Austin v Commonwealth - [2003] HCA 3

HIGH COURT OF AUSTRALIA
GLEESON CJ,
GAUDRON, McHUGH, GUMMOW, KIRBY AND HAYNE JJ
ROBERT PETER AUSTIN & ANOR PLAINTIFFS
AND
THE COMMONWEALTH OF AUSTRALIA DEFENDANT
Austin v The Commonwealth of Australia
[2003] HCA 3
5 February 2003
M10/2001
ORDER
Answer questions in Stated Case as follows:
Question 1
On their true construction, do the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth):
(a) make the First Plaintiff liable to pay superannuation contributions surcharge in respect of surchargeable contributions reported for the financial years ending 30 June 1999 and 30 June 2000?

(b) make the Second Plaintiff liable to pay superannuation contributions surcharge in respect of surchargeable contributions reported for the financial years ending 30 June 1997, 30 June 1998, 30 June 1999 and 30 June 2000?

Answer
(a) Yes.
(b) No.

Question 2
If so, are the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) and/or the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) invalid in their application to the First Plaintiff and/or the Second Plaintiff:
(a) on the ground that they so discriminate against the States of the Commonwealth, or so place a particular disability or burden upon the operations and activities of the States, as to be beyond the legislative power of the Commonwealth;
(b) on the ground that the first-named Act imposes a liability to pay superannuation contributions surcharge:
(i)by reference to criteria which are so incapable of ascertainment or lacking in general application;
(ii)as a result of administrative decision based upon individual preference which is not sufficiently related to any test laid down by legislation; or
(iii)which is so arbitrary and capricious,

so that they are not laws with respect to taxation or otherwise are beyond the legislative power of the Commonwealth;
(c) on the ground that the first-named Act deals with more than one subject of taxation contrary to section 55 of the Commonwealth Constitution;
(d) on the ground that the first-named Act imposes a tax on property belonging to a State contrary to section 114 of the Commonwealth Constitution; or
(e) otherwise?

Answer
(a)Yes. The legislation referred to is invalid in its application to the first plaintiff on the ground that it places a particular disability or burden upon the operations or activities of the State of New South Wales so as to be beyond the legislative power of the Commonwealth.

Question 3
Save for those otherwise dealt with by order, who should pay the costs of the Stated Case and of the hearing of the Stated Case before the Full High Court?

Answer
The defendant should pay the costs of the plaintiffs.

Representation:
G A A Nettle QC and M K Moshinsky for the plaintiffs (instructed by Allens Arthur Robinson)
D M J Bennett QC, Solicitor-General of the Commonwealth of Australia and M Sloss with G A Hill for the defendant (instructed by Australian Government Solicitor)
Interveners:
R J Meadows QC, Solicitor-General for the State of Western Australia with J C Pritchard intervening on behalf of the Attorney-General for the State of Western Australia (instructed by the Crown Solicitor for the State of Western Australia)
B M Selway QC, Solicitor-General for the State of South Australia with R L Goldsmith and B D Allgrove intervening on behalf of the Attorney-General for the State of South Australia (instructed by the Crown Solicitor for the State of South Australia)
J W Shaw QC with M J Leeming intervening on behalf of the Attorney-General for the State of New South Wales (instructed by the Crown Solicitor for the State of New South Wales)
M A Dreyfus QC with K L Emerton intervening on behalf of the Attorney-General for the State of Victoria (instructed by the Victorian Government Solicitor)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS
Austin & Anor v Commonwealth
Constitutional law - Legislative power of Commonwealth - Implied limitation - Interference with governmental functions of States - Superannuation - Taxation - Statute - Validity - Whether liability of State judicial officers to pay Commonwealth superannuation contributions surcharge valid.
Constitutional Law - Taxation - Commonwealth legislation imposing superannuation contributions surcharge - Whether criteria for liability so incapable of ascertainment or lacking in general application as to deny legislation quality of law with respect to taxation.
Constitutional Law - Taxation - Section 55 of the Constitution - Whether legislation deals with more than one subject of taxation.
Constitutional Law - Legislative power of Commonwealth - Federal law requires State Government Actuary to supply information and perform calculations for the purpose of imposition of federal tax upon State employees and officeholders - Whether obligation amounts to conscription of State officers and institutions - Whether impermissible federal intrusion upon the employment authority of the State - Whether, if impermissible, provisions severable from law imposing federal tax.
Superannuation - Taxation - Superannuation contributions surcharge - Legislation - Construction - Whether State judge liable to pay - Whether State judge a member of a constitutionally protected fund - Whether State judge has a surchargeable contribution - Whether State judge a defined benefit member - Whether State judge has an accrued benefit.
Court and Judges - Statutes - Interpretation - Whether Master of Victorian Supreme Court a judge of that Court.
Words and phrases: "discrimination", "discriminate between", "subject of taxation", "surcharge", "surchargeable contributions", "constitutionally protected superannuation fund", "defined benefit member".
Commonwealth Constitution, ss 51(ii), 55, 114
Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth)
Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth)
Judges' Pensions Act 1953 (NSW)
Constitution Act 1975 (Vic) s 75(2)
Supreme Court Act 1986 (Vic)

GLEESON CJ. The plaintiffs, who are serving State judicial officers, have commenced proceedings to test their liability to pay a Federal tax, described as a superannuation contributions surcharge. The first plaintiff is a judge of the Supreme Court of New South Wales. The second plaintiff is a Master of the Supreme Court of Victoria. The tax is the subject of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) ("the Acts"). The plaintiffs are not members of any superannuation fund as that expression is ordinarily understood; and no contributions are made to any such fund for their benefit. By State legislation, they are conditionally entitled to pension and related benefits, which are paid out of Consolidated Revenue. However, the Acts construct a notional scheme by reference to which they are taxed as if such contributions were made. This is part of a wider legislative scheme imposing a tax that was described in argument, by the Commonwealth, as a tax on the value (ie quantum) of the annual increase in the liability of an employer with respect to superannuation benefits payable to an employee.
Two questions have been reserved for the consideration of a Full Court. Question (1) asks whether the Acts, on their true construction, make each plaintiff liable to pay the tax for certain years. That question raises a number of issues as to the meaning and effect of the legislation. Question (2), which only arises if question (1) is answered affirmatively in respect of at least one of the plaintiffs, asks whether the Acts are invalid in respect of their application to that plaintiff. A number of possible grounds of alleged invalidity are set out in the question.
The facts, the legislation in issue, and the wider legislative scheme of which it is a part, appear from the reasons for judgment of Gaudron, Gummow and Hayne JJ ("the joint judgment"). I agree with the answers to question (1) proposed in the joint judgment, and with the reasons given. I also agree with what is said in the joint judgment concerning the grounds of potential invalidity raised by pars (b), (c), (d) and (e) of question (2).
Because of the answer proposed in relation to question (1)(b) it is unnecessary to make further reference to the second plaintiff when discussing the operation of the Acts.
Paragraph (a) of question (2) asks whether the Acts are invalid in their application to the first plaintiff:
"on the ground that they so discriminate against the States of the Commonwealth, or so place a particular disability or burden upon the operations and activities of the States, as to be beyond the legislative power of the Commonwealth."
The question raises an issue of federalism. It concerns the relationship between the constituent political entities of the federal union, and limitations on the legislative power of the Parliament of the Commonwealth that flow from that relationship. The laws in question are laws with respect to taxation, within the meaning of s 51(ii) of the Constitution. It is not suggested that they discriminate between States or parts of States. They do not infringe s 114 by imposing a tax on property belonging to a State. No other express limitation on the legislative power of Parliament is invoked. What is relied upon is an implied limitation on power, the nature of which is reflected in the language of (a), said to result from the federal nature of the Constitution as a matter of necessary implication.
In the course of argument, reference was made to various aspects of the legal effect of the tax as it operates in relation to judicial pensions. The primary matters to which the plaintiffs drew attention were the nature of judicial pension entitlements, and the differences between such entitlements and those of members of ordinary superannuation funds; the fact that (subject to a qualification arising from State legislation enacted following, and in consequence of, the Acts) such pensions cannot be commuted in whole or in part; the fact that the pensions are non-contributory and unfunded; the fictional nature of the notional contributions upon which the tax is based; the circumstance that the notional contributions are calculated by reference to actuarial assumptions that may have no relationship to the personal situation of a particular taxpayer; and the principal difference between the operation of the Acts and that of the wider legislative scheme in relation to the superannuation contributions surcharge, which is that the tax presently in question is imposed directly upon "members" of the notional "funds", rather than upon a superannuation provider.
Some actuarial calculations were included in the case stated. Bearing in mind that the projected figures are expressed in dollars of the time to which they relate, and are based on assumptions as to inflation, they show that, at the time when the first plaintiff will have served 10 years and attained an age of not less than 60 (in his case, 62), his accumulated superannuation surcharge debt will be $310,885. If he retires, at that time, he will commence to receive a pension which in the first year will amount to $179,957, on which he will be liable to income tax at the marginal rate. If he remains in office until the age of compulsory retirement, 72, his accumulated superannuation surcharge debt will be $550,780, and he will be entitled to a gross annual pension of $267,433. Allowing for income tax on the pension, it will take approximately four years before his net pension receipts equal his surcharge liability; a liability he will have to discharge at the time he commences to receive the pension. And, depending upon when he dies, whether he is survived by a widow, and when she dies, total pension receipts could amount to a smaller sum than the total surcharge liability.
These matters are of relevance only to the extent to which they bear upon the ground of invalidity asserted in (a). Whether the tax might operate in a harsh and unreasonable manner in its incidence upon the first plaintiff is beside the point[1]. Unreasonableness is not a ground of invalidity of a tax.
[1]Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd (1985) 158 CLR 678 at 684.
Some reference was made in argument to an explanation given to Parliament by the responsible Minister concerning the reason for the introduction of a superannuation contributions surcharge; a reason that does not appear to have anything to do with judicial pension arrangements. That also is a matter of no legal consequence. The considerations advanced for or against a taxation measure in the course of political debate do not give rise to a justiciable issue. I would assume that the principal object of the superannuation contributions surcharge is the same as the principal object of most taxes: to raise revenue for government. Taxation involves an exercise of power, by which the burden of compulsory contribution to the revenue is distributed, often unequally, amongst taxpayers. The pattern of distribution is determined by the political process. Subject to one overriding qualification, it is for Parliament to decide what form of distribution is expedient. The qualification is that, although Parliament has power to make laws with respect to taxation, its power is not unlimited. It is for this Court to decide whether, in a given case, the limits have been exceeded. That is the context in which it becomes necessary to consider the legal nature and effect of the tax.
It is contended that the tax is discriminatory. Since what is involved is a Federal tax upon a member of the Supreme Court of New South Wales, bearing the character of a tax on the value of the annual increase in the liability of the State for pension benefits payable to judges, the contention raises a potential constitutional issue. It will be necessary to examine more closely what the concept of discrimination involves, and to consider the place of discrimination in the wider principle invoked by the first plaintiff. That the Acts treat the first plaintiff, and other State judges, differently from the manner in which other "high-income earners" generally are treated for the purpose of taxing the value of the annual increases in the liability of their superannuation providers, and differently again from the manner in which Federal judges are treated, is not in dispute. There is a question whether the differences involve relevant and impermissible discrimination. Federal judges in respect of whom the surcharge applies have their pensions, when they ultimately become payable, reduced, at the time of each pension payment, by a certain amount. No personal liability is incurred; no accumulated debt is payable by the judge; and there is no possibility that surcharge liability could exceed benefits. As to other high income earners, in their case the tax is imposed on the superannuation provider, no doubt in the expectation that it will be passed on to the member in the form of reduced benefits. Paradoxically, the explanation for the difference in treatment of taxpayers in the position of the first plaintiff is what is described in the titles of the Acts as a constitutional protection. The Commonwealth, acknowledging the differences in the manner in which State judges, and some other State office holders, are treated, as compared with members of superannuation funds generally, asserts that "(t)he differences in application are dictated by constitutional limitations and by the design of the superannuation schemes".
As to the design of superannuation schemes, the New South Wales Parliament, after the enactment of the Acts, altered the design of that State's judicial pension scheme in one significant respect. Before the alteration, and at the time the Acts came into force, the principal characteristics of the scheme were as follows. The primary benefits were periodical pension payments commencing upon retirement and ceasing on death. The payments were fixed by reference to judicial salaries at the time of payment. The schemes were unfunded and non-contributory. Entitlements could not be commuted, either in whole or in part. Qualification for pension entitlement required a minimum of 10 years service, and the attainment of the age of 60. After satisfaction of those requirements, continuation in judicial office brought no increase in benefits. On the contrary, it necessarily resulted in a decrease of the period during which a pension would be payable. The scheme also involved other entitlements, including a right in certain circumstances to a modest lump sum payment, disability benefits, and benefits for a surviving spouse and eligible children. However, the most significant component in the value of a judge's entitlements was the periodical pension payable between retirement and death. The change made in response to the Acts was that judges became entitled, on retirement, to commute their entitlements to the extent necessary to provide them with an amount equal to their superannuation contributions surcharge debt, with, of course, a corresponding reduction in pension payments.
As is explained in the joint judgment, under the Acts, the first plaintiff will have the option, while in office, of paying the amount of his annual surcharge, or leaving the debt to accumulate, with compound interest, until his retirement, when benefits first become payable. This will give a judge in the position of the first plaintiff an added reason to leave office upon becoming entitled to a pension rather than to serve out his or her full term. The Commonwealth points out that the design of the judges' pension scheme already provided a reason for leaving office sooner rather than later, if pension benefits were a major factor in such a decision. Judges' pension schemes, State or Federal, are not designed to reward long service, except to the extent that there is a minimum qualifying period. Remaining in office after that period diminishes pension benefits. This was already an aspect of the New South Wales scheme. It is difficult to measure the practical significance of this aspect of the Acts, and it probably varies in individual cases.
The feature of the Acts which is of greatest significance to a judge in the position of the first plaintiff is the incurring and accumulation of a liability to pay a substantial capital sum, on retirement, in discharge of an accrued superannuation contributions surcharge debt, at a time when payment of the pension is commencing. The relationship between the debt, and the amount of the pension payments, has been referred to above. The difference between the position of State judges, and that of Federal judges, who face a reduction in the amount of their periodical pension payments, or that of other high income earners, who incur no personal liability, and who may be entitled to lump sum benefits, or who may be able to commute their entitlements in whole or in part, is obvious. To ameliorate that difference, the New South Wales Parliament altered the pension scheme. The first plaintiff submits that this is evidence of the interference with State governmental functions constituted by the Federal tax; the imposition of the tax forced the State to make a significant amendment to its pension arrangements for judges. The Commonwealth submits that the fact that the tax imposed no substantial burden on the State is demonstrated by the State's ability to mitigate the problem by appropriate legislation.

The constitutional limitations said to have dictated the differences in application between the surcharge as it applies to State judges, and the surcharge as it applies to others entitled to superannuation benefits, are those found in s 114 of the Constitution.
Section 114 prohibits a State from imposing any tax on property of any kind belonging to the Commonwealth, and it also prohibits the Commonwealth from imposing any tax on property of any kind belonging to a State. The latter prohibition is the constitutional protection referred to in the title to the Acts, and is said to have dictated the differential treatment of certain people, including State judges. Although, in the course of argument, there were references to the possibility that there were other means by which the Parliament could have imposed a tax in respect of annual increases in the value of a State's liability to pay pension benefits to judges, without the need to resort to the fiscal regime involved in the Acts, with the implication that the assertion that the regime was dictated by s 114 was at least an exaggeration, there was no explanation of exactly why s 114 had the effect claimed for it. It is not self-evident that, subject to the argument in ground (a), the State of New South Wales could not be taxed as a superannuation provider in the case of unfunded pension schemes. The Commonwealth submitted that the legislation "makes the member him or herself liable to pay the tax, because the superannuation provider of the scheme is 'the State' for the purposes of s 114 of the Constitution". However, s 114 only prohibits a tax on property. The Commonwealth validly imposed pay-roll tax[2], and fringe benefits tax[3], on the States. The New South Wales judges' pension scheme is unfunded. The submissions of South Australia, which was one of a number of States intervening in support of the plaintiffs to challenge the validity of the legislation, outlined a history of inter-governmental negotiations in the course of which the implications of the decision in South Australia v The Commonwealth[4] were considered. The facts of that case show that the South Australian government conducts a funded superannuation scheme for the payment of superannuation benefits to statutory officers and public sector employees. It was held that a tax on the net capital gain derived on the disposal of an asset of the fund was a tax on property within s 114. It is far from clear what that has to do with the arrangements relating to pensions for New South Wales judges. However, reg 177 of the Income Tax Regulations 1936 lists the Judges' Pension Act 1953 (NSW) among constitutionally protected funds, the income of which is, by s 271A of the Income Tax Assessment Act 1936 (Cth), exempt from tax. It is one thing to say that some apprehension as to the possible effect of s 114 at least partly explains the Acts. It is another thing to say that the differential treatment of the first plaintiff and others was "dictated" by s 114. And, even if that were the case, the circumstance that the Commonwealth is constitutionally prohibited from taxing the State of New South Wales as a superannuation provider, is, at first sight, a curious justification for discrimination, if such differential treatment is properly regarded as discrimination. Whether it is properly so regarded is a question which needs to be considered in the light of the wider constitutional principle upon which the first plaintiff's argument depends.
[2]Victoria v The Commonwealth (1971) 122 CLR 353.
[3]State Chamber of Commerce and Industry v The Commonwealth (The Second Fringe Benefits Tax Case) (1987) 163 CLR 329.
[4](1992) 174 CLR 235.
The federal system involves the co-existence of national and state or provincial governments, with an established division of governmental powers; legislative, executive and judicial. As in the United States, the national government was given limited, specified powers. An approach to constitutional interpretation which stressed a reservation of State powers flourished for a time after federation, but was reversed by the Engineers' Case in 1920[5]. Even so, as in the United States, the federal nature of the Commonwealth has been held to limit the capacity of the Federal Parliament to legislate in a manner inconsistent with the constitutional role of the States.[6] In both countries, the taxation power has provided a battleground upon which contests as to the nature and extent of that limitation have been fought. Here, as in the United States, a concept of immunity of governments and government instrumentalities from taxation has waxed and waned. In both countries, significance has been attached to a characterisation of a tax as either discriminatory or non-discriminatory. In New York v United States[7], Rutledge J said that he took the limitation against discrimination "to mean that state functions may not be singled out for taxation when others performing them are not taxed or for special burdens when they are". In the same case, but with reference to a different power, Frankfurter J said that "discrimination" was "not a code of specifics but a continuous process of application"[8]. Non-discriminatory taxes were described by Stone CJ as taxes "laid on a like subject matter, without regard to the personality of the taxpayer, whether a State, a corporation or a private individual"[9]. That was said in the course of acknowledging that there may be non-discriminatory taxes which, when laid on a State, would impair its constitutional status.[10]
[5]Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129.
[6]For recent United States examples of the issues generated by such a principle, see New York v United States 505 US 144 (1992); Printz v United States 521 US 898 (1997).
[7]326 US 572 (1946) at 584-585.
[8]326 US 572 (1946) at 583.
[9]326 US 572 (1946) at 587.
[10]326 US 572 (1946) at 587.
The Engineers' Case marked a turning point in Australian constitutional interpretation. The decision involved a rejection of some previously understood implications, including what was described in the leading judgment as "the doctrine of mutual non-interference".[11] However, when, in 1930, Dixon J expressed his understanding of the rule established by that case, he added an important qualification. He said[12]:
"This rule I understand to be that, unless, and save in so far as, the contrary appears from some other provision of the Constitution or from the nature or the subject matter of the power or from the terms in which it is conferred, every grant of legislative power to the Commonwealth should be interpreted as authorizing the Parliament to make laws affecting the operations of the States and their agencies, at any rate if the State is not acting in the exercise of the Crown's prerogative and if the Parliament confines itself to laws which do not discriminate against the States or their agencies."
[11](1920) 28 CLR 129 at 145.
[12]Australian Railways Union v Victorian Railways Commissioners (1930) 44 CLR 319 at 390. See also West v Commissioner of Taxation(NSW) (1937) 56 CLR 657 at 681-682; Essendon Corporation v Criterion Theatres Ltd (1947) 74 CLR 1 at 23.
The qualification was developed and applied in Melbourne Corporation v The Commonwealth[13]. One of the most striking differences between that case, decided in 1947, and the Engineers' Case, is the approach to United States authority. In the joint judgment of Knox CJ, Isaacs, Rich and Starke JJ in the Engineers' Case there was an emphatic and, it might be thought, extravagant rejection of the possibility of guidance from that source[14]. Yet in Melbourne Corporation all the judgments paid careful attention to United States authority. Both nations have what Latham CJ described as "a constitution establishing not only a federal Government with specified and limited powers, but also State Governments which, in respect of such powers as they possess under the Constitution, are not subordinate to the federal Parliament or Government"[15]. Such a constitution necessarily gives rise to a problem as to whether, and to what extent, a federal law, which on its face is a law with respect to a subject of federal legislative power, may burden or affect a State government.
[13](1947) 74 CLR 31.
[14](1920) 28 CLR 129 at 147.
[15](1947) 74 CLR 31 at 50.
In Melbourne Corporation the Court held invalid a law of the Parliament, enacted pursuant to its power to make laws with respect to banking, which prohibited banks, without the consent of the Federal Treasurer, from conducting banking business for a State or a State agency. The reasons of the Justices were expressed in various ways. Latham CJ examined the meaning of the concept of discrimination, and concluded that it meant "singling out another government and specifically legislating about it"[16]. Presumably the reference to government included a government agency. Laws of that kind may be held to be invalid; as may laws which "unduly interfere" with State functions of government, although he had reservations about the vagueness of the content of such a test[17]. Dixon J elaborated upon what he had earlier said as to the qualification to the rule established by the Engineers' Case. He said[18]:
"This Court has adopted a rule of construction with reference to the application to the States of the specific powers conferred by the Constitution upon the Parliament of the Commonwealth. It is a prima-facie rule of construction and its operation may be displaced by sufficient indications of a contrary intention whether found in the nature or subject matter of the power, in the manner in which it is expressed, in the context or elsewhere in the Constitution.
The prima-facie rule is that a power to legislate with respect to a given subject enables the Parliament to make laws which, upon that subject, affect the operations of the States and their agencies. That, as I have pointed out more than once, is the effect of the Engineers' Case stripped of embellishment and reduced to the form of a legal proposition. It is subject, however, to certain reservations and this also I have repeatedly said. Two reservations, that relating to the prerogative and that relating to the taxation power, do not enter into the determination of this case and nothing need be said about them. It is, however, upon the third that, in my opinion, this case turns. The reservation relates to the use of federal legislative power to make, not a general law which governs all alike who come within the area of its operation whether they are subjects of the Crown or the agents of the Crown in right of a State, but a law which discriminates against States, or a law which places a particular disability or burden upon an operation or activity of a State, and more especially upon the execution of its constitutional powers. In support of such a use of power the Engineers' Case has nothing to say. Legislation of that nature discloses an immediate object of controlling the State in the course which otherwise the Executive Government of the State might adopt, if that Government were left free to exercise its authority. The control may be attempted in connection with a matter falling within the enumerated subjects of federal legislative power. But it does not follow that the connection with the matter brings a law aimed at controlling in some particular the State's exercise of its executive power within the true ambit of the Commonwealth legislative power. Such a law wears two aspects. In one aspect the matter with respect to which it is enacted is the restriction of State action, the prescribing of the course which the Executive Government of the State must take or the limiting of the courses available to it. As the operation of such a law is to place a particular burden or disability upon the State in that aspect it may correctly be described as a law for the restriction of State action in the field chosen. That is a direct operation of the law.
In the other aspect, the law is connected with a subject of Commonwealth power. Conceivably that connection may be made so insubstantial, tenuous or distant by the character of the control or restriction the law seeks to impose upon State action that it ought not to be regarded as enacted with respect to the specified matter falling within the Commonwealth power. If so, the law fails simply because it cannot be described as made with respect to the requisite subject matter. But, if in its second aspect the law operates directly upon a matter forming an actual part of a subject enumerated among the federal legislative powers, its validity could hardly be denied on the simple ground of irrelevance to a head of power. Speaking generally, once it appears that a federal law has an actual and immediate operation within a field assigned to the Commonwealth as a subject of legislative power, that is enough. It will be held to fall within the power unless some further reason appears for excluding it. That it discloses another purpose and that the purpose lies outside the area of federal power are considerations which will not in such a case suffice to invalidate the law."
[16](1947) 74 CLR 31 at 61.
[17](1947) 74 CLR 31 at 60-62.
[18](1947) 74 CLR 31 at 78-79.
Dixon J discussed the special problem of a federal tax falling on State operations and, in particular, a tax which is discriminatory in the sense that a State is singled out for taxation or for a special burden of taxation in respect of acts or things when others are not taxed or not so burdened in respect of the same act or things. After noting that this may not exhaust the range of potential problems involved in the taxation power, he went on:[19]
"What is important is the firm adherence to the principle that the federal power of taxation will not support a law which places a special burden on the States. They cannot be singled out and taxed as States in respect of some exercise of their functions. Such a tax is aimed at the States and is an attempt to use federal power to burden or, may be, to control State action. The objection to the use of federal power to single out States and place upon them special burdens or disabilities does not spring from the nature of the power of taxation. The character of the power lends point to the objection but it does not give rise to it. The federal system itself is the foundation of the restraint upon the use of the power to control the States."
[19](1947) 74 CLR 31 at 81.
Non-discriminatory federal taxes which applied to the States in their capacity as employers were held valid in Victoria v The Commonwealth[20] (pay-roll tax) and State Chamber of Commerce and Industry v The Commonwealth[21] (fringe benefits tax). In the first of those cases, Windeyer J added to the lexicography by defining discrimination as "an adverse distinction with regard to something or somebody"[22]. The pay-roll tax was not discriminatory, and, to use the words of Menzies J, did not "operate to interfere with a State carrying out its constitutional functions of government"[23]. That being so, there was no occasion for the Justices to state more precisely what might constitute impermissible interference. A majority of the Court accepted the principles stated by Dixon J in Melbourne Corporation but found it unnecessary further to refine or elaborate them. Gibbs J said that the source of the implication is "what is required to preserve and protect the position of the States as independent members of the federation"[24]. In the second case, the argument that the fringe benefits tax was invalid was advanced under rubrics corresponding to those that appear in ground (a) in the present case[25]. First, it was said the legislation singled the States out for special treatment. It required them to pay tax in respect of benefits paid to people such as Ministers, parliamentarians and judges, who were not employees. In that respect the obligation was peculiar to States and had no counterpart in relation to non-government employers. This argument was answered by reference to the nature of the tax. It was not a tax on benefits paid to people who were in a master-servant relationship. It was a tax on benefits paid in addition to salary or wages, whether or not there was a strict relationship of employment. In order words, a decision as to whether the tax was discriminatory involved an examination of the wider scheme of which it was part, and an exercise in characterisation. Secondly, it was said that the legislation interfered with, impaired or curtailed the States or the exercise of their functions of government. This argument was answered by the observation that the imposition of a general income tax on the salaries or wages of State officials or employees is valid, and familiar, and the fringe benefits tax was no different in its effect on the States[26].
[20](1971) 122 CLR 353.
[21](1987) 163 CLR 329.
[22](1971) 122 CLR 353 at 404.
[23](1971) 122 CLR 353 at 392.
[24](1971) 122 CLR 353 at 423.
[25](1987) 163 CLR 329 at 355-356.
[26](1987) 163 CLR 329 at 356.
The concept of discrimination was also developed in the judgments of Brennan J and Deane J in Queensland Electricity Commission v The Commonwealth[27]. In that case a Commonwealth law, enacted pursuant to the conciliation and arbitration power, singled out, for the imposition of special and disadvantageous treatment, an agency of the Queensland government. It was held invalid on the basis of the Melbourne Corporation principle. Brennan J[28] said that if a law discriminates against a State in that it imposes some special burden or disability, there may be no real, as distinct from formal, discrimination if the law is calculated to provide for particular circumstances affecting the State. Some forms of discrimination may be justified by circumstances. Special circumstances may require special treatment and, in such cases, it is for the legislation to decide what special treatment is appropriate. Deane J[29] referred to circumstances where a head of power authorises the singling out of a particular object or situation for special legislative treatment and a State or State agency is affected by reason of its particular involvement in an activity or situation. He gave as an example the involvement of a State or State agency in a particular industrial dispute where the power to legislate with respect to conciliation and arbitration for the purposes of that dispute might be seen to authorise special treatment of the State or State agency.
[27](1985) 159 CLR 192.
[28](1985) 159 CLR 192 at 240.
[29](1985) 159 CLR 192 at 251.
Discrimination is an aspect of a wider principle; and what constitutes relevant and impermissible discrimination is determined by that wider principle. In Queensland Electricity Commission[30], Mason J, in the course of explaining why the implied limitation on Commonwealth powers applies in relation to State agencies as well as States, said that the foundation for the implication is "the constitutional conception of the Commonwealth and the States as constituent entities of the federal compact having a continuing existence reflected in a central government and separately organized State governments". Federal legislation that would be inconsistent with that conception includes, but is not limited to, legislation aimed at the destruction of the States or State agencies, or of one or more of their governmental attributes or capacity. Dawson J expressed the general proposition that arises by implication from the federal structure of the Constitution as being that "the Commonwealth Parliament cannot impair the capacity of the States ... to function effectually as independent units"[31]. He regarded discrimination, and the placing of a special burden on the States by a law of general application, as two examples of potential contravention of that limitation on power. A law which singles out a State or State agency may have as its object to restrict, burden or control State activity[32]. Or a law of general application may so interfere with or impede State activity as to impose an impermissible burden on the exercise of its functions. It is not possible to state exhaustively every form of exercise of Commonwealth legislative power that might be contrary to the general proposition stated above. Just as the concept of discrimination needs to be understood in the light of the general principle, so also does the concept of burden. The adverse financial impact on the States of the pay-roll tax, or the fringe benefits tax, both of which were held valid, far exceeded the financial consequences of the laws held invalid in Melbourne Corporation or Queensland Electricity Commission. It was the disabling effect on State authority that was the essence of the invalidity in those cases. It is the impairment of constitutional status, and interference with capacity to function as a government, rather than the imposition of a financial burden, that is at the heart of the matter, although there may be cases where the imposition of a financial burden has a broader significance.
[30](1985) 159 CLR 192 at 218.
[31](1985) 159 CLR 192 at 260.
[32](1985) 159 CLR 192 at 207 per Gibbs CJ.

Putting discrimination aside, an illustration of a Commonwealth law of general application which operated to impair the capacity of the States to function as governments, was the federal law, enacted pursuant to the conciliation and arbitration power, empowering the Industrial Relations Commission to make awards in relation to terms and conditions of employment, considered in Re Australian Education Union; Ex parte Victoria[33]. The law was held invalid in its application to the States and their agencies in relation to certain, although not all, aspects of the terms and conditions of employment of public servants, including redundancy. It was also held that it did not empower the Commission to make awards in relation to the terms and conditions of employment of such persons as Ministers, ministerial assistants and advisers, heads of department, senior office holders, parliamentary officers and judges. Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ said[34]:
"In our view, ... critical to a State's capacity to function as a government is its ability, not only to determine the number and identity of those whom it wishes to engage at the higher levels of government, but also to determine the terms and conditions on which those persons shall be engaged. Hence, Ministers, ministerial assistants and advisers, heads of departments and high level statutory office holders, parliamentary officers and judges would clearly fall within this group. The implied limitation would protect the States from the exercise by the Commission of power to fix minimum wages and working conditions in respect of such persons and possibly others as well. And, in any event, Ministers and judges are not employees of a State."
[33](1995) 184 CLR 188.
[34](1995) 184 CLR 188 at 233.
To a substantial extent, these principles were expressed in summary form by Starke J in his statement of the grounds of his decision in Melbourne Corporation[35]:
"It is a practical question, whether legislation ... on the part of [the] Commonwealth ... destroys, curtails or interferes with the operations of [a State], depending upon the character and operation of the legislation ... No doubt the nature and extent of the activity affected must be considered and also whether the interference is or is not discriminatory but in the end the question must be whether the legislation ... curtails or interferes in a substantial manner with the exercise of constitutional power by [the State]. The management and control by the States and by local governing authorities of their revenues and funds is a constitutional power of vital importance to them. Their operations depend upon the control of those revenues and funds. And to curtail or interfere with the management of them interferes with their constitutional power."
[35](1947) 74 CLR 31 at 75.
Legislating to deprive States and State agencies of the capacity to bank with any bank other than the Commonwealth Bank might or might not have been to their financial disadvantage. That was not the point. The point was that it substantially impaired their capacity to decide where to place their funds and, in that respect, it impaired their capacity to act as governments. As was pointed out in the opinion of the Supreme Court of the United States in Printz v United States[36], in a case where it is claimed that the incidental application to the States of a federal law of general application excessively interferes with the function of state governments, it may be material to measure the burden imposed. But where the argument is that a federal law compromises the structural framework of the federal system, in such a way that the principle of federalism is offended, then the outcome of that argument cannot depend upon a comparative assessment of the governmental interests that are advanced or affected.
[36]521 US 898 (1997) at 931-932.
It is plain, and was accepted in the Australian Education Union Case, that quite apart from the consideration that they are not employees, the conciliation and arbitration power does not extend to enable the Parliament directly or indirectly to dictate to the States the terms and conditions of engagement of judges. An attempt to do so would be an impermissible interference with the capacity of States to function as governments. For the same reason, the Parliament's power to make laws with respect to taxation does not extend to enable it to legislate to single out State judges for the imposition of a special fiscal burden. Judges, like other citizens, are subject to general, non-discriminatory taxation, and the mere fact that the incidence of taxation has a bearing upon the amount and form of remuneration they receive does not mean that federal taxation of State judges is an interference with State governmental functions. It is otherwise when, as here, a federal law with respect to taxation treats State judges differently from the general run of high income earners and federal judges, and to their practical disadvantage. That differential treatment is constitutionally impermissible, not because of any financial burden it imposes upon the States, but because of its interference with arrangements made by States for the remuneration of their judges. The practical manifestation of that interference is in its capacity to affect recruitment and retention of judges to perform an essential constitutional function of the State. Evidence of that capacity is to be found in the legislative response which the State of New South Wales was, in effect, forced to make. The Parliament could never have compelled the State of New South Wales to alter the design of its judicial pension scheme. Indeed, at the time of the Acts, the State judicial pension scheme was not materially different from the federal judicial pension scheme. But the State scheme was substantially altered as a result of the practical necessity that followed from the subjection of State judges to a discriminatory federal tax.
The validity of the Acts is to be determined as at the time of their enactment. They were not rendered valid by subsequent State legislative action. However, the Commonwealth argues that any burden on the State of New South Wales, in consequence of the fiscal imposition on its judges, could be, and was, ameliorated by legislation of the kind that was subsequently enacted by the State. For the reasons already given, it is not a question of any financial burden on the States. Judges are relatively few in number, and the arrangements made for their remuneration are not of major significance in any government budget. The issue is one of interference; of impairment of the constitutional integrity of a State government. Such interference is not denied by pointing out that a State could and did make a substantial alteration to the design of its judicial pension scheme; on the contrary, the need to make such alteration demonstrates the interference.
The wider fiscal regime, of which the Acts form part, imposes what the Commonwealth has characterised as a tax on increases in the amount of the liability of superannuation providers to pay superannuation benefits. In its operation in relation to most high income earners, it is imposed on the superannuation providers. The sole justification advanced for its imposition directly on State judges is that s 114 of the Constitution is said to prevent the imposition of such a tax on States in their capacity as providers of superannuation benefits to judges. As noted above, that proposition has not been demonstrated to be correct. However, let it be assumed in favour of the Commonwealth's argument that it is correct. It means that the explanation for creating the fiction of contributions to a notional fund, and imposing directly upon State judges the liability that, in the ordinary incidence of the tax, would be imposed upon the State, is that to impose the tax upon the State would be unconstitutional. The assumed constitutional prohibition upon taxing the States in the same way as other superannuation providers is said to justify taxing State judges differently from other recipients of superannuation benefits. Section 114 is a particular instance, covered by express prohibition, of federal taxation inconsistent with the federal nature of the Constitution. What would otherwise be covered by the implied prohibition recognised in Melbourne Corporation and other cases cannot be justified on the ground that it is an indirect means of achieving that which is prohibited by s 114.
Brief reference was made in argument to some relatively recent North American decisions dealing with an argument that certain legislation affecting judges violated constitutional imperatives of judicial independence. Because no argument about judicial independence was raised in this case, those decisions were rightly regarded by the parties as being of only marginal relevance. However, if only to make it clear that they were about a different issue, they should be mentioned.
The Queen v Beauregard[37] concerned legislation enacted by the Federal Parliament in Canada altering the pension arrangements that applied to federally appointed judges. In Canada, judges of superior Provincial courts, as well as federal judges, are appointed by the federal government, and their remuneration is fixed by the Federal Parliament. There was no limitation on the Federal Parliament's law-making capacity, based on federalism, of the kind invoked in the present case. However, it was argued that it was inconsistent with judicial independence that federal judicial pensions, which had previously been non-contributory, should, in relation to judges appointed after a certain date, be made contributory. That argument was rejected by the Supreme Court of Canada. No similar argument is involved in the present case; rather, the issue here is one of federalism. It is unnecessary to examine the detail of the legal arguments based on the claimed interference with judicial independence. It may be noted, however, that Dickson CJ said[38]:
"The power of Parliament to fix salaries and pensions of superior court judges is not unlimited. If there were any hint that a federal law dealing with these matters was enacted for an improper or colourable purpose, or if there was discriminatory treatment of judges vis-a-vis other citizens, then serious issues relating to judicial independence would arise and the law might well be held to be ultra vires s 100 of the Constitution Act, 1867."
[37][1986] 2 SCR 56.
[38][1986] 2 SCR 56 at 77.
Issues of judicial independence, and the arrangements for fixing and altering judicial remuneration that might be established consistently with such independence, were again examined by the Supreme Court of Canada in Re Provincial Court Judges[39]. Once again, that was not a case that raised issues of federalism of the kind with which we are presently concerned; and it is not argued that the federal legislation under challenge in the present case threatens the independence of State judges.
[39][1997] 3 SCR 3.
The Supreme Court of the United States, in United States v Hatter[40] also considered the application of federal laws to federal judges. The laws were claimed to violate the United States Constitution's prohibition against diminishing the remuneration of federal judges during their term of office. No such issue is involved in the present case. Our Constitution, in s 72, contains a similar prohibition, but it has nothing to do with the effect of federal laws on State judges. In Hatter, some of the laws under challenge were held valid, and some were held invalid. The valid laws imposed non-discriminatory taxes upon judges and other citizens. The invalid laws were discriminatory, singling out federal judges for unfavourable treatment. The Court held that the Constitution did not forbid Congress to enact a law imposing a non-discriminatory tax on judges. The invalid taxes were discriminatory. It is of interest to note the attempted justification advanced for the discrimination, and rejected by the Court. The supposed justification was that the singling out of judges for disadvantageous treatment was "necessary to offset advantages related to constitutionally protected features of the judicial office"[41]. It was pointed out by Breyer J that, if such a justification were accepted, it would authorise the legislature to "equalize away"[42] the very protection given by the Constitution. To the extent that Hatter has similarities to the present case, they appear to me to be to the disadvantage of the Commonwealth's argument.
[40]532 US 557 (2001).
[41]532 US 557 (2001) at 576.
[42]532 US 557 (2001) at 576.
The challenge to the validity of the Acts on the ground stated in par (a) of Question 2 has been made out.
I would answer the questions in the case stated as follows:
1.        (a)      Yes
(b)      No
2.        (a)      Yes.
3.        The defendant should pay the costs of the plaintiffs.
GAUDRON, GUMMOW AND HAYNE JJ.
The case stated
The occasion for this litigation is provided by the impact of federal revenue laws upon the "non‑contributory" and "unfunded" pension arrangements provided by State laws for the plaintiffs as State judicial officers. Constitutional issues respecting the impact of revenue legislation upon such judicial pension schemes have been considered in recent times by the Supreme Court of Canada[43] and the Supreme Court of the United States[44]. In the present litigation, the Attorneys-General for New South Wales, Victoria, South Australia and Western Australia intervened to support the submissions by the plaintiffs and, in certain respects, to supplement those submissions.
[43]R v Beauregard [1986] 2 SCR 56.
[44]United States v Hatter 532 US 557 (2001).
Before the Full Court is a case stated under s 18 of the Judiciary Act 1903 (Cth) ("the Judiciary Act") asking certain questions. The first is whether on the true construction of two laws of the Commonwealth the plaintiffs are liable to pay "superannuation contributions surcharge" in respect of "surchargeable contributions" reported for several financial years. The two laws are the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) ("the Protected Funds Imposition Act") and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) ("the Protected Funds Assessment Act"). These statutes commenced on 7 December 1997. The Protected Funds Assessment Act has been amended several times, in particular by Sched 2 to the Superannuation Contributions and Termination Payments Taxes Legislation Amendment Act 1999 (Cth) ("the 1999 Amendment Act").
The second question assumes an affirmative answer to the first. It asks whether on one or more identified grounds the legislation is invalid in its application to the plaintiffs. One objection to validity, shortly put, is that the Protected Funds Imposition Act imposes a liability upon the plaintiffs by reference to criteria which are so incapable of ascertainment or lacking in general application as to deny to both statutes the description of "laws … with respect to … Taxation", within the meaning of s 51(ii) of the Constitution. In seeking an affirmative answer to that question, the plaintiffs pray in aid passages in the joint judgments in MacCormick v Federal Commissioner of Taxation[45] and Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd[46]. A further objection to validity is that the Protected Funds Imposition Act deals with more than one subject of taxation, contrary to s 55 of the Constitution. Here the plaintiffs rely particularly upon Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation[47].
[45](1984) 158 CLR 622 at 640‑641.
[46](1985) 158 CLR 678 at 684.
[47](1992) 173 CLR 450 at 469.
Other objections to validity are formulated in various ways but, in essence, invite attention to fundamental constitutional considerations, invoking that implied limitation upon the legislative powers of the Commonwealth which is associated with Melbourne Corporation v The Commonwealth[48] and recently was further expounded in the Native Title Act Case[49], Re Australian Education Union; Ex parte Victoria[50] and the Industrial Relations Act Case[51]. In submissions, no direct reliance was placed upon the specific but limited prohibition imposed upon the federal taxation power by s 114 of the Constitution[52], but some reference will be necessary to decisions construing s 114.
[48](1947) 74 CLR 31.
[49]Western Australia v The Commonwealth (1995) 183 CLR 373.
[50](1995) 184 CLR 188.
[51]Victoria v The Commonwealth (1996) 187 CLR 416 at 497‑503.
[52]Section 114 states:
"A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State."
It should be emphasised that, contrary to what at times in the argument appeared to be some colour given by the Commonwealth to its submissions, the issues identified above are not to be approached with some broad view which takes as dispositive in this Court the economic results sought to be obtained by the legislation in question[53]. It is the character in constitutional law of what was done, as it bears upon the plaintiffs and the States of whose courts they are members, which is in issue. What resort to arguments of economic equivalence does reveal is that the impugned legislation is legally different from other, generally applicable legislation providing for the taxation of other pension and superannuation entitlements. That is, the impugned legislation subjects the plaintiffs, as State judicial officers, to special and legally different taxation arrangements from those generally applicable to persons eligible for, or in receipt of, pensions or superannuation.
[53]cf Europa Oil (NZ) Ltd v Inland Revenue Commissioner [1976] 1 WLR 464 at 471‑472; [1976] 1 All ER 503 at 508‑509; [1976] 1 NZLR 546 at 552‑553.
For the reasons that follow, the first question (about construction) should be answered differently in relation to each plaintiff – "Yes" in the case of the first plaintiff, "No" in the case of the second plaintiff. The second question (about validity) should be answered "Yes". The legislation is invalid. It exceeds that limitation on the legislative powers of the Commonwealth which flows from the very nature of the federal structure established by the Constitution.
The judgment is divided as follows:
The plaintiffs' pension entitlements  [44]-[48]
Federal superannuation legislation  [49]-[52]
The SASFIT litigation and s 114 [53]-[56]
The superannuation guarantee legislation  [57]-[58]
The SIS Act [59]-[61]
The surcharge legislation  [62]-[67]
The protected funds legislation  [68]-[71]
Federal unfunded schemes  [72]
The liabilities of the plaintiffs  [73]-[74]
The position of the second plaintiff  [75]-[81]
The position of the first plaintiff  [82]-[91]
Construction issues  [92]-[110]
Constitutional implications  [111]-[115]
Melbourne Corporation and discrimination                  [116]-[124]
The scope of the doctrine  [125]-[131]
The United States decisions  [132]-[135]
The judgments in Melbourne Corporation  [136]-[139]
Taxation  [140]-[142]
Queensland Electricity [143]-[145]
The later decisions  [146]-[152]
Conclusion respecting Melbourne Corporation
          doctrine  [153]-[174]
Other immunity issues  [175]-[181]
Arbitrary exactions?  [182]-[186]
Section 55 of the Constitution [187]-[201]
Conclusions  [202]-[204]
The plaintiffs' pension entitlements

The first plaintiff was appointed after and the second plaintiff before the commencement of the legislation on 7 December 1997. The first plaintiff is a judge of the Supreme Court of New South Wales and was appointed to that office on 31 August 1998 at the age of 52 years. He must retire from office no later than 15 June 2018 when he attains the age of 72 years. Section 25 of the Supreme Court Act 1970 (NSW) ("the NSW Supreme Court Act") provides that the Supreme Court is composed of the judges thereof. The second plaintiff was appointed to the office of Master of the Supreme Court of Victoria on 20 July 1993 when aged 42 years. She must retire from office no later than when she attains the age of 70 years in 2021. Section 75(2) of the Constitution Act 1975 (Vic) ("the Victorian Constitution") states that the Supreme Court of the State of Victoria consists of the judges and the Masters of that Court.
It is accepted by the Commonwealth that the courts of the States are an essential branch of State governments. It should be added that the State courts, as contemplated by s 71 of the Constitution, exercise in substantial measure the judicial power of the Commonwealth. They do so pursuant to the investment of federal jurisdiction by laws such as s 39(2) and s 68(2) of the Judiciary Act, supported by s 77(iii) of the Constitution.
The pension provisions in relation to the offices held by the plaintiffs are made respectively by the Judges' Pensions Act 1953 (NSW) ("the NSW Pensions Act") and Pt 7 of the Supreme Court Act 1986 (Vic) ("the Victorian Supreme Court Act"). There are considerable differences in matter of detail, but the statutes share significant characteristics. No provision is made for contributions by the plaintiffs. Pensions are payable to the plaintiffs[54] upon satisfaction of statutory criteria and out of the Consolidated Fund of the State of New South Wales, established by the Constitution Act 1902 (NSW)[55], and the Consolidated Revenue established by the Victorian Constitution[56].
[54]See the NSW Pensions Act, s 10; Victorian Supreme Court Act, s 104A(11).
[55]Part 5 (ss 39‑46).
[56]Part V, Div 1 (ss 89‑93).
In Northern Suburbs General Cemetery Reserve Trust v The Commonwealth[57], Dawson J pointed out that one of the purposes served by the establishment in Australia of Consolidated Funds modelled upon the Consolidated Fund first established in the United Kingdom by statute in 1787 is a blending of all public moneys received so that they become available for appropriation by the legislature. Consistently with that system, provision for payment of the pensions in question is not made by the setting aside for investment of specific moneys or assets; in particular, legislation of neither State provides for the establishment of a fund whereby property is set aside for investment, with capitalisation of the yield from investment; nor is provision made for the funding of pensions by or with the assistance of contributions by prospective pensioners or others.
[57](1993) 176 CLR 555 at 591.
The result is that neither legislative scheme answers the general description of a superannuation fund given by Windeyer J in Scott v Commissioner of Taxation of the Commonwealth (No 2)[58]. His Honour referred to the setting aside of money or other property for investment with the yield therefrom to be capitalised, and the fund thus created being subjected to appropriate trusts for the provision to participants of monetary benefits upon their reaching a prescribed age.
[58](1966) 40 ALJR 265 at 278.
Federal superannuation legislation
In order to appreciate the issues respecting construction and validity of the Protected Funds Imposition Act and the Protected Funds Assessment Act, it is necessary first to consider in a little detail the impact upon superannuation arrangements of federal revenue law. In this field, a range of policy considerations are presented. One concerns the deductions, if any, to be allowed to those making contributions to superannuation arrangements; another the tax, if any, to be imposed upon the yields from the investment of those contributions; and a third, the tax treatment of the payments made to those having the benefit of the superannuation provisions. The responses by the Parliament, particularly over the past 20 years, have produced a complex and shifting legislative pattern formed by a number of federal statutes of which those immediately in dispute are but two.
The general position as it previously obtained has been described by one commentator as follows[59]:
"Prior to 1983, if an employer contributed money to an approved employee superannuation fund, the contribution was tax deductible, the income of the fund was tax free and only 5% of any lump sum paid to an employee on retirement was included in assessable income, to be taxed at the employee's marginal rates. Pensions were treated separately. Because they were regular receipts and displayed some of the common indicia of income on ordinary concepts, they were taxed in full. This merely encouraged most superannuation benefits to be paid out as lump sums. Eventually governmental advisors and commentators sought to value this tax expenditure. Estimates were in the order of billions of dollars per annum in foregone revenue."
To that it may be added, as the submissions for South Australia emphasised:
"In general terms these arrangements did not apply to public sector superannuation. Such schemes were usually unfunded, defined benefits pension schemes which were taxed as ordinary income upon receipt by the beneficiary."
[59]Waincymer, Australian Income Tax – Principles and Policy, (1991) at 119.
The terms of the New South Wales and Victorian laws providing pensions to judicial officeholders, particularly the absence of contributions and of any segregated fund, have rendered inapplicable certain concessional taxation treatment provided for many years by the Income Tax Assessment Act 1936 (Cth) ("the ITAA"). That concessional treatment includes provision now made by subdivs AA and AB[60] of Div 3 of Pt III of the ITAA. Division 3 deals generally with deductions. Subdivision AA is headed "Contribution to Superannuation Funds for Benefit of Employees" and s 82AAC provides allowable deductions for contributions to a fund which is an "eligible superannuation fund". Subdivision AB is headed "Contributions to Superannuation Funds by Eligible Persons". Section 82AAT provides an allowable deduction for certain contributions to a "complying superannuation fund". The terms "eligible superannuation fund" and "complying superannuation fund" have the meaning given by Pt IX (ss 267‑315F). Part IX is headed "TAXATION OF SUPERANNUATION BUSINESS AND RELATED BUSINESS". Part IX was added to the ITAA in 1989[61].
[60]Sections 82AAA‑82AAR and ss 82AAS‑82AAT respectively.
[61]By the Taxation Laws Amendment Act (No 2) 1989 (Cth) and amended by the Taxation Laws Amendment (Superannuation) Act 1989 (Cth) which commenced immediately after the former Act; see s 2(1) of the Taxation Laws Amendment (Superannuation) Act.
Pursuant to Pt IX, liability for taxes was imposed upon certain income, receipts and net capital gains by superannuation funds. One significant change made by Pt IX was to add to the assessable income of funds the deductible contributions made by employers; this attracted full tax in respect of those contributions earlier in what might be called the investment cycle.
The SASFIT litigation and s 114
The South Australian Superannuation Fund Investment Trust ("the SASFIT") was incorporated by s 6 of the Superannuation Act 1988 (SA) which made provision for the payment of superannuation benefits to South Australian statutory officers and public sector employees; the statutory scheme established the South Australian Superannuation Fund into which the contributions of contributors were paid either directly or indirectly. In South Australia v The Commonwealth[62], it was accepted that, for the purposes of s 114 of the Constitution, SASFIT was relevantly the State of South Australia and that the assets of the Fund were property "belonging to" the State. The Commissioner of Taxation claimed that the Fund was a superannuation fund to which Pt IX applied and that, as a consequence, SASFIT was liable to pay tax on the taxable income of the Fund. It was held that SASFIT was not exempt from paying income tax on interest derived by the Fund; the exemption was limited to income tax on net capital gains.
[62](1992) 174 CLR 235.
Section 267, the first provision in Pt IX, contained various definitions for the purposes of that Part. SASFIT had accepted that it was a "complying superannuation fund" within the definition in that provision. In the joint judgment of Mason CJ, Deane, Toohey and Gaudron JJ in South Australia v The Commonwealth, their Honours, after referring to that definition, continued[63]:
[63](1992) 174 CLR 235 at 246.
"The trustee of a complying superannuation fund is liable to pay tax on the taxable income of the fund of the year of income (s 278(1)). A complying superannuation fund is an 'eligible superannuation fund' as defined by s 267(1) and is therefore an 'eligible entity' as defined by that sub‑section. The taxable income of an eligible entity shall be calculated as if the trustee were a taxpayer and a resident (s 272). A reference in Pt IX to a fund includes a reference to a fund established by (a) a law of a State or (b) a public authority constituted by or under a law of a State (s 270).
The provisions of Pt IX were drafted with an eye to the possibility that the provisions of the Part might infringe the prohibition in s 114 of the Constitution by imposing a tax on property of a State. Section 271 deals with that situation. Sub‑section (1) provides:
'It is the intention of the Parliament that if, but for this section, this Part would have the effect that a law imposing taxation would impose tax on property of any kind belonging to a State within the meaning of section 114 of the Constitution, this Part shall not have that effect.'"
Section 271(2), as the legislation stood at the time of the High Court litigation, read:
"For the purposes of this Part, a fund is a constitutionally protected fund in relation to a year of income if subsection (1) applies to the fund in relation to any tax in relation to the year of income."
Thereafter[64], s 271(2) was omitted, a definition of "constitutionally protected fund" as meaning a fund declared by the regulations to be a constitutionally protected fund was inserted in s 267, and s 271A was added. This provided:
"Despite any other provision of this Part, income derived by a constitutionally protected fund is exempt from tax."
Section 266 of the ITAA conferred a regulation-making power to prescribe all matters which by the statute were required or permitted to be prescribed. The purpose of the declaration by regulations that a fund was a constitutionally protected fund was to enliven s 271A and the exemption from tax of income derived by those funds.
[64]Sections 100-102 of the Taxation Laws Amendment Act (No 2) 1994 (Cth).
At the time of the commencement of the Protected Funds Assessment Act and the Protected Funds Imposition Act, reg 177 of the Income Tax Regulations 1936[65] declared certain funds (principally identified by Sched 14) to be a "constitutionally protected fund" for the definition of that term in s 267 of the ITAA. Schedule 14 listed 31 statutes enacted by the six States. Included in the list were the NSW Pensions Act, the Victorian Constitution and the Victorian Supreme Court Act. The NSW Pensions Act was the only statute of that State listed.
[65]Inserted by SR No 191 of 1997, effective from 4 July 1997.
The superannuation guarantee legislation
In the meantime, there had come into force legislation implementing three significant policies adopted by the Commonwealth. They were concerned with the making of stipulated contributions by employers, the prudential management of superannuation funds, and the imposition of the "surcharge". The first policy was implemented by the Superannuation Guarantee Charge Act 1992 (Cth), the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the Guarantee Act") and the Superannuation Guarantee (Consequential Amendments) Act 1992 (Cth). Section 12(9) of the Guarantee Act expands the ordinary meaning of the term "employee" and, in particular, it classifies a person holding office under a law of a State as an employee of that State. Section 16 obliges employers to pay the "superannuation guarantee charge" imposed on that employer's "superannuation guarantee shortfall".
The effect of the legislation is to require employers to pay stipulated contributions to a "complying superannuation fund", an expression adopted from Pt IX of the ITAA[66]; in the absence of those payments, the employer is liable to the superannuation guarantee charge of approximately twice the amount otherwise to be contributed. The charge is a debt due to the Commonwealth[67]. Approximately half of the charge is to be passed on to the complying superannuation fund for the benefit of the employee. The case stated is silent as to whether New South Wales or Victoria have had any superannuation guarantee shortfalls in respect of the plaintiffs.
[66]See s 7 of the Guarantee Act.
[67]Guarantee Act, s 50.

The SIS Act
The second development involved the introduction of new prudential arrangements for superannuation funds. The policy given effect by the Superannuation Industry (Supervision) Act 1993 (Cth) ("the SIS Act") was identified in sub‑ss (1) and (2) of s 3. These stated:
"(1)The object of this Act is to make provision for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.
(2)The basis for supervision is that those funds and trusts are subject to regulation under the Commonwealth's powers with respect to corporations or pensions (for example, because the trustee is a corporation). In return, the supervised funds and trusts may become eligible for concessional taxation treatment."
The scheme of the SIS Act was considered in Attorney-General (Cth) v Breckler[68]. A "regulated superannuation fund" was a fund in respect of which there had been an election that the SIS Act apply to it. If this fund was a resident superannuation fund and if there was compliance with the SIS Act and the regulations thereunder, the fund would obtain the status of a "complying superannuation fund" within the meaning of s 45 of the SIS Act. In respect of such a compliant fund, s 278 of the ITAA produced the beneficial result that the trustee would be liable to pay tax on the taxable income of the fund as provided in Pt IX of the ITAA and not otherwise.
[68](1999) 197 CLR 83 at 100‑103. See also O'Connell, "Superannuation and Tax – Some Equity Issues", (2000) 28 Federal Law Review 477 at 480‑483.
The only complying superannuation funds within the meaning of s 45 of the SIS Act that are unfunded are public sector superannuation schemes[69]. In the past a number of Australian public companies entered into agreements, which are still on foot, with officers or employees to pay them upon or after retirement an annuity or, more recently, a lump sum, in circumstances where the payments are made out of the resources of the company in question and no fund is set aside for the purposes of making the payments. The taxation treatment of moneys paid under these agreements will vary according to the terms and conditions on which they are paid; there is no "complying superannuation fund" within the meaning of s 45 of the SIS Act[70].
[69]Case Stated, par 108B.
[70]Case Stated, par 108A.
Difficulties were encountered in applying the new prudential regime to State superannuation funds; in particular, as was emphasised in the submissions for South Australia, the prudential requirements relating to the maintenance of minimum assets could not be complied with in respect of those funds which were unfunded. Neither scheme established by the NSW Pensions Act or by s 104A of the Victorian Supreme Court Act, being the schemes affecting the plaintiffs, was a regulated superannuation fund for the purposes of the SIS Act; nor were the requirements of the definition in s 45(1) of "complying superannuation fund" met. However, s 45(6) of the SIS Act provided:
"Despite subsection(1), if, at all times during a year of income when a fund was in existence, the fund was, or was part of, an exempt public sector superannuation scheme, the fund is a complying superannuation fund in relation to the year of income for the purposes of Part IX of the [ITAA]."
The effect of the definition in s 10(1) of "exempt public sector superannuation scheme" was to identify its content as that specified in regulations. The effect of reg 1.04(4A) of the Superannuation Industry (Supervision) Regulations 1994 ("the SIS Regulations") has been that, at all material times, what were identified therein as "Schemes established by or operated under … [the NSW Pensions Act and the Victorian Supreme Court Act]" were exempt public sector superannuation schemes.
The surcharge legislation
It is with the implementation by the Commonwealth of its third policy that this litigation is more immediately concerned. In introducing the Budget, the Commonwealth Treasurer on 20 August 1996 announced a range of measures which, it was said, were designed to make superannuation arrangements fairer, more flexible and better suited to the needs of the modern workforce. In particular, it was announced that tax deductible contributions made to superannuation funds by or on behalf of "high income earners" were to be subject to a surcharge of up to 15 per cent "payable by the funds". Further, it was said that, with respect to service before the Budget announcement, the new measure would not affect "benefits paid under an unfunded or Constitutionally protected scheme". The apparent incongruity in singling out for the same impost, dubbed a "surcharge", those "high income earners" who had had the benefit of concessional deductions for contributions and those in the public sector who had non‑contributory arrangements was not addressed in the announcement.
Subsequently, in the Second Reading Speech for the bills for what became the Superannuation Contributions Tax Imposition Act 1997 (Cth) ("the Surcharge Imposition Act") and the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth) ("the Surcharge Assessment Act"), the responsible Minister said[71]:
"The superannuation system has been inequitably biased in favour of high income earners. Those high income earners have been benefiting from the concessional taxation treatment of superannuation to a much greater extent than low income earners. The introduction of the superannuation contributions surcharge for high income earners is this government's response to ensure that the superannuation system is more equitable for all Australians, while also ensuring that superannuation remains an attractive savings option."
[71]Australia, House of Representatives, Parliamentary Debates (Hansard), 13 February 1997 at 887.
The term "surcharge" has been used to describe a penalty imposed for late returns to revenue authorities and a sum not passed on an audit and required to be refunded by the person responsible. The Minister appears to have had in mind some other meaning to identify a new subject of taxation without using that word. At all events, counsel for the plaintiffs emphasised that persons in their position had not participated in this announced mischief; the non‑funded pensions schemes for judicial officers had attracted no tax deductible contributions.

I contest the proposition that imposition of such a tax has a significant and detrimental effect on the power of a State to determine the terms and conditions affecting the remuneration of its judges. This Court has repeatedly upheld the broad power of the Federal Parliament to make laws with respect to taxation in the most ample terms. A wide power is essential for the effective discharge by the Commonwealth of all of its national responsibilities, as envisaged by the Constitution[397]. Self-evidently, taxation laws of general application have long had important consequences for the States, their instrumentalities, employees and officers, including those holding high positions in the government of the States such as judges. Yet this Court has repeatedly resisted attempts by the States to narrow the federal taxation power, or to secure immunity from federal taxes, by reference to implied limitations on the Commonwealth's law-making capacity to affect the States. It did so most recently in the challenges to the federal payroll tax[398] and to the fringe benefits tax[399]. As a matter of constitutional principle, no different approach should be adopted with respect to the laws here in question.
[397]cf Luton v Lessels (2002) 76 ALJR 635 at 654 [117]; 187 ALR 529 at 557 citing United States v Butler 297 US 1 at 61 (1936).
[398]Victoria v The Commonwealth (1971) 122 CLR 353.
[399]State Chamber of Commerce and Industry v The Commonwealth (The Second Fringe Benefits Tax Case) (1987) 163 CLR 329; cf Queensland v The Commonwealth (The First Fringe Benefits Tax Case) (1987) 162 CLR 74.
Nor does the evidence support the argument of the first plaintiff that "not many Judges should be prepared to continue to serve after the first opportunity for retirement". A review, conducted by the New South Wales Government Actuary's Office on the judges' pension scheme of that State[400], received without objection, noted that "[j]udges who retire at older ages have always received a lower value of benefit since payments will on average be paid for shorter periods". Whilst commenting, fairly, that "[t]he effect of the surcharge is that in future [judges] will also receive lower amounts of pension payments, which is a perverse outcome for longer service", the data produced suggests that, despite financial disincentives, many judges in the past have continued to serve until the statutory retiring age[401]:
"Seven judges, who had completed 10 years service, retired within 12 months of reaching age 60, twelve judges who completed 10 years after attaining age 60 retired within 3 months of qualifying for a pension, and seventeen judges retired at or near age 72."
The evidence before this Court does not establish the proposition – nor is it open to reasonable inference – that the established pattern of judicial service would alter significantly following the introduction of the surcharge. There is every reason to believe that it would not.
[400]New South Wales Government Actuary's Office, Judges' Pension Scheme (NSW), Actuarial Review as at 30 June 2001.
[401]New South Wales Government Actuary's Office, Judges' Pension Scheme (NSW), Actuarial Review as at 30 June 2001 at 7.
Despite financial disadvantages, appropriate appointees will continue to be attracted to, and elect to remain within, judicial office, federal and State. They will do so because of the non-financial features of judicial office. The submission that the new federal surcharge would alter this, in ways seriously damaging to the government of the States, is speculative, hypothetical and unproved. It should be rejected. Whatever arguments exist for improving the general level of judicial remuneration in Australia, having regard to its relative decline in recent decades[402], they have no bearing upon the constitutional validity of the federal law challenged in this case.
[402]cf Atkins v United States 556 F 2d 1028 (1977).
I would infer that some potential appointees, suitable for appointment as State judges, might now reject the offer of judicial appointment because of the comparative decline of the financial rewards in consequence of the surcharge. Yet given the general applicability of the surcharge in some form upon high income earners, most potential appointees would be likely to face a decline in post-retirement income even if they were to remain in their alternative employment. Some, who are appointed, might now elect to leave office earlier than they otherwise would have done. But there have always been injustices and anomalies in laws imposing taxation, as in the judicial pension scheme itself. The surcharge has now been in operation for five years whilst this case was being conceived, argued and decided. I would reject any suggestion that, in that time, there has been a fall off in the number and quality of judicial appointments, State or federal, in this country. In the future, as in the past, most persons attracted to judicial office are unlikely to nominate remuneration as one of the chief attractions of appointment. The inducements typically lie elsewhere – in the interest and responsibility of the work; the status and public respect for the judicial office; the opportunity for a change of direction involving broader public service; and the respite from the intense pressures of other legal employment. Such inducements remain unchanged.
Unfairness and discrimination: The first plaintiff argued that the mechanism by which the surcharge was imposed, upon the superannuation member rather than the provider, constituted an impermissible discrimination against State judges, rendering the legislation invalid. However, mere discrimination does not amount to impermissible interference by the Federal Parliament in the basic constitutional functions of a State. As the joint reasons point out, discrimination does not have an independent operation in this context[403]. It is only if the discrimination has the effect of impairing the constitutional functions of the State that the federal prohibition implied from the Constitution is enlivened.
[403]Joint reasons at [123].
Various incidents of the surcharge upon judicial incomes were cited by the first plaintiff to establish the financial burden that the surcharge will impose upon the first plaintiff and the disincentive that it may occasion to his continuing to serve in judicial office after the first moment at which he becomes entitled to retire on a pension[404]. From such features of the operation of such laws, the other members of this Court reach the conclusion that they constitute an impermissible disability or burden imposed upon the operations and activities of the State which, for that reason, are constitutionally invalid. I do not agree.
[404]Joint reasons at [169].
The legislation may indeed be viewed as unfair to those in the position of the first plaintiff. Indeed, he argued that its operation was "grossly unfair and irrational". Other recipients of superannuation benefits do not become personally liable for the surcharge amount, unless the superannuation provider "passes on" that liability to them. However, this Court has repeatedly recognised that it is for the Parliament to select the subjects of taxation. It is not the role of this Court to invalidate a new federal tax simply because it regards some aspects of the tax unfair[405], unwise, oppressive, discriminatory as between taxpayers or based upon disputable fictions. By the Constitution, such considerations are reserved to the Parliament accountable to the electors – not to this Court. The fact that the first plaintiff is a judicial officer whose complaints of unfairness may resonate in judicial ears is no reason to depart from the limited role enjoyed by this Court under the Constitution.
[405]Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64 at 71 where Rowlatt J pointed out "[t]here is no equity about a tax".
Many tax laws (especially when new) may be subject to criticisms similar to those voiced by the first plaintiff. Many provisions of existing tax law are founded on fictional hypotheses and some on contestable administrative calculations. Yet if the constitutional power exists for the legislation, it is not lost because the tax imposed is inconvenient to the States or even arguably unfair to some of their senior employees and officeholders. Much more is required to demonstrate a loss of the federal power with respect to taxation.
The law reports are full of cases, and not only in wartime[406], in which this Court has upheld the constitutional validity of federal taxing statutes imposing extremely burdensome obligations upon the taxpayer. The introduction of liability to provisional tax[407], obliging advance payment of taxation in respect of a future year's income at the same time as paying the taxes levied in the current year, is a clear case in point. In particular circumstances such a tax might be much more onerous on a taxpayer than the legislation whose constitutionality is attacked in this case. Yet after the overthrow of the doctrine of implied immunities[408], this Court has consistently upheld the validity of such measures[409]. It has eschewed the temptation to turn criticism of the burdens of the mechanics of collecting the tax into defects of constitutional validity. Once begun, in respect of a burden upon judges, there is no way of knowing where such legal alchemy might finish in response to the complaints of other taxpayers.
[406]South Australia v The Commonwealth (1942) 65 CLR 373; cf The State of Victoria v The Commonwealth (1957) 99 CLR 575.
[407]Income Tax and Social Services Contribution Assessment Act 1936-1956 (Cth), ss 221YA.
[408]cf The Municipal Council of Sydney v The Commonwealth (1904) 1 CLR 208 at 232.
[409]Moore v The Commonwealth (1951) 82 CLR 547; Commissioner of Taxation v Clyne (1958) 100 CLR 246. cf Wynes, Legislative, Executive and Judicial Powers in Australia, 5th ed (1976) at 181-184.
In my view, the effect[410] of the federal legislation impugned in these proceedings does not even come close to jeopardising the selection and retention of State Supreme Court judges. It falls far short of impairing, in a substantial degree, the State's capacity to function as an independent constitutional entity. The decision of this Court to the contrary pushes the implied constitutional prohibition to a new and radical application that has no foundation in the Constitution. Since the impugned federal laws were enacted, the New South Wales Parliament has demonstrated the capacity of that State to adapt the pension arrangements for its judges, including the first plaintiff, to the new federal legislation, in order to ameliorate any hardships to retired judges or other beneficiaries under the judicial pension scheme[411]. No doubt similar or other provisions could be implemented by the States if they really felt that their court system or the judicial office were endangered by the federal law. Such measures contradict the suggestion of a relevant constitutional impairment.
[410]Commonwealth v Tasmania (The Tasmanian Dam Case) (1983) 158 CLR 1 at 214 per Brennan J, where his Honour stated that the consideration which determines the invalidity is "the actual operation" of the legislative measures.
[411]Judges' Pensions Amendment Act 1998 (NSW). See the joint reasons [172]-[173].
The surcharge, applying as it does directly to judges in the position of the first plaintiff, imposes a financial burden upon them. That is true. But it is a burden that is imposed by a valid federal taxation law, and, as such, has to be borne by those subject to it. Compared with some other lawyers and certain other income earners, judicial officers in Australia may not be particularly well remunerated. Yet, compared to the great mass of the population – including many of those subject to the superannuation contributions surcharge, they are very well remunerated indeed. It is unconvincing to suggest that the burden exacted by the impugned law could affect the proper discharge of the judicial role of persons such as the first plaintiff, their determination of matters coming before them in their judicial capacity or their integrity in carrying out their respective functions. In these circumstances I am unconvinced by the argument that the State judicial institution is damaged or weakened in a way that substantially impairs the capacity of the States to function as the Constitution envisaged that they would. The invocation of the implied constitutional limitation, defensive of the capacity of the State to function as such, fails.
Approaches in other jurisdictions
Final courts and judicial remuneration: I turn finally to a number of overseas decisions to which some reference was made by the parties during argument. In particular, these were decisions from Canada and the United States in which issues relating to the liability of judges to pay various taxes on different aspects of their remuneration (including pensions) were considered. Care must be taken in making a comparison with overseas decisions because of differences in the constitutional provisions and in the development of constitutional doctrine. However, in my view the principles upon which those decisions were based support the Commonwealth's submissions and the conclusions that I have reached.
Canadian cases: In Canada, until 1975, the judges of federally appointed superior courts were, like judges in most parts of Australia, entitled to non-contributory pensions under the Judges Act 1970 (Can)[412]. By the Statute Law (Superannuation) Amendment Act 1975 (Can), it was provided that judges appointed before a specified date in 1975 would contribute 1.5% of their salary towards the cost of their pensions (intended to be a contribution towards improved pensions for spouses and children of judges). Judges appointed after that date would contribute 6% of their salaries towards the cost of pensions, with a provision for further contribution for future inflation. This legislation was later followed by a significant increase in the salaries and pensions of all such judges.
[412]R v Beauregard [1986] 2 SCR 56 at 62-63. See also Valente v The Queen [1985] 2 SCR 673.
In R v Beauregard[413], a superior court judge challenged the constitutional validity and application of the amending law. It is unnecessary to notice the detail of his arguments. The Supreme Court of Canada dismissed his challenge. The majority held that there was no relevant "federalism" limitation on the power of the Canadian Parliament to legislate for the impugned contributions by superior court judges'[414]. This was despite the shared responsibilities for the administration of superior provincial courts between the federal and provincial polities. Section 92 of the Canadian Constitution gives the provincial parliaments legislative power with respect to the administration of justice and the constitution, maintenance and organisation of provincial courts[415]. Critically, however, s 100 of that Constitution assigns to the federal parliament the power to enact provisions for the remuneration (including pensions) of such judges.
[413][1986] 2 SCR 56.
[414][1986] 2 SCR 56 at 80-81.
[415][1986] 2 SCR 56 at 79-80.
Dickson CJ, writing for the majority, noted that, like other citizens, judges were obliged to "bear their fair share of the financial burden of administering the country"[416]. They were liable to pay the "general taxes of the land"[417]. The Court made it clear that Parliament's powers were not unlimited. If it had been shown that the impugned federal law was enacted for "improper or colourable" purposes, or if there were discriminatory treatment of judges when compared to other citizens[418], issues might arise that could demand a conclusion that the law was beyond power as contrary to the Canadian Constitution[419]. A challenge by reference to the Canadian Bill of Rights was also rejected.
[416]With whom Estey and Lamer JJ agreed: [1986] 2 SCR 56 at 76.
[417][1986] 2 SCR 56 at 76 applying Judges v Attorney-General of Saskatchewan [1937] 2 DLR 209 (PC).
[418][1986] 2 SCR 56 at 77.
[419]s 100. See [1986] 2 SCR 56 at 83.
Addressing the arguments pointing to the fact that the measures and mechanisms applied specially and differentially only to judges, Dickson CJ[420] acknowledged that this was so. However, he went on[421]:
"Conceding the factual difference that s 29.1 of the Judges Act is directed only at judges, I fail to see that this difference translates into any legal consequence. … At the end of the day, all s 29.1 of the Judges Act does, pursuant to the constitutional obligation imposed by s 100 of the Constitution Act, 1867, is treat judges in accordance with standard, widely used and generally accepted pension schemes in Canada."
[420][1986] 2 SCR 56 at 61.
[421][1986] 2 SCR 56 at 77.
To the same effect are the later remarks of the Supreme Court of Canada in Re Provincial Court Judges[422]. That case involved four appeals raising common issues concerning whether provincial governments and legislatures in Canada could reduce the salaries of already appointed provincial court judges (as part of budget tightening measures aimed at reducing salaries in the public sector). Lamer CJ, for the majority, made it plain that Beauregard stood for the proposition that the Canadian Parliament could effectively reduce the salaries of superior court judges to the extent of imposing new income tax and other financial burdens on them[423]. He pointed out that "the contributory pension scheme for superior court judges at issue [in Beauregard] was not part of a scheme for the public at large, and in this sense had discriminated against the judiciary vis-à-vis other citizens". Yet that fact had not been regarded as "constitutionally significant"[424]. Likewise, a salary cut for judges in company with other public employees and officeholders did not involve singling them out for differential treatment[425]. On the other hand, "if superior court judges alone had their salaries reduced, one could conclude that Parliament was somehow meting out punishment against the judiciary for adjudicating cases in a particular way"[426].
[422][1997] 3 SCR 3.
[423][1997] 3 SCR 3 at 95-96 [150].
[424][1997] 3 SCR 3 at 97 [153].
[425][1997] 3 SCR 3 at 97-98 [154].
[426][1997] 3 SCR 3 at 99 [156].
It is unnecessary to consider the applicability of these conclusions in an Australian context. Australian doctrine, derived from the implications within Ch III of the Constitution concerning the integrated Judicature and from the "very frame of the Constitution" and the nature of federation it creates, is more elaborate than that so far expounded in Canada. However, it is sufficient to notice the extent to which the Canadian Supreme Court treated as permissible in a federal context measures that have the practical purpose and effect of assimilating judges with other citizens (or only those receiving remuneration from the public purse) so far as laws involving taxation upon their remuneration (including pensions) are concerned.
United States cases: In the United States, the Supreme Court has adopted a similar approach. Despite the Compensation Clause, federal judges in that country have gradually lost the immunity from universal taxation laws. This has been so although such laws necessarily have the effect of reducing a judge's take-home pay[427]. State judges have also lost that immunity[428].
[427]cf United States v Hatter 532 US 557 at 583-585 (2001) per Scalia J.
[428]See these reasons at [247].
In United States v Hatter[429], the majority of the Supreme Court[430] concluded that there was no offence to the Compensation Clause in the extension of generally applicable Medicare taxes to current as well as newly appointed federal judges together with federal employees. The Compensation Clause of the US Constitution was held to prohibit taxation that singled out judges for especially unfavourable treatment. According to the Supreme Court majority, it did not forbid Congress enacting a law imposing non-discriminatory taxes (including an increase in rates or a change in conditions) upon judges, as on other taxpayers[431].
[429]532 US 557 (2001).
[430]Rehnquist CJ, Kennedy, Souter, Ginsburg and Breyer JJ; Scalia and Thomas JJ dissenting in part.
[431]532 US 557 at 567 (2001).

The majority in Hatter[432] endorsed the opinion of Holmes J (with whom Brandeis J had agreed), dissenting in Evans v Gore[433], to the effect that the Compensation Clause offers
"no reason for exonerating [a judge] from the ordinary duties of a citizen, which he shares with all others. To require a man to pay the taxes that all other men have to pay cannot possibly be made an instrument to attack his independence as a judge."
In like language in Hatter, Breyer J, for the majority, remarked[434]:
"There is no good reason why a judge should not share the tax burdens borne by all citizens."
His Honour went on to say that even the constitutional judicial compensation guarantee could not justify a "special judicial exemption from a commonly shared tax"[435].
[432]532 US 557 at 570 (2001).
[433]253 US 245 at 265 (1920).
[434]532 US 557 at 571 (2001).
[435]532 US 557 at 571 (2001).
Whilst other taxing provisions were struck down in Hatter, as involving discrimination against judges, this was done on the basis that the statute did not "equalize with any precision" judges and other federal employees to which the impugned Social Security tax was extended[436]. It was held that the statutory amendments discriminated against the judges. They were said to single out sitting federal judges for unfavourable treatment because the law, as it applied, had effectively imposed upon them a new financial obligation which was not imposed on other federal employees[437]. It seems clear that, in the United States, as in Canada, the discriminatory and unfavourable treatment of judges has been treated as the critical criterion for the constitutional validity of taxing laws having an impact upon judicial remuneration.
[436]532 US 557 at 574 (2001).
[437]532 US 557 at 572 (2001).
Applicability to the present case: Before this Court the first plaintiff did not submit that the new federal laws were a direct attack by the Commonwealth on the independence of the State judiciary. As I have pointed out, it is not clear that such an argument would have succeeded given the absence of an explicit provision in our Constitution covering State judges, as well as the limited application of the legislation to newly appointed judges only. Instead, the first plaintiff submitted that the legislation "undermines the judicial pension arrangements … enacted by the States which have as their object the recruitment of appropriately qualified candidates for judicial office and ensuring the independence of the judiciary" and thus "would detract from the integrity and independence" of the State judicature.
The very nature of a federal system of government imposes a special role on the judiciary. This makes the preservation of the competence, independence and impartiality of the judiciary a consideration important for the protection of the governmental functions of the component parts of the federation, including the States. At least in a federation such as Australia, where the State judiciary may be, and commonly is, vested with federal jurisdiction, it can be said that these features of the integrated judicature are part of the federal hypothesis which the Melbourne Corporation doctrine defends. Similar criteria have been expressed in relation to the implied federal limitation upon the taxation power as it impinges upon the States. The issue is thus whether the tax impermissibly singles out the States and their high government officeholders for special discriminatory treatment[438].
[438]Payroll Tax Case (1971) 122 CLR 353; Queensland Electricity Commission v The Commonwealth (1985) 159 CLR 192; cf joint reasons at [119]-[122].
In the present case it could not be suggested that judges of the States had been singled out for unfavourable attention, in the form of the surcharge, in order to punish or disadvantage them for the performance of their judicial duties. Any such suggestion would be fanciful. Upon my analysis of the federal law impugned in the first plaintiff's case, there is no significant impairment of the States in the carrying out of their governmental functions. Nor is there any relevant discrimination against the judges of the States. Unequal treatment of judges in a like position is not established. In so far as there are particular laws that fall differentially upon the judges of the States when compared to other taxpayers they can be explained as they were in Beauregard. They are referable to the different nature of the post-retirement income arrangements of judges compared to other taxpayers, as well as the excessive caution on the part of the Commonwealth regarding the requirements of s 114 of the Constitution[439]. The differentiation can be justified either as specifically favourable to the judges (as in the exclusion from the new tax of State judges already appointed) or as within the scope of the measures open to the Parliament to treat the notional value of entitlements derived from a non-contributory, unfunded pension as equivalent to contributory superannuation.
[439]cf reasons of Gleeson CJ at [16]. I share the Chief Justice's doubts on this point.
I see no reason why this Court should now adopt an approach to the constitutional validity of a federal taxation law that is more protective of newly appointed judges in Australia than the approach followed by the Supreme Courts of Canada and the United States when confronted with taxing provisions having an impact on judicial remuneration. Nothing in the text of the Australian Constitution justifies a different approach. The decisional history in this Court suggests a contrary conclusion. The notion that the judges themselves would regard their offices as compromised by the surcharge is unpersuasive. The idea that reasonable members of the Australian public might come to such a conclusion, on the basis of the new federal surcharge on the superannuation entitlements or their equivalents in the case of high income earners, including judges, must be rejected. The public and the judges themselves, as La Forest J of the Supreme Court of Canada said, regard the judiciary as made of sturdier stuff[440].
[440]Re Provincial Court Judges [1997] 3 SCR 3 at 192 [337]. See also at 197 [346].
Conclusions and disposition
It is therefore "far too long a stretch"[441] to hold that the imposition of a federal tax, payable by persons such as the first plaintiff on notional contributions for their pensions, imperils the State judicial institution. I do not accept that the federal taxing laws challenged in these proceedings affect the selection and retention of State judicial officers to such a degree that the State judiciary is placed in jeopardy of not fulfilling its constitutional functions. Only if that were shown would the essential governmental activities of a State be impaired and the continued existence and integrity of a State threatened, contrary to the constitutional implication invoked by the first plaintiff.
[441]R v Beauregard [1986] 2 SCR 56 at 77 per Dickson CJ.
The evidence in this case falls far short of such a gloomy estimate of the resilience of State governmental institutions in Australia – and the State judiciary in particular. The tax neither impedes the functioning of the States nor the independence of the judicature implicit in the Constitution. Other taxpayers cannot escape the burden of the surcharge. Their complaints of unfairness, if any, must be addressed to the Parliament and the Government, not the courts. In the past, Australian judges have shared equally prospective taxes of general application imposed on them without relevant discrimination. This case represents the first departure from that principle. In my view the departure has no constitutional or other legal validity. It appears to be contrary to the approaches taken by the final courts of Canada and the United States in analogous circumstances.
I do not deny the premise that the Constitution is based on certain assumptions and contains implications[442]. But, with all respect, I find the invocation of the federal implication in this case unconvincing. When expressly stated constitutional guarantees[443], and particular words in the Australian Constitution[444], are read in ways that confine the rights of individuals, and when implied constitutional rights of persons arguably more vulnerable and needy are rejected[445], it is singularly unconvincing to say that an unwritten implication can be invoked to protect from a federal taxing law the value of judicial pensions. Such an implication is unconvincing when virtually all other Australian taxpayers in receipt of equivalent remuneration have been subjected to a surcharge upon that element of their receipts. Least of all is such a conclusion convincing when the legal foundation of the implication is said to arise from the suggestion that the tax impairs, in a substantial degree, the very capacity of the States to operate as the Constitution envisaged for them. I would reject all of the first plaintiff's constitutional challenges.
[442]Lange v Australian Broadcasting Corporation (1997) 189 CLR 520; Roberts v Bass (2002) 194 ALR 161 at 199-200 [145]-[146].
[443]eg under s 80 of the Constitution: Re Colina; Ex parte Torney (1999) 200 CLR 386; Cheng v The Queen (2000) 203 CLR 248; Brownlee v The Queen (2001) 207 CLR 278.
[444]eg the word "appeals" in s 73 of the Constitution: Eastman v The Queen (2000) 203 CLR 1 at 79-89 [240]-[266]; Crampton v The Queen (2000) 206 CLR 161 at 203-204 [114].
[445]eg the claims of Aboriginal plaintiffs to a constitutional implication of equality before the law: Kruger v The Commonwealth (1997) 190 CLR 1 at 45, 63-68, 142-144, 153-157. See also Leeth v The Commonwealth (1992) 174 CLR 455 at 466-470, 476-479; cf 483-489.
I agree in the conclusions and answers proposed in the joint reasons in respect of questions 1(a) and (b).
In relation to question 2, the question should be answered by stating that the federal legislation is valid.
The first plaintiff should pay the costs of the Commonwealth. The Commonwealth should pay the costs of the second plaintiff.