Roy Morgan Research Pty Ltd v Commissioner of Taxation & Anor [2011] HCATrans 78

[2011] HCATrans 78

[2011] HCATrans 078

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M177 of 2010

B e t w e e n -

ROY MORGAN RESEARCH PTY LTD

Appellant

and

COMMISSIONER OF TAXATION

First Respondent

ATTORNEY-GENERAL OF THE 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 WEDNESDAY, 30 MARCH 2011, AT 10.19 AM

Copyright in the High Court of Australia

__________________

MS J.J. BATROUNEY, SC:   If the Court pleases, I appear with my learned juniors, MR G.A. HILL and MS K.L. WALKER, for the appellant.  (instructed by Hall & Wilcox)

MR S.P. DONAGHUE:   If the Court pleases, I appear for the first respondent.  (instructed by Australian Government Solicitor)

MR S.J. GAGELER, SC, Solicitor‑General of the Commonwealth of Australia:   If the Court pleases, I appear with MR S.P. DONAGHUE and MR D.F. O’LEARY for the second respondent.  (instructed by Australian Government Solicitor)

FRENCH CJ:   Yes, Ms Batrouney.

MS BATROUNEY:   If the Court pleases, I understand that the notice of appeal has been amended by order of Justice Crennan given on 23 February this year, and that the amended notice of appeal was filed on 1 March 2001.  It is in identical form to the proposed amended notice of appeal in the court book.

FRENCH CJ:   Thank you.

MS BATROUNEY:   If the Court pleases, I propose just to summarise our case, take the Court very briefly through the Superannuation Guarantee Charge Act and the Superannuation Guarantee Assessment Act, the assessments that were issued in this case, a trilogy of cases, and then take the Court to our argument.  If the Court please, in summary, Roy Morgan contends that when the superannuation guarantee legislation is characterised by reference to the nature of the rights, duties and powers which it changes or regulates that legislation is not in truth a law with respect to taxation but rather operates to confer a private and direct benefit on the named employees concerned.

GUMMOW J:   Now, there are two statutes.

MS BATROUNEY:   Yes, your Honour, and may I take you first to the Superannuation Guarantee Charge Act?  The Court has a bundle of legislation.  The Superannuation Guarantee Charge Act is at tab 1.  The Court will see at section 5:

Charge is imposed on any superannuation guarantee shortfall of an employer for a quarter.

Section 6:

The amount of superannuation guarantee charge payable on a superannuation guarantee shortfall of an employer for a quarter is an amount equal to the amount of the shortfall.

Just for completeness, section 7 refers to severability.  Could I take your Honours to the Superannuation Guarantee (Administration) Act 1992 which is at tab 2 and might we start at section 16.  Section 16 states that:

Superannuation guarantee charge imposed on an employer’s superannuation guarantee shortfall for a quarter is payable by the employer.

GUMMOW J:   Sorry, what section Ms Batrouney?

MS BATROUNEY:   Section 16.

GUMMOW J:   Thank you.

MS BATROUNEY:   Page 31, tab 2.  Section 17 states that:

If an employer has one or more individual superannuation guarantee shortfalls for a quarter, the employer has a superannuation guarantee shortfall for the quarter worked out by adding together –

three components.  The first is:

the total of the employer’s individual superannuation guarantee shortfalls for the quarter –

That is defined in section 19.  The second is:

the employer’s nominal interest component for the quarter –

That is found in section 31, and, thirdly:

the employer’s administration component for the quarter.

That is found in section 32.  Could we start first with section 19?

FRENCH CJ:   Where do we find the meaning of “superannuation guarantee shortfall”?  In the definition at section 6 it said “has the meaning given by section 17”.  What meaning ‑ ‑ ‑

MS BATROUNEY:  Section 19, Chief Justice.  Section 19(1) says:

An employer’s individual superannuation guarantee shortfall ‑ ‑ ‑

FRENCH CJ:   All right.  So it is not the meaning given by section 17, contrary to the definition of the meaning given by section 19.

MS BATROUNEY:   It might be a typographical error, your Honour.  So, section 19 – I am sorry, I think the learned Solicitor was going to point out -the shortfall is made up of a number of components.  One of those components is the individual superannuation guarantee shortfall and it is the individual superannuation guarantee shortfall that is defined in section 19.  So you will see in section 19(1) there is an equation:

An employer’s individual superannuation guarantee shortfall for an employee for a quarter is the amount worked out using the formula:

Total salary or wages paid by the employer to the employee for the quarter x Charge percentage for the employer for the quarter 100

where:

charge percentage ‑

is effectively the number specified in subsection (2) reduced in accordance with either or both sections 22 and 23.  At present the charge percentage is nine, at the time it was eight.  So the charge percentage is the total salary and wages multiplied by the charge percentage as reduced in accordance with 22 and 23 divided by 100.

CRENNAN J:   So if an employer pays six, the shortfall is three.  Is that how it works?

MS BATROUNEY:   Correct, your Honour.  There are a million ifs and buts, but that is the nub of it, your Honour.  Before we go to the reduction, could I take your Honours to the definition of “salary and wages”?  “Salary and wages” is defined in section 11 at page 17.  It is an inclusive definition.  I will not read it out, it simply says, salary or wages includes a number of things, commission, et cetera.  You will see on section 11(2) it excludes domestic work under 30 hours a week.  It also excludes fringe benefits.

Might I just note in passing, your Honours, that there are various exclusions.  Section 27, for example, excludes wages paid to someone over 70.  Section 28 excludes wages paid to part‑time people under 18 and section 29 excludes wages paid to reservists.  None of those are really of any matter.  So that is the definition of “salary or wages”.  I will later contrast it with ordinary time earnings which will come up later on.

We have the individual superannuation guarantee shortfall which is 9 per cent reduced in accordance with section 22 or 23.  Could I now take you to section 23.  I propose not to go through how this legislation works in relation to defined benefit funds because it simply – the difference between defined benefit funds and accumulation funds is neither here nor there and the defined benefit operation is incredibly complex.  So I propose to go through the legislation simply in relation to accumulation funds.  There is no substantial difference. 

Section 23 deals with the reduction of the charge percentage if a contribution is made to an RSA, which is defined to mean a retirement savings account, or to a fund other than a defined benefit fund.  You will see at about point 4 on page 39 in section 23(2), there subject to various sections:

the charge percentage for the employer, as specified in subsection 19(2), in respect of the employee for the quarter, is reduced, in addition to any other such reduction made under this section or section 22, by the amount worked out using the formula:

A x B

where:

A is the amount of the percentage figure that expresses the contribution to the fund or the RSA referred to in paragraph (c) as a proportion of the total amount of the employee’s notional earnings base -

and B is one effectively pro-rated over a time period, whether it is a part of a year, et cetera.  So the employee’s notional earnings base is defined in section 13 of the Act in relation to pre-1991 and section 14 of the Act in relation to post‑1991.  That definition has also been amended going forward for 2008 onwards but that is not relevant as our assessments in this case relate only up to 2006. 

Going back to section 13, this is the notional earnings base where superannuation contributions were made immediately before 21 August 1991.  Again, your Honours, these provisions are quite complex but it is submitted the effect of these provisions is to freeze the arrangements that were in place prior to the introduction of the superannuation guarantee.  Could I take you over to page 23 which is section 13(2) at about point 2 on the page which says:

Subject to subsections (3) and (4), the expression notional earnings base means the reference earnings in relation to the current employee that, under the applicable authority as in force on:

(a)the first day of the quarter; or

(b)the first day of employment;

whichever is the later, constitute the earnings by reference to which the requisite employer contribution is to be calculated in relation to the current employee.

It is not ordinary time earnings, but it is the predecessor ordinary time earnings.  So, for example, if prior to the superannuation guarantee legislation coming into effect, an employer was paying 3 per cent of an earnings base that happened to be less than the notional earnings base, happened to be less than were ordinary time earnings, they were allowed to retain that earnings base.  So, for example, if there was various shift allowances or various rates, it ended up that the percentage was the same, but the earnings base was lower than ordinary time earnings, they were allowed to retain that base.  For new arrangements it had to be at least the notional earnings, at least ordinary time earnings and that can be seen from section 14.  Section 14 says:

notional earnings base where superannuation contributions not made for the benefit of certain employees immediately before 21 August 1991 -

You will see section 14(2) states that:

Subject to subsections (2A), (2B), (3) and (4), the expression notional earnings base means the earnings of the employee that, under the award, arrangement, law or scheme as in force . . . whichever is the later, constitute the employee’s earnings by reference to which the requisite employer contribution is to be calculated.

Here is the safety net over on subsection (3) at about point 2 on page 29 you will see:

If, in a case where the employer is contributing to the fund or the RSA in accordance with an occupational superannuation arrangement, a law of a kind referred to in paragraph (1)(ab) or the applicable superannuation scheme, the employee’s notional earnings base calculated in accordance with subsection (2) would, in relation to a quarter, be less than the employee’s ordinary time earnings for the quarter, the employee’s notional earnings base is the employee’s ordinary time earnings.

For new arrangements that were entered into after the superannuation guarantee legislation came into place, ordinary time earnings was the minimum basis upon which the specified percentage was calculated.  As Justice Crennan pointed out, in a nutshell, if the employer was required to contribute under an award, 6 per cent of ordinary time earnings then under the superannuation guarantee charge, the employer would have to top up an extra 3 per cent.  I said that the superannuation guarantee shortfall was made up of three components.  We have just dealt with the individual superannuation guarantee shortfall.  The other two components are the nominal interest component and the administration component.

The nominal interest component is at section 31, and it effectively compensates the employee for the time that the money has not been paid, and section 32 deals with the administration component which has changed over time, but as you will see, at the time was a per capita amount of $20, and a base amount, which I am not sure what that was, but it was certainly a de minimis amount in the Act. Might I now take your Honours to the payment out provisions, which are in Part 8 of the Act. We have just dealt with how it is that the superannuation guarantee shortfall is calculated, and it must be paid by the employer, and Part 8 deals with how the Commissioner is obliged to deal with the payments once received by him. At page 88 you will see section 63B gives an overview of the Part. Section 63(1) says that:

(1)If a payment to which this Part applies is made, the Commissioner is required to pay (or otherwise deal with) an amount, which is called the shortfall component, for the benefit of a benefiting employee under sections 65 to 67.

(2)If there is only one benefiting employee, the shortfall component for the payment is worked out under section 64A.

If I could then move on to that, section 64A(2) says:

The shortfall component for the payment is the lesser of –

This is important, it is –

the lesser of the –

amount actually paid by the employer, and the amount the employee is actually entitled to.  Section (3) talks about the amount the employee, the individual employee, is entitled to, and it again is the sum of the amounts that the employer must pay, that being, firstly:

(a)the individual superannuation guarantee shortfall . . . 

(b)any general interest charge . . . 

(c)any nominal interest –

and the nominal interest component.  So it is important to emphasise, your Honours, that the amount paid out by the Commissioner of Taxation is never any more than the amount that is paid in by the employer.

GUMMOW J:   Is there any provision that creates a liability in debt against the Commonwealth?  It says the Commonwealth must pay.  Is there any section that says it is a debt recoverable against the Commonwealth or is that just implicit?

MS BATROUNEY:   As I understand it, it is implicit, and it arises by virtue of the fact that the Commissioner has an obligation to pay this amount in relation to a particular employee.

GUMMOW J:   Pay when?  When does the right accrue?  When does the obligation accrue?

MS BATROUNEY:   The obligation to pay to the employee?

GUMMOW J:   Yes.  When is the Commissioner required?

MS BATROUNEY:   Once the Commissioner receives the amount he must pay it on.  If the Commissioner never receives an amount there is no obligation to pay it on.  That follows, it would be submitted, from section 64A(2), that the shortfall component that must be dealt with by the Commissioner is the lesser of the amount that is actually paid in, so no obligation ‑ ‑ ‑

HAYNE J:   Well, if it arises anywhere I would have thought it arose out of 63B(1) rather than 64A(2).  Section 63B(1), “If a payment . . . is made, the Commissioner is required to pay . . . an amount,” not the amount or that amount.  We are talking about separate sums of money.

MS BATROUNEY:   Yes.

HEYDON J:   The theory of speedy payment perhaps flows from section 65.  The idea is it is supposed to end up in the hands of the person to whom the employer should have paid it, namely, the employee’s superannuation fund.

MS BATROUNEY:   Yes, and might I go to section 65?  So section 65 specifies how it is that the shortfall component ought to be paid.  Section 65(1) states that:

Except in a case covered by section 65A, 66 or 67, the Commissioner is required to deal with the amount of the shortfall component in one of the following ways:

(a)in any case – pay the amount of the component, for the benefit of the employee, to:

(i)an RSA; or

(ii)an account with a complying superannuation fund; or

(iii)an account with a complying approved deposit fund;

that is held in the name of the employee and that is determined by the Commissioner to belong to the employee;

(b)if the employee has nominated an RSA, a complying superannuation fund or a complying approved deposit fund in accordance with the regulations:

(i)pay the amount of the component to the RSA or fund for the benefit of the employee; or

(ii)make arrangements in accordance with the regulations to enable the amount of the component to be paid to the RSA or fund for the benefit of the employee;

(c)if the employee has not made a nomination under paragraph (b) – credit the amount of the component to an account kept under the Small Superannuation Accounts Act 1995 in the name of the employee.

So in every case where it is paid to the benefit of the employee it is paid to, or in relation to, a named employee or to an account in the name of that employee.  There are certain circumstances where the amount is paid directly to the employee.  Section 65A states that:

The Commissioner must pay the amount of the shortfall component directly to the employee (whether or not he or she is still an employee) if:

(a)the employee is 65 years or more; and

(b)the employee has requested the Commissioner in the approved form to pay the amount to him or her.

Similarly, section ‑ ‑ ‑

GUMMOW J:   If there is a complying superannuation fund it will be required to have a trustee, will it?

MS BATROUNEY:   Yes, your Honour, and by virtue of the superannuation industry supervision legislation, that trustee must be a corporate trustee.

GUMMOW J:   Yes.

MS BATROUNEY:   Unless it is what is known as a self‑managed superannuation fund.

GUMMOW J:   That is right.  So is section 65 conferring an entitlement on the trustee of a complying fund to sue the Commissioner?

MS BATROUNEY:   It is our submission, yes, your Honour.  Section 66 is another section that allows the Commissioner to pay directly to the employee:

If:

(a)the employee has retired because of permanent incapacity or permanent invalidity; and

(b)the former employee has lodged with the Commissioner:

(i)written notice of the retirement; and

(ii)a copy of a certificate signed –

by medical practitioners, et cetera -

the Commissioner must pay the amount of the shortfall component to the former employee.

Section 67:

If the employee has died, the Commissioner must pay the amount of the shortfall component to the legal personal representative of the employee.

The last matter I wish to take your Honours to is section 71 which is the standing appropriation:

Amounts that the Commissioner is required to pay under this Part are payable out of the Consolidated Revenue Fund, which is appropriated accordingly.

If your Honours please, that is as much as I was proposing to say about the legislation as it is.  May I take you now to the assessments that were actually issued to the employees?  They are in the appeal book at page 42.  I am afraid this has to be a two‑step process.  Appeal book at page 42, you will see that there is a letter from the Commissioner of Taxation to Roy Morgan informing Roy Morgan that superannuation guarantee charge assessments have been raised and you will see at line 32, it encloses a breakdown of the total individual shortfalls as attached. 

May I take you then to an example – I am certainly not going to take you through all of them.  At page 48 of the appeal book, you will see there is a table.  Might I take you through this by reference to the first employee whose given name is Jennifer.  You will see there that Jennifer has an earnings base of $2277.77.  There is a contribution amount of required of $182.22.  No contribution was paid.  The shortfall percentage then was 8 per cent.  Gross salary and wages for Jennifer were the same and, indeed, your Honours, in relation to every employee that are the subjects of these assessments, in every case the earnings-base is exactly the same as gross salary and wages.  You will see in relation to Jennifer, the individual shortfall amount is $182.22.

That is an intention to issue an assessment.  The assessments are in fact issued, you will see, at page 64 of the appeal book.  This is just an example of one of the many assessments issued.  At page 64 of the appeal book you will see:

Superannuation guarantee default assessment
For the year ended 30 June 2001

Before we move on to the actual assessments, could I just take you to about point 7 on the page, you will see the list there of the various components.  The “Total individual shortfalls” are around $170,000, “Nominal interest” is around $122,000 - I am on page 64 - and the “Administration component” is $20,000 and the total amount payable there is some $313,000.  These are the assessments.  Attached to the assessments are schedules and could I take you to appeal book 70 where you will see our taxpayer, Jennifer, and you will see there is $182.22 listed and you will see there is no headings on columns and that is why I took you back to the other ones.  The taxpayer in question is the very first taxpayer on page 70, or I should say the employee, $182.

FRENCH CJ:   Employee, yes.

MS BATROUNEY:   You will see that it is clear that the shortfall is payable in relation to each named employee.

CRENNAN J:   Does that shortfall of eight per cent in circumstances where there is a nil contribution, reflect a different rate than the nine?

MS BATROUNEY:   No, it has gone up; it started at three ‑ ‑ ‑

CRENNAN J:   That is what I’m saying; it has gone up since then.

MS BATROUNEY:   It has.  It started at three, I think, and it is going up to nine I think.

CRENNAN J:   At this stage it was at eight?

MS BATROUNEY:   Yes.

CRENNAN J:   Yes, thank you.

MS BATROUNEY:   I think the Government said it is going up to Your Honours that is, in essence, the factual background of this case.  I propose to take you now through the trilogy of cases that ‑ ‑ ‑

GUMMOW J: Just before you do that, just going back to Part 8, I think there is some support for your treatment of these sections as creating enforceable debts in Pape 238 CLR 1. In various passages in Pape there is a reference, starting with the Chief Justice at page 31, footnote (110), there are various references to Mallinson and Shepherd v Hills which indicate that the statute is treated as creating a debt.

MS BATROUNEY:   Yes, your Honour.  We do set that out in our main submissions at page 16.  I am indebted to your Honour.  You will see at page 16 of our submissions at footnote 84 we set out those passages that your Honour is referring to.

GUMMOW J:   Yes, thank you.

MS BATROUNEY:   For example - as your Honour has – I am grateful to you for pointing out:

when an Act creates a duty or an obligation to pay money, an action will lie for its recovery, unless the Act contains some provision to the contrary –

and there is no provision to the contrary.  If there are no further questions, I propose to move on to the trilogy of cases of Australian Tape Manufacturers, Northern Suburbs and Luton v Lessels.

GUMMOW J:   Do we not have to begin with Air Caledonie?

MS BATROUNEY:   Yes, I suppose Air Caledonie is one way to start.

GUMMOW J: It was held in that case there was a tax, was it not, but that there had not been compliance with section 55? Was that the problem?

MS BATROUNEY:   That is correct.  Air Caledonie is 165 CLR 462. In that case the airline in question was required to pay a migration fee and that the legislation provided that the migration fee was payable by the airline whether or not it collected it from the passenger. As Justice Gummow has pointed out the Court held that that fee was a tax but that because it contravened section 55 it was invalid. The point against us in Air Caledonie is at page 467.4.  Our point is that the superannuation guarantee charge is imposed for private purposes and that it is not imposed for public purposes.  We submit that public purposes is an essential part of a taxation as against us in obiter this Court said at point 4 on page 467:

Thus, there is no reason in principle why a tax should not take a form other than the exaction of money or why the compulsory exaction of money under statutory powers could not be properly seen as taxation notwithstanding that it was by a non‑public authority or for purposes which could not properly be described as public.

FRENCH CJ:   There are a number of criteria in the last paragraph on page 468 described as “prima facie sufficient” conditions, the characterisation including the public purpose.

MS BATROUNEY:   Yes, and I will bring the Court on to Luton v Lessels where the former Chief Justice said that the classic definition which did require public purposes was not in fact a definition and he went on to explain the difference between public purposes and public interest.  Then we have the decision of this Court in Australian Tape Manufacturers at 176 CLR 480. In this case, the legislation sought to insert a new Part 5VC into the Copyright Act which imposed a royalty on purchases of blank tapes.

GUMMOW J:   This was a tax as well, was it not?

MS BATROUNEY:   Yes it was.

FRENCH CJ: It was a section 55 problem.

MS BATROUNEY:   Yes, despite the fact that it was not paid into consolidated revenue and despite the fact against us that on one view it was a private arrangement.

GUMMOW J:   Where do we get the consolidated revenue in this present legislation you are dealing with?

MS BATROUNEY:   Section 71 is the standing appropriation.

GUMMOW J:   Yes, but that is for payments out, what about payments in?

MS BATROUNEY: There is no explicit section in relation to that. It would simply be, in our submission, implicit that it must be paid due to section 81 as moneys received by the Commonwealth.

GUMMOW J:   Yes.

MS BATROUNEY: So the amendments sought to impose a royalty on purchases of blank tapes. That royalty was not paid into consolidated revenue but was paid to a private collecting society which was distributed to copyright owners. The plaintiff originally argued that it was not a law with respect to copyright and thus could not be supported by the copyright power in section 51(xviii). It was originally common ground between the parties that the exaction was not supported by the taxation power. You will find that at page 482, point 1 and page 485, point 5.

In the course of opening, Justice Brennan noted that it would indeed be a “novelty in constitutional law” that there could be something that “falls between a tax and expropriation of property” at page 482, point 7.  He later pressed the plaintiffs to choose whether the amendment was a law with respect to taxation or whether it was a law that provides for the acquisition of property otherwise than upon just terms, at 485, point 5.  After this the plaintiff was given leave to amend its pleadings and upon resumption of the case the pleadings claimed that the amending Act was a law with respect to taxation, or alternatively that it affected an acquisition of property from vendors of blank tapes otherwise than on just terms. 

Despite this, the plaintiffs did argue that the levy was not a tax because they claimed it was imposed:

not for public but for private purposes, i.e. the compensation of certain copyright owners for loss of private rights.

Page 487, point 9.  The Commonwealth also argued that the levy was not a tax on the grounds that the levy was:

a mechanism for adjusting the financial incidents of a private relationship between copyright owner and copier.

Page 492, point 6. The Court held by a four-three majority that the levy was a tax, at page 495, point 5, but as you said, the amending legislation was invalid as it breached section 55. Could I take you first to page 503 at point 5 on the page where the majority said:

In Australia, the fact that a levy is directed to be paid into the Consolidated Revenue Fund has been regarded as a conclusive indication that the levy is exacted for public purposes.

The footnote is footnote (91), and footnote (91) refers to R v Barger where Justice Isaacs in dissent said that:

“[T]he imposition of a tax on any person or thing for the benefit of the Consolidated Revenue is taxation, and taxation within the meaning of the Constitution” -

Similarly at footnote (91) the case of Moore v The Commonwealth is referred to where Chief Justice Latham said:

The moneys collected are paid into consolidated revenue . . . The moneys can then be spent for any purpose for which the Commonwealth may lawfully appropriate money” ‑ ‑ ‑

FRENCH CJ: In the present case, apart from the requirements of section 81, are you aware of a general statutory mechanism under which the obligation to make these payments into CRF is supported?

MS BATROUNEY:   It might be in the annals of the Financial Management Act, but I am ‑ ‑ ‑

FRENCH CJ:   But you are not presently aware of it?

MS BATROUNEY:   I was not proposing to take you to that, but if the Court is interested, we can get a note to you after the luncheon adjournment.  But the two points I would like to draw out of footnote (91) are that firstly, when this Court referred to payment into consolidated revenue being a conclusive indication, that was a payment in for the benefit of the consolidated revenue, and it was a payment that once made in could be spent for any purpose that the Commonwealth desired. 

Now, putting aside the fungible nature of the consolidated revenue fund it would be fanciful to suggest, we submit, that the amounts paid into consolidated revenue under the Superannuation Guarantee Assessment Act are available for the government to spend on building a bridge, or to spend in any way other than is set out in Part 8.

GUMMOW J:   Why?  That seems to me a fundamental problem in your submissions.  You want to have some earmarking in the pool of consolidated revenue.

MS BATROUNEY:   As the Chief Justice said was done in Luton v Lessels.  The child support payments considered in Luton v Lessels were in fact, as the Chief Justice said, more than a mere earmarking in that case.  So I will come back to that, if your Honour pleases.  Page 504 at point 5 of the page is the reference that your Honours took us to to Air Caledonie where the Court mentioned that the judgments in Air Caledonie referred to the fact:

that an exaction for non‑public may be a tax. Although that passage is to be found in the context of a general discussion of what are the attributes of a tax, the discussion and the passage related directly to the meaning of the expression law or laws “imposing taxation” as used in ss. 53‑55 of the Constitution. The judgment is therefore at odds with the notion that a law which levies an exaction on one group in the community to be expended for the benefit or advantage of another group in the community is not a law imposing taxation.

We do not say that such an exaction is not a law imposing taxation.  We concede that the so‑called group relief cases are in fact laws dealing with taxation.  The payment, the exaction of money from one group to be paid to another group is, we concede, taxation.  But we say these payments under this legislation are very different from the so‑called group relief cases, and the flood levy and various other legislation referred to by our friends.

HAYNE J:   Why are they different?

MS BATROUNEY:   Because of a number of matters, your Honour, because of the pre‑existing prior relationship.  There is a very direct correspondence between the amount of money that is exacted from the employer that is calculated in accordance with the individual’s circumstances and the private arrangements that are made between the employer and the employee.  There is, as I say, a very direct relationship between what is exacted from the employer in relation to the named employee and what is paid out for the named employer. 

Secondly, we say there is no revenue‑raising purpose here.  We concede that the mere fact that legislation does not have a revenue‑raising purpose does not per se mean that it is not taxation, however, it is a very significant indication and those taxes that I have termed the behavioural changing taxes such as excise duties.  When tax is imposed – when the exaction is, in fact, exacted – that is a tax.  It goes into consolidated revenue for general purposes. 

Thirdly, we say the reason they are different from the group relief cases, is there is a pre‑existing employment relationship and, finally, we say they are different because the employee can enforce the obligation on the Commissioner to pay the amount to him.  We say the combination of all these factors takes this exaction outside of the group relief cases and I will come back to that but that is it in a nutshell.

CRENNAN J:   What about a slightly separate point?  That is to say, is one of the purposes of the charge to increase the coverage in relation to superannuation and to encourage employers to provide a minimum level of superannuation set at nine in the current Act and if that is right, why would that not be a public purpose?

MS BATROUNEY:   Well, it is our submission that when determining whether or not something is public purpose for the purpose of characterising a law one must characterise the law by reference to the rights and obligations that are imposed by that law.  It is impermissible to look at the motives behind the legislation.  It is impermissible to look at what might be the indirect consequence of that legislation.  So much follows from Fairfax’s Case.

FRENCH CJ:   You do not have to pull back some obscuring veil to work out the purpose of this legislation, do you?

MS BATROUNEY:   As the Court said in Fairfax, this Court would have to be blind not to see that the reason the Government has imposed this legislation is, as Justice Crennan has said, to increase coverage and to provide for retirement income policy, et cetera, but, as was also said in Fairfax, that is not relevant.  Taxation must be characterised by reference only to the rights, powers and obligations that are contained within that legislation.

KIEFEL J:   Does not this legislation work to offer an incentive but where the incentive is not acted upon to impose an obligation, it does both?  The obligation is then to pay the shortfall.

MS BATROUNEY:   It does but the incentive also is looking at motives and purposes, so in Luton v Lessels, for example, none of the judges were in any doubt that the imposition of rights and liabilities so as parents should pay for their children was not in the public interest.  But, as I will bring you to, Chief Justice Gleeson, in particular, made it very clear that that is not the inquiry that one undertakes when characterising a law with respect to taxation.  But I will come back to that.

KIEFEL J:   I think the Full Court here focused on the incentive aspect, did they not?  That was the public purpose that ‑ ‑ ‑

MS BATROUNEY:   The Full Court below?

KIEFEL J:   Yes, in this case.  Was that the only public purpose identified by the Full Court?

MS BATROUNEY:   From recollection, your Honour, I think it was both, the incentive and the fact that it would relieve the public purse in the future of paying pensions, et cetera.

KIEFEL J:   Yes.

MS BATROUNEY:   If I could go back to Australian Tape Manufacturers, the Court at page 504.7 said:

The only possible reason, apart from those already rejected, for holding that the provision in question in this case is not a law imposing taxation is that an expropriation from one group for the benefit of another as an incident of legislative regulation of interests on a subject matter within power, with a view to bringing about what is conceived to be an equitable outcome, is not an exaction for public purposes and is therefore not a tax.  In one sense it may be said that the purpose is private in that it concerns the interests of the two groups only.  But, in truth, the legislative solution to the problem proceeds on the footing that it is imposed in the public interest.  Indeed, the purpose of directing the payment of the levy to the collecting society for ultimate distribution of the net proceeds to the relevant copyright owners as a solution to a complex problem of public importance is of necessity a public purpose.

This is what was picked up by Chief Justice Gleeson in Luton and this is where we say the law has moved away from Tape Manufacturers.

GUMMOW J:   It seems to me that even if one were to accept the minority in Tape Manufacturers and if you look at page 523 and 522, really, Justices Dawson and Toohey said look, taxation is all about raising revenue by government. A problem, perhaps, with the majority judgment is that 51(ii) of the Constitution can be used to shift benefits from one section of the community to another without any connection with any other power in section 51. We do not have to get into that question, it seems to me, because this money, you agree, goes in under section 81, unlike the Tape money.

MS BATROUNEY:   Yes but we say it does not go in as taxation.

GUMMOW J: Just a minute. What then is the answer? It goes in under section 81. It is raised by government.

MS BATROUNEY:   Yes but there are a number of other ‑ ‑ ‑

GUMMOW J:   Why is it not a tax?

MS BATROUNEY:   Because, we say ‑ ‑ ‑

GUMMOW J:   It is a compulsory exaction.

MS BATROUNEY:   Yes.

GUMMOW J:   You say it is not for a public purpose.

MS BATROUNEY:   Yes.

GUMMOW J:   Why?

MS BATROUNEY:   Because it is for the private purpose of ‑ ‑ ‑

GUMMOW J:   It may be both.  Is it not enough that it is one?

MS BATROUNEY:   No.  We say they are antithetical.

GUMMOW J:   That is another fundamental point in your case, it seems to me.  It is a characterisation question.  You want to have an exclusive characterisation theory?

MS BATROUNEY:   Yes.

GUMMOW J: Generally interpreting the Constitution, that is not currently in favour.

MS BATROUNEY:   Yes, but there are number of points within that conversation, with respect.  The first is that, and it is clear that legislation that is not designed to necessarily raise revenue might still be a law in relation to tax, but we say only if, in fact, that if the behaviour that is being sought to be modified is not, in fact, conducted that the exaction goes into consolidated revenue for the benefit of the public – for the benefit of consolidated revenue. 

Now, that is the case in every other – what I term – behaviour‑changing legislation.  So, for example, in Fairfax the legislation denied an exemption to superannuation fund trustees if they did not invest a certain percentage in government securities.  But if the trustees decided regardless not to invest that 30 per cent, the revenue raised would go into consolidated revenue.  In this case, if the employer decides not to pay the superannuation directly to the employee or to a superannuation fund and instead pay the charge, that money does not go into consolidated revenue for the benefit of consolidated revenue for public purposes.

KIEFEL J:   This gets back to the earmarking point though, does it not, that you characterise the payment that must come out as somehow earmarked, whereas whatever goes into consolidated revenue may be applied for any purpose. 

MS BATROUNEY:   But as I say ‑ ‑ ‑

KIEFEL J:   And is often applied for small groups in the community, not for general public benefit - can often be paid to small groups.

MS BATROUNEY:   There are two things there.  One is, as I said, we do not cavil with the notion that money can be transferred via the taxation mechanism from one group in the community for the benefit of another group in the community.  They are the so‑called group relief cases and, indeed, the flood levy that is about to be imposed.  But what we say takes this exaction outside of that is the four factors I mentioned before - the fact of the pre‑existing private relationship as there was in Luton v Lessels, the fact that it is calculated by reference to an individual, to an individual’s circumstances, the fact that the legislation is very prescriptive as to where that money ought to go and the fact that the employee has a right to recover that amount from the Commissioner of Taxation.

GUMMOW J:   That amount – that is the problem, is it not?  An amount?

MS BATROUNEY:   Yes.

GUMMOW J:   Well, that is the problem.

FRENCH CJ:   …..creates an obligation on the part of the Commissioner to pay to the trustee of the relevant superannuation fund or to the employee if the employee is beyond the age 65, an amount equivalent to the shortfall.

MS BATROUNEY:   Yes, that is so.

FRENCH CJ:   It is not a tracing exercise.  It is ‑ ‑ ‑

MS BATROUNEY:  No, and, nor ‑ ‑ ‑

FRENCH CJ:   It is a statutory obligation which is supported by a standing appropriation, as you pointed out, from the consolidated revenue fund.

MS BATROUNEY:   Yes.  Nor can it be the identical amount.  In today’s day and age it could never be the identical amount.  It could never be the same dollar note.  But we say that it is impossible to ignore the close correlation of these amounts and, indeed ‑ ‑ ‑

GUMMOW J:   It depends what you mean by correlation.

HAYNE J:   It is not even the same money sum.  You have interest and you have charges on top.

MS BATROUNEY:   The sum that is paid out to or in relation to the employee includes the amount that is paid in in relation to the employee by the employer and includes the interest amount ‑ ‑ ‑

HAYNE J:   But not the administration charge.

MS BATROUNEY:   But, with respect, it would be fanciful to uphold the superannuation guarantee legislation by reference to the administration charge.

HAYNE J:   Why?  You have here legislation which says to employers, unless you do things with your employees, you will pay – put it neutrally –
 you will pay an amount.  The Act that fixes the amount that is to be paid goes on to provide that in certain events there will be a payment made out of the consolidated revenue fund, see the standing appropriation, to the benefit of the retirement arrangements of identified individuals.  Now, there is no equality between ins and outs.  Unless you, by the mechanism of referring to that money, that amount, the same money, the same amount, or some such phrase which obscures the problem, you are eliding the two steps, are you not?

MS BATROUNEY:   True it is, but as we say, when characterising taxation legislation one characterises it by reference only to the rights, duties, powers and privileges that it changes, regulates or abolishes.  So much is clear from Pape’s Case at 131 and Fairfax at page 7.  In this case the Superannuation Guarantee Charge Act imposes an obligation on an employer to pay an amount to the Commissioner in relation to a named employee and a duty on the Commissioner to pay that amount, less the administration charge ‑ ‑ ‑

GUMMOW J:   You keep saying “that amount”, you see.

CRENNAN J:   Does it not lose its identity completely once it is paid into the consolidated revenue fund?

MS BATROUNEY:   But it need not retain its identity.  It is clear that when ‑ ‑ ‑

GUMMOW J: If I can just interrupt you, I think, there a more fundamental problem really. Compulsory exaction, we have got that. Public authority, statute, Commissioner, we have got that. Public benefit, public purpose, that is achieved and manifested simply by the payment into consolidated revenue fund whereupon it can only be appropriated by a law of the Parliament under section 83. Any law of the Parliament has to have that characteristic, surely, of public of benefit.

MS BATROUNEY:   The third proposition that your Honour just put to me was specifically rejected by this Court in Luton v Lessels.  In Luton v Lessels the Court rejected the proposition that the mere payment of money into consolidated revenue will confer the exaction with a status of a tax. Could I take you first to the Chief Justice at page 344 at the first line. I am sorry, your Honours, this is 210 CLR at 344. You will see he says that:

The fact that the proceeds of the exaction were not paid into, and out of, the Consolidated Revenue –

He is talking about Australian Tape Manufacturers –

was not regarded as decisive.  I would also ‑ ‑ ‑

GUMMOW J:   Decisive of what?

MS BATROUNEY:   Of whether or not the money was paid for a public purpose.  Perhaps while we are here I may as well take you through the Chief Justice’s statements in Luton v Lessels.  Would the Court be assisted by me taking you through the relevant statutory provisions that were considered in Luton v Lessels?

FRENCH CJ:   I think we are pretty familiar with those.

MS BATROUNEY:   In that case, I will not take the Court through them but against us I should point out that the provisions in Luton v Lessels first created a debt between a parent and a carer then extinguished that debt and replaced that debt with a debt to the Commonwealth.  That is clearly not the case here and that is what is said against us in relation to Luton v Lessels.

GUMMOW J:   Luton v Lessels is like a garnishee, is it not?

MS BATROUNEY:   It was a like a garnishee but also, your Honour, it was a private arrangement and that is what we rely on.  Could I just take you first to paragraph 12 where the Chief Justice had, of course, cited the statement in Matthews v Chicory Marketing Board about a tax being compulsory exaction of money by a public authority for public purposes and he goes on to say at paragraph 12:

What constitutes a sufficient public purpose may be a matter of contention, as in Australian Tape Manufacturers ‑ ‑ ‑

GUMMOW J:   Now, just stop for a moment.  The problem in Luton v Lessels was, or a problem, was that the receipts went into consolidated revenue but there had been no splitting of the legislation? There had been no attempt to comply with section 55?

MS BATROUNEY:   Yes.

GUMMOW J:   It was undoubtedly a law with respect to children under the reference power, I suppose?

MS BATROUNEY:   Yes, with respect, but as in this case ‑ ‑ ‑

GUMMOW J:   But the complaint in Luton v Lessels was based in the absence of section 55 compliance, was it not? I may be wrong, I did not sit in Luton v Lessels.

MS BATROUNEY:   Yes, that is correct that it was ‑ ‑ ‑

HAYNE J:   See page 334 at about point 7.

MS BATROUNEY: 

The first ground of challenge was that the scheme involved the imposition of taxation, and that there had been a contravention of s 55 of the Commonwealth Constitution -

et cetera.  Then, there was a judicial power challenge as well.

GUMMOW J:   The question was whether there was an imposition of a tax?

MS BATROUNEY:   Yes.  So, what Chief Justice Gleeson said, what constitutes a sufficient public purpose may be a matter of contention and he goes on to say – he refers to Quick and Garran where they said:

“Taxation may be now defined as any exaction of money or revenue, by the authority of a State, from its subjects of citizens and others within its jurisdiction, for the purpose of defraying the cost of government, promoting the common welfare, and defending it against aggression from without.”

That, perhaps, illustrates the risks of definition.  Depending on what is meant by “promoting the common welfare”, it may be difficult to reconcile with the decision in the Australian Tape Manufacturers Association Case.  Directly or indirectly, all legislation is aimed at promoting the common welfare.  The legislative powers of the Parliament are to be exercised for the peace, order and good government of the Commonwealth.  A law which imposes on one person an obligation to pay money to another, or to the government, will, by hypothesis, be enacted in pursuance of some policy or purpose which is regarded by the Parliament as in the public interest.  The concept of “public purposes” in the present context is narrower than that.

As was pointed out in Airservices Australia v Canadian Airlines International Ltd, while an objective of raising revenue for the government is not a universal determinant, the presence or absence of such an objective will often be significant in deciding whether an exaction, or the imposition of a liability, bears the character of taxation.  That is the most usual form of public purpose involved; an idea reflected in what was said by Quick and Garran.  Revenue raised by a government may be earmarked formally or informally, for a specific purpose, and still be a tax. 

He talks about the payroll tax and goes on to say:

The impost in the Australian Tape Manufacturers Association Case involved raising revenue from one group for the purpose of its application for the benefit of another group.  The majority held that revenue was raised for a public purpose of compensating the second group.  The group who were to be compensated had no prior legal right against the group from whom the revenue was to be raised.  That is a point of distinction from the Registration and Collection Act.  The fact that the proceeds of the exaction were not paid into, and out of, the Consolidated Revenue Fund was not regarded as decisive.  I would also regard the converse as true.

The Assessment Act creates a private or personal obligation, in the form of a debt payable by the liable parent to the eligible carer.  The debt is recoverable by the carer.  The creation of a legal obligation, enforceable by private action, in a parent, to pay for the support of a child ‑ ‑ ‑

GUMMOW J:   Is that not the ground of the decision?

MS BATROUNEY:   It is the ground of that decision, but behind that ground is the private nature of the obligations and behind that decision is also the fact that the mere fact that it is an incentive or a good idea to have a retirement incomes policy, or in that case, a legislation that encourages the parents to pay for their children, is not a sufficient public purpose.

FRENCH CJ:   But you accept that in that case there is an antecedent obligation which the exaction is directed to meeting.  In this case there is not.

MS BATROUNEY:   Not in every case.  We cannot say in every case.  I think there is about a 90 per cent ‑ ‑ ‑

FRENCH CJ:   In this case, everybody is going to get 8 per cent as the case may be, whether privately or by the exaction.

MS BATROUNEY:   Yes, but we say that the antecedent obligation is not the only, as the Full Court termed, the countervailing consideration.

FRENCH CJ:   No, it was a point of distinction.

MS BATROUNEY:   It is, with respect, your Honour, a point of distinction.  There is no formal antecedent obligation in this case.  But as the Chief Justice concludes, what is alleged to be taxation is in substance no more than a mechanism for the enforcement of a pre‑existing private liability and we say that the superannuation guarantee legislation has those same private characteristics and does not have a public purpose in the sense that the Chief Justice described it in the passages that I have just read to you. 

Yes, it is in the public interest that there is a retirement incomes policy, but there is not collected for public purposes, as that term has been defined, as it were, by Justice Isaacs in Barger’s Case, that is, a payment for the benefit of consolidated revenue, a payment that is available to be spent for any purposes that the Government chooses to spend it on.  As the Chief Justice says at the very end of paragraph 15 on page 344:

The practical advantages of such a scheme are obvious, but they do not include any financial benefit to the Commonwealth.

GUMMOW J:   What do you say about paragraph 31 of the Attorney’s submissions as to the genesis of this notion of public purpose?

MS BATROUNEY:   Paragraph 31 of the Attorney’s submissions state:

The conclusion that a public purpose will be present whenever funds are received into the CRF ‑ ‑ ‑

FRENCH CJ:   We are asking for you to comment on it.

GUMMOW J:   We can read it.  What is your answer to it?

MS BATROUNEY:   I am sorry, that is the first proposition that I will address, that certainly was not the case in Luton v Lessels.  The money in Luton v Lessels did go into consolidated revenue and it was not held to be a public purpose and so the Attorney’s submissions at paragraph 31 do not address that part of the reasoning of the Court in Luton v Lessels.  That follows from the reference to Quick and Garran, at footnote 52, which is the very one that I have just read out to you, that the Chief Justice qualified in Luton v Lessels.

KIEFEL J:   But the point made is that the authorities in relation to public purpose do not usually concern moneys paid into consolidated revenue from which one would normally infer public purpose, thus the debate about public purpose is generated because of the absence of a payment into and out of the fund.

MS BATROUNEY:   Yes, but not in relation to Luton v Lessels.  In Luton v Lessels the money was paid into consolidated revenue and it was held that it was not for public purposes.

GUMMOW J:   Yes, that can ‑ ‑ ‑

MS BATROUNEY:   The Chief Justice was quite clear on that.  I am sorry, Justice Gummow.

GUMMOW J:   It does not matter.

FRENCH CJ:   Would it be oversimplifying the scheme of this legislation to say that it has the effect of imposing a general obligation on all employers to pay an amount calculated by reference to a superannuation guarantee charge of 8 per cent, a general obligation which is relieved to the extent that they have made a contribution for the benefit of a particular employee?

MS BATROUNEY:   Yes.

FRENCH CJ:   In other words, it is a general exaction subject to mitigation by reference to private arrangements.

MS BATROUNEY: Yes, it is, and we would say that but for the consolidated revenue fund it was clearly an acquisition of property that would need to satisfy the protective requirements in section 51(xxxi). Our submission is that the mere interposition of consolidated revenue between the payer and the payee ought not to be allowed to circumvent the protection against the acquisition of property otherwise than upon just terms, unless – to quote the words of Justice Brennan in MacCormick, I think – unless it is in truth a taxation, unless it is genuine taxation.  We say in this case when the taxation is characterised by reference to the rights and obligations that it imposes that this is not genuine taxation, this is in fact merely the imposition of a collection mechanism between private individuals.

HAYNE J:   Well, that is an attack on Fairfax, is it not?

MS BATROUNEY:   No, with respect.

HAYNE J:   This legislation is in form on the Fairfax pattern.  A tax is – an amount has to be paid unless.

MS BATROUNEY:   In fact, we rely on Fairfax to say that one cannot rely on the government’s income policy to validate this legislation, to clothe it with a public purpose that it does not otherwise have.  The point of distinction between the exaction in Fairfax’s Case and the exaction here is that when the trustees of superannuation funds do not tow the line and invest 30 per cent in government securities, the money that is exacted is paid into government revenue and the government can use it to build a bridge, the government can use it for whatever purposes it likes.  In this case, when the employer does not pay the requisite superannuation the money is paid into consolidated revenue, subject to – I will not say that – the employer is under an obligation to pay that money and a similar obligation is imposed on the Commissioner to pay that money out.  There is no payment ‑ ‑ ‑

HAYNE J:   We are back to the that money point, are we not, Ms Batrouney?

MS BATROUNEY:   ‑ ‑ ‑ for the benefit of consolidated revenue.

HAYNE J:   We are back to the that money point.  It seems to me your submissions stand or fall on that money point.

MS BATROUNEY:   There can never be an exact obligation in relation to exact money, but when one looks at the obligations, the obligations are to pay a closely corresponding money out of consolidated revenue as to what is paid in.  If I could just the Court to the joint judgment of Justice Gaudron and Justice Hayne in Luton v Lessels at paragraph 48. Their Honours said:

It is clear that the Registration and Collection Act provides for the compulsory exaction of money which is to be paid to the Commonwealth.  It is equally clear that it is inappropriate to speak of the exaction being in payment for any services rendered by the Commonwealth.  Further, it may readily be assumed that the scheme for which the Registration and Collection Act provides is a scheme which is seen as being of public benefit, even though its principal focus can also be seen as being on the performance of each individual’s obligation to provide child support for his or her child or children, and the satisfaction of the need, and the right, of that child or those children to that support.  It by no means follows, however, that the Registration and Collection Act as a whole, or particular provisions of it, are properly described as a law imposing taxation.

And, at paragraph 55, perhaps dealing with the amount of money point, what is said by Justices Gaudron and Hayne, is that:

The destination of money that is exacted may well be significant in deciding whether it is exacted for public purposes.  A requirement that a sum which legislation requires is paid be paid into the Consolidated Revenue Fund does not conclude the issue of characterising the law as one imposing taxation.

At paragraph 58 at the very bottom of page 354 it is said:

It follows that every tax that is raised must be paid into the Consolidated Revenue Fund.  But the converse is not universally true.  Not every sum that statute requires to be paid to the Commonwealth, and which is paid into the Consolidated Revenue Fund, is a tax.

GUMMOW J:   You are in agreement with the Solicitor at paragraph 38 of his submissions to that degree, but you part company with him, I think, to the concluded words in paragraph 38.

MS BATROUNEY:   Yes, we do.  And, we say that follows from Luton v Lessels that the Court there held that despite the fact that money was paid into consolidated revenue ‑ ‑ ‑

GUMMOW J:   Luton v Lessels is referred to in footnote (67) for the opening proposition in paragraph 38, an opening proposition that obviously has to be right because consolidated revenue includes fees, fines and all sorts of things.

MS BATROUNEY:  Yes, of course, with respect.  But, as I say, we part company with the Solicitor where the Commonwealth says that the payment into consolidated revenue, conclusively establishes that the charge is imposed for public purposes.  The passage I read out to your Honours from Chief Justice Gleeson was quite clear about that that the fact that an amount might be said to be in the public interest does not make it for public purposes and, of course, he was talking about an amount of money that had been paid into consolidated revenue and, of course, the amount that was paid into consolidated revenue in relation to Luton v Lessels was exactly the same amount of money that was paid out of consolidated revenue in relation to Luton v Lessels.

GUMMOW J:   Where does this phrase “public interest” come into this discourse?

MS BATROUNEY:   Because that is the phrase against us that is used in Australian Tape Manufacturers where it was held that, we say incorrectly, the Court melded the concepts of public purpose and public interest, and I read out the passage ‑ ‑ ‑

GUMMOW J:   Well, you may be quite right in saying that, but Tape Manufacturers - they were not dealing with consolidated revenue.

MS BATROUNEY:   No, they were not.

GUMMOW J:   As the dissentients were urging, and they were also managing to say in the majority that it was not a law with respect to copyright, were they not?

MS BATROUNEY: Yes, and they said that if it was not a law in relation to taxation, it was an unjust acquisition that would infringe the terms of section 51(xxxi). But as I have said to your Honour, we do not cavil with the group relief schemes, we do not cavil with the concept that an amount might be exacted from a group of people to be paid to another group of people, but what we say takes this exemption out of that class is the number of factors I have referred to before, that is that there is a direct correlation between the amount of money – as it was in Luton v Lessels there is a direct correlation between the amount of money that is paid into consolidated revenue and the amount of money that is paid of out consolidated revenue.

Here, the employee is able to enforce the Commissioner’s obligation to pay an amount of money out of consolidated revenue to him, and there is no revenue‑raising purpose.  True it is, that in Fairfax it is said that there need not be a revenue‑raising purpose but, in many cases since, and most recently in Pape’s Case, it was held that a revenue‑raising objective is significant. 

Indeed, in Luton v Lessels, Justice Kirby said that it was the core concept and also in the minority in Australian Tape Manufacturers it was held that that case regarded as not important something that was of prime importance for them.  So if I could take you to Justice Kirby, where he says at page 371 at paragraph 117 - he refers to Tape Manufacturers and he says;

the most significant features that distinguishes a “law imposing taxation’ from one that does not, is that such a law, with very few exceptions, has the purpose and effect of raising general revenue for the government.

He goes on to say at page 372 at the top of the page, at paragraph 118:

Many remarks in this Court before, in and since Tape Manufacturers have laid emphasis on this core feature of the notion of a “law imposing taxation”.  It is a feature that is reinforced in Australian cases, by the “setting of the Constitution”.

Finally he goes on at the top of page 373 ‑ ‑ ‑

GUMMOW J:   I am not sure one can accept what is said in paragraph 118 with respect to that paragraph on Airservices:

“[n]ot all taxation has as its primary purpose the raising of revenue –

undoubtedly.  So what?  It does do so –

some forms of taxation are notoriously inefficient means. –

Of course.  Think about protective tariffs, all sorts of things, but they raise revenue.  So that notion of purpose, I think, is misconceived.

MS BATROUNEY:   As I say, surely it is, with respect, fanciful to uphold the validity of this legislation on the basis of the administration component, which is designed to cover the costs of the government administering the entire scheme, and that is on any view a minor part of the legislation.  It would be submitted that that would be not in accordance with the cases.

GUMMOW J:   Is there anything further you wanted to take us to in Justice Kirby in Luton?

MS BATROUNEY:   There was, but might I just deal with this one point in relation to the administration component before I move back to Justice Kirby?  As I said, it would be, in our respectful submission, fanciful to uphold this legislative scheme by reference to the administration component for two reasons.  One is the administration component is not designed to raise revenue, it is designed to cover costs.  Secondly, because as pointed out in Justice Kitto’s judgment in Fairfax 114 CLR 1, firstly at the bottom of page 6 he says:

The argument for invalidity not unnaturally began with the proposition that the question to be decided is a question of substance and not mere form; but the danger quickly became evident that the proposition may be misunderstood as inviting a speculative inquiry as to which of the topics touched by the legislation seems most likely to have been the main preoccupation of those who enacted it. Such an inquiry has nothing to do with the question of constitutional validity under s. 51 of the Constitution. Under that section the question is always one of subject matter, to be determined by reference solely to the operation which the enactment has if it be valid, that is to say by reference to the nature of the rights, duties, powers and privileges which it changes, regulates or abolishes; it is a question as to the true nature and character of the legislation: is it in its real substance a law upon, “with respect to”, one or more of the enumerated subject, or is there –

and this is what we would say the administration component is –

no more in it in relation to any of those subjects than an interference so incidental as not in truth to affect its character?

So we would submit it is inappropriate to uphold this legislative scheme by reference only to the revenue, if any, raised by reference to the administration components.

FRENCH CJ:   Is any reliance placed on that in the submissions for the Commonwealth, for the Attorney?

MS BATROUNEY:   I am sorry, Chief Justice?

FRENCH CJ:   Was any reliance placed on that component in the submissions for the Attorney?

MS BATROUNEY:   In a sense, in a footnote, footnote 92.  Footnote 92 comes from the statement at the top of page 16, paragraph 50 where the Commonwealth says:

To the extent that they make those payments, no revenue will be raised.  However, that does not change the fact that revenue will be raised from those employers who choose not to make superannuation payments directly.

Now footnote 92 goes on to set out some statistics where it says:

in the 2008‑09 financial year, the superannuation guarantee shortfall assessed amounted to $301 million, together with $10.9 million of administrative component and $46 million of nominal interest -

Of course, the $46 million of nominal interest is not revenue, that goes straight to the employee.  It goes on to say:

Other penalties and interest assessed relating to the SGC amounted to $40.4 million . . . For the income years between and including 2000‑01 to 2009‑10 –

so, that is 10 years –

the Commissioner of Taxation has collected (in net terms) approximately $1.995 billion under the superannuation guarantee system, and distributed approximately $1.901 billion -

We do not know what the difference is there.  Maybe it is the administration component.  Maybe it is because the Commissioner has not been able to find the employees in question.

FRENCH CJ:   Beyond that footnote, it is not invoked in argument, is it?

MS BATROUNEY:   Not as I am aware.

FRENCH CJ:   Okay, thank you.

CRENNAN J:   Northern Suburbs which is against you on this point, I think, is certainly relied upon.

MS BATROUNEY:   Yes, it is.

CRENNAN J:   There is a passage in Northern Suburbs that ‑ ‑ ‑

MS BATROUNEY:  Northern Suburbs is an important case because it is clear that this legislation – Northern Suburbs is a training guarantee legislation and it was said that this legislation is modelled on the training guarantee legislation but we would say there is a number of significant differences between this legislation and the legislation that was considered in Northern Suburbs.

GUMMOW J: Section 55 had been complied with there.

MS BATROUNEY: Section 55 had been complied with.

GUMMOW J:   Payment into consolidated revenue?

MS BATROUNEY:   It was held that there was effectively a payment into consolidated revenue.

GUMMOW J:   Yes.  No other head of Commonwealth power, I think, other than 51(ii)?

MS BATROUNEY:   Correct, with respect.  We concede that that was a public purpose because it was the public purpose of exacting money by a percentage.  A base percentage of payroll was exacted and that amount of money was paid to the States for the States to pay out by way of grant to a purpose – for the purpose of training employees.  There was no necessary correlation as there is in this case.

CRENNAN J:   You mean that the individual amounts for individual employees?

MS BATROUNEY:   Individual amounts.  That was brought up in the context of the argument in Northern Suburbs about fee for services and that is – we do rely on that as well.  Of course, just stopping there, if you have a look at the differences between the training guarantee levy, it was effective, as I say, an exaction levied on payroll that went to a general purpose; it went to a class of people.

There was no direct correlation that related to the individual circumstances of any employer of any employee; it was a base amount levied on payroll.  The amount of money was paid to a public purpose, not to an individual.  There would be no right in any employee to enforce payment, to enforce payment to that employee, or in relation to that employee in relation to any form of training.  Again, we would say that there was revenue raised in the training guarantee because the whole of exaction went into consolidated revenue for public purposes, we would say.

FRENCH CJ:   Well, as they say at 569 in the plurality judgment, the fact that that is secondary to the attainment of some other object does not take it out of the character of a tax.

MS BATROUNEY:   Absolutely, and with respect, we do not cavil with it.  We are not seeking to cavil with that proposition, in fact we utilise that proposition.  We are not saying that the superannuation guarantee levy is a legislation dealing with employment conditions dressed up as a tax.  We acknowledge that the motive behind the legislation is not to raise revenue, but we do not say that is fatal.  What we say is different is, as I have said before, is when the behaviour is not undertaken, we say that what is exacted as a result of the impermissible behaviour is not a tax; it is an amount that is paid through consolidated revenue to or for the benefit of an individual.  Where do we get this notion of private and direct benefit?  Can I take your Honours back to Australian Tape Manufacturers.  This is where notion comes from and it is a notion - Tape Manufacturers 176 CLR 509 - and this is where taxation is distinguished from an acquisition otherwise of property on terms that are not just terms. You will see after footnote (11) about point 5 on the page, the majority says:

In the context of s. 51(xxxi), the word “property” must also be construed as extending to money and the right to receive a payment of money. If it were otherwise, money or the right to receive money could compulsorily be acquired for any purpose in respect of which the Parliament has power to make laws and without compensation, provided the money or the right to receive it was not revenue raised by taxation, a proviso which might be satisfied whenever the relevant purpose was to confer a private and direct benefit on a person or group. The guarantee which s. 51(xxxi) was intended to give in protection of property would then largely be illusory.

Along similar lines, on the next page at point 3, the Court said:

Section 51(xxxi)’s guarantee of just terms is not to be avoided by “a circuitous device to acquire indirectly the substance of a proprietary interest”. In a case where an obligation to make a payment is imposed as genuine taxation, as a penalty for proscribed conduct, as compensation for a wrong done or damages for an injury inflicted, or as a genuine adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity, it is unlikely that there will be any question of an “acquisition of property” within s. 51(xxxi) of the Constitution. On the other hand, the mere fact that what is imposed is an obligation to make a payment or to hand over property will not suffice to avoid s. 51(xxxi)’s guarantee of “just terms” ‑ ‑ ‑

GUMMOW J:   I am sorry.  Where are you reading from?

MS BATROUNEY:   I am sorry, at page 510 at about point 5.  I started at about point 3:

s. 51(xxxi)’s guarantee of “just terms” if the direct expropriation of the money or other property itself would have been within the terms of the sub-section. Were it otherwise, the guarantee of the section would be reduced to a hollow facade.

So we say that when one is looking at whether or not an exaction is a tax in distinction to whether or not it is an ‑ ‑ ‑

GUMMOW J:   This passage seems to manifest some apprehension with a conclusion that 51(xxxi) would apply as it is attached to the copyright power.

MS BATROUNEY:   Yes, and, in fact, that is what the Court held – that if, in fact, the exaction in Tape Manufacturers was not taxation it was an acquisition of power on unjust terms.  So it is that our submission is that if one is to avoid what is termed ‑ ‑ ‑

GUMMOW J:   It is not your problem, but to reach that conclusion, having said at page 510 in the middle of the paragraph:

an obligation . . . imposed . . . as a genuine adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity –

is not a tax even though this statute seems to be regulating the user of copyright materials by people seeking to get a free ride and so on and so forth, does not immediately appear.  I cannot understand why it did not fall within that category there so that it was outside 51(xxxi). 

MS BATROUNEY: So in order to fall outside what has been termed the annihilating effect of section 51(xxxi), what is an exaction must, and I quote, “in truth” be a tax. Could I take your Honours to MacCormick’s Case 158 CLR 622.

GUMMOW J:   This is about arbitrary exactions, is it not and, the need for criteria?

MS BATROUNEY:   MacCormick’s Case was about the colloquially called “bottom of the harbour” recruitment tax.  There were a number of objections to that tax but the point that I would take from this case is from the majority judgment at page 638 at about point 9 on the page.  The majority says:

But, if it is in truth a tax, its very nature prevents it amounting to an acquisition of property.  It is no more than the imposition of a pecuniary liability.

GUMMOW J:   At the beginning of the paragraph, page 639, the paragraph in the middle of the page.

MS BATROUNEY:   The paragraph at 639?

GUMMOW J:   Yes, attached to footnote (58):

Liability is imposed by reference to criteria which are sufficiently general in their application and which mark out the objects and subject‑matter of the tax:  see Federal Commissioner of Taxation v Hipsleys Ltd.

MS BATROUNEY:   Yes, and above that, your Honour:

The exactions in question answer the usual description of a tax.  They are compulsory.  They are to raise money for governmental purposes.

FRENCH CJ:   I think you also rely on what Justice Brennan said at 649, is that right?

MS BATROUNEY:   Thank you, your Honour Chief Justice.  At page 649, point 3 Justice Brennan says:

The taxation power is the only power relied on to support the enactment of the Vendors Act, the Promoters Act and the 1982 Assessment Act. No other power is available. Laws imposing taxation are within the ambit of the power conferred by s. 51(ii) of the Constitution though they do not exhaust it . . . But a law which purports to impose a tax must be in truth a law imposing taxation if it is to fall within the ambit of the power and is thereby to avoid the invalidating effect of the condition attached to s. 51(xxxi) of the Constitution. As the imposition of taxation is not an acquisition of property within s. 51(xxxi) . . . a law imposing a liability to pay money to the Commonwealth will at once find support in s. 51(ii) and fall outside the operation of s. 51(xxxi) if the liability imposed is truly a tax.

The recoupment taxes purport to be taxes.  They satisfy the general conception of taxation -

So in addition to that we say that the protection afforded by 51(xxxi) is not to be avoided by simple drafting devices, and so much appears from Ha’s Case.  Indeed, nor is it to be overcome by colourable or circuitous devices.

FRENCH CJ:   Now, just so I know where we are and where we are going, as I understand it, we have just been looking at paragraph 13 in relation to your oral outline because you have taken us to MacCormick, I think?

MS BATROUNEY:   Yes.

HEYDON J:   Have you finished with Justice Kirby and Luton v Lessels?  I think you have mentioned some passages but ‑ ‑ ‑

MS BATROUNEY:   Well, thank you, your Honour.  Justice Kirby again emphasises that revenue raising is in fact an important aspect of characterising a law as respect to tax, and he concluded in Luton v Lessels 210 CLR at 373 at point 1 on the page:

But the most telling feature of the Acts in question is that neither of them, directly or indirectly, performs a revenue raising function for the purposes of government.  The most that can be said is that, by enacting the law, the Commonwealth might be seeking to deflect some of the burden that would otherwise fall on the revenue for child support by social security to a parent in receipt of salary, wages, or other income who should assume the primary responsibility for providing “a proper level of financial support” to a child.  But no nett increment is made to the revenue for use on general government purposes or otherwise.

That, we respectfully submit, is exactly the case here.  The administration component does not give rise to any net increment, and the administration component, and indeed the superannuation guarantee shortfall or the interest charge are not available for use on general government purposes or otherwise.

HEYDON J:   Would we have to disagree with or overrule any decisions, if we were to accept that passage of Justice Kirby’s you have just read out.

GUMMOW J:   This expression “no nett increment” which may have encouraged you in some tracing ideas.

MS BATROUNEY:   To answer Justice Heydon’s question, we do not think that it is necessary to overrule any cases, except to the extent to which Australian Tape Manufacturers stands for the proposition that public interest is equivalent to public purpose.  We say that that proposition has been overtaken by what was said in Luton v Lessels where Chief Justice Gleeson narrowed what is a public purpose and said that the mere fact that it is of a public interest is insufficient.  Likewise, we are not seeking to overrule what is said in Fairfax about revenue‑raising purpose. 

We acknowledge that legislation might have a secondary purpose of raising revenue.  But we say in this case there can never be any revenue raised and, what is more, that when revenue is raised it is not revenue for the purpose of government.  It is amounts exacted from employers for the benefit of employees. 

HEYDON J:   In Fairfax Mr Justice Windeyer, at the very end, 114 CLR 1 at 19 said that:

Taxes are ordinarily levied to replenish the Treasury, that is to provide the Crown with revenue to meet the expenses of government.  That is the prime purpose of the income tax.

I suppose the question is what are the extraordinary instances that he silently referred to?  If he had said it is a necessary condition of a tax that it be levied to replenish the Treasury to provide the Crown with revenue that would be wonderful from your point of view.  He does not quite go that far.

MS BATROUNEY:   No, he does not and we are not arguing that the mere fact that the object of this legislation is not to raise revenue is, of itself, sufficient to invalidate this Act.  We say that when that is taken into consideration with the characterisation of the legislation by reference to the rights and obligations and the close relationships and the pre‑existing relationship, that combination of factors is what takes it outside the general characterisation as tax.  If I could just come back to what Justice Kitto said ‑ ‑ ‑

GUMMOW J:   What was the problem in Fairfax’s Case?  There was an inducement, was there not, to contribute, the inducement being a higher rate of tax if you did not?

MS BATROUNEY:   Yes, but the tax when paid went into consolidated revenue and it was available for general public purposes. 

GUMMOW J: It just went in under section 81 of the Constitution. It can only come out under section 83. You do not have to talk about public purposes.

MS BATROUNEY:   It has always been said that taxation must be imposed for public purposes.  It is not sufficient that it merely is paid into consolidated revenue.  That is one of the bases, we say, of Luton v Lessels, the money was paid into consolidated revenue but it was held that it was not for public purposes because it was for a private purpose. 

What Justice Kitto said in Fairfax in relation to what I have termed “behavioural changing taxes” and it was said in the context of effectively overruling the majority reasoning in R v Barger that said that one must look at the pith and substance of an Act and if the pith and substance of an Act is other than a tax Act then it is not a law with taxation.  What Justice Kitto said at first was, well - this is at page 11, point 6:

In so far as the judgment insisted upon testing the validity of the law by reference to its substantial operation, it has been approved by the Privy Council in W.R. Moran Pty Ltd v Deputy Commissioner of Taxation and neither the dissenting members of the Court in Barger’s Case nor any Judge since has wished to disagree.  But it is by no means a settled doctrine that a law which purports to provide for a tax upon behaviour is in substance not a law with respect to taxation if it exhibits on its face a purpose of suppressing or discouraging the behaviour and is to be explained more convincingly as a means to that end than as a means to provide the Government with revenue.  Indeed, to espouse such a doctrine would be to fall into the error already mentioned, of confusing the distinction between form and substance with the distinction between the major and the minor importance which a reading of the Act suggests that those who passed it may have attributed to the various aspects of its operation.  In my opinion the judgment of the majority in Barger’s Case provides no satisfactory guide in the case before us, partly because the doctrine of the reserved powers of the States, in the wide form in which it was held by their Honours, has long since been exploded . . . but, more fundamentally, because we ought to maintain the principle which may be stated in words taken from the judgment of Clark J. in United States v Sanchez:  “It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed . . . The principle applies even though the revenue obtained is obviously negligible, Sonzinsky v United States or the revenue purpose of the tax may be secondary, J.W. Hampton & Co v United States.  Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate” -0

We agree with all of that and we do not need to disagree with any of it to establish our propositions.

GUMMOW J:   The argument in Fairfax turned upon what Mr Bowen was putting at page 2, did it not?  He said about point 6 on page 2:

The present Act is not one to raise revenue from employees’ superannuation funds.

Why? Because:

It is an Act directed to prescribing conditions to be observed by the trustees of such fund in relation to their investments in public securities including Commonwealth bonds.

Suppressed premise – it cannot be both.  Modern theory – it is both but one is enough.

MS BATROUNEY:   We would cavil with the notion that it is both.

GUMMOW J:   All right.

MS BATROUNEY:   That in this case there is no revenue raised, there is no net increment, there is no benefit to the public ‑ ‑ ‑

GUMMOW J:   It is a question of characterisation.

MS BATROUNEY:   It is indeed.

GUMMOW J:   Sir Nigel was postulating a dichotomy rather than a plurality of characters, possession of any one of which those characters would be sufficient to bring it within 51(ii).

MS BATROUNEY:   Yes, indeed, and as this Court ‑ ‑ ‑

GUMMOW J:   The fact that the law had these other characteristics and perhaps the “motive” of the Parliament was as stated in argument does not affect validity.

MS BATROUNEY:   Indeed.  Nor can it confer validity on the Act, so we say that the fact that it is part of a retirement incomes policy, and that it might deflect the benefit on the revenue in the future, we say they also are impermissible matters to have regard to, but in each case, and in particular in Fairfax’s Case, when the behaviour was not undertaken in accordance with the legislation as the legislation intended, what was raised was

revenue.  If the superannuation fund trustees did not invest in 30 per cent in government securities, the amount of money that was raised went into consolidated revenue.  Ditto with excise taxes.  When the behaviour is not undertaken in accordance with the motive of the legislation, if I can put it that way, the money that is raised is in fact revenue.

We say here there are a number of indications and when one characterises the legislation in the same way that it was characterised in Luton v Lessels by reference to the rights and obligations that are imposed by the legislation, there is more than a mere earmarking in this case, as there was in Luton v Lessels.  The same amount of money that went into consolidated revenue came out of consolidated revenue.  In Luton v Lessels’ Case it went into consolidated revenue for the benefit of the carer, and came out of consolidated revenue for the benefit of the carer.  Here, it goes into consolidated revenue for the benefit of the employee - that is what is said in the legislation - and it must be paid out for the benefit of the employee.

GUMMOW J:   When you said “it”, you see, we are back where we were about an hour ago.

MS BATROUNEY:   True it is, but it was what was relevant in Luton v Lessels as well, with respect. So we agree that the fact that the wider object of the legislation is to change behaviour is in fact irrelevant, but that the liability imposed here is not truly a tax such that it avoids the annihilating effect of section 51(xxxi). If the Court has no further questions, they are our submissions.

FRENCH CJ:   Thank you, Ms Batrouney.  Yes, Mr Solicitor.

MR GAGELER: If your Honours please, in our submission, the case for the appellant is founded on two quite fundamental constitutional misconceptions. One is that money paid into the consolidated revenue can be the same money as money paid of consolidated revenue. The other is that a payment out of consolidated revenue for a private benefit cannot also be a payment for a public purpose and those are misconceptions fatal to the appellant’s case, even assuming that an inquiry as to public purpose is relevant for the purposes of section 51(ii) of the Constitution.

Your Honours will see from our short outline of submissions the three propositions we advance extracted from our written submissions but arranged in a more logical order.  I do not propose to repeat those propositions.  Can I immediately turn to seek to make them good by going to the constitutional structure and then to the three principal cases in the field – that is Tape Manufacturers, Northern Suburbs Cemetery and then Luton v Lessels. 

Your Honours, starting with the specific provision in section 51(ii), there are a number of obvious, but for present purposes important, things to say about it. One is that it is a legislative power – that is it is framed against a common law assumption that the Executive has no power to levy taxation, of course, confirmed in the Colonial Combing Case.  Two, it is a subject matter power and the subject ‑ ‑ ‑

GUMMOW J:   What do you get out of Colonial Combing?

MR GAGELER:   That is that there is no executive power at the State level or at the federal level to levy taxation.  It is a subject matter power, the subject matter being implicitly limited as recognised in the Second Uniform Tax Case to the subject matter of Commonwealth taxation and not extending in its terms to State taxation or taxation re Commonwealth taxation.  There are frequent similes in the cases – Commonwealth taxation equals taxation for Commonwealth purposes equals taxation for Commonwealth governmental purposes.  One sees those sorts of statements throughout the cases.

HEYDON J:   Can I just ‑ ‑ ‑

MR GAGELER:   They are, however, in our submission, redundant.  I am sorry, your Honour.

HEYDON J:   Continue what you were saying.

MR GAGELER:   There was a full stop after “redundant”.

HEYDON J: I just want to ask perhaps a foolish question, but your submission then is you can validly enact legislation under section 51(ii) in order to raise money to be spent on purposes, even though they do not fall within any of the legislative heads of power other than 51(ii), even though they do not fall within section 61 expenditures and even though they are not to be deployed under section 96.

MR GAGELER:   Where this is going, your Honour, is that the power to tax would still be exercised in that case, but perhaps invalidly exercised, depending on the precise form ‑ ‑ ‑

HEYDON J:   It might be that the trouble would come when you were ‑ ‑ ‑

MR GAGELER:   You can raise money from any person at any time under the tax power provided that it is paid into consolidated revenue.

GUMMOW J:   The trouble comes at the other end, does it not?  Sir Robert Garran used to say, because we can tax anything, we can spend as we like.

FRENCH CJ:   That is what Pape was about.

MR GAGELER:   The problem is with the spending – yes, that is ‑ ‑ ‑

HEYDON J:   This is very like Pape, if you looked at it in a jaundiced sort of way.

MR GAGELER:   Your Honour, this is the other side of Pape and the other side of Pape is safe territory and very well‑trodden territory.  Your Honours, it is Fairfax territory.

GUMMOW J:   What is the head of power that supports the creation under sections 70 and 71 of this statute that says, well, that is a law with respect to taxation, I suppose?

MR GAGELER:   Excuse me, your Honour, I will turn that up.

GUMMOW J:   The other payments out ‑ ‑ ‑

MR GAGELER:   No, the payments out, your Honours, were ‑ ‑ ‑

GUMMOW J: In Part 8 generally.

MR GAGELER: In Part 8 were contested in the Full Court and were held by the Full Court to be supported as an exercise of the pensions power, section 51(xxiii). That is paragraph 100 of the Full Court’s judgment and there is no challenge to that holding, so there is no challenge to the validity of Part 8 being supported, at least, by the pensions power. There are other powers that could be brought into play, but it ‑ ‑ ‑

GUMMOW J:   Including superannuation within the concept of pension, I guess.

MR GAGELER: Yes, but there is no challenge to that important holding, which follows, and it necessarily follows that section 71, which is the appropriation provision, is an appropriation for the purposes of the Commonwealth within section 81.

FRENCH CJ:   A direct entitlement of the employee to a payment does not arise until a certain age or invalidity under section 65A and 66.

MR GAGELER:   Yes, that is right.  As I said, we have a holding in our favour in that important topic and there is no challenge to it.

GUMMOW J:   The idea is that they are old so they are getting a pension.

MR GAGELER:   Your Honour Justice Heydon, I will deal more fully with your concern as I progress.  The other thing to say about the taxation power is that it is unconstrained as to purpose, which distinguishes it importantly from the taxation power of the US Congress, which is expressly constrained as to purpose, and also ‑ ‑ ‑

GUMMOW J:   What is the nature of that constraint?

MR GAGELER:   The reference is in Article 1, section 8 to the common defence and general welfare of the United States, and from time to time – not universally – that has seen to impose some constraint on the power to tax.  Similarly, it should be contrasted with the British North America Act in section 92(2).  I mention this because, as your Honours will see, or will have seen, the origin of the public purpose element of the definition of taxation as it crept into Australian case law crept in through a Privy Council decision dealing with section 92(2) of the British North America Act.  Your Honours will see that section 92(2) quite apart from listing a series of heads of provincial power that are exclusive of the series of heads of dominion power in section 91 and thereby giving rise to a whole different approach to characterisation, section 92(2) includes in its terms a notion of purpose.

GUMMOW J:   So it is a question of 91(3) and 92(2)?

MR GAGELER:   Yes, and 92(9), and even if you have a taxing law purportedly under 92(2), if it has strong characteristics, for example, under 91(2), of regulating trade and commerce, then it is necessary to find the pith and substance of the law and so you are off on a completely different process of characterisation in Canada.  Therefore, the Canadian cases need to be treated with great caution in this field, and also the occasional reference that you see in some of the Australian judgments to the United States cases also need to be treated with extreme caution in this field.

GUMMOW J:   But did not Sir John Latham fix on Canadian cases?

MR GAGELER:   He did, but importantly, and I will show your Honours, in Matthews he fixed on a Canadian case decided under that very provision that I have just taken you to, and imported the public purpose element through the Canadian case

GUMMOW J:   Yes.

MR GAGELER:   We may as well go to that immediately, your Honours.  It is Matthews v Chicory Marketing Board 60 CLR 263 at page 276. This is the beginning of the test that then gets repeated throughout the cases. Your Honours see the now familiar definition said to be drawn from a Privy Council decision, and I will take you to that in a moment. Justice Dixon at page 290, really beginning at the last two lines at 289, picks up in this context, and importantly, this is a State levy that is being dealt with for section 90 purposes, so we are not in the realm of section 51(ii) at all at this point. A State levy, understandably, is analysed as to whether or not it is a tax, and therefore whether or not it can be an excise by reference to a recent decision of the Privy Council dealing with whether a provincial levy was a tax.

There is reference to the earlier decision, also, of the Canadian Supreme Court in Lawson, so the origin of this notion of public purpose within Australian law as part of the very definition of a comes in a section 90 context, comes in Matthews by reference to these two Canadian authorities on section 92(2).  It is worth just having a look at those two Canadian authorities, your Honours, in order.  One of them is Lawson which you have.

GUMMOW J:   Are these the earliest Canadian references?

MR GAGELER:   In Australian ‑ ‑ ‑

GUMMOW J:   Yes.

MR GAGELER:   I do not think I can be categorical about that.  I will check.  It is certainly the origin of the test that then gets – or origin of the definition that then gets picked up.

GUMMOW J:   Is the Homebush Case before this?

MR GAGELER:   I think it was after this, your Honour.  I think it was afterwards.  I just do not have it to hand.  Lawson is [1931] DLR 193. What I just wanted to point out by reference to the Canadian case ‑ ‑ ‑

HEYDON J: I think it is actually [1931] 2 DLR 193.

MR GAGELER:   Did I get it wrong?

GUMMOW J:   Yes.

MR GAGELER:   I am sorry.

HEYDON J:   We will see.  As Mr Staff used to say, the transcript will tell.

MR GAGELER:   At page 197 in the judgment of Justice Duff ‑ ‑ ‑

GUMMOW J:   This is the statute of British Colombia.

MR GAGELER:   Yes, and you will see, it is a provincial statute.  The precise details do not matter for reasons that I will show you in a moment.  The question that you will see being addressed at page 197 is whether it could fit the description in section 91(2) and going over the page to 92(2) it all gets a little confused.  Towards the bottom of 197 there is a question of whether the levies are taxes that is being produced.  It is said about point 7:

That they are taxes, I have no doubt.  In the first place they are enforceable by law.

Then another sentence also further on:

Then they are imposed under the authority of the Legislature.  They are imposed by a public body.

Then over the page, the first sentence:

The levy is also made for a public purpose.  When such compulsory, not to say dictatorial, powers are vested in such a body by the Legislature, the purposes for which they are given are conclusively presumed to be public purposes.

So, even in its original articulation this was an extremely weak element of any definition of a tax, and it is even weaker when you look at the Privy Council decision in Lower Mainland Dairy, your Honours see that in [1933] AC 168, and this concerned, amongst other things, what was called an adjustment levy, the nature of which is described at page 173, and it was another case that concerned whether or not a provincial levy could fall within section 92(2) of the British North America Act, and the adjustment levy that is described at page 173 ‑ ‑ ‑

GUMMOW J:   This is a case that went from the British Colombia courts straight to the Privy Council?  It did not go through the Supreme Court.

MR GAGELER:   That is right.  But there is appropriate reference to Justice Duff’s decision at pages 175 to 176, but the actual levy that was being considered in this case, as described at page 173, was a levy that in essence, extracted from one group of farmers who might be called Peter, who sold milk at a higher price, a certain element of the price, and then used that to subsidise another group, probably called Paul, who sold milk for manufacturing purposes at a lower price.  That was said to amount to a taxation within section 92(2) and Lawson’s Case is applied at pages 175 to 176, and your Honours will see so far as ‑ ‑ ‑

GUMMOW J:   Why would it have been invalid if it was outside 92(2)?

MR GAGELER:   Why would this have been invalid?

GUMMOW J:   Yes, because it is not a federal statute trenching upon the exclusive power of the provinces.  Do you see what I mean?

MR GAGELER:   Yes.

GUMMOW J:   It is usually the Federal Government that gets into trouble in Canada because they crossed into section 92 territory.

MR GAGELER:   Well, the argument, as I understand it, was that it was just ultra vires.

GUMMOW J:   Yes.

MR GAGELER:   You had to find a head of power and it did not fall within this one, nor did it fall within section 90.

FRENCH CJ:   It was not a tax at all.

MR GAGELER:   No, section 91(3) was also invoked.  So, there are a couple of ideas floating around.  One was that it was just ultra vires because it was not within section 92(2), the other being it was within section 91(3) and pith and substance made it a section 91(3) statute not a section 92(2) statute.  All processes of characterisation are quite foreign to our own, your Honours.  that is the essence of the argument, it seems.  Page 175, so far as there is a reference to public purposes - you will see that just after the reference to “City of Halifax”.   There is a sentence:

Their Lordships are of the opinion that the Committee is a public authority, and that the imposition of these levies is for public purposes.

Then, another sentence also further on:

The fact that the moneys so recovered are distributed as a bonus among the traders in the manufactured products market does not, in their Lordships’ opinion, affect the taxing character of the levies made.

Then there is a reference to Lawson’s Case across the page.  That seems to be the origin of the notion of public purposes as part of the description, at least, of taxation as it ‑ ‑ ‑

HAYNE J:   Is it to misunderstand those two Canadian cases as seeing the references to public purposes as being provoked by, perhaps as an answer to, the identity of the group or body that was levying the charge?

MR GAGELER:   Probably right, your Honour.

HAYNE J:   In this case, Lower Mainland is a committee; true it is authorised by statute, et cetera, and in the other one, I think likewise, was it not, a committee or group of individuals authorised by statute?

MR GAGELER:   It would not be a misunderstanding to treat those statements as a response to an argument along those lines.  As exactly what has happened with public purposes in Canada is a little difficult to trace, we thought it though appropriate to draw your Honours’ attention to the origins of the notion as incorporated into Australian law, and as I said, even in their original articulation they were extremely weak and probably redundant insofar as they might have been seen to add something to a compulsory exaction pursuant to a provincial statute.

HAYNE J:   If we go back to Chicory Marketing Board 60 CLR particularly at 289 and the reasons of Justice Dixon, towards the foot of the page, we observe that:

The Chicory Marketing Board is a public authority . . . It is true that sec. 8(4) provides that a board shall not be deemed to represent the Crown for any purpose whatsoever.

So you have this body demanding payments, but it is not to be taken to be the Crown demanding payments, so it is still a tax but public purpose is intruding in a context at least where that is an element?

MR GAGELER:   Yes, and importantly, your Honours, although not ‑ ‑ ‑

HAYNE J:   Because the notion that seems to be somehow being echoed in this notion of public purposes is that a taxation can only be for the ordinary annual services of the Crown and that is a ‑ ‑ ‑

MR GAGELER:   Well, if that is the notion then it has gone astray.

HAYNE J:   That is a narrow view of tax, but it ‑ ‑ ‑

MR GAGELER: That is a view that is absolutely rejected in the very cases to which we have referred, your Honours. Although imported in the section 90 context by Chief Justice Latham, it is significant that his Honour did not go on to import the same element of public purpose for the purposes of section 51(ii). Your Honours have already been referred to it, but can I just remind your Honours of what his Honour said in Moore v The Commonwealth 82 CLR 547 at 561.

This is a dissenting judgment in the circumstances of the particular case, but your Honours have seen it was referred to with approval by both the majority and the minority in Northern Suburbs – in Tape Manufacturers.  At page 561 dealing with the characterisation of the law imposing a requirement to pay money to the Commonwealth, he said, at the middle of the page:

In my opinion all three Acts are laws with respect to taxation. The object and the operation of the laws is to make a compulsory exaction of money by law from a subject. The moneys collected are paid into consolidated revenue . . . in accordance with the requirements of the Commonwealth Constitution, s. 81. The moneys can then be spent for any purpose for which the Commonwealth may lawfully appropriate money.

His Honour did not, in characterising these laws for the purposes of section 51(ii), see any need to import any notion of public purpose in those circumstances. The decision of the majority in Moore usefully illustrates that not every compulsory exaction is a tax. The majority whose reasoning is probably best captured by Justice Dixon at page 568 held that the particular imposition did not have the character of a tax essentially because it was inherently provisional. What the decision of the majority illustrates is not every compulsory exaction that answers the description given by Chief Justice Latham at page 82 amounts to a tax.

GUMMOW J: This is a section 55 case, is it not?

MR GAGELER:   Yes, it was. 

GUMMOW J:   It is held to be within 51(ii) because it is connected to the pre‑existing taxation, as it were.

MR GAGELER:   That is right.  It is like Clyne.  It was a case, effectively provisional tax and it was later followed in Clyne’s Case, but the point about this case and the point about ‑ ‑ ‑

GUMMOW J:   It is really at 568, the middle paragraph:

I shall therefore state first why, in my opinion, the legislation does not impose a new or distinct tax.

MR GAGELER:   That is right.  All of these cases, Moore, Clyne, Airservices, Luton v Lessels; they are all taking something that has prima facie the characteristics of a tax, but saying that there is something about the nature of the exaction, not the nature to which the funds might be put, but that there is something about the nature of the exaction that takes it outside the section 51(ii) field. It might be that it is merely provisional, this case, or Clyne’s Case.  It might be that there is a quid pro quo - Airservices and other cases, or it might be that it is simply an exaction to enforce an antecedent debt, which was the explanation of Luton.  But these cases do not turn on some notion of public purpose. 

When you get then to Air Caledonie, and your Honours have seen the passage, 165 CLR 462 at 467, it is, in our submission, quite properly observed by the Court that public purpose in the context of section 51(ii) at the very least, is not a universal requirement. Indeed, we go so far as to say it is a redundant inquiry. That passage from Air Caledonie, we note, was repeated with approval by your Honour Justice Hayne in a joint judgment with Justice Gaudron in Luton v Lessels 210 CLR 333 at paragraph 50. Insofar as we can see – I withdraw that qualification – there is no case in which a law is being held not to be a law with respect to taxation under section 51(ii) on the ground that it was not for public purposes.

The other point - if I can go back to section 51(ii) - I wanted to make is that it is, of course, subject to the Constitution. There are any number of cases where a law that answers the description in section 51(ii) is nevertheless invalid because it breaches section 55. It could be invalid because it breaches section 114 or section 99, but simply because it is a law with respect to taxation does not mean that it is necessarily valid. One way in which it can be invalid is through breach of section 81. Section 81 requires:

All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund -

Now, the origins of the consolidated revenue funds your Honours looked at extensively in Pape, they are surveyed also in Northern Suburbs Cemetery, but the whole design of the consolidated revenue fund, of course, was to bring all taxation proceeds within the one fund and it can be seen in the judgment of both the majority and the minority in the Tape Manufacturers Case that there was, in our submission, correctly, an understanding that the relationship between section 51(ii) and section 81 is that the requirement of section 81 is that all proceeds of Commonwealth legislation are to form part of the consolidated revenue fund.

The case did not turn on that because there was no allegation before the Court that the levy in that case was invalid on the ground of section 81. There were a series of questions asked in the special case – well, it might have been a case stated. There was no question about section 81. There was a question about section 55 but obiter and, in our submission, entirely correctly, it was said by both the majority and the minority that a law imposing taxation which did not require or permit the revenues to be paid into the consolidated revenue fund would be independently invalid on the grounds of section 81.

FRENCH CJ:   How does that requirement or permission arise in the present case?

MR GAGELER:   It is implicit in section 71 that your Honours have seen that the moneys are treated as having gone into consolidated revenue.  The mechanics of that are that under the Taxation Administration Act, section 255‑5, the imposition of the liability on the employer to pay the charge created “a debt due to the Commonwealth”, then “payable to the Commissioner”.  We have in our written submissions given some of the detailed mechanics of how those payments were made.

FRENCH CJ:   So this is through the assessment process?

MR GAGELER:   No, you do not have to get to an assessment for the debt, your Honours.

FRENCH CJ:   I am sorry, I thought that was part of the mechanism by which ‑ ‑ ‑

MR GAGELER:   I am sorry, yes, of course.  I do not need to go to that.  The provisions of the Financial Management and Accountability Act then cut in when the proceeds come into the custody of the Commissioner.

GUMMOW J:   Did you say 255 ‑ ‑ ‑

MR GAGELER:   Yes, 255‑5.  So the liability is created by the Charge Act, and it becomes by virtue of section 255‑5 a debt due to the Commonwealth.  That is just the basic mechanics of ‑ ‑ ‑

GUMMOW J:   How does it then get into consolidated revenue?

MR GAGELER:   The Financial Management and Accountability Act as amended after the decision in Northern Suburbs Cemetery proceeds on the basis that all funds that come into the custody of the Executive immediately thereby form part of the consolidated revenue fund and are then to be dealt with in accordance with provisions of Part 3 of that Act which then deal with the mechanics of banking, et cetera. You see, for example, sections 8, 9, 10 and so on, only to be then drawn out of consolidated revenue in accordance with a drawing right reflecting sections 81 and 83 of the Constitution. The drawing rights provisions are sections 26 and 27.

Now, that procedure, your Honours, and indeed Commonwealth finances since 1999 have proceeded upon what might be called and what was called in the second reading speech for the – or it was the explanatory materials, anyway, for the 1999 amendment, as a self-executing view of section 81, that that is to say when the moneys come into the custody of the Executive they do form part of the consolidated revenue.

That was what two members of the Court said explicitly in Northern Suburbs Cemetery - Justice Brennan at page 581, Justice McHugh at page 599 and it is entirely consistent with the approach of the joint judgment at 577, not explicitly stated, however,  But that is very different, your Honours, from ‑ ‑ ‑

FRENCH CJ:   It depends upon the words “shall form” in 81 being read as “are thereby”.

MR GAGELER:   Yes, “are to form”, yes.

FRENCH CJ:   Part of.

GUMMOW J:   And in Tape Manufacturers these exactions did not find their way ‑ ‑ ‑

MR GAGELER: That is right. Can I take your Honours to the passages at page 497? So they did not find their way into consolidated revenue – still a tax invalid under section 55, but also necessarily on the reasoning of the Court, invalid under section 81. There was just no formal question about section 81. Page 497 – the end of the paragraph that finishes at the top of that page:

At the risk of stating the obvious, we should say that the amounts levied on the vendors of blank tapes are not paid, and are not directed to be paid, into the Consolidated Revenue Fund.  This fact is material to the validity of Pt VC.

Then on the same theme at page 506 – I should say here in a passage endorsed by your Honour Justice Gummow in Airservices 202 CLR 133 at paragraph 372 and again at paragraph 454, it is said in the second full paragraph, the Constitution plainly contemplates that “revenues or moneys raised” by a law which levies the tax “shall form part of” the consolidated revenue fund even if it be intended to distribute the moneys among a particular group. The dissenting judgment spells it out perhaps even more clearly at page 522 where it says ‑ ‑ ‑

GUMMOW J:   Having said what they said at 506 and 507 how is it then ‑ ‑ ‑

MR GAGELER: Well, it is invalid anyway, you see. It is invalid because of section 55.

GUMMOW J:   Yes, I see.

MR GAGELER: The process here was that there was no argument presented by Mr Ellicott that this breached section 81. The questions that you will see at page 532 to 533 were relevantly about section 55 of the Constitution; that is question 1(b)(i), and that was enough to make it an invalid tax. So it was a tax, the minority says at page 522 at about point 3, that it should be just invalid under section 81, which is consistent with what the majority had said at page 506, should be invalid under section 81, just no argument about that in this case.

No doubt thinking about section 81 was provoked by the Northern Suburbs Cemetery Case, argued after Tape Manufacturers, decided on the same day, where the actual argument was there is non‑compliance with section 81 therefore this tax is invalid, and that the premise of the argument that non‑compliance with section 81 would have resulted in invalidity of the tax is not questioned in any of the judgments in Northern Suburbs Cemetery and indeed is confirmed by those passages at pages 506 and 522 of Tape Manufacturers.

It is a difficult procedural setting but, in our submission, no doubt that a law can impose a tax under section 51(ii), but be invalid under section 81, a valid tax subject to the Constitution being required to be paid into the consolidated revenue fund. Once in the consolidated revenue fund, of course, the moneys lose their identity. That is the whole purpose of a consolidated revenue fund. They cannot then be earmarked for any purpose other than through an appropriation requiring a separate exercise of power under section 81.

GUMMOW J:   The moneys in Luton did get into section 81. They did get into consolidated revenue, but not a tax.

MR GAGELER:   Yes, that is right, but they were not a tax, because they were not for public purposes.  They were not a tax because the exaction was explicable by reference to something else.  It was explicable as the enforcement of a pre‑existing debt, which in effect meant ‑ ‑ ‑

GUMMOW J:   I just wonder why Tape Manufacturers was not another species of that genus, but we do not have to decide that.

MR GAGELER:   Your Honour, we could argue and may argue one day about whether the actual decision in the case was right, but ‑ ‑ ‑

FRENCH CJ:   Well, maybe the anterior question is if a tax, query is it a tax?  If it is a tax, then the money raised from it ipso facto becomes part of consolidated – perhaps we can address that after lunch.

MR GAGELER:   Can I address that immediately, your Honour, and then move on to something else after lunch?  Here, the whole legislation in Tape Manufacturers was framed to avoid the consolidated revenue.  The money went directly – so the self‑executing operation ‑ ‑ ‑

FRENCH CJ:   It went direct to the collecting societies.

MR GAGELER:   It went directly to the collecting ‑ ‑ ‑

FRENCH CJ:   It did not pass through the hands of the Executive.

MR GAGELER: Did not pass, and therefore, did not comply with section 81, even on the self‑executing view of section 81, and was for that reason inconsistent with it.

FRENCH CJ:   All right, thank you.  We will adjourn until 2.15.

AT 12.55 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ:   Yes, Mr Solicitor.

MR GAGELER: Your Honours, the point I was making before lunch is that the structural requirement of section 81 of the Constitution that all proceeds of taxation form part of the consolidated revenue fund from which they can only be appropriated for the purposes of the Commonwealth makes a search for some further purpose at the point of the imposition of taxation redundant for the purposes of characterisation under section 51(ii).

The related point, to which I now wish to turn really quite briefly, is that the requirement of section 83 of the Constitution for any payment out of the consolidated revenue fund to be under an appropriation made by law necessarily breaks the legal nexus between the imposition of a tax and the expenditure of money.

To make that point better, may I take your Honours, just to touch upon one or two words in Pape, then to the First Uniform Tax Case and then to Logan Downs.  Within Pape, I could turn to any of the judgments - it is in 238 CLR 1 - but all of them essentially make the same point. If your Honours turn to page 72, there are just three snippets that I wanted to draw your Honours’ attention to. In paragraph 176, there is a quotation from the decision of Justice Isaacs in New South Wales v The Commonwealth to the effect of the:

“‘Appropriation of money to a Commonwealth purpose’ means legally segregating it from the general mass of the Consolidated Fund and dedicating it to the execution of some purpose -

Then, in the next paragraph, a quotation from Justice Jacobs to the effect that appropriation is “an earmarking of the money” and then in the same paragraph, a quotation from Justice Stephen to the effect that the Appropriation Act is “the taking of the first step in the expenditure of moneys”.  The corollary of that for present purposes, that is for the purposes of characterising a law with respect to tax or not, is spelt out in the judgment of Chief Justice Latham in the First Uniform Tax Case 65 CLR 373 at page 414. In the first full paragraph it is said in the first two sentences in response to an attempt to challenge a taxing Act by reference to the invalidity of a Grants Act.  It is said:

In fact the money raised by the Tax Act is not earmarked in any way.  It is doubtful whether Commonwealth revenue can be earmarked except at the point of expenditure (i.e., not as revenue) by an appropriation Act.

Further down the page in the next paragraph, second sentence:

All taxation moneys must pass into the Consolidated Revenue Fund (sec. 81), where their identity is lost, and whence they can be taken only by an appropriation Act.  An appropriation Act could provide that a sum measured by the receipts under a particular tax Act should be applied to a particular purpose, but this would mean only that the sum so fixed would be taken out of the general consolidated revenue.  Thus there can be no earmarking in the ordinary sense of any Commonwealth revenue.

An application of just that understanding can be seen in Logan Downs v Federal Commissioner of Taxation 112 CLR 177 where there was a Wool Tax Act, or a actually a series of them, and there was a Wool Industry Act and there was a provision in the Tax Act that the Tax Act was to be read together with other Acts in the scheme.  In the Wool Industry Act there was an appropriation provision that you see at page 185, in fact there were two of them - there was section 32 and section 32A that just seemed to deal with different periods - but the effect of them, towards the bottom of the page, was that, save for some apparently rather small amount, but measured by references to bails, fadges or butts, or bags, as the case may be, an amount equivalent to the moneys collected by the tax were to be paid out for the purposes of the board.

The allegation here was that the Wool Board acted beyond the power of the Parliament.  Putting it another way, the establishment of the Board was beyond the power of the Parliament.  So the purpose of the tax, it was said, being to raise money for the Board was an impermissible purpose.  The way in which the argument appears to have been put is at page 186 where it is said in the second paragraph:

Three contentions were put forward on behalf of the plaintiff: -

The first of them was –

(1) That the Wool Tax Act (No. 1) is invalid –

for either of two reasons, that one of them is -

(a) its “association” with the Wool Industry Act and its “purpose”, viz. to make provisions for the payment to the Australian wool Board of moneys to be expended by the Board in the exercise of functions beyond the power of Parliament . . . is not law with respect to taxation –

That argument was addressed at the bottom of the page, the last three lines:

The argument that the Wool Tax Act (No. 1) is not what it so obviously appears to be (i.e. a law imposing taxation) was elusive.  It emphasized an association between the Wool Tax Acts and the Wool Industry Act and invited the inference that the former were enacted to raise money to increase the Consolidated Revenue Fund to make partial provision against the appropriations thereout made by ss. 32 and 32A of the latter.  However, even to draw this inference would not lead to the conclusion that the Wool Tax Acts were not laws with respect to taxation.  It would do no more than reveal why Parliament had imposed the taxation in question.

In our submission, that is a clear application of the principle expounded by Chief Justice Latham in the First Uniform Tax Case.  Your Honours, I will turn very briefly, if I may, back to Tape Manufacturers. I have already made the point that the case could have been decided by reference to a contravention of section 81.

There was, however, no argument put and no question raised formally for the Court about section 81 and it was decided by reference to section 55 that a necessary step obviously in getting to that was to say that the law which really did no more than require one group of persons to pay moneys directly to another group of persons, amounted to a law with respect to taxation for the purposes of section 51(ii). At page 500 under the heading “Section 135ZZP(1) imposes taxation” in the second sentence that follows, it said that:

The argument that the levy is not a tax rests on the broad propositions that it is not exacted by a public authority, nor is it exacted for public purposes.

The first of those propositions is addressed at page 501, in the middle of the page where it is said public authority is not an essential element of taxation, at least under section 51(ii), and then in the next paragraph at the bottom of the page, it said:

The next question is whether it is necessary that the exaction should be for public purposes if the exaction is to be characterised as a tax.

Having raised that question, the majority does not answer that question.  What you see after a quite long discussion is that at page 504, at the bottom of the page, in the last couple of lines, through to page 505 to the end of the page, apparently on the assumption that public purpose may be a necessary element, there is found to be a public purpose simply because what you have here, and I am quoting is a:

legislative solution to . . . a complex problem of public importance –

which is said to be:

of necessity a public purpose.

You see that on the third line, page 505, and the same formulation is repeated in the last sentence of the concluding paragraph on the same page.  That is really nothing more than an application of the same extraordinarily broad notion of public purpose, that that ‑ ‑ ‑

FRENCH CJ:   That is every law of the Commonwealth really.

MR GAGELER:   Yes.  But it is consistent with the origins in Lawson and Crystal Dairy.  It really has added nothing from the beginning.  Of course, in getting there entirely correctly, in our submission, the joint judgment at page 503 in the sentence concluding with footnote (91) says, of course, if there was payment into the consolidated revenue fund that would be the end of the matter and, of course, that is entirely consistent with what was said by the minority at page 522 in the sentence concluding with footnote (33).

FRENCH CJ:   What does one find as a necessary condition on your submissions beyond compulsory exaction?

MR GAGELER:   There is the need for a compulsory exaction by reference to criteria of sufficiently general application.  That qualification has been brought out in MacCormick’s Case, to which your Honours were taken this morning, Truhold Benefit and, I think, a series of cases since then.  It is consistent with the view that has been taken in the United States as well, distinguishing a tax from a taking.

FRENCH CJ:   So beyond that would you characterise any of the factors to which we have been taken as necessary conditions?

MR GAGELER:   No, no.  Compulsory exaction of money by force of Commonwealth law by reference to criteria of sufficiently general application, no.  Your Honours, Northern Suburbs Cemetery 176 CLR 555 was decided on the same day and there were three grounds upon which the legislation in that case was challenged. Your Honours are familiar with it. Two of the grounds are relevant for present purposes. One of them is that there was a contravention of section 81 and the other was that there was no revenue‑raising purpose.

In relation to section 81 the argument and the judgment of every member of the Court necessarily proceeded on the understanding that a breach of section 81, that is if this legislation on its proper construction was antithetical to the proceeds of the charge being dealt with as one consolidated revenue fund, there would have been an invalidity resulting from that. It was held, though, at page 577 that – and I will just take your Honours to the joint judgment here – there was no prevention of the funds being dealt with in accordance with section 81 and, indeed, there was an implied appropriation out of the consolidated revenue fund into a trust fund.

So far as the lack of a revenue‑raising purpose was concerned, that was dealt with at pages 568 to 569 in a context, your Honours, where the operation of the implied appropriation that their Honours found had the result that all of the revenue raised by the charge went into consolidated revenue and then back out into a trust fund which stood outside the consolidated revenue, so there was a flow through.

Their Honours held at pages 568 to 569 that there was a revenue‑raising purpose.  The primary object of the Act, it was accepted, was to influence conduct.  If that primary object was fulfilled, it was accepted, no money would be raised.  Nevertheless, any money that was raised went into consolidated revenue and that was that.  Although there is no explicit reference to it, it made no difference to their Honours’ reasoning, obviously, that there was immediately then an appropriation out of consolidated revenue, and into the trust fund.

FRENCH CJ:   If I may just revisit something I put to you earlier, a receipt into consolidated revenue, be it self‑executing by a virtue of 81 or otherwise, is a constitutionally necessary consequence of an exaction passing into the hands of the Executive.  It does not feed back into the characterisation of that exaction as a tax, does it?

MR GAGELER:   I am not quite sure of the import of your Honour’s question.

FRENCH CJ:   Payment into consolidated revenue is not a criterion for characterising something as a tax?

MR GAGELER:   No, not at all.

FRENCH CJ:   No, that is all right.

MR GAGELER:   Then finally, your Honours, Luton v Lessels ‑ ‑ ‑

GUMMOW J:   Well, what is beyond the Hipsleys‑type idea of MacCormick of some criteria?

MR GAGELER: What you need is a compulsory exaction of money by force of Commonwealth legislation by reference to a sufficiently general criterion or criteria, criteria of sufficiently general application, adding, as sometimes appears, for public purposes or by a public authority, is redundant in the context of section 51(ii). Your Honours, Luton v Lessels in our submission, without going to it in any detail, is properly understood as a case where the exaction was explained as the enforcement of a pre‑existing legal liability.

In effect, the legislation created – or in terms, the legislation created a debt between private persons and in substance the registration of that debt created a new debt to the Commonwealth, in effect, a statutory assignment and it was the assigned debt that was then collected by means of the Registration and Collection Act. Reference was made to some passages in the judgment of Justice Kirby. To be completely fair to his Honour, his Honour in his judgment at 210 CLR 333 at 108 did not suggest that this exaction was not of tax or want of a public purpose. His judgment does not turn on that and insofar as our learned friends may seek to get something from the statement at paragraph 121 that:

no nett increment is made to the revenue for use on general government purposes or otherwise.

Again, to be fair to his Honour, that does not appear to have been elevating that statement to a criterion of constitutional validity.  If he had been, then he would have been making a proposition that is contrary to the holding in Tape Manufacturers, is contrary to the holding in Northern Suburbs Cemetery and is even contrary to Fairfax.  It will be noted in Fairfax 114 CLR 1 at page 12 that there is a reference in the judgment of Justice Kitto to the case of Sonzinsky v United States, followed by the statement:

The principle applies even though the revenue obtained is obviously negligible -

BELL J:   The exaction in Luton lacked on this view the sufficiently general criteria in that it was a taking in respect of the statutorily assigned debt.

MR GAGELER: Yes, that is a good way of looking at it, that in – it is probably the best way of looking at it, your Honour, yes. But in stating an answer to a number of questions, the criteria that we do say are an adequate, although perhaps not universal definition of a tax for the purposes of section 51(ii), we do need to accept that there can be disqualifying features that would take an exaction outside the scope of taxation, for example, Moore’s Case itself, and Clyne’s Case where the exaction is explicable as, in effect, a contingent exaction.  There may be other examples as well.  But

the way your Honour put it is probably the best explanation for Luton v Lessels.

GUMMOW J: Mr Solicitor, could I just ask you about section 81 and that formulation you have put in response to questions from the Chief Justice and myself? What is the distinction in section 81 between revenues raised and moneys received? Is revenues raised linked to taxation?

MR GAGELER:   Yes.

HAYNE J:   Why would it not include fees for services?

MR GAGELER:   I am not saying it is exclusively linked to taxation, but revenues raised ‑ ‑ ‑

GUMMOW J: I suppose what I am putting to you is, revenues having been raised by what satisfies your criteria of a tax, section 81 then bites because what has happened is encompassed within, even if not coextensive with, the notion of revenues raised. Is that how it works?

MR GAGELER: Yes, you could see it that way, or you could see it another way. You could put it as a matter of implication, that is, the efficacy of section 81 logically demands that revenues raised are to be received by the Executive Government there to form one consolidated revenue fund. Either way it is the same result and it is of the essence of a consolidated revenue fund and it is certainly the way in which the Commonwealth has administered taxation laws, I think, forever. Your Honours, those are our submissions.

FRENCH CJ:   Thank you, Mr Solicitor.  Yes, Ms Batrouney.

MS BATROUNEY:   If the Court pleases, my junior, Ms Walker, will do the reply.

FRENCH CJ:   Thank you.  Yes, Ms Walker.

MS WALKER:   If the Court pleases, I would like deal first in reply with the misconceptions that the learned Solicitor‑General says that the appellant has made in presenting its case, but perhaps before I get into the detail of those, can I just reiterate that the appellant’s first contention is that it is permissible, indeed perhaps required, that when determining whether a law is properly characterised as a law with respect to taxation, it is appropriate to have regard to payments out of the consolidated revenue fund, at least where those payments out are provided for in the same piece of legislation, although not necessarily confined to those circumstances.

Your Honours, my learned leader has already made that point by reference to Luton v Lessels and I do not want to repeat that.  But can I hand up to the Court a case of W.R. Moran Pty Ltd v Deputy Federal Commissioner of Taxation (NSW) (1940) 63 CLR 338. Your Honours, this case concerned the levying of a flour tax, and the flour tax was redistributed to wheat growers, but there was a particular anomaly in the way the legislation would operate in respect of Tasmania because Tasmania, in effect, grew very little wheat, and the redistribution would therefore not have the desired effect and would operate in fact unfairly in relation to Tasmania. The scheme adopted provided for a special grant to Tasmania pursuant to section 96 of the grants power, so that rather than wheat growers receiving the tax in Tasmania, the people who had paid the tax would receive, in effect, a refund of the tax.

GUMMOW J:   This is all about the phrase “discriminating”, is it not?

MS WALKER: That is correct, your Honour. The question before the Court was whether the scheme effected a discrimination contrary to the requirement in section 52(ii). It is a decision of the Privy Council affirming the decision of the High Court, and if I could take your Honours to page 345 at about point 5, where their Lordships commence a discussion of section 51(ii) of the Constitution and deal with this question of discrimination, and deal with the fact that the argument, it was said here, turned on the fact that any discrimination was effected by the Tasmanian legislation that provided for the distribution of the grant money back to those persons who had paid the tax, rather than to wheat growers. At about point 7, their Lordships note that in terms of the argument:

Anything, it is suggested, will be intra vires provided that the Commonwealth’s taxation Act or Acts do not infringe the terms of sec. 51(ii.). With the greatest respect to those judges in Australia who may have accepted this contention, it seems to their Lordships to go too far –

and I will pass on to the next sentence –

It would seem to justify every case in which there is a taxation Act containing no discriminatory provisions followed by an appropriation Act or a tax-assessment Act passed by the Commonwealth Parliament authorizing exemptions, abatements or refunds of tax to taxpayers in a particular State.  It was argued before their Lordships that this would be intra vires.  In the view of this board it is impossible to separate ‑ ‑ ‑

GUMMOW J:   Page 347.

MS WALKER:   I am sorry, your Honour.

GUMMOW J:   Page 347, first complete paragraph.  It must have given some trembles back in Australia, I would have thought, when the judges read that.

MS WALKER:  It might well have done, your Honour.  But if I could ‑ ‑ ‑

GUMMOW J:   What did the High Court say?  They affirmed the High Court. 

MS WALKER:   They did ‑ ‑ ‑

GUMMOW J:   Who was sitting in the High Court in 61 CLR?

MS WALKER:   I am afraid I do not recall who was sitting in the High Court.  But they did affirm the High Court on the basis that in this particular case the grants power, of course, was invoked to justify the grant of money to Tasmania and then subsequent ‑ ‑ ‑

GUMMOW J:   What they seem to have been doing is extracting out of 51(ii) some anti‑discrimination provision that somehow stood, not only in 51(ii), but generally.

MS WALKER: I am not sure I would characterise what their Lordships did as going quite that far, your Honour. My submission is that what their Lordships did was say that when considering whether a law with respect to taxation violates the non‑discrimination provision, contained within section 51(ii), one does have to pay attention, not just to the Taxation Act but to the collection and administration legislation that is required, in effect, to give effect to the ‑ ‑ ‑

FRENCH CJ:   And you apply that, by analogy, to characterisation, do you?

MS WALKER: What we say, your Honour, is that the same principle applies when one is determining the character of the legislation in this case that one ought to have regard to the spending and appropriation provisions, Part 8, of the Superannuation Guarantee (Administration) Act as well as to the imposition of the charge.  The two cannot really be separated out and it is appropriate to have regard to both those aspects in order to characterise the Act. 

That is really the point that we get out of W.R. Moran and we say that it really buttresses what, in fact, comes from Luton v Lessels which my learned leader has already taken your Honours to, which is to say that the destination of the money, the ultimate destination after it has gone into the consolidated revenue fund, is relevant to characterisation.  So that, your Honours, was the point I wanted to make before then turning to what are said to be the misconceptions that the appellant operates under. 

The first of those, your Honours, was said to be that the appellants are contending that money paid out of the consolidated revenue fund is the same as money paid into it.  We do not say that, your Honours, we could not say that.  What we do say is that the amount paid out – the figure – is the same as two components of the amount paid in, namely, the individual superannuation guarantee shortfall and a proportion of the nominal interest component. 

We do accept that the amount paid out does not include an amount referable to the administration charge, but we say, your Honours, that that is not fatal to the appellant’s argument.  To perhaps illustrate that point can I ask your Honours to imagine for a moment that the regime considered in Luton v Lessels had contained an administration component to defray the costs to the Commonwealth of administering the child registration scheme.  It is our contention that had there been an administration component present in Luton v Lessels, the decision of this Court would have been no different.  So we say that the administration component in that sense can be put to one side.  It is incidental.  It does not provide the character of the legislation.

The second misconception, your Honours, is said to be perhaps that the appellant has adopted a single characterisation approach because the appellant has concentrated on a dichotomy between public purposes, on the one hand, and the conferral of a private and direct benefit on the other hand.  Can I say first that the contention is that when there is the conferral of a private and direct benefit on an individual by reference to that individual’s prior employment relationship or existing employment relationship with the employer, then the contention is that the charge is, in fact, not for public purposes.

But we also say, your Honours, that whilst, of course, an Act may have two characters and so long as it has one of those characters it will be valid there is an important exception to that principle and that exception relates to section 51(xxxi) of the Constitution because section 51(xxxi) operates to abstract from the other heads of power the Commonwealth’s power to acquire property other than on just terms.

The contention, your Honours, is that in that context, in the context of attempting to identify whether a particular exaction is an acquisition of property or whether it is a tax, in that context it is essential to maintain a distinction between an exaction that confers a private and direct benefit on a named individual, effectively a transfer of money from the employer to a named individual employee and, on the other hand, an exaction with a public purpose.

That understanding of section 51(xxxi), your Honours, is consistent with the approach that this Court has adopted for many years now in relation to the operation of section 51(xxxi), for example, summarised by Justice McHugh in Airservices at paragraph 339, but I need not take your Honours to that. 

It is our contention, your Honours, that this dichotomy helps to ensure that section 51(xxxi) is not avoided by, in effect, dressing up what is an acquisition of property as a tax and the need to do so was addressed by this Court in Tape Manufacturers at pages 509 to 510, again passages that my learned leader has already taken your Honours to.

It is addressed also by Justice Brennan in MacCormick’s Case at page 655 where his Honour draws a distinction between taxation and the exercise of eminent domain in the United States language, and we would submit, your Honours, this is the fundamental difference between Logan Downs which the Solicitor took you to and this case.  Logan Downs did not involve the conferral of a private and direct benefit on a named individual.  So we say that there is a dichotomy that is relevant when one is seeking to distinguish between an acquisition of property and taxation.

Your Honours, to turn to a separate point, the learned Solicitor‑General has submitted to your Honours that the requirement that an exaction be for public purposes to be a tax is redundant, we contend that that is not correct, but we also say that that submission is inconsistent with the way in which this Court approached the exaction in Luton v Lessels.

There is discussion of whether or not the exaction there was for public purposes because, in our submission, the Court understood that that was relevant and important in characterising the law in issue there.  By no means was a public purposes requirement redundant in Luton v Lessels.

We also say that public purposes is not, if it is relevant, and we say it is, but it is not only relevant in relation to the identity of the authority that levies the exaction and again Luton v Lessels reveals that that is so because in Luton v Lessels there was no question that the Commonwealth levied the exaction and it went into consolidated revenue.  Nonetheless, the question of public purposes was relevant.

FRENCH CJ:   When you say relevant, you are not elevating it to a necessary condition. 

MS WALKER:   We do say it is necessary, your Honour.

FRENCH CJ:   You do say it is necessary?

MS WALKER:   Yes. 

FRENCH CJ:   So your necessary condition for characterisation would be that offered by the Solicitor‑General, together with public purposes?

MS WALKER:   Yes, your Honour.  The Solicitor‑General did offer to your Honours the proposition that perhaps rather than a public purposes requirement, that there be sufficiently general criteria and that that would be a way to distinguish a tax from an acquisition of property.  Whilst not conceding that that is the appropriate way to approach the matter, the appellant would contend that, in this case, there is not sufficiently general criteria because the levy operates to require an employer to pay an amount calculated by reference to the wages of a particular individual employee, that is, it is an individualised criterion, not a general criterion.  If the Court has no further questions, those are the submissions of the appellant.

FRENCH CJ:   Thank you, Ms Walker.  Mr Solicitor did you want to make any comment in relation to Moran’s Case?

MR GAGELER:   Not on the run, your Honour.

GUMMOW J:   It seems to me that at pages 757 and 758 of 61 CLR, Chief Justice Latham, at about 10 lines from the bottom of the page said:

Unless the Federal taxation legislation itself discriminates between States or parts of States, it is not rendered invalid by the condition . . . The Federal taxation Acts themselves plainly do not discriminate between States. They are therefore not affected by the condition contained in sec. 51 (ii.).

Then, he says that the expenditure acts, the appropriation acts are not for the collection but for the expenditure of money:

There is no provision in the Constitution to the effect that appropriation Acts must not discriminate between States –

End of question.

MR GAGELER:  Yes.

GUMMOW J:   Is that an answer to what was being put as to the connection between imposition and appropriation?

MR GAGELER:   In that case, your Honour?

GUMMOW J:   For this case, and that case too.

MR GAGELER:   What Chief Justice Latham said?

GUMMOW J:   Yes.

MR GAGELER:   Of course, and it is entirely consistent with what he said in the First Uniform Tax Case, and with the reasoning in Logan Downs.

GUMMOW J:   All right.

MR GAGELER:   I just cannot speak for their Lordships on 30 May 1940, your Honours.  I have not quite ‑ ‑ ‑

FRENCH CJ:   They were concerned about the Australian judges.

MR GAGELER:   Yes.

FRENCH CJ:   Yes, all right.  We will adjourn to 10.00 am on Friday, 1 April, and reserve our decision.

AT 3.00 PM THE MATTER WAS ADJOURNED