assessed. It may be assessed ‑ ‑ ‑
MR BENNETT: One can always, your Honour, look at a tax Act and say it is imposed in different circumstances. That does not being it within section 55. Your Honour, in Resch’s Case (1942) 66 CLR 198, there is some language which makes this very clear. Justice Dixon said this at page 223:
The expression “subject of taxation” appears to suppose that some recognized classification of taxes exists according to subject matter. But in fact that was never so. Economists and lawyers have for their different purposes referred taxes to categories, the one for their incidence and economic consequences and the other for the legal mechanism employed to secure their collection and for their operation . . . But these are not the considerations to which sec 55 is directed. It is concerned with political relations, and must be taken as contemplating broad distinctions between possible subjects of taxation based on common understanding and general conceptions, rather than on any analytical or logical classification.
So, your Honour, in my respectful submission, the exercise of analysing precisely of how one characterises it is not a necessary one.
GAUDRON J: Where is the imposition? I do not think 15(6) does impose the tax.
MR BENNETT: The imposition, your Honour, is in the Imposition Act.
GAUDRON J: Which section? Section 4, no?
MR BENNETT: Yes, your Honour. It is at page 1241 if your Honour has the superannuation legislation volume, edition 5, the CCH volume. It is tab 2 of the plaintiff’s folder.
GUMMOW J: We go to section 4, “payable on a member’s surchargeable contributions”. That takes us to the definition of section 38 of the Assessment Act, does it not, and then it said the definition falls into two halves. That complaint was made, particularly by New South Wales. The definition of “surchargeable contributions” as it was…..has what, in truth, are not two halves of the one thing, but two disparate subject matter.
MR BENNETT: Yes, section 9 of the ‑ ‑ ‑
GUMMOW J: I think what it comes down to, Mr Solicitor, is what is the answer put to New South Wales’ submissions, which are very sharp and succinct on this, in paragraph 11 of the New South Wales submissions?
MR BENNETT: That is the distinction between the ‑ ‑ ‑
GUMMOW J: They say two sorts of activities, actual contributions and some notional activities.
MR BENNETT: That seems to be the two parts of section 15(6).
GUMMOW J: Yes.
MR BENNETT: The answer to that is what I put a few moments ago, that where you have a tax imposed in the alternative, the subject matter is the combination, not the two individual alternatives. It cannot be a breach of section 55, however disparate the two subject matters, to impose a tax in the alternative. The subject matter then is the alternative and that is the short answer.
KIRBY J: In any case, one could see the common genus being post‑retirement payment for work for an employer or like body.
MR BENNETT: Yes, that is the other way I put the answer, your Honour, that one can simply say it is a benefit imposed, it is a tax on the benefit received after termination of employment, full stop.
GUMMOW J: I think you have to get to that level of generality.
MR BENNETT: Yes.
GUMMOW J: Maybe you are not wrong to do so, but I think it has to be at that sort of level of generality.
MR BENNETT: Yes, your Honour, and that, we would submit, is squarely within Resch. But I do press my point about the two alternatives and the ‑ ‑ ‑
GAUDRON J: I do not think the argument was limited to that. I think it is to do with the dichotomy between those who are members of a defined benefit superannuation scheme, “member” under 9(4), and the member other than a member of a defined benefits superannuation scheme under 9(2), where it is put that it may be that you are actually taxing different things.
MR BENNETT: Again, your Honour, we submit that is squarely within the Resch categories. They are both taxes on the financial benefits received after the termination of employment and, of course, they are different, but every provision of every Tax Act imposes tax in different situations. One has to find a much bigger difference than that to get into section 55.
HAYNE J: Does it come to this, that the subject of taxation is the annual value to a member of a superannuation scheme, whether that annual value is assessed by reference to what actually is put in or assessed by reference to what would have had to be put in to generate the value?
MR BENNETT: Yes, except that does not accommodate the alternative with the cap; subject to that, yes.
HAYNE J: There is then a cap which limits the tax in certain events, but that may be regarded as a second level of operation of the tax, rather than its subject matter. Its subject matter is the annual value accruing to the member of the superannuation scheme identified in the broad way in which we have earlier discussed.
MR BENNETT: Yes, I would respectfully adopt what your Honour put to me as one way of putting it, yes, and I am ‑ ‑ ‑
GAUDRON J: But the other way I think it was put is that in one there is a superannuation scheme and in the other there is not and so that you cannot really define ‑ I think the other string to the argument was you cannot define it that way because in one there is a fund or scheme, in truth, and in the other there is not.
HAYNE J: Does it matter that there is real money passing in some and not others?
MR BENNETT: I submit not, your Honour. It is within the same broad subject matter. The employee does not really mind or often know – although judges would – whether in relation to a particular fund it is being paid from consolidated revenue or being paid from a fund. It does not greatly concern the employee, as long as it is paid. It is not a different subject matter of taxation; it is simply taxing the same ultimate economic concept achieved in different ways. Your Honours, those are my submissions.
GLEESON CJ: Thank you, Mr Solicitor. Yes, Mr Moshinsky.
MR MOSHINSKY: If the Court pleases. I have four matters to deal with arising out of questions raised by the Court and then six matters by way of reply. I do not expect it will take me very long. The first matter is that there was on the last occasion a question raised by your Honour Justice Gaudron about other cases dealing with the nature of consolidated revenue. Could I give your Honours a citation of a decision of this Court. It is Northern Suburbs General Cemetery Reserve Trust v The Commonwealth (1993) 176 CLR 555. The relevant passages are at page 575 in the joint judgment, pages 579 to 580 in the judgment of Justice Brennan, pages 591 to 592 in Justice Dawson’s judgment and pages 598 to 599 in the judgment of your Honour Justice McHugh.
Secondly, on the last occasion your Honour Justice Kirby raised a question to my learned friend about a reference to material on the interpretation of tax statutes. In addition to the text that my learned friend referred to, could I give your Honours the citation of an article by his Honour Justice Hill of the Federal Court which is A Judicial Perspective on Tax Law Reform (1998) 72 ALJ 685, especially at pages 688 to 690 which contain a survey of some recent cases on that point.
Thirdly, at a directions hearing on 22 August, your Honour Justice Hayne asked the parties the question which has led to the table that my learned friend has handed up. The question concerned whether, apart from the judicial pension schemes, other schemes listed in Schedule 14 provide for non‑contributory pensions of the kind payable to judges. The table that my learned friend has handed up with the four lists, we accept that subject to the qualifications made by my learned friend in oral submissions. We have also prepared a schedule which is an agreed document which approaches the question in a slightly different way, going through Act by Act in Schedule 14 and providing some detail about who are the officeholders or employees who take under those schemes and the relevant provisions. I am not sure that it adds materially to what the Commonwealth has handed up, but I would hand it up in case it is of assistance to the Court.
In relation to the specific instances of coalminers and mint employees, the position is not subject to an agreement between the parties, but counsel for Victoria has informed me that the surcharge legislation has no practical operation for anyone ‑ ‑ ‑
GUMMOW J: Well, perhaps Victoria might exercise themselves by putting in a submission about that and doing it fairly promptly, too.
GAUDRON J: Does it tell you something similar about the Mint Act?
MR MOSHINSKY: Yes, I understand that. If I could convey the information, it is that there are two pensioners taking pensions under the coalminers legislation. There is 11 pensioners taking pensions under the mint legislation ‑ ‑ ‑
GUMMOW J: Are they very ancient ‑ ‑ ‑
MR MOSHINSKY: They all pre-date this legislation, so none of them are affected by the surcharge.
KIRBY J: Were they employees of the Royal Australian Mint as distinct from the Royal Victorian Mint?
MR MOSHINSKY: I am sorry, I cannot answer that, your Honour.
HAYNE J: It is the Royal Mint.
KIRBY J: I deserved that.
MR MOSHINSKY: Now, in relation to the table – in particular the Commonwealth table – we would submit that the table emphasises the plaintiff’s submissions that this legislation is predominantly directed at a fairly confined group of high officeholders who are central to the functioning of the States. Fourthly, your Honour Justice Hayne ‑ ‑ ‑
KIRBY J: But that is only the consequence of the fact that for historical reasons they had special pension arrangements and that if you start from a premise that the Commonwealth has the power to and has the political decision to, which is accepted by the Federal Parliament, impose taxes throughout the nation on citizens, then you are faced with this historical situation and you have to try to frame your legislation in a way that respects those who have entrenched and protected positions and nonetheless achieves the equivalence for those who do not, and that is what is presented to us in this case. That is the problem. It does not seem to me to really be much to the point to be saying, “Well, you are aiming your legislation at our high constitutional officeholders”, if that has to be so in order to secure equivalence, and so long as in fact you come to the view that it is not discriminatory and is securing equivalence, then that is just the product of imposing a uniform nationwide taxation on citizens on a base, which for historical reasons, is unequivalent.
MR MOSHINSKY: Yes, the plaintiff’s case is that there is no equivalence. There is a differential operation, I think that is accepted, and it is an extreme differential operation, and that therein lies the discrimination.
Your Honour Justice Hayne at that directions hearing also referred the parties to the report of the productivity commission in its review of the SIS Act and certain other legislation, particularly section 6.5 commencing at page 131. The issue that is discussed there is whether the list of Commonwealth and State schemes which are currently exempted from the SIS Act should be wound back or at least not extended. Having considered the report, we submit that it is not relevant to the issues before the Court and we do not wish to make any submissions about it.
Turning to submissions in reply, on 22nd and 23rd August the defendant filed some supplementary written submissions. The first set dealt with the construction argument on section 15(6) and the section 7 issue raised by the Court. The second set dealt with the concessional tax treatment of complying superannuation funds, the new paragraph 108A of the case stated and section 12 of the Constitutionally Protected Funds Act. In relation to those submissions, we do not seek to make any further submissions about section 7, and rely on our written submissions which have been filed. In relation to section 12 of the Act, that really is responding to a matter raised by South Australia and we do not wish to make any submissions about it. In relation to the other matters covered in those written documents, we considered it more efficient and probably more helpful to the Court to prepare a written response to that. So, could I hand up a short written submission which responds to those written submissions.
GLEESON CJ: Thank you.
MR MOSHINSKY: Your Honours, could I highlight three matters which are dealt with in more detail in that document. The first is the construction of section 15(6) of the Act. The Commonwealth has put forward a construction which would allow the cap to be applied on a basis which takes into account the particular circumstances of the individual. We question whether the section is capable of doing that work and bearing that construction. It seems to be inconsistent with the scheme of the Act which involves calculations of benefits on a group basis primarily, not taking into account particular individual circumstances and one would expect if section 15(6) works at all ‑ and there are other queries about it ‑ that it would be applied on that basis.
The second point is that it is suggested in the Commonwealth’s document that the concessional tax treatment of complying superannuation funds was what this legislation was directed at. We do not think that is right. We think that the legislative materials, the second reading speech, and the Treasurer’s press release make quite clear that what the legislation was directed at was the deductibility of the contributions, and the legislation is framed in terms of complying superannuation funds because it is contributions to those which are deductible, and that is set out in more detail in the written document.
The third aspect in the written document that I would highlight is that private arrangements of the kind that are described now in paragraph 108A of the case stated, we would submit, are a good comparator, an acceptable comparator, for the judicial pension arrangements. They operate in a way that is very similar and the person who takes those benefits pays income tax on them at the normal marginal rate in just the same way as the judges do, or retired judges do, on their pensions. We do not concede that they are merely past remnants as my learned friend submitted. The agreement does not go that far, as reflected in 108A.
Could I turn next to my next submission in reply. Your Honour, I probably have about 10 more minutes of submissions ‑ ‑ ‑
GLEESON CJ: Yes. Just go ahead and we will sit until you finish those.
MR MOSHINSKY: Thank you. The second submission in reply relates to the defendant’s simple summary of tax rates, which is the table that was handed up on the last occasion. If I could take your Honours to that table. I have three comments to make about the table, and these comments probably apply equally to the document that my friend handed up this morning, which was the collection of different sheets with flow diagrams.
The first point is that when one looks in column A to the first line, where it appears that the tax payable by the trustee of such a fund is up to 15 per cent, but generally less because of franking credits, what needs to be borne in mind as well is that the trustee of such a fund has deductions under the general deductibility provisions, as modified by Part IX of the Income Tax Assessment Act, Divisions 2 and 3, in addition to the franking credits that are referred to, and, furthermore, to the extent that a portion of the fund is used to pay current pensions, the earnings on that portion of the fund are also exempt from tax – and that is sections 273A, 282B and 283 of the Income Tax Assessment Act 1936. So the effective tax rate will be, in many cases, lower than the 15 per cent.
The second point is that the table does not include private arrangements of the kind which are now described in paragraph 108A of the case stated. Had it done so, it would have shown no surcharge payable on the right‑hand side of the document. The third point is that the right‑hand section of the document which deals with the surcharge sets out the rates of taxation – 15 per cent, 15 per cent and 15 per cent – but it is important to note who the surcharge is payable by. It is the provider in the first two boxes, but the member in the box at the bottom right‑hand corner of the page. Moreover, the table asserts – and also the defendant has asserted this in its written document and oral submissions – that the surcharge will be passed on. We submit that that is not an assumption that can safely be made. The reasons for that are set out in our written submissions in reply, paragraphs 5 and 6.
GAUDRON J: That must depend in every case on the trust deed, must it not?
MR MOSHINSKY: Yes, exactly.
GAUDRON J: One cannot be more specific than that, can one, in this area?
MOSHINSKY: No, that is exactly right, your Honour.
GAUDRON J: Has anyone noticed a big rush of applications to amend trust deeds? They have not come here, have they?
MR MOSHINSKY: I am not able to assist your Honour. The third point by way of reply is the suggestion made by my learned friend that it was only if a retired judge died in the first two years after retirement that he lost and that is made particularly at transcript page 187, line 8445. It is not correct to say that the judge loses only if he or she dies in the first two years after retirement; if a retired judge dies at any time before the actuarially expected age of death, then there is no proportion between the surcharge paid and the benefit actually received.
HAYNE J: But the two‑year number suffered a rather more fundamental difficulty than that, Mr Moshinsky. It was a two-year number based on the assumption that the whole of the pension payable to the judge was available to that judge to meet the surcharge. There was a minor difficulty called “income tax” leviable on that pension in the hand which might be thought to stand in the way of getting to two years.
MR MOSHINSKY: Yes, exactly, your Honour. Fourthly, this morning my learned friend dealt with the Heads of Government Agreement and submitted that this – in other words, the Constitutionally Protected Funds Act – is, in a sense, a Commonwealth/State scheme. That is not correct.
GUMMOW J: The Solicitor for South Australia went through that chapter and verse in his written submissions.
MR MOSHINSKY: Yes, and I would refer your Honours to the written submissions of South Australia and also Victoria’s written submission which makes it quite plain that there was no consent.
GUMMOW J: That is not the way he regards it, he regards it as a consequence of a breaking down of a relationship.
MR MOSHINSKY: Yes, exactly. Fifthly, in relation to the MacCormick
argument on arbitrary and capricious, my learned friend submitted that the differences are small indeed between actuaries. We rely on the nature of the assumptions and judgments that are made by actuaries and these are well illustrated by the two very different approaches taken by the New South Wales Government Actuary for the first plaintiff and by the Victorian consultant actuary for the second plaintiff, and some of those differences are highlighted in paragraph 86 of our written submissions, and I would refer your Honours to that.
Lastly, in relation to section 55 of the Constitution, could I focus on the Commonwealth’s description of the subject of this legislation as it appears in their written submissions.
GUMMOW J: Well, I think they have departed from that now.
MR MOSHINSKY: Yes, it may be that they have departed from it. The subject, as it appears in paragraph 136 of the written submissions, as articulated there, would, in our submission, not be sufficient to encapsulate the judge’s pension arrangements. If one then turns to the argument put this morning, one argument was that the tax is imposed in the alternative because of the operation of section 15(6) of the Constitutionally Protected Funds Act. That is not right. The tax is not imposed in the alternative. The argument that there are two different taxes relies on the difference between section 9(2) and section 9(3), the way it operates in relation to non‑defined benefit superannuation schemes and defined benefit superannuation schemes.
KIRBY J: What is your answer to the contention that conceptually it is post‑retirement income tax – one concept?
MR MOSHINSKY: In response to that, your Honour, it is not, it is two different things that are being taxed. One is a tax on contributions to superannuation funds, the other is a tax on pension benefits that are potentially payable under statute, so we would say they are two different subjects.
GAUDRON J: Or on eligibility to obtain a pension.
MR MOSHINSKY: Yes, exactly, your Honour.
GAUDRON J: Eligibility to receive a pension rather than the actual receipt of it.
MR MOSHINSKY: Yes, exactly, your Honour.
KIRBY J: It depends on how you conceptualise this for constitutional purposes.
MR MOSHINSKY: That is true, your Honour.
KIRBY J: You would not conceptualise it narrowly, you would conceptualise it broadly, I would think, because we are talking here of a constitutional prohibition and if you construe it broadly, at least arguably in conceptual terms, it is the one category and it is differentiated only because of historical reasons.
MR MOSHINSKY: Yes, certainly that is correct as a general proposition, your Honour, however, it gets to a point where it goes too far and this is at the breaking point.
GAUDRON J: Is it? Before you can accede to that, I thought constitutional prohibitions were not necessarily construed narrowly at all. Certainly that is not the case with respect to guarantees.
MR MOSHINSKY: Yes, your Honour. We would accept that the test is ‑ and we do not seek to depart from the test established in cases of this Court which are referred to in paragraph 91 of our written submissions, and we accept that that is the test. We say that in this case there are two different subjects for the reasons I have given.
Unless there is anything else that I can assist your Honours with, those are my submissions in reply.
GLEESON CJ: Thank you. We will reserve our decision in this matter and we will adjourn until 10.15 tomorrow morning.
AT 12.56 PM THE MATTER WAS ADJOURNED
Key Legal Topics
Areas of Law
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Constitutional Law
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Administrative Law
Legal Concepts
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Judicial Review
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Standing
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Procedural Fairness
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Natural Justice
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