[2009] HCATrans 060
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S35 of 2009
B e t w e e n -
BRYAN REGINALD PAPE
Plaintiff
and
THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
First Respondent
COMMONWEALTH OF AUSTRALIA
Second Respondent
FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 31 MARCH 2009, AT 10.17 AM
(Continued from 30/3/09)
Copyright in the High Court of Australia
FRENCH CJ: Yes, Mr Solicitor.
MR GAGELER: Your Honours, can I complete very quickly what I was saying yesterday about the design and practical operation of the Tax Bonus Act as an element of the Nation Building and Jobs Plan. That design is explained in the summary form at pages 47 and 48 of the special case book. The point that I was seeking to make yesterday can be summarised in these terms. What the Act does is deliver a discretionary fiscal stimulus, that is, spending per se, that is aimed at increasing aggregate demand as a tool of macroeconomic management of the national economy. It is designed to be timely, that is, to allow the stimulus to take effect in the first half of 2009 and it is designed to be targeted at low and middle income earners who are the most likely to spend. On the Treasury modelling, which is noted at page 47 at line 20, it is expected to boost growth in gross domestic product by about ½ per cent to June 2009 and by ¾ to 1 per cent to June 2010.
The other point to make, particularly by reference to page 48 is that the making of the fiscal stimulus is the subject of a high degree of international co‑operation. It is part of an international response to an international problem. Without taking time to go through the documents that are there referred to, can I mention to your Honours that the IMF document first referred to at about line 15 on page 48 one finds that quote at page 118 of the special case.
FRENCH CJ: Firm fiscal stimulus, incidentally, seems in the literature that is attached to the special case to incorporate tax cuts.
MR GAGELER: That is right. Fiscal policy is implemented in either of two ways - through taxation or through spending. They are the tools of fiscal management.
HAYNE J: You said this was a co‑operative effort; in what sense is it co‑operative?
MR GAGELER: In terms of the making of a fiscal stimulus, that is the need for a fiscal response, then in terms of its timing and in terms of its amount. In all of those ways there is international co‑operation and particularly ‑ ‑ ‑
FRENCH CJ: Sorry, just in exposition of that, again looking at the literature there is reference throughout the various statements to fiscal stimulus measures as one of a variety of measures that might be taken to address the global financial difficulties, but is there a commitment to which you can point in the agreed literature which evidences some arrangement or understanding that countries will together implement fiscal stimulus packages?
MR GAGELER: What one sees at page 85 is the beginning of the document which reflects a declaration of G20 leaders made on 15 November 2008.
HAYNE J: Page 108 of the special case book.
MR GAGELER: I am sorry, at page 106 one finds that.
HAYNE J: Page 106?
MR GAGELER: Yes, 106, using the numbering at the top. On page 107 there is a heading, “Actions Taken and to Be Taken” - paragraph 7 on that page - as an introduction, and then it says:
As immediate steps to achieve these objectives, as well as to address longer‑term challenges, we will –
and then the third dot point:
Use fiscal measures -
That is clearly enough an agreement not made within any formal treaty structure but an agreement of the leaders of the 20 most industrialised nations to take the action that is there referred to. In respect of the implementation of that commitment one can turn to the IMF document that begins at page 129.
This is a note by the staff of the IMF to assist a meeting of deputies of the Group of 20. One can see that from page 125. I will not go through the detail of it, but if you turn to page 145, paragraph 23, what is said is:
To date, the G-20 countries have adopted (or plan to adopt) fiscal stimulus measures amounting on average to around ½ percent of GDP in 2008, 1½ percent of GDP in 2009, and about 1¼ percent of GDP in 2010.
The variety of those measures is surveyed over the next couple of pages and a view as to the global effect is given at page 148, paragraph 27. That is about the most specific material that is contained within the special case book. But there is simply no doubt that what is occurring in Australia is the Australian implementation of a co‑ordinated global response.
HAYNE J: Thus, when it is said at page 145 that many countries have done this, those who have not, you say, are departing from an agreed understanding. Do you go so far as to say that?
MR GAGELER: Your Honour, the G‑20 is an organisation of the 20 most industrialised nations in the world. The leaders of those nations have made an agreement. I am not standing here that that is in any sense an enforceable agreement, but they have made a commitment to act in a particular way for international purposes. That is the way I put it. Your Honours, all of that is relevant quite obviously in slightly different ways to the characterisation of the law under the trade and commerce power and to the characterisation of the law under the external affairs power. I will come to those if I need to in due course.
My point in going to these materials now is that they are, in our submission, a highly relevant context in which to be considering the construction and interaction of sections 81, 61 and 51(xxxix) of the Constitution. The reason for that is that one needs to recall not only the rule of construction that a constitutional grant of power is to be read with all the generality that the words used admit, but the reason for that rule. The reason for the rule was usefully and pithily stated in the joint judgment in XYZ v Commonwealth. This is the larger joint judgment, three members of the Court - your Honours, Justices Gummow, Hayne and Crennan 227 CLR 532. At page 551, picking it up at the bottom of the previous page, it is said:
Words of O’Connor J, uttered in 1908 and often repeated in this Court, are in point when construing s51(xxix). In Jumbunna Coal Mine, NL v Victorian Coal Miners’ Association, after noting that the broad and general terms of the Constitution were “intended to apply to the varying conditions which the development of our community must involve”, O’Connor J continued: –
“For that reason, where the question is whether the Constitution has used an expression in the wider or in the narrower sense, the Court should, in my opinion, always lean to the broader interpretation –
Your Honours, the historical reality is that the framers of the Constitution, as they emerged from the very significant depression that the Australasian colonies went through in the 1890s, could have had no concept of macroeconomic policy. Nobody did, until the Keynesian revolution of the 1930s in the wake of the Great Depression, but what the framers did quite consciously, deliberately and expressly was, by the constitutional restraints and structures that they created, establish a single national economy and to the extent that competing constructions may be opened in respect of the structures which they created a construction ought not be chosen, in our respectful submission, which would deprive national institutions of the ability to manage the national economy in the interests of the Australian people as a whole and with the same flexibility as national institutions in other developed nations, including, in particular, Canada and the United States, both of which have sophisticated federal systems.
Your Honours, that is the preamble. May I turn then to the principal way in which we put the case and outline it this way. The principal way in which we put the case is, one, to say that section 81 is itself a grant of legislative power to the Commonwealth Parliament to appropriate the consolidated revenue fund for the purposes of the Commonwealth. That expression “the purposes of the Commonwealth” we say means the purposes of the Commonwealth as a nation as determined by the Parliament itself acting under section 81 on the recommendation of the Executive acting under section 53.
We say in the alternative to that construction of the scope of the power conferred by section 81, if the “purposes of the Commonwealth” there refer to the purposes of the Commonwealth as a polity then the expression extends to such purposes in the sense of goals or objectives as the Commonwealth as a polity in fact has and pursues from time to time in the exercise of its legislative and executive powers.
FRENCH CJ: Unencumbered by jurisprudence for a moment, where is the word of “power” to be found in section 81? Where are the words that confer a grant of power?
MR GAGELER: I will come to this in a moment. The best argument, the clearest textual argument, was put by Mr Tait for the Commonwealth in the Pharmaceutical Benefits Case. I will draw your Honours’ attention to that in due course. May I put it this way, again leaving jurisprudence to one side, your Honour, you have to squint a bit.
GUMMOW J: Why try and squint?
MR GAGELER: You can do it other ways, but you have to read section 81 with section 83. I must say, finding a grant of power in Chapter IV of the Constitution is not a problem in the sense that there are clearly grants of power under sections 94 and 96. So the location is not the problem. If there is any problem, it is the words. The way in which you read section 81 with section 83 ‑ ‑ ‑
GUMMOW J: Wait a minute. You have referred to 94 and 96?
MR GAGELER: Yes.
GUMMOW J: They do not use the word “power”. They say “until the Parliament otherwise provides”. For the power you go to 51, do you not?
MR GAGELER: Look at 96. Your Honour, I think on ‑ ‑ ‑
GUMMOW J: You go to 51(xxxvi), do you not? That is the grant of power.
MR GAGELER: You can do it that way, your Honour. I would accept you can do it that way. It has not been done before that way, but you can do it that way.
GUMMOW J: You say that.
MR GAGELER: It does not seem to us that in the Roads Case or in either of the Uniform Tax Cases ‑ ‑ ‑
GUMMOW J: We are just looking at the text at the moment.
MR GAGELER: Yes, I am sorry, of course.
GUMMOW J: All some of us are trying to put to you is that when the Constitution provides for Parliament to have legislative power to do something it says so and it uses the word “power”. You refer to section 96 and I say to you, no, go to 51(xxxvi) which does use the word “power” and links up to those words “until the Parliament otherwise provides”. That is where we are.
MR GAGELER: That is true, and I also referred to section 94, which I do not think admits of the same response. I agree with you, usually that is the case, your Honour, not inevitably. I will go back to that, obviously, but completing the outline, we say that an appropriation, whatever its source of power, obviously, amounts to nothing more or less than a grant of authority to the Executive to withdraw money from the consolidated revenue and a restriction on the purpose for which that money can be spent by the Executive. That is the long and the short of the legal effect of an appropriation.
We then say that the source of the power to spend the money so appropriated by the Parliament lies in section 61 of the Constitution. That is either because the executive power of the Commonwealth considered as a unitary concept, picking up the notion from the Wool Combers Case that your Honour Justice Gummow referred to yesterday, the judgment of Justice Isaacs, intrinsically and of its nature extends to spending such money as is lawfully available to be spent. That is one way of putting it. Another way of putting it is because in extending expressly to the execution of the laws of the Commonwealth, section 61 extends to both withdrawal and expenditure of money from the consolidated revenue fund within the restriction imposed by the Parliament in an appropriate law.
We then say that the incidental power, section 51(xxxix), is a source of power to impose an obligation on the Executive to expend money appropriated under section 81 and, if needs be, a correlative entitlement on a recipient to receive such money. We say that exercise of the incidental power can be seen as incidental to either or both the power of appropriation itself vested in the Parliament by section 81 or the power of expenditure vested in the Executive by section 61. That is the primary way in which we put the case. There is another way of putting it that starts with section 61, but I will come to that in due course.
Can I attempt to make good what I have just outlined? Section 81 as a source of power was a topic on which issue was joined in the Pharmaceutical Benefits Case. The argument that one sees being put by Mr Phillips for the plaintiff is at page 240 at about point 7. He says:
Section 81 contains no substantive grant of power at all.
The response to that is Mr Tait at page 242. Dr Coppel followed Mr Tait, but in this part of the argument – the nature and scope of section 81 – Mr Tait had the running. His second sentence is:
Under that section the Parliament has power to appropriate money for any purpose which is for the benefit of the people of the Commonwealth.
The argument that follows, textually, is one that we would adopt as a way of reading section 81 as a grant of power. The better view of the case, your Honours, is that at least three judges – and here I am just talking in terms of its precedential value – accepted section 81 as a grant of power. Chief Justice Latham did that – and I will give your Honours the page references – 265 point 8; Justice Starke, 265 ‑ ‑ ‑
HEYDON J: Chief Justice Latham was not on page 265.
MR GAGELER: It is 256, I am sorry – I have given your Honours the wrong reference. He is the least clear on this point, but it is hard to read the discussion over the preceding pages, from 253 to 256, as anything other than a rejection of the argument that had been put by Mr Phillips. Justice Starke is quite clear at 265, point 9; Justice McTiernan at 273, point 3 and Justice Dixon in the passage that was looked at yesterday at page 269, point 3, is perhaps somewhat ambiguous, although he does seem to say that section 81 itself is ‑ ‑ ‑
GUMMOW J: Are you referring to Justice Starke at 265?
MR GAGELER: Yes.
GUMMOW J: He talks about the power of appropriation. Nothing wrong with that on any view, I would have thought.
MR GAGELER: Well, he says the power of appropriation is explicit - he says at the bottom of the page.
HAYNE J: Can you come at the problem in this way, Mr Solicitor? Was the premise for the Commonwealth’s argument in Pharmaceutical Benefits the premise that the power to spend, wherever sourced, is co‑terminus with the power to appropriate?
MR GAGELER: Yes. I am not sure that is a premise. I think it is part of the argument as articulated, but yes.
HAYNE J: Indeed, was the argument for the Commonwealth as articulated, particularly by Dr Coppel, an argument that treated spending and appropriation as interchangeable ideas?
MR GAGELER: I do not think one needs to read the argument that way. One has to accept that he had part of the argument. He followed Mr Tait.
GUMMOW J: He talks about the power to spend under section 81 on page 245, point 7:
In Australia regard must first be had to the power to spend under s.81.
MR GAGELER: Well, that is obviously a loose use of language.
GUMMOW J: Yes.
HAYNE J: Just so. Now, did the Court in Pharmaceutical Benefits identify or isolate the premise that I have put to you and deal with it?
MR GAGELER: It was unnecessary, your Honour, to deal with that.
HAYNE J: Exactly so, because the Court rejected the Commonwealth’s argument, did it not, on a minor premise rather than the major premise which I have thus far identified.
MR GAGELER: It rejected the Commonwealth’s argument on the basis that whatever the nature and scope of the appropriation power it was not incidental to the appropriation power to regulate the activities of persons who fell within the purpose of the appropriation. That was the holding in the case. So I am agreeing with your Honour.
HAYNE J: Yes. Now, the argument you advance is an argument that puts in play, does it not, the premise that I have identified? It is a necessary step in your argument to make good, is it not, the premise that the power to spend is co‑terminus with the power to appropriate?
MR GAGELER: Indeed, it is not a premise, your Honour. It is part of the argument; it is a step in the argument.
HAYNE J: Describe it as you will, but that is the killing ground for the case, is it?
MR GAGELER: No, it is one step in the primary way in which we put the case. Call it the killing ground if you like, it is ground on which I am very happy to fight and I will and I have a developed argument to put in respect of it. But it is not a premise. It is part of the argument.
CRENNAN J: Are you saying they are correlatives? Do you accept that?
MR GAGELER: I am really putting it this way. You start with the appropriation relevantly, the power to appropriate. If there is power to appropriate for a purpose then it is within the executive power necessarily, for reasons which I will attempt to articulate more fully, to spend within the purpose of the appropriation, yes. If that is the question your Honour is asking me, yes that is part of my argument. It is a necessary part of the argument on this strength.
GUMMOW J: The benefit of that argument from your point of view, I suppose, may be that thereby you can skirt around or do not have to suffer the consequences of any narrowed view of what executive purposes are for section 61 because you go straight from section 81 to section 51(xxxix).
MR GAGELER: Yes, indeed, and you have a spending power – and I do not want to ‑ ‑ ‑
GUMMOW J: Is that not what was attempted in the Pharmaceutical Benefits Case and did not work?
MR GAGELER: They did not lose on that. What they lost on was trying to regulate the chemists. That is what they lost on.
HAYNE J: But is that not the point, Mr Solicitor. If the power to spend, whether you describe it as sourced in 81 or sourced in 61 or sourced in the combination of the two – let us walk around that point for a moment – if the power to spend is a power to spend anything that is lawfully appropriated, does that capture sufficiently the point to which you go?
MR GAGELER: Yes.
GUMMOW J: That was a view pressed by Sir Robert Garran in 1929 to the Constitutional Royal Commission. You say none the worse for that.
MR GAGELER: Absolutely not. He said in 1929, “I have always had this view”.
GUMMOW J: Yes.
MR GAGELER: We tend to take what he said in 1901 as being terribly important. What he said in 1929, with the benefit of a quarter of a century of – I am sorry, your Honours ‑ ‑ ‑
HAYNE J: But the consequence is that under 51(xxxix) as incidental to the execution of the power vested by the Constitution in the Executive to spend one can erect a structure imposing an obligation to spend?
MR GAGELER: Yes.
HAYNE J: A right to receive?
MR GAGELER: Yes. I will come back to that, but, yes.
HAYNE J: Is that as far as it goes?
MR GAGELER: Yes.
HAYNE J: Why should one read the incidental power in 51(xxxix) as hobbled or confined in that way?
MR GAGELER: I do not want to read it as hobbled or confined. I only have to read it for the purposes of this case as going that far. I do not have to read it any more widely, your Honour. If you want to see that as itself a source of a power to appropriate, I am happy with that as well, but I will come to that. That is another way in which I do put the case and I will develop it separately.
CRENNAN J: That is the 61 route?
MR GAGELER: You start with 61 and then 51(xxxix) is incidental to that, but I will come to that. The way I am putting the case now, your Honours, I think I have sought to make clear. Section 81 is a source of power. I have attempted to show your Honours that issue was joined on that in the Pharmaceutical Benefits Case. I have attempted to show your Honours that the balance of the views in that case was in support of section 81 being a source of power. There is some ambiguity about Justice Dixon. The Court came back to it in a sentence in 1954 in the Australian Woollen Mills Case 92 CLR 424. The sentence is at page 454. Your Honours should have this. The sentence I will read is at about point 6 of the page:
Section 81 of the Constitution authorizes the appropriation of the revenues and moneys of the Commonwealth for the purposes of the Commonwealth.
The issue was then joined again on that topic in the AAP Case, if your Honours have that – 134 CLR 340. Mr Dawson, with eminent juniors, puts the proposition that the power to appropriate moneys is not found in section 81 of the Constitution. As we count, that proposition was rejected by six Judges, with Justice Stephen not deciding. It was rejected by Chief Justice Barwick at page 354, point 8; Justice McTiernan, at 367, point 3 ‑ ‑ ‑
GUMMOW J: Wait a minute. This formulation in the argument at 340 is not distinguishing between appropriation of an expenditure, is it, or so it seems, anyway. It says, “The power to appropriate”. It gives the word “appropriate”, I think, to appropriate a notion, you have to assume, of expenditure. That is what we are debating, I suppose.
MR GAGELER: I do not think I agree with your Honour. What was in issue in this case was the validity of the appropriation, that is, the line item in the Appropriation Act.
GUMMOW J: Yes, there was no government legislation in this case. There was no backup legislation, was there?
MR GAGELER: No. But there were two things squarely in issue. One was the validity of the appropriation and the other was the ability of the Commonwealth to engage in the activities to which the appropriation related. Pretty squarely, the argument being made here was one that went to the validity of the appropriation. Your Honours, it is too tedious to take your Honour to the passages, but Chief Justice Barwick, at page 354, point 8; Justice McTiernan, at 367, point 3; Justice Mason at 392, point 3; Justice Jacobs at 410, point 9; and Justice Murphy at 418, point 5 – I have left out Justice Gibbs. If I could just ask your Honours to turn to what he said at page 371 ‑ ‑ ‑
GUMMOW J: It may do Justice Mason some injustice, really, because at page 396, the last paragraph, he goes to section 61 and concedes there is no legislation.
MR GAGELER: Yes, but that is after he says ‑ ‑ ‑
GUMMOW J: He does not go simply to 81.
MR GAGELER: That is because they are the two elements. One is the appropriation and the next is the engaging in the activities. In respect of the appropriation what he says is at page 392 about point 3. He says:
The weight of opinion in the Pharmaceutical Benefits Case was that s. 81 defined the scope and extent of the power –
that is, to appropriate. What Justice Gibbs, as I was coming to, at page ‑ ‑ ‑
GUMMOW J: The power he is talking about is the power to appropriate, is it not? Go back to the last sentence.
MR GAGELER: Yes. Your Honour, he really is dealing with the argument. At the bottom of page 391 he says:
It has been thought by some that s 81 of the Constitution is not the source of the appropriation power –
That is what he is rejecting. At page 371, Justice Gibbs, in the full paragraph there, which I will not read, is really saying, “Section 81 is a source of power. I do not have to decide whether it is the only source of power”. I hope your Honours have the report of the Constitutional Commission in 1988 where at page 831 the recommendation was:
that section 81 be amended to allow the appropriation of the Consolidated Revenue Fund for any purpose that the Parliament thinks fit –
That is said at page 834, paragraph 11.313, to be a recommendation that was made to dispel the present uncertainty. But in getting to that recommendation what is said at page 832 is instructive and we would adopt it as an analysis of the cases. It is said in paragraph 11.299:
It is now settled:
(a)that section 81 defines the scope and extent of the power to appropriate the Consolidated Revenue Fund;
(b)that section 83 gives expression to the established principle that no money can be taken out of the Consolidated Revenue Fund excepting under a distinct authorisation from Parliament itself; and
(c)that, as a result, a law is validly made pursuant to section 83 if the appropriation made by it is authorised by section 81.
FRENCH CJ: What is there in text or context in section 81 that prevents it being read as a process provision creating a condition necessary to be satisfied before expenditure can be undertaken by the Executive?
MR GAGELER: Nothing prevents it. There is no textual impediment to reading it that way, but that is not the point.
FRENCH CJ: You say, I am sorry, that is not the point?
GUMMOW J: That is not your whole point, I do not think.
MR GAGELER: No, I am sorry. I am too cryptic in saying it is not the point. There is no textual impediment to reading it narrowly.
FRENCH CJ: That is not a narrow reading. The question is, where do you find the wider reading, in the text or the context, apart from judicial opinion? I am just looking for a simple, first principles, logical argument.
MR GAGELER: Yes. You find it implicitly in section 81.
GUMMOW J: Implicitly.
MR GAGELER: Your Honours can write that down, if you like, implicitly. It is referring to moneys forming one consolidated revenue fund to be appropriated for the purposes of the Commonwealth. The question is, how is it to be appropriated? You read that reference with section 83 as requiring an appropriation by law. Who makes the law? The Parliament makes the law. To be appropriated for the purposes of the Commonwealth just means to be appropriated by the Parliament. For the “purposes of the Commonwealth”, you read it as a grant of power to the Parliament to do so.
GUMMOW J: Yes, but the problem is this word “appropriate”, is it not, just what that indicates in this parliamentary process that is going on?
MR GAGELER: Yes, your Honour, but there is no difference between anyone at the Bar table that I can discern as to what an appropriation amounts to as a matter of strict legal effect. Two elements and they are spelt out by Justice Mason quite clearly – two elements: one is withdrawal from the consolidated revenue fund, the authorisation of the Executive to do so and the other is the constraint of the Executive to spend that money in accordance with the purpose identified in the appropriation. That is it.
FRENCH CJ:
“Appropriation of money to a Commonwealth purpose” –
I am reading from Justice Isaacs in (1908) 7 CLR 200:
means legally segregating it from the general mass of the Consolidated Fund and dedicating it to the execution of some purpose which either the Constitution has itself declared, or Parliament has lawfully determined, shall be carried out.
MR GAGELER: I am happy with that.
FRENCH CJ: The “lawfully determined” directs you to a search for a source of power other than in appropriation.
MR GAGELER: Well, no just ‑ ‑ ‑
GUMMOW J: That is the question.
MR GAGELER: That is the question and, in our submission, no it does not.
GUMMOW J: It is not a question addressed in these cases you have been putting to us. I am not criticising you for it, but it does not seem to be.
MR GAGELER: It is no fault of counsel involved in the cases if that is so, your Honour, but can I say this?
GUMMOW J: What Sir Isaac Isaacs had is parliamentary experience.
MR GAGELER: So did Sir John Latham and, in a broader context, so did Justice Murphy and so did Sir Robert Garran, all of whom took a very clear view as to the scope of what they said was a power and what Sir Robert Garran said he always thought was a power. Your Honours, can we say this. The same considerations as I am about to put forward as favouring a wide view of the scope of “purposes of the Commonwealth” also favour seeing section 81 as itself a source of power.
Can I come to that - that is the scope of the meaning of “purposes of the Commonwealth”. Ultimately, textually, it comes down to the question of choice between reading “purposes of the Commonwealth” in section 81 narrowly as purposes of the legislative executive and judicial organs of government established by Chapters 1, II and III, or, widely, as meaning the purposes of the nation and, in our submission, given that two textual interpretations might be open the wider one should, in principle, be preferred for the reasons that I have already given,, but can I give – because it is my job to do so – a number of other powerful considerations that ought be brought to bear and could I number them seven in number and state them fairly quickly.
The first is that textually once you accept, or if you accept, that section 81 is itself a source of legislative power then to read “Commonwealth” as meaning the nation in section 81 is to read it in exactly the same way as it appears in sections 51 and 52. Secondly, again textually, if “purposes of the Commonwealth” were intended to be limited to purposes otherwise within Commonwealth legislative power then one would expect to see the formula, or something like it that one sees in section 51(xxxi).
GUMMOW J: Only if you start with your assumption.
MR GAGELER: Yes, I agree with that. Thirdly, functionally, once you recognise, as was pointed out by Chief Justice Latham, for example, in the First Uniform Tax Case 65 CLR 373 at pages 414 to 415, that the power to appropriate and the power to tax are in constitutional terms the two sides of the same coin, one involving the extraction and collection of money and the placing of that money into consolidated revenue, the other involving the taking of money out of consolidated revenue and authorising its expenditure.
Once you recognise that correlation and once you recognise, as is illustrated by another case I will just give your Honours a reference to, Northern Suburbs Cemetery Trust 176 CLR 555 at 569 and 572, that the power to tax is not unlimited as to the purposes that could be pursued by the Commonwealth Parliament then it would, at the very least, be somewhat odd and asymmetrical to say that the power to spend is limited as to purpose. That is even more so when you recognise that functionally in macroeconomic terms, that is in terms of managing the national economy that is created by this constitutional document, that an adjustment of spending, an adjustment of taxation, are really the two ways in which fiscal policy is to be implemented. It would be odd, not inconceivable, but odd and unfortunate, if one of the two fiscal hands was tied behind Parliament’s back.
Fourth, necessarily to impose a constitutional limit on the power of appropriation is to invite and, indeed, require the Court’s adjudication of such a constitutional minute. That raises really serious problems for the adjudicative process and it raises really serious problems for the Parliament in the budget process, looking over its shoulder and being fearful of the long‑term consequences if it gets an appropriation wrong. Both of those things are highlighted in the materials.
One sees a very clear explanation of the extraordinary practical difficulties of judicial determination of these sorts of things explained in the judgment of Justice Mason in the AAP Case at page 394 and in the report of the Constitutional Commission in those passages around those that I gave your Honours reference to a moment ago, but in particular paragraph 11.311. One sees a glimpse of it in the joint judgment in the Combet Case itself, 224 CLR 494, particularly at paragraph 160. It is not the same point, but it is not far from it.
So far as the problems for Parliament are concerned Justice Murphy in the AAP Case at page 418 spoke about “The chilling effect” on national government that the narrow view of the appropriation power would have. Indeed, he went so far as to refer to “stultifying government”. That view is not new and it was not idiosyncratic. If your Honours have to hand some documents, which I hope we have provided, being the extracts of reports of two Royal Commissions in 1929, Sir Robert Garran took a very clear view on this. He says from the beginning in the Royal Commission on Child Endowment the report, an extract of which your Honours have, refers to Sir Robert Garran’s views and his statements of what even then was very clear consistent Commonwealth practice in paragraphs 5 and 6.
You can see the same ideas in his evidence to the Royal Commission on the Constitution that your Honours have in a separate document, page 69 of that report, right‑hand column at about point 2 of the page he says:
I have always taken the view that in the phrase “for the purposes of the Commonwealth,” the word is used in the wider sense, and when the Constitution says that moneys are to be appropriated––which means appropriated by the Commonwealth Parliament for the purposes of the Commonwealth––that is equivalent to saying they are to be appropriated by parliament for the purposes which it declares to be the purposes of the Commonwealth. There are no limiting words, and the purposes of appropriation are left to the parliament . . . Generally speaking, I have always considered that section 81 was an absolute power of appropriation for general purposes, and the Commonwealth Parliament has always acted on that supposition.
Let me say in that respect your Honours also have in the defendant’s materials behind tab 3 an opinion of the then Attorney‑General, Littleton Groom, of May 1908 which is published in Parliamentary Papers at page 26 of the bundle. Within that opinion, line 40, after referring to the American position where appropriation is for the general welfare or can be for the general welfare, he says:
As regards the Commonwealth power of appropriation, the words are in terms as general as those contained in the United States Constitution, and are accompanied by no specific words of limitation, the only condition being that the appropriation must be “for the purposes of the Commonwealth.”
HAYNE J: These matters were matters of controversy at the time, I think, were they not? The history, as recorded by Dr Saunders in her article The Development of the Commonwealth Spending Power in 11 MULR 369, particularly at pages 381 and following where she records both the debate occurring in the Federal Parliament, often led by Mr Latham, to the view opposite to that which you propound, opinions of counsel that were being provided at that time. These were matters of controversy, I think, at that time.
MR GAGELER: Your Honour is right. All great matters are matters of controversy. Your Honour is right. In the report of the Royal Commission I just wanted to refer your Honours as well to page 71. This is a theme taken up by Justice Murphy, as I said, some 50 or so years later. At page 71, right‑hand column at about point 6 he says:
I think that it would be quite impossible to conduct the finances of the country if every appropriation were liable to be ripped up at any time afterwards as not being referrable to some particular subject‑matter in the Constitution.
He continues on with an explanation of that over the next page or so. That is the fourth point. The fifth point, and this is not something to make a great deal of, but the fifth point is, historically, if you look at the drafting history of section 81, which we have attempted to trace in our submissions in reply and which South Australia has actually done a very good job of tracing in its submissions filed yesterday, the draft of section 81 before it underwent some drafting changes, which appear to have been entirely drafting changes, had referred to appropriation for the public service of the Commonwealth. That is a formulation that one saw in colonial constitutions where it clearly enough was not an expression of limitation.
Indeed, the submissions of New South Wales of yesterday have in paragraph 9 a fairly useful quotation from Professor Hearn’s The Government of England, an extremely rare book, where it is clear enough that he was using public service in this context in the sense of meaning simply for the service of the public and it appears that that is the way in which it was used in colonial times. It is the formula that one sees used in the British and North America Acts and the prevailing view there – and again it is not without controversy – but the prevailing view there which appears to be acted upon by the provinces and the national government and has been acted on for an extremely long time, is that those words are not words of limitation. Professor Hogg’s book, which we have given your Honours an extract from, makes that quite clear.
CRENNAN J: I think one way it was used historically was to distinguish the King’s needs from the public’s needs, that is to say, in the context of taxation the civil list and public services were opposites.
MR GAGELER: Yes. Your Honour would be right. I had not made that connection, but your Honour would be right, which emphasises the width of the notion. Now, the drafting change; what can we make of the drafting change?
We can be sure it was not to reduce the scope of the power. All that we know about it was what Quick and Garran tell us, that there was a concern to make sure that section 81 covered the appropriations for the spending required by sections 89 and 93, that is, the Commonwealth giving money to the States. That is entirely consistent with “purposes of the Commonwealth” encompassing purposes of the people of the States as much as purposes of the Commonwealth as a polity.
The sixth point is this – and it is not very different from the external to Australia aspect of the external affairs power – and that is that it involves no real element of competition with the States to read an appropriation power broadly. It has no impact at all on the exercise of State legislative power in practical terms. One could imagine, perhaps, a State Act that seeks somehow to an attempt to get money out of consolidated revenue, a State Garnishee Act. Obviously, that would be inconsistent with an Appropriation Act under section 109. But leaving aside those extraordinary possibilities, in real terms reading the appropriation power widely can have no impact on the exercise of State legislative power.
Could it have some other real impact on the States? Chief Justice Barwick thought that it might through section 94, which is the surplus revenue provision. He is the only one, I think, to have raised this. Two things to be said about section 94. One is that it has been demonstrated by history that it is entirely up to the Commonwealth whether or not there is any surplus revenue, and there has not been any for an extraordinarily long time. The other is, even if there were any surplus revenue, section 94 says it may be applied by the Commonwealth, not that it must be applied by the Commonwealth. Section 94 really goes nowhere.
New South Wales, however, makes something of the presence of section 96. It is interesting for a State to be arguing for a wide view of the conditions allowed to be imposed by section 96, but they seem to be saying as a matter of principle the ability of the Commonwealth to make conditional grants under section 96 to the States is undermined by a wide view of section 81 and they seem to be saying it as a matter of fact. It has not been shown that there is any reason why section 96 could not have been used in the present case.
The response to the argument of principle is really that once you recognise – as was recognised in the Roads Case in 1926 and the Uniform Tax Cases of the 1940s – that section 96 allows grants to be on conditions not limited as to purposes otherwise within Commonwealth legislative power, section 96 itself is consistent with the spending power in section 81 not being limited as to matters otherwise within Commonwealth legislative power.
HAYNE J: Leaving aside the consideration of sections 94 and 96 to which you have just adverted, what do you say as to the significance, if any, that is to be attached to the operation of 51(xxxix) in this regard? I have in mind especially what Mr Justice Mason refers to in AAP between 397 and 398, notably 398 where his Honour, having begun at 397 by observing that it is necessary to take account of the operation of the incidental power in connection with section 61 then draws conclusions at the foot of 397 over to 398.
MR GAGELER: That is moving on to the next part of my argument about ‑ ‑ ‑
HAYNE J: If you wish to deal with it then do so.
MR GAGELER: May I deal with it then?
HAYNE J: Of course.
MR GAGELER: Yes. I am not ignoring any of that, your Honour. That is really dealing with the scope of the power to spend. I will come to that in just a moment. I am just dealing with the power to appropriate now.
CRENNAN J: We still have No 7, have we not, to go?
MR GAGELER: Yes. There is just a bit of No 6 to add and that is the factual response to New South Wales and probably I do not need to say this but there is – I put it this way, your Honours, it is a practical absurdity to suggest that the Commonwealth would need to enlist the co‑operation of each State so as to deliver a $7.7 billion payment from the Federal Treasury to 8.7 million federal taxpayers using the national post system. I mean, what are we to do?
KIEFEL J: I think it predicts the use of electronic funds transfer, does it not?
MR GAGELER: Pardon?
KIEFEL J: I do not think the post was intended to be used here.
MR GAGELER: There is a variety of means intended to be used, but post and telecommunications.
HEYDON J: Is it 8.7 million letters, or what?
MR GAGELER: It is 8.7 million payments. Some of them will be electronic, some of them will be cheques. It is a big job. It is a big job.
HAYNE J: I thought the Act required EFT.
MR GAGELER: If you are a taxpayer who has it. Not every taxpayer has it.
KIEFEL J: But the relationship between sections 81 and 96 cannot be overlooked, can it, in construing section 81?
MR GAGELER: No. All I am saying about it is it does not really cut much one way or the other.
KIEFEL J: There is a synergy between 81 and 96, not the least because of, as you point out, the width of powers that may be given to the States and the exercise of spending by that process and, indeed, was that not one of the matters discussed in the constitutional debates when they were concerned with the use of the words “Commonwealth purposes”? It came up in that context, did it not?
MR GAGELER: Only, I think, your Honour – I think I am right in saying – only in the context of saying we must be sure that the appropriation that is required by section – at least required by section 81 will be wide enough to cover whatever might fall within the scope of the section 96 grant. It was only in that context.
KIEFEL J: Quite so, but that is to say it was perceived that the expenditure may well be undertaken through the States by a system of State grants on conditions.
MR GAGELER: Of course, yes. Indeed, that does not point to a narrow view of section 81, in our submission. It does not compel a narrow view of section 81. Indeed, we would exploit it as indicative of ‑ ‑ ‑
KIEFEL J: I am sure you are going to come to it when you return to section 61, but is not the need for expenditure to be undertaken by the Commonwealth itself as a polity, the need for this, require you to look at the other methods by which, in cases such as this, moneys may be provided and that that informs both your construction of section 81 and it may inform how one views section 61?
MR GAGELER: It depends what you mean by “need”. If you use “need” in the sense that Chief Justice Marshall traditionally used it, that is as encompassing what is appropriate and adapting it to the national ‑ ‑ ‑
KIEFEL J: I am taking you ahead to section 61, but I am particularly concerned, in relation to section 61, with the notion of power that might be exercised by the Commonwealth as a polity which can only be exercised by it in that character, which tends to suggest that it cannot be done in any other way.
CRENNAN J: I suppose that raises an issue raised by Mr Pape when he was talking about what was done in the sixties.
MR GAGELER: Yes.
CRENNAN J: There is a difference in the constitutionality of the methods, perhaps.
MR GAGELER: Indeed. Can I answer both of your Honours’ questions in globo ‑ ‑ ‑
CRENNAN J: Yes, because I think they are related.
MR GAGELER: ‑ ‑ ‑ and perhaps return to them individually if I do not cover it.
CRENNAN J: Get to the minutia later.
MR GAGELER: Practically, what we have here in the one Nation Building and Jobs Plan is a range of fiscal measures. Some of those fiscal measures, the long-term measures, are to be implemented through section 96 grants. They are long-term measures that are to be implemented through section 96 grants. What this particular element of the package is doing is giving the fiscal hit designed to take effect before 30 June this year, or to be in effect by 30 June this year. There is an element of the focus and the timing that simply does not lend itself to the more long‑term possibilities that section 96 allows.
So if one had to go to that question of necessity – and in our submission one does not, but if one does then that is an explanation as to why this particular fiscal measure is taking the form that it does as distinct from a possibility of using either section 96 or a tax rebate.
KIEFEL J: Apart from the use of the word “immediacy” – I am sorry, I do not mean to cut across you.
MR GAGELER: I am sorry; there is another element of the tax rebate. Of course, here, so it is very clear, people are getting $900, even if they have a one dollar tax liability. A simple tax rebate is not going to get money to those people.
KIEFEL J: Apart from the use of the word “immediacy”, I think, which appears in some of the passages that you took us to yesterday in the special case material, I do not think I could see any reference to consideration of other methods, other than direct payment by the means provided under the Tax Bonus Act. Was there any consideration given – because you are implying an emergency which negates other methods, but I do not think I saw any reference to consideration of that.
MR GAGELER: No, I cannot point to any material before your Honours that shows that consideration was given to the possibility of enlisting the States through section 96 to deliver the tax bonus.
KIEFEL J: I think another method was referred to – I am sure there are more than one – I think Mr Pape referred to of – at least with PAYE earners ‑ ‑ ‑
MR GAGELER: That is the point. You are just not going to deliver the same fiscal hit through the tax system. You just cannot do it. With the numbers you cannot do it and you cannot do it in the time, either. I mean, I can assert that.
KIEFEL J: You say that.
MR GAGELER: I say that and it is ‑ ‑ ‑
KIEFEL J: But what I am saying is there is no discussion of this. It might be administrative convenience, it might be a political decision, but we simply are not terribly informed about this.
MR GAGELER: Call it administrative convenience, if you like ‑ ‑ ‑
KIEFEL J: I do not mean to underestimate the level of administration involved, but administrative efficiencies might be a better word.
MR GAGELER: Yes. Your Honours, I think I would put it in terms of it being self‑evident that a fiscal stimulus of this nature, once you determine the fiscal stimulus will be of this nature and within this timing, could not reasonably practicably be delivered by means other than a payment. That, I can say, was the judgment of those who designed the package. I cannot say, your Honours, that they even considered the possibility of setting up a data feed, presumably to State public service offices in each State where income tax details of 8.7 million taxpayers would be relayed and processed in some way and then funds flowing from the Commonwealth Treasury through State treasuries, presumably, and on to those taxpayers. I cannot say that was considered, but just articulating it frankly sounds a bit silly.
Your Honours, that was the short bit to add to six. Seven – it is a point of secondary legal significance but longstanding legislative practice, in our submission, ought not be ignored in the construction of the Constitution. As I pointed out by reference to the Groom opinion and by reference to the evidence of Sir Robert Garran, the wide view of the appropriations power has been adopted in practice by the Commonwealth in all of its political manifestations since the beginning. It was not always uncontroversial, but there are a vast number of grants. We have made reference to some of them in footnote 26 of our submissions in‑chief, but there are too many to tabulate.
HEYDON J: I can see that submission having some force if we were invited to overrule some decision on the strength of which a practice had arisen, but no one is inviting us to overrule any decision, are they?
MR GAGELER: Well, let me put it this way, your Honours, no, but the States, as they assert, have always had standing to challenge in this practice. They have chosen not to.
CRENNAN J: Usually things like arts grants and so forth.
MR GAGELER: Yes, I mean, not just arts grants, your Honours, the CSIRO. I mean, there are just huge things. They may ‑ ‑ ‑
KIEFEL J: But their decisions might be based upon the perceived benefits to flow and therefore it is thought not to be a good idea to – mostly they might be described as altruistic. I mean, it is not a good look as they say.
MR GAGELER: I do not want to ascribe particular motives to them in the past or even now, but that submission, your Honour, would have much more force, I agree, if the Court was faced with a decision to overrule or not to overrule. But even in the absence of that choice, the submission ought carry, in our respectful submission, considerable weight.
FRENCH CJ: What is the logic of that? How does it feed into the construction of the Constitution?
MR GAGELER: The Constitution is a document drawn up for the practical working of government through the centuries. We are now into the second of them. The practical working of government, in fact, for the last century has proceeded along a particular line. It would be surprising if the Constitution forbade that working of government and it has proceeded beneficially and, apart from the two cases which were inconclusive for various reasons, without challenge.
FRENCH CJ: So we infer that this is a correct construction from the fact that governments have so construed it?
MR GAGELER: No.
FRENCH CJ: Well, what is the logic? You say it is surprising if it would be otherwise having regard to the practice, but why?
MR GAGELER: One is looking to the workability and practicality of the construction.
FRENCH CJ: A necessity for a wide construction.
MR GAGELER: Using necessity in the broad sense, yes, that is the point. Your Honours, that is the wide view of “purposes of the Commonwealth”. The last five of the seven points I made were also points in favour of reading section 81 as a grant of power. Now, if section 81 is read as a ground of power, but the “purposes of the Commonwealth” is interpreted narrowly, that is to say, that it means the purposes of the polity, then we have a fallback position which is that which we have developed in section D of our submissions in‑chief, and we have kept the same lettering in our submissions in reply.
Without taking your Honours to the detail of that, can I summarise it in this way. If “purposes of the Commonwealth” means purposes of the polity, then you are still referring to purposes, not powers and in referring to purposes it is, in our submission, referring to goals or objectives and in referring to purposes of the Commonwealth as a polity – that is indeed what it means – it must be referring to those goals or objectives that the Commonwealth as a polity in fact and from time to time pursues directly or indirectly through the exercise of its executive or legislative powers.
The reality is that the Commonwealth has no specific power to manage the national economy – but management of the national economy is exactly what the Commonwealth has done, and has increasingly done, through the last century in the exercise ‑ ‑ ‑
FRENCH CJ: Very often in co‑operation with the States.
MR GAGELER: Not in terms of fiscal and monetary policy, certainly not at all in terms of monetary policy. In some respects, your Honours, in terms of fiscal policy, but not at all in terms of monetary policy. What one sees in terms of monetary policy - we have attempted to give your Honours a timeline, which is quite useful, as an annexure to our submissions in reply. The whole notion of monetary policy in respect of the national economy really could not have had much meaning. It really was not around as a macroeconomic concept, but it could not have had any implementation before the common currency was introduced by the Commonwealth in 1910. It was 1924 when the Commonwealth Bank came to have control over the issue of currency.
The role of monetary policy was considered extensively in the 1937 Royal Commission into the Monetary and Banking System – 1937 was the year after Keynes’ general theory. Keynes’ general theory dealing with fiscal policy was referred to in the quote from the Royal Commission that was set out in our timeline. So that is when fiscal policy creeps in. That is when it was invented, and started being used – in 1937 and following. In the Reserve Bank Act 1959 the position that the Commonwealth Bank had been increasingly taking as a central bank through the last few decades became replaced by the Reserve Bank. The Reserve Bank Act, section 7(2) in its original form, and it remains substantially unaltered, declared that the duty of the Bank - this is exercising legislative power over banking and currency and perhaps other heads of power, but principally banking and currency - the duty of the Reserve Bank Board was to act in a manner that would best contribute to:
(a)the stability of the currency of Australia;
(b)the maintenance of full employment in Australia; and
(c)the economic prosperity and wealth of the people of Australia.”
Those three things, your Honours, are and have been, legitimately, properly, purposes of the Commonwealth. They were before 1959, but they were expressly spelled out as purposes for which the Commonwealth was legitimately exercising its non-purposive powers over currency, banking and other things. They are themselves purposes of the Commonwealth.
I would mention to your Honours that really the concept really did not exist before the 1930s. It was assimilated gradually into Australian macroeconomic management from the late 1930s and I have taken your Honours already to the Charter of Budget Responsibility Act and the principles of fiscal management set out in that Act in 1998. They are, in our respectful submission, purposes of the Commonwealth legitimately pursued, at least through the taxation power and through other means, all the means at the Government’s disposal in bringing down the budget and budgetary measures.
All of those add up – one can describe it in different ways, but add up to the management of the national economy, macroeconomic management of the national economy through fiscal and monetary policy, through a range of legislative powers, most of them non‑purposive powers in themselves, being purposes of the Commonwealth. The appropriation, in our respectful submission, needs only to be linked to the purpose or purposes, it need not be linked to any specific power by which the purpose or purposes happen to be pursued. That is the fallback position if “purposes of the Commonwealth” means purposes of the polity.
The things that I have just said will feed into a wide view of the executive power. I will not repeat them when I get to that if I had to start with the executive power. But following on this line of argument, your Honours, I get the appropriation from the appropriations power. I then get the ability to spend from the executive power and can I move to that. It really comes down to the proposition that your Honour Justice Hayne was saying I needed to grapple with, where the killing ground is, and I accept that.
The way we put it is this, that if the Constitution is not to contradict itself and if Parliament’s power of appropriation for national purposes or for those broad purposes of the polity is not to be stultified, then the limited authority that Parliament gives to the Executive in an appropriation must be capable of being exercised by the Executive, that is, we go so far as to say the executive power of the Commonwealth must extend to expending money that is lawfully appropriated. Now, how do we get there? We can get there in three ways.
GUMMOW J: Does that permit expenditure which is the product of taxes which, when raised, could not have been just raised by discriminatory laws?
MR GAGELER: Your Honour is asking me something about ‑ ‑ ‑
GUMMOW J: In other words, is there an inhibition carried across from 51(ii) and 55 and 99 as to parts of States and discrimination when one comes to this ample power of expenditure?
MR GAGELER: No, there is not.
GUMMOW J: Sir Robert Garran said the theory is that you can tax and you can spend but you cannot tax in this way but you could expend in that way, you see?
MR GAGELER: Yes. Your Honour, can I just say we do not need to get into that.
GUMMOW J: I thought you might say that.
MR GAGELER: It takes me to, amongst other things, cases that I have not given your Honours on our list of authorities, which would be Moran’s Case and others. It is just a line of inquiry that one need not consider in the present case, that is, the possibility of discrimination.
So how do we get there? We get there in three ways, in our submission. One is – and they are overlapping, they may be the one way in the end – but one way is to say that the scope of the executive power of the Commonwealth, you just take that unitary concept without going to its extension expressly in section 61, just the unitary concept of the executive power of the Commonwealth is one that in some way conforms to or is moulded to the scope of the Commonwealth’s legislative powers. That is not a close connection but it is a broad connection. How broad we need not get to.
To say that the scope of the executive power to spend, if there is an appropriation, is co‑extensive with the scope of the legislative power to appropriate is entirely consistent with saying that the scope of the Commonwealth’s executive power in any other area is at least consistent with the scope of Commonwealth legislative power in any other area. It can be put as simply as that. Of course, I would never confine executive power so narrowly, but that is one way of putting it. Another way of putting it is that in extending expressly to the execution of the laws of the Commonwealth section 61 must, in our submission, extend to taking action that is authorised by the Commonwealth Parliament to be taken. That is the way we have put it in our corrected submissions in reply.
FRENCH CJ: That simply says, does it, that the Executive has power to spend whatever the Parliament has appropriated for the purpose of the appropriation?
MR GAGELER: Yes, that is right. That is a second way of putting it. A third way of putting it is the way that Justice Jacobs put it in the AAP Case 134 CLR 404. At the bottom of page 404 he says in the last two lines:
When moneys are voted to the Queen by Parliament for the purposes declared by the Parliament, it falls within the prerogative to determine whether or not those moneys will be expended for that purpose and how, within the expression of the purpose to which the moneys have been appropriated, the expenditure will be made.
That is just a very simple way of saying, call it prerogative, if you like; call it just executive power. One follows from the other. That makes a huge amount of sense, not just historically, as the way things were done before Federation and have been done and are done in Westminster systems, but it flows really out of the process that starts with section 53, which is the request from the Executive, goes through section 81, through the procedural mechanisms that are set out elsewhere in the Constitution, and ends with section 83. It is really putting section 81 in that context. It was that context that Sir Maurice Byers, I think, was emphasising in the AAP Case in his argument, which you can pick up at page 342. He says at about point 7 of the page:
The phrase “purposes of the Commonwealth” means those purposes expressed in the executive’s message recommending the appropriation. The purposes do not have to be expressed in legislation: Johnson v Kent. Section 81 is not limited to the legislative power: United States v Butler; Helvering v Davis. It is for Parliament and not the courts to determine what are purposes of the Commonwealth. The question is not justiciable: Pharmaceutical Benefits Case. The phrase does not refer to legislative power but to disbursement of funds by a nation.
That is a cryptic way of putting it, but the entire process really begins and ends with a request to be able to disburse the funds of the nation. It begins and ends with executive power. Section 81 stands as the authority for being able to do that. Combet 224 CLR 494 has a similar, fairly useful expression of where the limited legal operation of an appropriation fits into high constitutional purposes. One sees that at page 577 where in paragraph 160 there is a reference to the Parliament’s:
comprehensive and continuous guardianship over the whole finance” of the Commonwealth. But the manner of exercising that guardianship, within the relevant constitutional limits, is to be determined by the Parliament.
In our submission, it is the same notion that one is talking about the disbursement of the funds of the nation and the executive power conforms to the process beginning with section 53, ending with section 83 with, critically, section 81 in the middle.
Your Honours, so far as the incidental power is concerned as being invoked here simply to impose the duty on the Commonwealth officer to pay the money – and, as I said, there is not a correlative debt entitlement, but if there were, it really would not matter for present purposes, that too would be incidental – but the imposition of that duty or even liability on the Commonwealth to pay appropriated funds must be incidental, either or both to the power vested in the Executive by section 61 to spend or the power vested in the Parliament by section 81 to authorise withdrawal and constrain the purpose of the expenditure.
One sees that pretty clearly articulated in terms with which we would agree, also in the judgment of Justice Jacobs in the AAP Case 134 CLR at page 406. There is no novelty in this proposition, but it is applied in a relevant context here. Having said that the power to spend is an exercise of the prerogative, simply meaning executive power, he says at about point 4:
The power to legislate in respect of matters falling within the prerogative arises under s 51(xxxix) . . . The Parliament is sovereign over the Executive and whatever is within the competence of the Executive under s. 61, including or as well as the exercise of the prerogative within the area of the prerogative attached ‑ ‑ ‑
GUMMOW J: What page are you reading from, Mr Solicitor?
MR GAGELER: Page 406.
GUMMOW J: Thank you.
MR GAGELER: I will read that sentence again:
The Parliament is sovereign over the Executive and whatever is within the competence of the Executive under s 61 . . . may be the subject of legislation of the Australian Parliament.
That is under section 51(xxxix). There is an almost identical statement. Again in a relevant in a relevant context in Brown v West – which I will not take your Honours to but is of the whole Court, 169 CLR 195 at page 202 – that is the nature of parliamentary control over the Executive. This is totally fundamental stuff. There is a very useful description, in our submission, of the nature of the incidental power itself in your Honours, Justices Hayne and Gummow’s judgment in Wakim 198 CLR 511 at 511. Your Honours have that, which I do not, but it does not matter.
What your Honours will see is that a number of different verbal formulations, most of which are helpful, but your Honours also said the quotation from McCulloch v The State of Maryland as cited with approval in Grannall v Marrickville Margarine - all I wanted to point out about McCulloch v Maryland is that those words were uttered by Chief Justice Marshall in the context of justifying as an exercise of the necessary and incidental power the establishment by Congress of a bank, not in the relevant context.
HAYNE J: Now, be it so, what therefore takes the legislation in Pharmaceutical Benefits beyond incidental?
MR GAGELER: It was the regulation of the pharmacists and others. It was the imposition of duties outside the Executive that was the problem in Pharmaceutical Benefits. It was regulating rights and responsibilities of individuals and corporations outside the scope of the Executive.
HAYNE J: So to create a correlative right in a taxpayer in this case is within (xxxix). To create other rights in a taxpayer would not be. What is the distinction you are drawing?
MR GAGELER: Your Honour, to regulate the conduct of the taxpayers could not be justified as an exercise of the incidental power as an incidence of the power to appropriate, hence spend the money, save in this respect. There are machinery provisions that follow section 7, sections 8 and 9, that deal with the recovery of overpayments. That is incidental, that affects rights, so I am not putting an absolute proposition, your Honour. But section 7, in our submission, properly read is all about imposing a duty on a Commonwealth officer, if you want to use Mr Pape’s terminology, “to make a gift” – for high fiscal purposes “to make a gift”.
In our submission, as I started yesterday, when section 7 is read in the light of Peverill’s Case and that line of authority and particularly when the Act is read purposefully, what is it all about? It is not about creating rights for people to sue for $250, it is all about getting a fiscal hit before the end of the financial year. It is all about getting the money out there through the administrative mechanism of the Taxation Office. That is what it is all about. The sensible way to read the Act is as imposing a duty, enforceable if it needs to be enforced, by mandamus. And so read we are only concerned here with regulating the Executive, but even if I am wrong on that, that even if the Act were to create an entitlement that is somehow enforceable in debt, then that itself would be, in our respectful submission, incidental. We are not regulating anybody’s conduct.
HAYNE J: When we go to British parliamentary history we discover in the standing appropriations for the civil list appropriations for the reges chairs at various universities. They are standing appropriations under the civil list. Would it be within the power of the Commonwealth or would it be within power, leave aside generally, to appropriate money for the endowment of the Commonwealth chair in medicine or law at the university of whichever?
MR GAGELER: Yes.
HAYNE J: Would it be within power under 51(xxxix) to oblige that payment by the Executive?
MR GAGELER: Yes.
HAYNE J: Would it be within power under 51(xxxix) to oblige the recipient university to report upon the expenditure of the funds thus paid?
MR GAGELER: Yes.
CRENNAN J: Why is it not spending of a discriminatory kind so far as the States are concerned?
MR GAGELER: Why would that be not ‑ ‑ ‑
CRENNAN J: Why would that not be a problem? You have assented to these propositions from Justice Hayne but, in effect, that would mean there is a power to spend, even though the spending is discriminatory in relation to the States which are not getting these chairs.
MR GAGELER: That is getting to Justice Gummow’s question‑ ‑ ‑
CRENNAN J: Back to Justice Gummow’s question before about 51(ii) and the power to spend, and possible limits on the latter.
MR GAGELER: Your Honour, I do not want to be acknowledging too much in my response to Justice Gummow. Moran’s Case, and there is a discourse on whether a possible use of section 96 might be, in effect, to give a rebate or refund of taxation which would cause in substance the exercise of the taxing power to be discriminatory, because you are giving back money to the particular taxpayers. That is the full extent of the issue that I am prepared to acknowledge about discriminatory expenditure. I would say that there is simply no issue that arises about territorial discrimination in the exercise of the power, through a combination of sections 81 and 61, to spend money.
HAYNE J: But the limitation perceived by those passages in the judgment of Sir Justice Mason in AAP, to which I earlier referred, was a limitation that his Honour attributed to the careful division of powers, et cetera, et cetera. Now, what is it that you say? Do you embrace that approach to it? Do you say that the approach should be discarded?
MR GAGELER: No.
HAYNE J: How do you deal with that passage?
MR GAGELER: I deal with that passage, as I believe his Honour was intending it, as dealing with the Commonwealth Executive engaging in activities, doing things, in the exercise of executive power. As your Honour knows better than me, the Australian Assistance Plan, although only vaguely defined in the material, apparently, in that case ‑ ‑ ‑
HAYNE J: The material was that thick, Mr Solicitor.
MR GAGELER: It appears to be rather vague what was actually intended by the Executive, but whatever it was, it was the Executive doing a fair bit, doing a lot of stuff, not just spending money – doing a lot of stuff. That is the context in which his Honour was talking. If you look at the two cases that precede us, the Pharmaceutical Benefits Case was concerned with regulation of individuals and corporations. That was said to be outside the legislative power as incidental to an appropriation. You then get to the AAP Case. That was concerned with Commonwealth activity, although somewhat vaguely defined, and Justice Mason said, “Appropriation fine, activity bad”. Here, what have we got?
HAYNE J: I understand that. If you embrace the distinction between payment and activity, it is a proposition about the operation of 51(xxxix), is it not?
MR GAGELER: Yes.
HAYNE J: Can I just indicate where the point is going so that you can deal with it?
MR GAGELER: Yes.
HAYNE J: How can that distinction be maintained? I understand the difference in words, but what is the essence of the distinction and how is it maintainable?
MR GAGELER: Can I put it this way. It is not a line. The distinction is not a line. One starts with the appropriation which is the authorisation of the expenditure and one asks, what is a necessary and proper law? Put it another way. What is incidental to the expenditure? How far does it go? It is not a line. It extends, in our submission, pretty obviously to compelling the Executive to do what the Executive could otherwise choose to do or not to do, and we say that is enough for this case. We say it extends, again, pretty obviously, to creating a simple entitlement for a third party to receive the payment that the appropriation has authorised. Again, that is enough for this case, even if I am wrong as a matter of construction as to what the Act does. How far does it go? Certainly it extends to authorising the recovery of overpayments. That is, again, what aspects of this Act does. How much further? We do not have to decide. So, your Honours, that is the principal way in which we put the case.
There is another way that one could do it. It is the way that we have developed, though, on reflection, maybe not as well as we could have, in writing in section D of our submissions in‑chief and reply. We have labelled this section “Nationhood Power”. We may be making a rod for our backs there that we do not really need to make.
HEYDON J: Did you say D?
MR GAGELER: I hope I am right. I think it is E, your Honour. I did say D, but it is E. I am sorry. Your Honours, can I say this about that label that we used. It was very strongly the view of Sir Owen Dixon that there is a Commonwealth legislative power that derives simply from nationhood. I should not say “simply from nationhood”, but from the nature of the Constitution itself and from the nature of the Federal Government within that Constitution. He thought it was such a big idea, that it was wrong to confine it to the text of sections 61 and 51(xxxix), and that is a view that he powerfully advocated in the Communist Party Case 83 CLR 1, pages 187 to 189. That, of course, has been picked up since, and can be seen to be supported by a number of members of the Court in Davis.
We do not resile from that view of the Constitution, but for present purposes the same point can be put much less controversially by relying on the executive power and combining it with section 51(xxxix). In one of the quotations that we have in section E of our submissions, paragraph 32, we are quoting from Justice Mason who was content to put it in those terms, and we are content to develop the argument in those terms. We do not need to be unduly provocative in putting it on the grander scale.
Your Honours, one then gets to the question, well, what is involved in executive power, what is the scope of executive power and what are the purposes for which the executive power can be exercised? In that respect there is some utility in what was said by Justice Isaacs in the Wool Combers Case 31 CLR 421 where at page 446 his Honour said this - and I am just going to pick up one sentence. It is a valuable discussion, but I am just picking up one sentence. At about point 8 he says:
It is another and I think a very striking instance –
and he is here talking to section 61 –
of the impossibility of regarding the mere written words of the Constitution as affording the only test of validity. Those written words have to take into account the circumstances of the moment and the extent of constitutional development.
That is uttered n the context of section 61. His Honour is talking about the doctrine of responsible government, but his Honour is capturing the inherently fluid and evolving nature of executive power. One then goes to Barton v The Commonwealth.
HAYNE J: Just before you come to Barton, going back to your written submission where you said paragraph 32 of your written submissions sufficiently encapsulated the point you seek to make, is that right?
MR GAGELER: No, not quite. If your Honours were to cross out the words, “and which cannot otherwise be carried on for the benefit of the nation”. Yes.
HAYNE J: The proposition I was about to put to you, Mr Solicitor, which you anticipate is I understand your case to be not that no fiscal stimulus could be given.
MR GAGELER: Yes.
HAYNE J: This particular form of fiscal stimulus could not be delivered. The two propositions are radically different, are they not?
MR GAGELER: That is why we did not do it very well in writing, your Honour. I am doing it better now, because the way I am doing it now is this, I am about to say that the purposes of the Commonwealth Executive, as they now exist, extend to the management of the national economy, fiscally, in good times and in bad, and I am going to make the argument based on emergency only as a fallback position, but I put it in that broader way, now. I was not trying to creep up. I was just trying to do it systematically.
If your Honours then go to Barton v The Commonwealth 131 CLR 477 at page 498, again just picking out three sentences, if I may? Justice Mason about point 4 of the page:
By s. 61 the executive power of the Commonwealth was vested in the Crown. It extends to the execution and maintenance of the Constitution and of the laws of the Commonwealth. It enables the Crown to undertake all executive action which is appropriate to the position of the Commonwealth under the Constitution and to the spheres of responsibility vested in it by the Constitution.
Your Honour, “spheres of responsibility” is a broad concept. Where I am going with this is that the spheres of responsibility cover the spheres of responsibility sufficiently for present purposes legislatively articulated since 1959 in section 10 of the Reserve Bank Act and legislatively articulated since 1998 in the Charter of Budget Responsibility Act. They are spheres of Commonwealth Executive responsibility.
HEYDON J: But were they vested in it by the Constitution, unarguably?
MR GAGELER: Well, nothing is unarguable, your Honour. But if they were not, then something very strange has happened. It is really going back to the point I started with.
HEYDON J: Well, something very strange happened perhaps in 1899.
MR GAGELER: Your Honour, it really goes back to the point where I started. That is, why do we read these things widely, and then in the case of executive power, in particular, why do we read it as subject to the understanding that in 1900 it was an evolving concept and it continued to evolve through time. Why do we read it in that way - because the Constitution was established for the government of the nation into the future, in good times and in bad.
HEYDON J: What was the “it” in that sentence?
MR GAGELER: Pardon.
HEYDON J: You said “it”. Is that the Constitution?
MR GAGELER: “It” was the Constitution, yes, and in particular the focus of the “it” here is section 61 of the Constitution. The other passage I wanted to take your Honours to in this respect was Davis v Commonwealth 166 CLR 79 in the judgment of Justice Brennan at page 109, referring to Justice Jacobs in the AAP Case. In our respectful submission, this exposition of executive power is compelling. Justice Jacobs in that quote says:
Primarily its exercise is limited to those areas which are expressly made the subject matters of Commonwealth legislative power. But it cannot be strictly limited that those subject matters.
Can I interpolate there because the subject matters themselves cannot be purposively limited amongst other reasons.
FRENCH CJ: Matters of concern falling properly within the scope of Executive concern and supportive of the nationhood power would include on your submission matters of what one might call national concern.
MR GAGELER: Yes.
FRENCH CJ: The Executive, for example, if one looks at I think the COAG website you see a great, long list of subjects which are up for discussion for the creation of co‑operative arrangements with the States because of a need to take a national approach. Does the identification of those subjects as attracting a need for a national approach somehow support a view that it is translated into a head of Commonwealth legislative power?
MR GAGELER: I am not talking about legislative power. I am simply talking about ‑ ‑ ‑
FRENCH CJ: We are talking about nationhood power and I am looking at the base for it, which ‑ ‑ ‑
MR GAGELER: No, your Honour, I am talking about executive power. As I said, I apologise for the focus of the written submissions.
FRENCH CJ: All right. Well, let us take the executive power.
MR GAGELER: I am just taking the executive power at the moment and that is as far as I am taking it. The answer is, yes.
FRENCH CJ: So that the executive power will extend to all of those matters which can be properly identified by reference to the sort of material I have talked about as matters of national concern?
MR GAGELER: Climate change, yes.
CRENNAN J: You are not denying the States would have their own executive power?
MR GAGELER: Of course not, no.
CRENNAN J: That is an inherent limitation anyway.
MR GAGELER: Yes, absolutely. That is the proposition I am putting, yes, and that is really what Justice Brennan goes on in substance to say over the page.
KIEFEL J: If you are required to qualify your general power with respect to the national economy and accepting, as I think you would, any head of power that was already available under section 51 and any power which might be a subset of power that is involved in the notion of power with respect to a national economy that might clash with that of the States, are you able to articulate any workable limitation upon ‑ ‑ ‑
MR GAGELER: On executive power?
KIEFEL J: Yes, on the executive power.
MR GAGELER: I will put it this way. There is no workable limitation on executive power, recognising executive power is not power to coerce anyone to do anything.
KIEFEL J: So the executive power encompasses anything which is necessary at a national level with respect to the economy as needs may be?
MR GAGELER: Yes, I do make that submission. Just sort of an illustration, can I remind your Honours of the decision in Murphyores, which I do not have the citation for, but your Honours will recall that was an exercise of the trade and commerce power to prohibit the export of rutile from sand mining on Fraser Island. Accompanying that, as I recall, there was an executive inquiry or the sort of legislation that authorised an executive inquiry into sand mining on Fraser Island. I think I am recalling the case correctly. That is a proper exercise of the executive power, remembering that the trade and commerce power is non‑purposive. You can prohibit people from exporting anything from Australia for any purpose. The executive inquiry into that purpose was entirely within executive power and the legislative authorisation and empowerment of that inquiry was within the incidental power.
KIEFEL J: But the example you have given might be regarded as something of a standalone position, an inquiry into, whereas here, under the notion of powers with respect to a national economy is a rather wide umbrella. I am wondering what difficulty you have with striking out the words used by Justice Mason in the AAP Case at page 397, about point 7, “and which cannot otherwise be carried on for the benefit of the nation” as the appropriate limitation?
MR GAGELER: The example I have just given really denies that as a general limitation, your Honour.
KIEFEL J: I thought the example you gave was par excellence where it might be appropriate, it would come within what his Honour is saying, where it would have to be done in that way. But the area in which you are talking, the national economy, there are so many legislative powers and there are so many States powers and other powers given under the Constitution. So what I am trying to get to is, how would you describe the essential – in this sphere, in this example of this case since it is so difficult to do, how would you describe the essential feature of the executive power which you say needs to be engaged?
MR GAGELER: The executive purpose can I put it that way. The executive purpose extends, I think, sufficiently – I can say sufficiently for present purposes – to the objectives identified in section 10(2) of the Reserve Bank Act and in the responsibilities set out in the Charter of Budget Honesty Act. I put it in those terms. Now, what can be done in respect of those purposes is a question of, well, how far the executive power goes and how far the executive power would allow the Commonwealth to engage in activities? We do not have to go into that question. Here we are concerned simply with spending.
CRENNAN J: I suppose your argument is a bit easier when you come to your next point, which is the emergency point, because of the link often between the old prerogatives and emergencies of one sort or another. It is a narrower version of the points you are presently making, is it not?
MR GAGELER: It is, your Honour, it is and again, I apologise for not being perhaps as well articulated as it could have been in writing it is, but it would be surprising if the Parliament could confer on a statutory agency through the exercise of the banking power those purposes that one sees in the Reserve Bank Act, but the Executive could not have those purposes itself. We are talking about purposes, we are talking about Commonwealth purposes and, in our submission, those are purposes which should now be recognised as being a part of the executive power.
Then it becomes a question of, well, what can be done in the exercise of executive power, as I said, and there may be questions here about the scope of the activities that can be engaged in. Then, yes, if I need to come to the fallback position, then I do rely upon the exigencies of the circumstances. My primary position, which I am putting, I hope, fairly clearly orally, is, in good times and in bad, the executive power ought to be seen as extending to the fiscal management, relevantly, and monetary management of the national economy. If I have to invoke bad times, then I do and I am not going to repeat what I have said. If that is right, then it falls within the incidental power, your Honours, to authorise the expenditure of money and compel the expenditure of money, assuming I am wrong about section 81, is itself the source of power.
HAYNE J: I am sorry, Mr Solicitor, you are dropping your voice.
MR GAGELER: I am sorry. Assuming that I am wrong about section 81 is itself the source of power, then it falls within the incidental power both to authorise the appropriation or to make the appropriation, I should say, and to compel and regulate the expenditure of the funds. They are the principal ways in which we put the case.
There are other sources of Commonwealth power upon which we rely and we rely on those in really two ways. One is, if necessary, as supporting the purpose of the appropriation, and, secondly, if necessary, as supporting the imposition of the duty to pay or the entitlement to receive the tax bonus and those are the trade and commerce power, the external affairs power and the taxation power. They are each – not so much the taxation power which raises other issues, they are big topics, and the trade and commerce power is a big and unexplored topic. To do it justice would take some time and I am about to do what I can do in a relatively brief manner, but the brevity of what I am about to say ought not be interpreted, your Honours, as ‑ ‑ ‑
FRENCH CJ: You should not feel constrained to give less than the full appropriate treatment to it.
MR GAGELER: I will give it that. I will do my best. Trade and commerce, that is where I will start. The language of section 51 and the scope of the power conferred by section 51 can now ‑ ‑ ‑
GUMMOW J: It may come to this, may it not – I think it is said against you by some of the other participants – that this form of legislation in the Bonus Act is simply not apt to lead to any consequence necessarily impacting on interstate trade or commerce. It may, it may not. That is true of lots of laws. It does not mean they are supported by the trade and commerce power. I think that is the area of debate.
MR GAGELER: I mean, once you get to that you have skated over a lot of technical history about economic effects and other things, but if we can get to that point ‑ ‑ ‑
GUMMOW J: We can go back to the abattoirs and O’Sullivan v Noarlunga Meat, if you like. We all know about that.
MR GAGELER: And commingling and all that stuff. If can be spared all that, go straight to the pointy end, that is, if we accept that we no longer think that there is a rigid distinction drawn by the Constitution between interstate and intrastate trade, a distinction that the language of the Constitution never supported anyway, it was talking about trade and commerce among the States, and we can accept that, and if we can accept that there can be a sufficient connection with the power conferred by section 51(i) can be a sufficient practical connection taking into account the economic effects of the law, if we accept all that, then the question just becomes, does this law have a substantial economic effect on the flow of commercial transactions, goods, services, money, credit, among the States? That is the question.
The answer to that essential, factual question is nobody has modelled the precise effect on the flow among the States, but we can say from the economic modelling that has been done that the effect on the flow of commerce nationally – that is what GDP measures, flow of commerce nationally – will be ½ per cent by June 2009 and another ¾ per cent to 1 per cent by June 2010. That is the modelling and that is, in our submission, a substantial, practical effect on, using the language of the Constitution, trade and commerce among the States.
HEYDON J: Not trade and commerce. It says nothing about the States. It is dropping like the gentle rain uniformly across the country, in quite small sums to quite poor people who are likely to spend it in their neighbourhoods.
MR GAGELER: It is a body slam, your Honour. It is not a gentle rain; it is a body slam.
HEYDON J: Yes, but it is falling virtually uniformly across the country, because the country is fairly homogenous in terms of distribution of wealth.
MR GAGELER: Yes, your Honour is right.
HEYDON J: Poor people are people who are below the $100,000 limit and, if they spend, will be spending on daily needs – small debts they have run up. What is the connection between that and interstate or international trade?
MR GAGELER: It is wrong. The New South Wales submissions say that somebody could spend it on getting married. That is terrific. The point is they are spending. The whole idea, the purpose of this is to encourage spending, and the purpose of encouraging spending is to get the flow of funds happening again in the economy. That is what a fiscal measure does. It is wrong, in our respectful submission, for the purposes of this process of characterisation, to be looking at what any particular individual is going to be spending money on. The point is that they are going to be spending it. Some of them might not. But the substantial practical design of this thing is for people to spend money. It is really in a real sense all about kickstarting, or at least keeping the flow going, within the national economy.
FRENCH CJ: There is increasing demand for goods and services.
MR GAGELER: Exactly. That is what GDP is – the flow of goods and services. Now, it is not focused on interstate trade and commerce, but it is focused on trade and commerce in a very, very real sense. That is what fiscal policy is about. It is focused on GDP, on aggregate demand, and in our submission…..instrument as it is, it has a sufficient practical connection with – and I am using the language – trade and commerce among the States to say that here is a measure that is designed to increase to a measurable extent the gross domestic product of a nation.
KIEFEL J: In terms of the degree or process of connection it provides the means to increase demand.
MR GAGELER: That is a good way of putting it, yes.
HAYNE J: This is to be gleaned, is it, from the last three lines of page 24 of the special case book, paragraph 14 of the special case, as read in the light of those passages from the outlook that you read to us at 45 and 47?
MR GAGELER: Yes, 45, 46 and 47, that is, 46 does emphasise the very targeted nature of this expenditure. Targeted time, yes. “Gleaned” is not a word that I would embrace if it ‑ ‑ ‑
HAYNE J: Derived from.
MR GAGELER: Derived. Can I put it another way, explained, yes. Modelled. So, your Honours, assuming that I do not have to go back to abattoirs or worry about commingling, that is what I need to say on that topic. Of course, the Americans would have no difficulty with this and would not have had any difficulty since the 1930s with justifying this sort of measure on the basis of the trade and commerce power, but they would not have to worry because their spending power is plenty. Our primary position, of course, is we do not have to worry either because our spending power through section 81 and 61 is itself plenty.
The external affairs power then is something we have developed in section G of our submissions in‑chief and in reply. Can I say this about it, can I just summarise the way we put it, can I indicate where your Honours will find the evidence, and I am not going to go through the material again in detail, and can I just refer your Honour to a couple of passages in some key cases.
We invoke the external affairs power on either or both of two bases. Your Honours are not going to hear the words “international concern” come from my mouth, other than just then. I am going to be much more specific about the international aspects of this stimulus. There are really two and they are overlapping. One is the stimulus is designed as a measure to safeguard the national domestic economy from the adverse practical consequences of a global economic crisis which in terms of the Constitution is itself an external matter or thing. We are dealing with the domestic impact of an external matter or thing and that itself is a sufficient basis for an appropriate and adapted legislative response. That is the first way in which we put the external affairs power.
The second way in which we put it is that the fiscal stimulus occurs as part of a co‑ordinated international response to that global economic problem. That itself has two aspects for external affairs purposes. One is that there is an international agreement or commitment given by the G‑20 leaders which is expressed in terms as specific as one gets in international agreements. That is the commitment that I took your Honours to in the special case book at page 107.
I had wrongly said to your Honours that the Group of 20 comprises the 20 most industrialised nations. Can I correct that by saying that the Group of 20 brings together industrial and emerging market countries which together represent around 90 per cent of global gross national product, 80 per cent of world trade and two‑thirds of the world’s population. I can provide your Honours with the document that I have read that from.
HEYDON J: Does not the local – that is to say, the Australian legislation – have to have some fairly specific relationship to the international treaty or agreement or commitment? I think you said “commitment”. The commitment is to use fiscal measures to stimulate domestic demand to rapid effect as appropriate while maintaining a policy framework conducive to fiscal sustainability.
MR GAGELER: Yes, that is right.
HEYDON J: That means not too much. It is all very waffly.
MR GAGELER: Your Honour, there is not much waffly about what is going on as we speak.
HEYDON J: Yes.
MR GAGELER: Your Honour has to read those words in the context of the IMF consideration of these matters. One has to see how that has actually been translated into practice internationally. The precise fiscal stimulus is, of course, left to national governments – the precise timing, the precise amount – but what one can see is that those words of commitment are translated into fairly specific terms, nationally and internationally, and there is an overall sameness about the nature of the responses.
HAYNE J: Are we to read these words against an understanding that these matters are matters of intense political controversy in some nations. I have in mind, for example, the United States.
MR GAGELER: Or Germany, your Honour.
HAYNE J: Just so. The whole eurozone, I would have thought. Yes.
MR GAGELER: Yes. Your Honour, this is a time of crisis and there are many views as to how the crisis should be handled. The prevailing view – I have indicated the scope of the G‑20’s gravitas here - is that a co‑ordinated fiscal response is necessary and that is what is happening. This is what this does.
KIEFEL J: You have used the word “commitment” before. Can you really say that there is a commitment without having at least some structure to what is to be undertaken, some method, otherwise is it more than a general aspiration leaving the individual countries to ‑ ‑ ‑
MR GAGELER: There is no enforcement mechanism.
KIEFEL J: No, but what is the level of agreement, really? Can you summarise it for us?
MR GAGELER: The level of agreement is the commitment that it is in those works that I will not summarise, I would just reread and the way in which that is being translated in practice your Honours can read about in the papers. But the material before your Honours is set out in the IMF document that I took your Honours to before, page 118 of the special case book, but in ‑ ‑ ‑
KIEFEL J: I do not mean to take you back over what you have already done, Mr Solicitor.
MR GAGELER: No, but in particular, your Honour, page 145 where it is said about line 15:
To date, the G‑20 countries have adopted (or plan to adopt) fiscal stimulus measures –
and then it gives the figures and it goes on and indicates that a range of responses across a range of countries.
FRENCH CJ: You have not actually abandoned an international concern argument, have you? It is referred to in your footnotes.
MR GAGELER: I am not abandoning an international concern argument. I am giving content to the international concern and now I have used the terminology more than I wanted to. I am not moving away from it. I am not necessarily basing myself on an enforceable agreement. I said that there were two elements of this being a co‑ordinated action. One is the commitment, the other the specific recommendations – this is in accordance with the specific recommendations of the IMF and the OECD.
FRENCH CJ: Your larger proposition, in any event, is that the external affairs power is attracted to a circumstance in which a parliament seeks to deal with the effects on a domestic economy of international events?
MR GAGELER: Correct, and, really, they are the two ways I put the case.
HEYDON J: The second way was the stimulus is part of a co‑ordinated international response to a global problem and that had two limbs. One was the commitment given at the G‑20 meeting in November last year.
MR GAGELER: Correct.
HEYDON J: What was the second one? I thought there were two.
MR GAGELER: Giving effect to specific recommendations of the IMF and the OECD. Can I give your Honours the references to these? I am happy to take you through the material, however it is best to be done. The IMF, your Honours see, is established under the treaty that your Honours see in the defendant’s materials at tab 8. I do not think I need to go to the detail of that. The recommendations relevantly that it has made are in the special case book. Page 118 about line 25, has the statement:
Monetary and fiscal policies need to become even more supportive of aggregate demand and sustain this stance over the foreseeable future, while developing strategies to ensure long‑term fiscal sustainability.
That is the statement that is picked up in the design of the fiscal stimulus at page 48 in the box “International calls for fiscal stimulus”. That is the first of those statements at page 118. Then within that document there is at page 125 the statement at line 20:
In current circumstances, the timely implementation of fiscal stimulus across a broad range of advanced and emerging economies must provide a key support to world growth.
GUMMOW J: Well, one can read these statements, but one has to read too what we said in the Industrial Relations Act Case (1996) 187 CLR 416 at 486. The discussion there was the translation of this notion of a common objective into an external affair.
MR GAGELER: I am sorry, I missed part of what your Honour said.
GUMMOW J: What we are talking about is the translation of these common objectives about which these heads of government speak when they come together, the translation of their language of common objective into the constitutional expression and external affair, and, as Professor Zines points out there in that extract from the third edition of his book:
a broad objective with little precise content and permitting widely divergent policies by parties does not meet the description –
of an external affair. That seems to be the crunch point. You may say those words are satisfied, but that is the doctrine of the Court at the moment.
MR GAGELER: I do not quibble with that, your Honour. I do say that those words are satisfied. The World Heritage Convention requires protection of world heritage properties. The method of protection is pretty much up to individual nations, but that is a sufficiently precise international commitment to found an exercise of the external affairs power, and the present is analogous.
FRENCH CJ: Mr Solicitor, we will adjourn to 2.15 pm.
AT 12.51 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.17 PM:
FRENCH CJ: Yes, Mr Solicitor?
MR GAGELER: I was giving your Honours the relevant references to the recommendations made by the IMF and OECD. To complete the IMF, if your Honours look in the special case book at page 130 there is that IMF staff paper provided to the G‑20 meeting of deputies which, at about line 45, has the italicised words:
More aggressive and concerted policy actions are urgently needed to resolve the crisis and establish a durable turnaround in global activity. To be effective, policies need to be comprehensive and internationally coordinated to limit unintended cross‑border effects. Action is needed on two fronts ‑ to restore financial sectors to health and to bolster demand to sustain a durable recovery in global activity.
The next page, page 131, at about line 32 has a reference “Macroeconomic policy stimulus”, “fiscal policy”, it is said, “must play a central role”. The last sentence says:
A key feature of a fiscal stimulus program is that it should support demand for a prolonged period of time and be applied broadly across countries with policy space to minimize cross‑border leakages.
FRENCH CJ: What does that mean?
MR GAGELER: Arbitrage – flights of capital. At page 48 of the special case book, what I had been reading from, or what I read from earlier, was the first of the IMF documents mentioned there. The next document is not reproduced, but it is important – that is, the IMF’s economic counsellor explained that, on fiscal policy, many countries have announced, and are already implementing, sizeable stimulus packages. The key here is to design packages which provide maximum boost to demand very soon. That tends to argue in the current context for measures focused on spending rather than taxes. Measures focused on taxes tend to have less effect in the short run than measures which increase spending. That is an explanation for the policy choice that is being made. It was not made back in the 1960s, when other measures were taken.
So far as the OECD is concerned, it is established under the treaty that your Honours have in our material behind tab 10. There is no need, I think, to go to the details of that. In the special case book at page 164 the relevant passage, which I will not read, begins at line 30, and continues on for the next two full paragraphs. Part of that document is picked up, anyway, at page 48. I just cannot pick up the language as I stand here, but it is from that document.
CRENNAN J: All that emphasises is that, although you might not want to use the word “emergency”, we are not in normal times here.
MR GAGELER: Yes. I am not shying away from emergency, your Honour.
CRENNAN J: No, but you are not very enthusiastic about it because of its narrowness, I presume?
MR GAGELER: That is correct, yes, but I am not shying away from these being extraordinary times calling for extraordinary measures and if I need to get to the point where we can only deliver a fiscal spending cut in extraordinary times, I will take that but, in my submission, we need not get there. Your Honour, so far as the cases are concerned, can I just mention them very briefly. In the Industrial Relations Act Case 187 CLR 416 at page 482 at about point 5 there is a sentence which says:
It would be a serious error to construe par (xxix) as though the subject matter of those relations to which it applied in 1900 were not continually expanding.
At page 483 there is the quotation, with approval, actually applied in this case, from Justices Evatt and McTiernan in Burgess. Then at page 485 it is said in the first full paragraph:
Of course the scope of the legislative power is not confined to the implementation of treaties.
There is a quotation from Justice Dawson, which I will not read, which, it is said, must now be taken as representing the view of the court. Then there is a quotation from Justice Brennan to which I draw attention without reading. Across the page at 486 there is then the emphasis placed on there being a sufficient specificity of obligation, of course, which is itself a question of degree. In that respect it is useful to recall, as I alluded to before lunch, the degree of specificity that was involved in the World Heritage Convention, 158 CLR 1 is, of course, the Dams Case. At page 81 your Honours will see Articles 4 and 5 of the World Heritage Convention.
One must read what is said in the Industrial Relations Act Case against the background of the commitments as set out in Articles 4 and 5 passing muster in terms of being sufficiently specific. There is some useful discussion of that in the judgment of Justice Mason at pages 132 to 133. Assuming that we get over the hurdle if we need to rely on the commitment given by the G‑20 and on the recommendations, assuming we get over that hurdle, then what his Honour says about the nature of the domestic legislative response that is available at pages 130 to 131 is useful. He says at the bottom of page 130, referring back to Chief Justice Barwick in the Airlines Case:
It is significant that this view of Parliament’s power to legislate so as to give effect to a treaty –
we would say an international obligation or recommendation –
conforms to the approach which this Court has adopted in deciding whether legislative controls designed to achieve an end within power are themselves within power.
Then his Honour invokes the quotation from Justice Kitto in Herald and Weekly Times and that is to the effect that no matter how extreme the measure might seem, it is impossible to avoid the conclusion that it represents a means and is enacted as a means for effecting a desired end which is within power.
In our respectful submission, that states the preferable and true doctrine. There is useful discussion also in the judgment of Justice Deane at the bottom of page 258. I will just draw your Honours’ attention to the passages. At the bottom of page 258 the sentence beginning:
The full scope of the power is best left for determination on a case by case basis –
from there to the end of the page and then on the next page his Honour’s reference also to Airlines of NSW (No 2) and the passage in the judgment of Chief Justice Barwick.
The only other case on external affairs that I particularly wanted to draw your Honours’ attention to was XYZ 227 CLR 532. At paragraph 30 there is a reference to the Industrial Relations Act Case. At paragraph 32 there is a reference to Justice Dixon in Burgess and then paragraph 35 usefully draws attention to the decision in De L, the decision in De L being based on the domestic regulation of matters by reference to circumstances external to Australia.
What I am seeking to show by illustration is that the “external to Australia” aspect of the external affairs powers is not, as some have suggested against us, limited to regulating conduct or rights or duties outside the territorial limits of Australia. It never has been. De L illustrates that point. Paragraph 43 I have already drawn your Honours’ attention to more broadly but it was uttered, of course, in the context of the external affairs power.
Your Honours, that is what I wanted to say about the external affairs power. It brings me to the taxation power and I want to be quite frank here. We do not seek to support the Tax Bonus Act as an exercise of the taxation power to the extent that it would authorise payment to an individual of tax bonus that is in excess of that individual’s adjusted tax liability. If it would be useful I can put this in evidentiary form. The modelling shows that approximately 11 per cent of individuals who would receive payment would be taxpayers who would be receiving tax bonus greater than their adjusted tax liability, approximately 11 per cent.
GUMMOW J: Does that appear in the materials?
MR GAGELER: It does not, but that is the modelling. It is only modelling, of course.
CRENNAN J: Are you going to provide us with ‑ ‑ ‑
MR GAGELER: If you want the spreadsheet I can certainly do that.
FRENCH CJ: We might have to hear from Mr Pape about his attitude to it in due course, but you can proceed on that assumption.
MR GAGELER: Yes. Your Honours, we do not say that the payment of tax bonus will have any legal effect on anybody’s adjusted tax liability. I have drawn your Honours’ attention to the Consequential Amendments Act and one of the things that the Consequential Amendments Act does is prevent the Commissioner from exercising his statutory right of set‑off.
FRENCH CJ: When you say it is the modelling, you mean it is a prediction by Treasury?
MR GAGELER: Or Tax.
FRENCH CJ: Or the Tax Office.
MR GAGELER: One of the two or maybe both in combination, yes. What we say about the taxation power is to the extent that the substantial practical operation of the law would be to return to an individual an amount that is equal to or less than the amount paid or payable in tax, to that extent the law is a law with respect to taxation and is no different in its substantive effect from a law giving a refund or a retrospective amendment of tax liability. Your Honours have seen the passages in Mutual Pools upon which we rely. They are set out in our submissions in‑chief. I think I have nothing much to add to them.
We then say that the Tax Bonus Act is severable and the way in which reading down would need to occur I will mention in a moment, but if it is severable then the payment to Mr Pape would be valid on the facts set out in paragraphs 5 and 6 of the special case. Your Honour sees that we have taken the traditional approach that a taxpayer, simply as a taxpayer, lacks the special interest to challenge payments to other people.
HAYNE J: Just before you come to this question of standing, Mr Solicitor, what exactly is the severance you are propounding, because I go to your defence and I do not see a word of severance? What is the severance you propound in this circumstance?
MR GAGELER: Your Honour, I am coming to that. That is the difficult question and I am coming to that. All I was trying to say is I am putting standing really to one side. There is just no doubt Mr Pape has standing to challenge the payment to himself. We have not questioned that. In defending the payment to him we rely on a number of heads of power. If it all comes down to the tax power then we do not say that the entirety of the Act can be sustained on that basis and the payment to him would be invalid unless the Act is severable. So the standing point goes nowhere in the practical outworking in this case and it all comes down to severability and the severability is this.
If you go to section 15A of the Acts Interpretation Act – and I do not ask your Honours to turn back to it – but what it requires is, if possible, you give the Act a construction that would give it a valid operation to the extent that it is not an excess of power. That is what the Act says. The Industrial Relations Act Case itself at pages 501 to 503 gives the basic criteria that need to be fulfilled for an Act to be read down. One is that the criterion for reading down must appear expressly or by implication from the terms or the subject matter of the law. That is one criterion. The other is that the operation of the remaining parts of the Act must be unchanged – the basic criteria.
We say that they can be fulfilled here in a way that I will come to in just a moment, but the closest analogy that we could think of is in the decision of the Court in Hughes 202 CLR 535 at page 557. Your Honours will recall this was a case where the legislation, on its face, gave a general power to prosecute and it said, at the top of page 557:
However, s 15A of the Interpretation Act may be applied to read down a provision expressed in general terms, including a power to prosecute so as to apply only where the particular prosecution is supported by a head of power –
The example noted in the footnote is the Defence Force discipline example – that is Nolan’s Case. We say by a similar process of reasoning that the power or the obligation to pay imposed on the Commissioner by section 7 can be read down so as to apply only where the particular payment is supported by the tax power. That is best done, most consistently done, in accordance with section15A – that is, to give the Act the greatest operation so that it would not be an excess of power by treating the section 6 in such a case as setting a maximum entitlement and allowing the obligation to apply up to that maximum entitlement to the extent that it would be a return of an amount to a taxpayer that is not in excess of the taxpayer’s adjusted tax liability.
GUMMOW J: Perhaps you can hand up some written formulation of this tomorrow morning.
MR GAGELER: Yes, I can do that.
GUMMOW J: Of the text of section 6 as adjusted.
MR GAGELER: As adjusted, yes, of course.
GUMMOW J: I am after this process you have mentioned.
MR GAGELER: Your Honours, that is nearly everything I wanted to say. I mentioned the G‑20 and I read something from a document about G‑20. I think I have given your Honours that. I did refer earlier to the method of payment and asserted that cheques would be being sent. The Tax Bonus Act in section 7(2) does refer to electronic payments, but section 7(3) allows the Commissioner to direct a method of payment. If your Honours look in the special case book at page 256, top of the page, your Honours can infer that such a direction has been given from the contents of paragraph 7. It also gives a sense of the scale of the operations involved. That is a daily figure for cheque payments and notices.
The only other thing is, if your Honours would adjust our proposed answer to the last question to read “in accordance with the agreement of the parties, each party should bear its own costs”. If the Court pleases.
HEYDON J: That is provided the other answers are as you want them to be.
MR GAGELER: No, that is ‑ ‑ ‑
GUMMOW J: Whatever.
MR GAGELER: Whatever. If the Court pleases.
FRENCH CJ: Thank you. Solicitor for South Australia.
MR HINTON: If the Court pleases. My submissions will focus largely upon the external affairs power, the nationhood power and the trade and commerce power. For the reasons outlined in our written submissions, we intervene in support of the Commonwealth to the extent that the tax bonus law can be supported under the taxation power, and in support of the Commonwealth, with respect to the submission, that it can be supported under the appropriation power.
With respect to the Commonwealth’s submissions on the appropriation power, our adoption of their submissions and our support is somewhat qualified in that we do not accept section D of their written submissions, the development of the national economy, as the basis justifying the appropriation power and, indeed, the expenditure power in section 61. I do not propose to make any oral submissions on that. I direct the Court to our written submissions in response to section D between paragraphs 32 and 35 of our written submissions. I intend then to confine myself to, with one exception ‑ ‑ ‑
GUMMOW J: It would be helpful, Mr Solicitor, if you could just itemise succinctly what are the areas of difference between you and the Commonwealth.
MR HINTON: Yes. We are at one on the taxation power. We are at one on the appropriation power, save the fallback position in section D in their written submissions.
CRENNAN J: When you say “at one on the taxation power”, are you including the point about severance?
MR HINTON: Yes. With respect to the external affairs power, the submission is that we do not need to look at the geographical externality principle. The aspect of external affairs that has been developed by this Court that deals with treaties is sufficient in this case and on that basis, the external affairs power supports the Tax Bonus Act. So we differ in that we say, we submit, that this Court need not go beyond the approach developed with respect to treaties, namely, identify the commitment and then see to what extent the domestic law reflects the commitment, put generally.
With respect to the nationhood power, we differ entirely. The nationhood power does not support this law, nor does the trade commerce power, if your Honour pleases.
GUMMOW J: What do you say about the use of section 61 plus 51(xxxix) to provide this legislation on the understanding that is in the nature of a national fiscal emergency which can only be met out of the resources of the Commonwealth; can only be met appropriately and promptly out of the resources of the Commonwealth both administrative and fiscal? Do you accept that or not?
MR HINTON: There are two parts to that. Firstly, there is the ambit of the power and then, secondly, is ‑ ‑ ‑
GUMMOW J: That is why I asked you the question, which is a fairly limited view of the power in 61. It is a question of its application to this case in that limited form.
MR HINTON: That submission was made within the context of the nationhood power. My submission is that the test identified by Justice Mason in the AAP Case is what this Court should apply. That test, it is not 100 per cent clear in the AAP Case at 397 whether it applies to the nationhood power in the Dixonian sense.
GUMMOW J: I am not worried about the nationhood power at the moment. That is a slogan. I am worried about the text of section 61 and the text of section 51(xxxix) and what they convey with respect to the facts of this case which seem to indicate this national emergency of a fiscal nature and the need for a prompt response to it with large resources and large administrative backup.
MR HINTON: The text of section 61 is an executive power. That power is informed by and in particular its text specifically referring to it being for the execution and maintenance of this Constitution, is informed by the Constitution itself. The Constitution ‑ ‑ ‑
GUMMOW J: I just want to know whether the State of South Australia says yes or no.
MR HINTON: No, it not sufficient on its own.
GUMMOW J: All right.
MR HINTON: If I could take the Court quickly to just one point I seek to make with respect to the appropriation power.
GUMMOW J: Is it the position of the State of South Australia that these facts cannot be met in this way by the Commonwealth? What would happen? What is to happen?
MR HINTON: Under the appropriation power?
GUMMOW J: In the constitutional sense?
MR HINTON: Under the appropriation power as set out by my learned friend, the Solicitor‑General for the Commonwealth, using sections 81, 61 and 51(xxxix), on the facts of this case it is sufficient, yes. I understood your Honour’s question to be limited to just 61 and section 51(xxxix) operating ‑ ‑ ‑
GUMMOW J: It was.
MR HINTON: It was. Excluding the legislative power in section 81 - that was my understanding.
GUMMOW J: That assumes that there is a legislative power in section 81 which we were debating this morning. I am inviting you to consider that it is not. I am inviting you to consider the proposition that section 81 does not confer a head of legislative power in the ordinary sense. It produces a special sort of Act, as Justice Mason explained to us. He said it is a very rare bird.
MR HINTON: Our submissions are that it does contain a power, for the reasons we have set out, and we adopt the Commonwealth’s submissions on the same ‑ ‑ ‑
FRENCH CJ: If what emerges or can emerge from 81 read with 83 is no more than a law, as it were, declaring an appropriation for a purpose as a necessary precondition to the exercise of a substantive power, does 61, read with 51(xxxix), authorise a law to spend the money so appropriated?
MR HINTON: Yes, the power to spend is in section 61.
FRENCH CJ: Yes. I am not quite clear why you need a power in 81 in that situation if it simply sets up the necessary condition for expenditure for a purpose designated by an appropriation Act.
MR HINTON: The answer is the requirement of section 83 that you must ‑ ‑ ‑
FRENCH CJ: I am sorry, the answer is?
MR HINTON: Is the requirement of section 83 of the Constitution.
FRENCH CJ: Yes. That sets up the necessary condition for expenditure. You have to have a law which is an appropriation law for a purpose of the Commonwealth.
MR HINTON: Yes.
FRENCH CJ: Why do you need to have that actually do anything more than simply, as it were, allocate that portion of the consolidated revenue fund and then you look to the question of what laws can be made pursuant to section 51(xxxix) in aid of the Executive’s authority to expend that appropriated money?
MR HINTON: Can I answer it in this way. Section 83 requires an appropriations law. Section 81 provides for the – firstly, it creates the consolidated fund; secondly, it provides a broad power of appropriation. In that regard we adopt the Commonwealth’s submissions and the interpretation to be given to the words “for the purposes of the Commonwealth”. So you then have your broad power contained in section 81. That is a head of power that permits the appropriation to be made, the authorisation for the money to be removed from Treasury. One then refers to section 61 for the power to spend. By virtue of the nature of an appropriation, as the Commonwealth has conceded, that law would not create rights or duties. However, when one comes to the question of expenditure section 51(xxxix) can operate upon that to regulate it to the extent that it gives effect – full effect – to the reason for the appropriation.
FRENCH CJ: So you get to the Tax Bonus Act through 61, 81 and 51(xxxix)?
MR HINTON: Yes. The order 81, 61 with 51(xxxix) operating on it, yes.
KIEFEL J: Why do you say you need 61 if you have 81 and a law made under section 83?
MR HINTON: Section 81 is confined to an appropriation; it does not extend to the executive power to spend. It is a legislative power, so to spend – or one requires a power that enlivens the executive action, hence you go to section 61.
KIEFEL J: I thought you were looking for your head of power under 81.
MR HINTON: The legislative power that gives rise to the purpose for which you spend the money, yes.
KIEFEL J: You say you do not get a power to spend out of 81 and a law under 83. You need a specific head of power to do ‑ ‑ ‑
MR HINTON: Yes, 81 gives you the power to appropriate – I distinguish between the appropriate and the expenditure. Section 61 for the expenditure to the extent that you need to regulate that; to effect the purpose identified under 81, you may use the incidental power.
GUMMOW J: We are asked whether the Bonus Act is valid, that is what we are asked.
MR HINTON: If your Honour pleases.
GUMMOW J: You see what I mean?
MR HINTON: Yes.
GUMMOW J: Yet there is a question about the appropriation for it, which seems peculiar.
MR HINTON: It is because, as I understand the Commonwealth’s submissions – and, indeed those of South Australia are that under 81 itself and the broad interpretation of “for the purposes of the Commonwealth” there is a head of power that supports the Tax Bonus law.
The only other issue on the question of appropriation that I wish to take the Court to was touched upon largely by your Honour Justice Hayne and it is the observations made by Justice Mason in the AAP Case to be found in 134 CLR 338, firstly at page 392 at about point 8, the sentence commencing “An Appropriation Act has a twofold purpose”. In part that answers your Honours Justice Kiefel’s question a moment ago. It does not authorise expenditure but restricts it. Over onto page 393 concluding at the conclusion of that first paragraph:
it does not create rights, nor does it impose duties.
At page 396, at about point 5, the second sentence in the paragraph commencing “But this”, that sentence commencing “An appropriation, as I have explained” to the end of the paragraph. The reasons why I draw those passages to the attention of the Court are that they outline the limitations upon the power and also the limitations upon the incidental power in section 51(xxxiv) to the extent that it may operate upon it. If the Court pleases, those are the submissions I seek to make with respect to the appropriation power.
Can I turn to the external affairs power, and I do not want to take a lot of time on it. The Commonwealth has taken the Court to numerous passages in the material filed in the special case book. I just want to add references to one or two and, in my submission, the commitment is limited to Australia’s membership of the G‑20. For evidential reasons I make that submission. There is no material before the Court that shows any commitment by virtue of the involvement with the OECD or the IMF. But there is with respect to membership of the G‑20. In particular, your Honours have been referred to the declaration at page 86 - the bottom No 86, that is. Your Honours have already been taken on that page to this being a declaration from the G‑20, paragraph 7, second line “we agreed” and the dot point – the third dot point – are crucial. There is the declaration.
One then goes to the G‑20 meeting of deputies, that document to be found at top No 129. So we have the declaration by the G‑20 as to what it intends to do. Then we have in this document as I understand it an explanation of the fiscal policy. We can see in particular over the page bottom No 110 the last three paragraphs – “International cooperation”, “Macroeconomic policy stimulus” and the “importance of maintaining confidence in medium‑term fiscal sustainability”.The G‑20 commitment also extends to – at page 124 – observing what member countries are doing - 124 bottom numbers, 145 top numbers.
FRENCH CJ: I think we have been taken to all of this, have we not?
MR HINTON: What I intend to do, though, quickly if I can, is then go to the Treasurer’s document firstly taking your Honours to bottom No 46, the second paragraph where the Treasurer makes it clear that part of this fiscal stimulus package is to meet commitments made by the G‑20 membership. That is the second paragraph, bottom No 46.
MR HINTON: If one travels back to bottom No 20 from line 10 through to 30, we have a statement of the response. That can be cross‑referred, in my submission, to the G‑20 document that we were just looking at moments ago, bottom No page 124. When one compares the Treasurer’s statement in the special case book at bottom No page 20 to what the G‑20 sets out as the fiscal policy, bottom No 124, you will see that what we have is a response, in South Australia’s submission, directed to a course that Australia has committed itself to.
HEYDON J: I think you actually mean it is a cross‑reference to page 86, bottom number, third dot point, using fiscal measures to stimulate domestic demand. The other reference you gave is just a prediction of growth or non‑growth.
MR HINTON: The same prediction is made at paragraph 23. Then on page 9 we have in summary form an introduction to the fiscal policy response to be made by the Australian Government in discharge of its commitment.
HEYDON J: When you say page 9, you actually mean page 20, numbering from the bottom.
MR HINTON: Yes, the bottom, page 20. That commitment is also expressed in the box 2.3, bottom page 27 specifically. If one looks at the dot points on pages bottom 124 and 125, although they do not relate just to the Tax Bonus Act, the Tax Bonus Act, of course, is one of a raft of measures. The other measures can be seen to match up to the dot points in the fiscal policy of the G‑20, in particular, the spending on infrastructure. Then when one looks at bottom 125, the cash transfers of the support to children, or pensioners, of course, that is also evident in the package as a whole.
So the Tax Bonus Act, in my submission, is just another raft in the discharge of the commitment expressed by the Treasurer and as revealed by the G‑20 on 15 January. So, in my submission, we do have an international agreement, a commitment, by Australia as a member of the G‑20. The commitment is defined with sufficient specificity to direct the course taken by Australia. The Tax Bonus Act can be seen for the reasons put to the Court as prescribing a course of action that the G‑20 agreement directs, therefore, the law is a law with respect to external affairs and complies, in my submission, with the discussion of the treaty aspect of the power in the Industrial Relations Case at pages 486 to 487, as your Honour Justice Gummow took us to earlier.
It is not necessary, in my submission, there being that commitment and evidence of it being implemented, implemented in a manner consistent with the commitment internationally, that the Court goes on to consider possibly the broader aspect of the external affairs power. That broader aspect throws up many questions that are difficult to tackle in this case. For example ‑ ‑ ‑
FRENCH CJ: We do not need to go to questions you are not going to tackle.
MR HINTON: I just want to demonstrate the problem with the Commonwealth submissions, and that is, what is the actual external matter if you are going to tackle the geographic externality principle? Is it the regulation of credit providers or is it the absence of liquidity or is it a question of Australian jobs or the non‑availability of credit or a reduction in demand for Australian goods and services? You need to be able to specify the internationally external matter sufficiently in order to determine that the domestic law is one made with respect to it, and here we have bandied about the global economic crisis and no greater specificity.
For that reason, in my submission, the Commonwealth’s submissions as to the more broad application of the external affairs power should be rejected and it is sufficient to support this Act on the narrow treaties aspect of the external affairs power. If the Court pleases, those are my submissions with respect to the external affairs power.
Can I move to the trade and commerce power and if I can follow the lead of the Commonwealth and get straight to the pointy end. The tax bonus is to be paid to individuals. There is no direction or requirement as to its usage. However, there is a hope, an intention, that it be spent domestically. Your Honour Justice Heydon pointed out that the intention with respect to the demography that it is aimed at, a probable, a hoped scenario then, but by no means an invariable outcome, but a hoped, probable, scenario is that it will be spent on ready consumables. No doubt when that is done, the economy will get its swift and immediate injection, but there is a long chain in the process between expenditure on ready consumables within a State and the injection into the economy reaching the point where you can say this is a law with respect to interstate trade or international trade.
My learned friend from the Commonwealth has to rely upon the multiplier effect, as economists say. He has to rely upon the customer buying something, the retailer then buying more from the wholesaler, the wholesaler from the grower or the manufacturer and hope that at some point, and at some point, it probably will cross borders and perhaps internationally. But how many cycles do we have to go through before it becomes a law with respect to trade and commerce?
If a recipient of the $900 chooses to bank it, that does not make this Act a law with respect to banking. If a recipient chooses to spend it on imported illicit drugs, that does not make this Act a law with respect to the importation of illicit drugs, yet for the Commonwealth to succeed in saying it is a law that falls within the trade and commerce power, they need to follow the use of the money, the multiplier effect, to the point where it will – and it will undoubtedly at some point – contribute to the domestic economy, the national economy, and then through that, no doubt, through the international economy. What that shows is that the connection is not sufficiently substantial or proximate such that this can be said to be a law with respect to trade and commerce.
FRENCH CJ: I am not quite sure what that means. You accept that there is a rational connection?
MR HINTON: Economically, yes. But the connection could be so tenuous and so far down the line in terms of the multiplier effect, expenditure upon expenditure upon expenditure, that it is too remote for this law to be described as one with respect to trade and commerce. It stands to reason if you spend your $900 on an electrical item, you will, as the money finds its way back, contribute to a foreign economy, especially if you spend it on an electrical item produced overseas, but if you just spend it on ready consumables, a loaf of bread and a pint of milk, your money may never leave the State and, of course, that assumes you spent it as opposed to banking it, or as opposed to paying off some other, a liability.
Can I turn then to the nationhood power, if the Court pleases. It has not yet been decided whether or not this power exists external to section 61 and section 51(xxxix) or is merely to be drawn from section 61 and section 51(xxxix). In the AAP Case 134 CLR 338 at page 397 his Honour Justice Mason provided the test for this power. That is to be found at about point 5 commencing “But in my opinion’. The test is that the power must be one where it requires the national government to have:
a capacity to engage in enterprises and activities peculiarly adapted to the government of a nation and which cannot otherwise be carried on for the benefit of the nation.
CRENNAN J: So you would not delete the qualifier?
MR HINTON: No, not at all, for the reasons largely set out by Chief Justice Mason, Justice Deane and Justice Gaudron in the Davis Case 166 CLR 79 and the joint reasons at pages 93 to 94 – at page 93, starting at the bottom paragraph In addition, Justices Wilson and Dawson at pages 103 to 104, commencing on 103, the penultimate paragraph, “If in this passage” and his Honour Justice Brennan at page 111, his Honour Justice Toohey at page 119.
The thread is that the power has to reflect the fact that it is one derived in itself from the Constitution, the Constitution which prescribes the division of legislative power between the States and the Commonwealth and the division of executive power. That last line then in the test “which cannot otherwise be carried on for the benefit of the nation” is inserted, in my submission, to respect that fact, and it is important and cannot so simply be discarded by the Commonwealth.
Your Honour Justice Crennan asked questions as to what this test invites us to consider and there is assistance in Justice Brennan’s judgment at page 111 in that he makes quite clear it invites a consideration of the powers of the States to engage effectively in the enterprise and the need for national action.
In the AAP Case Justice Mason also sounds a note of qualification in that convenience – at 398, he reminds us – does not enliven the power and that section 96, which has also been mentioned in submissions, is significant. If we then look and apply that test to this case, including both limbs of it, there is no legislative power over the economy, but the federal legislature enjoys a number of powers that it can use effectively and has done so to superintend the national economy, and his Honour the Chief Justice, Chief Justice Barwick in the AAP Case at 362, makes that very point.
Can we achieve the stimulus by the use of section 96? That is something upon which this Court has no evidence other than from the Bar table. Could the taxation power be used? As Mr Pape suggests, it is an alternative. Is the Tax Bonus for Working Australians a law concerning a subject matter peculiarly adapted to the central government of a federal nation? In my submission, it is an area where the Federal Government is already sufficiently armed to deal with it by virtue of the enumerated powers in section 51 that his Honour the Chief Justice, Chief Justice Barwick in the AAP Case refers to, but there are also alternatives, no evidence to suggest that they have or have not been explored, but section 96 is a possible one.
The tax power or the use of taxation rebates or adjustments to rates of taxation is another. What timeframe are we dealing with? That has not been disclosed. We do need an immediate injection. Why could not the States do it? There is no evidence before the Court that any arrangement with the States could not be entered into under section 96 that would achieve the same purposes. The States have electoral rolls, the States know where their citizens are; they routinely send out all kind of bills.
GUMMOW J: It is not a State electoral roll. There is one electoral roll in this country and it is assembled by federal legislation.
MR HINTON: If your Honour pleases. They have access to that sort of information ‑ ‑ ‑
GUMMOW J: It is not like the United States, fortunately.
MR HINTON: They have access to that information is my point that would allow them to ensure that a check, if it were a physical check, could find its way. If the Court pleases, in my submission, applying the test as provided for by Justice Mason in the AAP Case – both limbs of it – the evidential material before the Court is not such that the defendants can
support the tax bonus law under the nationhood power. Accordingly, the Attorney‑General for South Australia submits, in support of the Commonwealth, that question 2 in the special case stated should be answered yes, as should question 3. I think in our written submissions we say that costs should be ordered for the plaintiff. We withdraw that. If the Court pleases.
FRENCH CJ: Thank you, Mr Solicitor. Mr Leeming.
MR LEEMING: May it please the Court. We say the Tax Bonus Act is valid. We say that question turns on whether section 5 of that Act is valid. I say section 5 advisedly because it is not a section to which my learned friend, Mr Gageler, has given much attention. We say that section 5 is supported by section 51(ii) of the Constitution, the taxation power, and no other power. We say the starting point for the analysis, therefore, is the construction of section 5 and we respectfully differ from the construction – the competing constructions that have been proposed, both by Mr Pape and by the Commonwealth. It was, therefore, with section 5 that I proposed at the outset to go.
Mr Pape says that section 5 on its proper construction is a gift and that, revealingly we say, is something to which my learned friend, Mr Gageler, warmed just before lunch today. Emphatically it is, of course, not a gift. It gives rise to enforceable rights on behalf of those persons who fall within its criteria. In other words, were the Commissioner of Taxation to undertake absolutely no step whatsoever to perfect this gift, he or she can be sued. It cannot be a gift; instead it creates a legally enforceable obligation and that is rather important and I apologise for emphasising it because, in our submission, a great deal of the submissions that have been made today and yesterday do not arise. We are talking about the validity of a section that creates a right on a sub‑class of Australian citizens.
Now, the Commonwealth Solicitor‑General would prefer to emphasise section 7 of the Act. The duty he very properly concedes is imposed upon an officer of the Commonwealth, the Commissioner. If the Court goes to the bundle, the index of legislation provided by the Commonwealth, in my submission it is quite plain that it is section 5 that is the leading provision and section 7 follows it. Section 5 is headed “Entitlement”, language which is picked up later on. It is substantive provisions for language conferring rights, a person is entitled to a payment - I will come back to the detail later - whereas section 7, turning as it does upon the Commissioner’s state of satisfaction, but it is his or her state of satisfaction of that person’s entitlement and then he or she has to pay.
My learned friends – and it may be that I am partly at fault for this because in paragraph 7 of our submissions in‑chief we too have loosely, I regret to say, referred to sections 5 and 7 as correlative rights and duties. They are not quite. To be precise about it, in the second sentence of paragraph 7, the words “The right to be paid, and” should be deleted. The obligation to pay under section 7 depends upon his or her state of satisfaction but the right to pay is not so qualified. Not much turns on that.
What does matter, though, is that we reject the Commonwealth Solicitor‑General’s analysis that this is like the statutory creatures, to use a neutral word, analysed in Peverill’s Case and in the Official Receiver’s Case. Instead, we are back in familiar Mallinson, Shepherd v Hills territory. There is a debt created.
Because it is the starting point and because it is, in our respectful submission, the short way home, can I just deal with that point a little, if I may. In Peverill’s Case (1994) 179 CLR 226, your Honours will see reproduced at page 239 there is the relevant provision – this is the right conferred upon the assignee, the medical practitioner who takes from his or her patient the right to recover a sum from the Commonwealth and, in particular, in the middle of that page, subsection (3) which is central to his Honour Justice Brennan’s analysis. As the Court can see, it is quite plain that that right was wholly qualified by the Commissioner’s state of satisfaction, “unless the claimant satisfies the Commission that” the things set out in (c) and (d).
For that reason, Justice Brennan, at page 243, invoked what had been said familiarly, at about point 3 in Federal Commissioner of Taxation v Official Receiver, by analogy here there was no property that would fall foul of 51(xxxi). The question in the Official Receiver’s Case, and I do not think I need take the Court to the elaborate statutory provisions which are familiar in any event, was whether there was a debt, and for the same reason there was not.
That is very different from the right conferred by section 5. My learned friend, Mr Gageler, yesterday was at pains to point out to your Honour Justice Gummow the qualifying words in the passage from Shepherd v Hills. For that reason I think your Honours now have a copy of Shepherd v Hills 11 Ex 65 and 156 ER 743. Can I take your Honours first of all to page 747 where Baron Parke’s familiar quote is found at the bottom.
GUMMOW J: Is it 156 English Reports?
MR LEEMING: Yes, your Honour. In the 156 ER 747, 11 Exch 67, Baron Parke said:
There is no doubt that wherever an Act of Parliament creates a duty or obligation to pay money, an action will lie for its recovery, unless the Act contains some provision to the contrary.
We say that is this and there is no provision to the contrary. What is omitted – I am not being remotely critical to Justice Brennan’s quote – is the following sentence:
It is true that this statute gives a power of distress, but that is clearly a cumulative remedy.
If I can return to page 743 of the English Reports one sees just under [56] at point 4 that this was a recovery action by the trustees of the harbour to recover tolls which they were authorised to impose, pursuant to this statute from as long ago as 1790. That statute is set out in the long paragraph in the second half of that page. If the Court goes to the sixth line of page 743 one can see summarised section 15, the collectors not merely had the right to impose and collect and recover the toll but they also had the power:
to distrain every ship and all the tackle, &c., for non payment of the duties.
My point is simply this. The existence of that supplementary right did not stand in the way of Baron Parke’s analysis that nonetheless this was a statute that gave a freestanding statutory right to recover a debt. That is of course familiar in this Court in Mallinson’s Case and in SCI, to which my learned friend, Mr Gageler, took you.
This Act, the Tax Bonus Act, and in particular section 5, because that is the section, in my submission, that matters, is on all fours with section 8 of the Pharmaceutical Benefits Act. Section 8 conferred upon citizens the right to receive from the formulary comprised by members of the Commonwealth Executive pharmaceuticals which would be paid for by the Commonwealth. That is a right – it is one of a number of rights established in that Act. The question in that case was whether there was a power supporting the creation of that statutory right. The only power that was put forward in section 81, as is plain from a number of judgments in the case, and the power was found wanting ‑ ‑ ‑
GUMMOW J: When does the cause of action accrue?
MR LEEMING: When does the cause of action occur?
GUMMOW J: Yes.
MR LEEMING: It is not stated in terms in section 5, however, no earlier than the satisfaction of all of its elements. Can I draw your Honour’s attention to (1)(e) which is at the top of page 9 of the extracts, the last of which may be the lodging of an income tax return which in many cases will have happened but which in some cases will not have happened.
FRENCH CJ: I have a recollection of a distinction in some statutes between entitlement and due and payable.
MR LEEMING: Yes. It is not a distinction that is made out by the drafters of this Act. It may be that the right, in a sense – it depends what question you are asking. If the question is, for example, a trustee in bankruptcy is appointed next week, is there presently a right that vests in the trustee, then that is an analysis that falls to be determined by reference to property as defined under the Bankruptcy Act by reference to decisions of this Court like Schultz but no later than the satisfaction of all of the elements, and perhaps earlier. It does not matter, for the purposes of my argument. The question is, is there power to authorise the creation of this right.
To answer, a little obliquely, your Honour Justice Hayne’s question to my learned friend, Mr Gageler, where is the black line? The reason that this matters is that this is a right that sourced in statute engages 109. That is the point made by Sir John Latham in Pharmaceutical Benefits Case. I should go there now, perhaps.
GUMMOW J: Just before you leave Shepherd v Hills, what Baron Parke said at the bottom of 747 was:
wherever an Act of Parliament creates a duty or obligation to pay –
What is wrong with saying – well, why does it destroy your argument to say that the duty arises under section 7 upon satisfaction to the Commissioner?
MR LEEMING: It does not destroy my argument at all. I wish to emphasise section 5 for the same reason as my learned friend wishes to emphasise section 7, because he sees section 7 as closer to the appropriation power. I say that is not the proper construction of the Act if section 5 comes first. It may be – and I am accepting what your Honour says to me – it does no harm to my argument at all if the right is not enlivened until the temporal content of “as soon as practical” in section 7(1) is satisfied. Either way, one is talking about a statutory right, and one that engages 109.
GUMMOW J: Is there any reference in Peverill to Mallinson? There was, was there not?
MR LEEMING: Yes, there was, your Honour. On page 243 of 179 CLR 226 in footnote 49 the distinction is there drawn and so his Honour was expressly adverting to the distinction of a right created by a statute enforceable at private law and the purely public law enforceable by mandamus characterisation that my learned friend wishes to prevail. I do not think the other members of the majority dealt with it because they took a different view on property. In the Pharmaceutical Benefits Case 71 CLR 237 itself, at page 259, conveniently, and, in my submission, tellingly, because Sir John Latham’s approach to purposes of the Commonwealth was as broad as anything my learned friend, Mr Gageler, seeks to embrace.
First of all, at 259 at point 5 there is summarised the effect of section 8 of the Act; gives residents a right to receive medicines, appliances and so on in the formulary, if valid it gives by federal law a right to such persons and the crunch is that, “If it is valid, any State law which is inconsistent with it becomes inoperative.” I deal with something at the outset. My learned friend says, and no doubt he is right, one can readily imagine State laws that collide in a 109 sense with the Pharmaceutical Benefits Act and it is difficult, not impossible by any means, but much less readily imaginable to find a State law that is going to be 109 inconsistent with the right conferred by section 5 and the duty conferred by section 7.
My answer to that is that is not an answer to the point of principle. There is a world of difference, we say, in transmuting the executive power which authorises, at least in some circumstances, the right to pay and the right to make these gifts, if that is what it be, to something which is legislative and engages 109 and to that extent, denies State legislative efficacy.
His Honour Chief Justice Latham goes on at the bottom of that page to say, seven lines up from the bottom:
Is this position changed by the fact . . . that the Commonwealth is prepared to pay for the medicines -
and the answer is no -
The provision that the Commonwealth will pay for the medicines &c. has no relation whatever to the provisions of s. 8 that a person shall have a right to get medicines &c. and that he shall not pay for them. The grant of money is one thing –
This is the sentence that I emphasise ‑ ‑ ‑
the creation of a right which will prevail over State laws is an entirely different thing.
That is what I say in relation to the point raised yesterday, at about transcript 29, about the characterisation of this right. So at a high level we say the analysis ought be what head of power permits the Commonwealth Parliament to enact a law capable of engaging 109 that gives rise to the right and obligation in sections 5 and 7 of the Tax Bonus Act? That is the only question, because we are at one with my learned friend on section 16 of the Taxation Administration Act, found at page 30 of the volume of materials provided by the Commonwealth. That is what it purports to be – an appropriation in a different Act. The Court will have noticed that the appropriation in Peverill’s Case was found in the Act itself, something remarked upon by Justice Brennan in the passage that I took the Court to.
GUMMOW J: What page in Peverill?
MR LEEMING: I am so sorry. Section 125 of the Act, at page 239. It is my fault; it is immediately below the reproduction of subsection (3) that made it clear that there was a prohibition upon the payment of the claim unless there was satisfaction by the Commission. Then, at point 8 there is section 125, which appropriates the fund to that extent.
Similarly, in Pharmaceutical Benefits one has what one does not have here, namely, an express appropriation within the challenged legislation. At page 249 – it is a little unusual appropriation – again in Chief Justice Latham’s judgment, at the bottom of the page there is reproduced section 17 – that is section 17 within the Act – and because there was something which was, although it is a direction that payments will be made out of a trust account established by another Act, the National Welfare Fund Act 1943 – that was said to be an appropriation and, as your Honours can see from the last five lines on page 249, it was not disputed that but for the appropriation, which was section 17 of that Act in that Act, the Act could not stand.
Hence, as your Honour Justice Gummow remarked yesterday, there is a dispute between Mr Gageler and me about whether, somewhere in the Tax Bonus Act, which only has nine sections, I think, there can be found an appropriation. There is not one at all. This is an Act that creates rights and imposes obligations. The appropriation is to be found wholly somewhere else, namely section 16. Section 16 gives rise to none of the difficulties, in our submission, that have been the subject of most of the arguments to this Court over the last day because section 16 is a standing appropriation. It is unlimited in time, it is unlimited in amount. It is limited, though, in the way the Constitution requires it to be limited – by purpose. The purpose of the appropriation sounds, in those words, a requirement or a permission to pay an amount by or under a provision of a taxation law. There is no dispute at the Bar table that the Tax Bonus Act is a taxation law as so defined. That is the point of section 3 as my learned friend, Mr Gageler, pointed out.
FRENCH CJ: The content of the term “taxation law” is entirely related to the recital that the Commissioner has the general administration. It does not tell us anything about the nature of the law itself.
MR LEEMING: I accept that completely.
FRENCH CJ: Therefore, it does not tell us much about the purpose.
MR LEEMING: This is not this case, but if the Commonwealth Parliament were to enact a law that had nothing to do with taxation, but yet gave its general administration to the Commissioner of Taxation, then there would be a real question about whether the section 16 appropriation were engaged by pecuniary drawings pursuant to the rights and obligations under that law. That is not this case because we say more enthusiastically, ironically, than the Commonwealth that the Tax Bonus Act is supported by section 51(ii) and that the purpose described in section 16 by or under a provision of taxation law is plainly within the scope of Commonwealth purposes on any view. It is obviously a Commonwealth purpose to appropriate funds for the purposes of administering laws enacted pursuant to section 51(ii). Now, if all of that is right, most of the questions, as I say, they would go away.
HEYDON J: Does not that argument assume the conclusion it is trying to get to, namely, that the Tax Bonus Act is a section 51(ii) law?
MR LEEMING: I need to make out that proposition and I accept that it is contentious. Can I do so now, but I will come back to deal in some more detail with appropriations power. We look conventionally to the legal and practical operation of the Tax Bonus Act. On our supplementary list is Moore v Commonwealth (1951) 82 CLR 547. That concerns legislation which required some 20 per cent of local and internationally sold wool to go to the Federal Commissioner of Taxation but by a majority, of who it was a compulsive exaction pursuant to the law held not to be a tax itself, it is provisional tax in a particular form for a particular industry. If your Honours had the headnote at page 547, four of the members of the Court held that those two laws, one for local one for international, were not laws imposing taxation.
Your Honours, at page 575 in the judgment of Justice Fullagar there is emphasised the width of the taxation power. In the last four paragraphs at about point 6, because there was a twofold attack, it was said this is caught by section 55. The majority of the Court said, no, it is authorised by 51(ii) but does not itself impose taxation, so it scrapes through both obstacles erected before it.
That is the argument that poses a dilemma by Justice Fullagar there in that paragraph and the reason I go there is to emphasise a simple proposition express in the Constitution that laws may be laws with respect to taxation without imposing taxation. Of course, simply and expressly, the Constitution identifies a concentrically expanding class of laws relating to taxation, laws imposing customs and excise of the narrowest category and they are treated specially. Laws imposing taxation are also treated specially and this case and Mutual Pools relate to that.
This Court has held that there is a further outward expansion in Dymond’s Case - there is no need to go there – to laws dealing with taxation, but importantly for my proposition, laws falling within 51(ii) of course need not impose taxation, they must merely be with respect to taxation. Moore’s Case shows pretty clearly that such laws can antedate the incurrence of the tax obligation. That is not the Tax Bonus Act, but it is there to illustrate the width of the power.
My best case, as the Court knows, is Mutual Pools. Can I go there now. It is also in 179 CLR. At page 155, Mutual Pools & Staff Pty Ltd v The Commonwealth addresses at ‑ ‑ ‑
GUMMOW J: Before you leave Moore’s Case, at 569 Sir Owen Dixon said he treated section 51(ii) as covering:
what is incidental to the imposition and collection of taxation.
MR LEEMING: Yes, your Honour.
GUMMOW J: Is that enough for you?
MR LEEMING: Not in this case. I accept it is not. I accept that Moore’s Case – it antedates the tax anyway, so it is not going to directly assist me, but because there was an apprehended inevitable, unless the radical change of stance by the Commonwealth, future tax liability, it was incidental. It was within 51(xxxix). I do not rely on 51(xxxix) to support the Tax Bonus Act under 51(ii). But in Mutual Pools one has 51(ii) supporting payments which go in the right direction from the Commonwealth out to taxpayers and not merely to taxpayers, to third parties and someone who never was subject to an obligation to pay tax nonetheless was entitled…..right by a Commonwealth law to receive a repayment and that law was supported by 51(ii) and I say the same reasoning applies in this case.
HEYDON J: At a formal level, yes, but it was in substance a very different case, refunding challenged tax receipts.
MR LEEMING: Yes, but refunding not merely to taxpayers. In the technical sense, because the refund was to the persons who had borne the economic burden of the tax, so that the third party non‑taxpayer recipients who had the right to get that tax back ‑ ‑ ‑
GUMMOW J: The notion was the tax had been passed on, I suppose. The illicit tax had been passed on.
MR LEEMING: That is not this case, I accept that completely. To be precise, at page 164, Mr and Mrs Chaplin, who never themselves were subject to the obligation to pay the tax held by this Court subsequently to be invalid, were beneficiaries of the right that is set out in the judgments of the Chief Justice at page 164 in section 4 of the Refund Act. The gist of that right is the right to recovery conferred by section 4 depended upon declarations being made about whether the tax had been passed on and, if it been passed on – see subsection (3) – then it was necessary for the builder and the owner of the land jointly to put on a declaration, and subsection (4) which is the right conferred by Mr and Mrs Chaplin provided that the Commonwealth was liable to make the refund payment, but to the right person; the person who had borne the economic incidents of the invalid tax.
Yes, to your Honour Justice Heydon, this is an invalid tax, and there is no question of invalidity arising in this case, but at pages 182 and 183, their Honours Justices Deane and Gaudron, first of all at the middle of the page, familiarly set out the extract from Grannall about relevance or connection to subject matter and emphasised that, and then at the bottom of that page going over the top of page 183, say that the grant of power under 51(ii) extends to circumstances subject to a qualification which does not arise in this case to:
a law regulating and defining rights of refund of amounts unnecessarily or mistakenly paid to the Commonwealth in discharge of asserted taxation liabilities.
Those laws, they say, are laws falling within 51(ii). There is no invalidity, there is no mistake of law, there is no compulsion under the face of an impugned act or payment under protest, but with the advantage of hindsight there has been a mistake. The Commonwealth now says those people who fall within the criteria in section 5, we have mistakenly imposed too much tax on them and we want to hand it back.
HEYDON J: They are not saying any such thing. They are responding to a vague understanding between Mr Swan and other G‑20 finance ministers. They are not saying there has been some mistake or unnecessary payment. They are saying we have to get some money quickly into the economy.
MR LEEMING: I accept that, and I say that when that high‑level understanding agreement to inject money into the economy – I will have to come back to what those words actually mean – that translates to a refund of tax ‑ ‑ ‑
HEYDON J: It is not a refund of tax.
MR LEEMING: It is not what they are saying. No, it is not. In substance, however, characterised as this right is under sections 5 and 7, confined as it is to taxpayers – turning back to section 5, the only people who qualify for the rights conferred under section 5 of this Act are persons who had obligations under what is undoubtedly a 51(ii) law. That is the criteria which have been applied to support this right.
KIEFEL J: But is it not important that the liability is limited to one tax year? Is that not the problem? Their liability is confined to what it is for one particular tax year, so the notion of saying, “Retrospectively we’ll correct that, or futuristically we will” becomes a little difficult. If there is not any potential to rebate them, is not the payment made to them more in their character as a potential consumer rather than a taxpayer?
MR LEEMING: Your Honour, perhaps it is; perhaps it is not. Ultimately we do not cavil with your Honour’s characterisation of a means of injecting funds into the economy. That is what this is. That is the consequence of doing this. But Mr Pape on Monday afternoon referred to various measures that had taken place in the sixties – 5 per cent and 6 per cent and so on for some years and then it came back. This is a different means of doing the same thing, we say. I think Mr Pape and I are in agreement on this point.
GUMMOW J: Just a minute. You are becoming what Sir Garfield Barwick would have said was too conversational.
MR LEEMING: I am sorry.
CRENNAN J: Do we not need to know how your argument works with those taxpayers whose adjusted liability ‑ ‑ ‑
MR LEEMING: Yes.
CRENNAN J: That is obviously the key question in relation to your argument, is it not?
MR LEEMING: Yes. We have two limbs to that. First of all, we say prefatory averment. I had thought, obviously naïvely, that the class of people who will end up, if this Act be valid, receiving more money than they have paid tax, is confined to those people in this country whose adjusted tax liability is less than $900. Perhaps naïvely, I had thought that was a relatively small number of people. Just a few minutes ago I heard for the first time that there was some modelling that it is 11 per cent and I too would like to see that and just to check, because it sounds on the high side, if I may say so.
But even so, there are two things to say. First of all, by reason of the fact that the criteria selected to identify the new right given by statute are existing obligations under 51(ii), coupled with the fact that in substance we say its practical operation is a refund, that means the whole of it is within 51(ii), fallback position. If your Honour Justice Crennan is right and it matters then we embrace what my learned friend, Mr Gageler, says about reading down.
We have provided a copy of an extract of British American Tobacco Australia Ltd v The State of Western Australia and Another (2003) 217 CLR 30. That is provided merely to refer the Court to paragraphs 86 and 87, which are another example of reading down a partly invalid statute to give it a partial distributed operation. So the answer to your Honour Justice Crennan will be not for those whose adjusted tax liability is less than $900.
CRENNAN J: One problem with that kind of reading down is it seems to so fly in the face of the legislative intention in relation to the tax bonus, to be so contrary to – that is to say, the lower the income earned the higher the bonus.
MR LEEMING: Two things to say. First of all, the top amount $900 goes all the way up to a taxable income of $80,000 and hence my surprise that the number is as large as 11 per cent. Secondly, as my learned friend, Mr Gageler, says, the Act operates in relation to all of those whose adjusted tax liabilities exceed $900 absolutely identically as it would in the form that is enacted. The third thing to say is that reading down in the way that the Commonwealth and, I think, all of the States embrace on this part of the argument is a lot more certain than crisp than what three members of this Court held was authorised in relation to section 64 of the Judiciary Act because it can be established as a matter of arithmetic whether or not someone’s adjusted tax liability is between zero and $900. That is a clear finite class and it is complicated but there is a mechanical process that can determine that.
Whether or not a matter is within federal jurisdiction is likewise a clear and crisp task, but it is not quite so obvious and it is not quite so mechanical, as we all know, and yet we embrace the proposition that if section 64 can be read down so that it only applies to claims made by me against the State of New South Wales when those claims are in federal jurisdiction, then very easy it is to read down section 5.
HAYNE J: How do you relate that submission to what is said in the Industrial Relations Act Case 187 CLR 416 at 502? I am not saying you cannot, but how do you relate it?
MR LEEMING: We say we can and we do. At page 502 just before footnote (276) 15A is held to apply to general words or expressions and there is a general expression in paragraph 5(1)(c), a person’s income is greater than nil, that is the class if everyone was positive will carve out of that class those whose adjusted income is less than 900. Next there is obviously no difficulty – unless there is something that I do not apprehend there is any difficulty – with the operation of the remaining parts of the law remaining unchanged. Those happy taxpayers whose adjusted tax liability is in excess of $900 had exactly the same right and the Commissioner is under exactly the same duty in relation to them.
GUMMOW J: It is really the last sentence I think –
MR LEEMING: Yes. The sentence before 278 ‑ ‑ ‑
GUMMOW J: “Nor can it be applied” – on page 502 of Industrial Relations.
MR LEEMING: We would have to say that this is a law that was not intended to stand or fall only if payments to all of the categories of persons who fall within section 5 are authorised by 51(ii).
HAYNE J: What, if anything, are we to make of the oft‑repeated statement of the need to inject approximately this amount of money as a fiscal stimulus? That is, if the principal motivating force underpinning the legislation, leave aside its legal effect and operation, separate, is to inject money into the economy, do we take account of that in a reading‑down exercise? Do we ignore it? What do we do?
MR LEEMING: Yes, your Honour can take it into account and yes, it supports my argument because – and I have not seen them, but if my learned friend is right and instead of the 7.7 it will be 11 per cent less than that, so 6.8 or something million dollars gets injected, that still fulfils ‑ ‑ ‑
HAYNE J: I think it is number of taxpayers is 11 per cent. I do not think it is 11 per cent by money, is it? Or is it?
MR LEEMING: I thought it was left ambiguous or I misunderstood.
GUMMOW J: Per capita.
HAYNE J: I think it is number of people, not dollar value.
MR LEEMING: Since the amount is the same except for those at the top end, there is likely to be little difference between number of heads and number of payments. Nothing turns on that. Nonetheless, if, taking everything that my learned friend, Mr Gageler, has said repeatedly about the need for a substantial injection, why would one construe this Act as one that stands or falls only if the full 7.7 is within power? What is within power on the scenario put to me is merely 89 per cent of it per capita.
HAYNE J: Is it relevant to take account of the fact that it was targeted at those most likely to spend who are those who are, prima facie, with the least tax bill, perhaps a zero tax bill?
MR LEEMING: Yes, your Honour, it is, and I concede that tells against me. It is also relevant to take into account the drafting history of this Act and the Tax Bonus Act (No 1), as your Honours know – I am sorry, Bill (No 1), the one that did not become an Act – had an extra $50. It was 950, as opposed to 900.
FRENCH CJ: One of the critical criteria supporting characterisation of this as a law under 51(ii), if one looks to 5(1)(c), 5(1)(e).
MR LEEMING: Your Honour has it exactly. Those elements, 5(1)(c) and (d) and (e) ‑ ‑ ‑
FRENCH CJ: Well, (d) just tells you about their income range, does it not? You could just ‑ ‑ ‑
MR LEEMING: Yes, but their income is their taxable income and that is the outcome of a series of provisions in laws and Acts pursuant to 51(ii), whether something is income or capital, for example. Likewise (c), and, as your Honour the Chief Justice says, the obligation in (e) has been satisfied.
GUMMOW J: We know some facts about that, though, and they appear at page 256, 7.11 million already in, 1.6 to come.
MR LEEMING: Yes.
GUMMOW J: No incentive for the 7.11 million?
MR LEEMING: Yes, for most people, the overwhelming majority, (e) has no content because it has already been satisfied. But to answer your Honour the Chief Justice’s point, there are two aspects on which we rely, the legal operation and the practical operation. The legal operation turns upon the selection of the class as people who had or have obligations under laws undoubtedly acted pursuant to 51(ii), and the practical operation of a law, for the majority of them, is in substance a rebate. To say anything more would be repeating it. Those two together – I do not rely merely upon the first – but those two together put this law, we say, within 51(ii) as a whole. Alternatively, insofar as it applies to Mr Pape, it is within power.
FRENCH CJ: Against you it would be said, I suppose, that these criteria are simply a means of identifying people in particular broadly stated income ranges. You could have done it in other ways. Tax is a convenient way because it is out there in the bureaucracy.
MR LEEMING: However, obviously if the fiscal stimulus were merely to all persons on the electoral roll it would have nothing to do with taxation. The fact that the class is large is not what matters. The fact that the class is identified by reference to rights under 51(ii) law is what matters.
FRENCH CJ: I am really putting to you that it is the way in which the tax criteria or tax‑related criteria are being used. Are they being used for some purpose, which one could say is with respect to taxation, or are they being used just as a way of labelling a class for whom the receipt of the fiscal stimulus payments is likely to have some effect because they are going to be spending and so forth?
MR LEEMING: Your Honour, it may be the latter. I am content to say that even on the latter that is still something which, together with the substantial effect of this law, puts it within 51(ii).
HEYDON J: Would the law compelling a Commonwealth official to pay $5,000 to every husband be a law relating to marriage?
MR LEEMING: We say no.
HEYDON J: What is the difference between that and this? Husbands have financial obligations.
MR LEEMING: Perhaps I misunderstood the premise of your Honour’s example to me. A law requiring a Commonwealth officer to pay $5,000 to every unmarried household ‑ ‑ ‑
HEYDON J: Every husband – or every wife; it does not matter.
GUMMOW J: Or every divorced person. Is there a law with respect to matrimonial causes?
MR LEEMING: No. What is the difference? The answer, in my submission, is I rely upon both. I do not rely merely upon the legal characterisation, upon these tax laws articulating the class, because in addition for, let us say, 89 per cent ‑ ‑ ‑
GUMMOW J: You have to say “in substance of rebate”, and then you say it does not matter; it is not entirely a rebate because you have a margin of appreciation, as the Europeans would say.
MR LEEMING: I am not going to a margin of appreciation – I am not going to…..on deference. I am trying to make clear, though ‑ ‑ ‑
GUMMOW J: Which is these low income people, less than $900, and that is an ample margin ‑ ‑ ‑
MR LEEMING: Ultimately, the low income people. If 51(ii) does not support us, then read it down in the way that I have indicated. Perhaps, putting them to one side, the answer to your Honour Justice Heydon’s question to me is this is not like giving $5,000 to wives. This is not merely that, but also returning to them something which has been exacted from them pursuant to the exercise of the same head of power.
So perhaps the closer example might be, had the Commonwealth imposed an anti‑marriage fee and it were then decided to return it, that is the closer analogue, artificial as it is.
KIEFEL J: But here its practical operation and its purpose is to provide moneys to people who may be consumers of products, some of whom it can qualify as a rebate in relation to their tax.
MR LEEMING: Yes, your Honour.
KIEFEL J: You say that is a sufficient connection?
MR LEEMING: I do. I should say, just so that it is clear, that the Miscellaneous Provisions Act, which affects a whole raft of other tax laws and alters what would otherwise be a characterisation of this bonus, which undoubtedly is a law with respect to taxation, is wholly consistent with what I am saying of the nature of this Act. Now, that is all I wish to say in relation to the tax power. I think that is all I wish to say constructively.
For the rest, we very substantially disagree with the sources of power that are put by the Commonwealth to defend this law. The most important of those is the appropriations power. We say, and it is probably squarely set out in our supplementary submissions in response to the Court’s question, that an appropriation is, as my learned friend, Mr Gageler, says, two things; an authorisation to draw and a restriction upon the subsequent power to expend, because you cannot have a blank cheque, as Justice Latham said. As your Honour Justice Gummow said yesterday ‑ ‑ ‑
GUMMOW J: What does that metaphor mean?
MR LEEMING: First of all it means that there must be stated a purpose.
GUMMOW J: Yes, we know that, but the purpose can be sufficiently wide that you cannot distil the constitutional criterion one way or the other as to head of power in 51. That seems to be so, does it not?
MR LEEMING: We disagree with that. This is one of the undecided questions.
GUMMOW J: You disagree with what Justice Mason and various people have said on that subject?
MR LEEMING: Yes, we do, and on this we disagree with Justice Latham as well. We say the purpose must be within some form of power; legislative, executive or judicial. In the present case it does not matter if I be right.
GUMMOW J: But what is the purpose of doing that? What is the purpose of putting that restriction on the words given the place it has in the Constitution and its setting in English constitutional history and colonial constitutional history?
MR LEEMING: To restrict what would otherwise be unconstitutional exercises of power. I need to ‑ ‑ ‑
GUMMOW J: That begs the question ‑ ‑ ‑
MR LEEMING: I need to unpack that. What Justice Mason said was, in the AAP Case, that there was a valid appropriation but he would enjoin the purely executive exercises of power ‑ ‑ ‑
GUMMOW J: Exactly, and is that not where it cuts ‑ ‑ ‑
MR LEEMING: I think I am in furious agreement with your Honour.
GUMMOW J: So it cuts at the stage of section 61?
MR LEEMING: Yes.
GUMMOW J: Why do you have to say it cuts at the stage of section 81? That is the mystery.
MR LEEMING: Your Honour, I do not have to say that, and if I did say that, I was attempting to answer the question, what is the point of there being this restriction. There is a real restriction and it bites. It bites in exactly the way Justice Mason indicated in AAP. It does not bite, however, to prevent, say, an exercise of the executive power of the Commonwealth to incur an obligation. The restriction imposed by 81 and 83 is upon drawings from the fund. That does not prevent the Executive going out without there being an appropriation and incurring an obligation in the future to acquire a desirable piece of land where a lighthouse can be built. What it does prevent is the drawing of funds in satisfaction of the contractual obligations without there being an appropriation.
GUMMOW J: Someone should have a look at what Sir Victor Windeyer said in Worthing v Rowell which is dealing with section 52 actually. Section 52(i) talks about:
places acquired by the Commonwealth for public purposes;
Now that phrase “for public purposes” has a resonance which gets you back into 61, I think, and Justice Windeyer said there is a large and general idea involved there and it would include, for example, the Commonwealth accepting a gift by will to maintain a charitable trust for whatever purpose and no doubt in time to appropriate money to pay for the guardians of the premises where the purpose was carried on.
MR LEEMING: Can I say in partial answer and only partial answer to what your Honour puts to me, these are the large questions and I will grapple with them, but I do wish to say they do not necessarily arise because at the end of the day the question is to the validity of the exercise of legislative power in sections 5 and 7 of this Act and we do say that one cannot – as my learned friend Mr Gageler would propose – take from a broad view of section 61 power and convert that into section 109 engaging laws by reason of the incidental power; that is where most furiously we are at odds. If one accepts that, then these questions about what the precise delineation of executive power are – and a question impossible to answer, of course, do not arise at all.
Now, in saying that, I do not disagree that there is a very wide scope for the exercise of Commonwealth executive power, but I do say it is
limited, and it is limited in a number of ways. It has been acknowledged by this Court to be limited. The most easy way of seeing how limited it is is that it must be consistent with the careful delineation of powers in this Federation established by the Constitution. That is a recurring theme in my learned friend’s submissions against me and my opposition to them, that your Honours will have seen in their written submissions and that – I see the time. I can develop tomorrow, if that is a convenient time?
GUMMOW J: The relevant citation of Worthing v Rowell is 123 CLR at 125 and following.
MR LEEMING: Thank you, your Honour.
FRENCH CJ: Yes, all right. This matter will resume at 10.15 am, but the Court is otherwise adjourned to 9.30 am tomorrow.
AT 4.16 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 1 APRIL 2009
- AGLC
- Pape v The Commissioner of Taxation of the Commonwealth of Australia [2009] HCATrans 60
- Case
- [2009] HCATrans 60
- Decision Date
CaseChat Overview and Summary
The central legal issue before the High Court was whether the payments received by Mr. Pape from the trust were derived from a source within Australia, and therefore assessable as ordinary income, or if they were capital in nature and thus not assessable. This required the Court to consider the application of Division 6 of Part III of the *Income Tax Assessment Act 1936* (Cth) and the principles governing the characterisation of receipts as income or capital, particularly in the context of foreign trusts and distributions.
The High Court, in a majority decision, held that the payments received by Mr. Pape were not assessable income. The Court reasoned that the trust was not a resident of Australia, and the income derived by the trust was not derived from an Australian source. Consequently, the distributions made to Mr. Pape, even if they represented income of the trust, were not assessable in his hands as ordinary income under Australian tax law. The Court distinguished between the source of the trust's income and the source of the distribution to the beneficiary, finding that the latter did not have a sufficient connection to Australia to attract Australian income tax. The appeal was allowed, and the Commissioner's assessment was set aside.
Orders
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Background
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