Victoria v The Commonwealth
23 August 1957
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99 C.L.R.] OF AUSTRALIA.
575
[HIGH COURT OF AUSTRALIA.]
THE STATE O P VICTORIA AND ANOTHER
P l a in t if f s ;
THE COMMONWEALTH.
D e f e n d a n t ;
THE STATE OF NEW SOUTH WALES AND P l a in t if f s
;
ANOTHER
.....................................................
THE COMMONWEALTH
D e f e n d a n t .
Constitutional Law {Cth.)—-Income Tax—
Uniform taxation ”—Financial assist- j j q_ qf A.
ance—-Grants to States— Terms or conditions imposed—Non-imposition of
1957.
income tax by States—-Validity of terms or conditions—Nature and extent of
terms and conditions attachable to grants—-Claim to priority for payment of
Sydney,
Commonwealth tax over State tax— Taxing power—-Incidental power— Validity April 29, 30; of exercise— The Constitution (63 & 64 Viet. e. 12), ss. 51 (ii.), (xvii.), (xxxvi.), Afaj/ 1-3, 6-8;
(xxxix.), 96—States Grants [Tax Reimbursement) Act 1946-1948 (No. 1 of 1946
Aug. 23.
—No. 43 of 1948), ss. 5, 11—Income Tax and Social Services Contribution
Dixon C.J., McTiernan,
Assessment Act 1936-1956 (No. 27 of 1936—No. 101 of 1956), s. 221 (1) (a), (b)
Williams,
Webb,
(i), (ii;.
Fullagar, Kitto and
Taylor JJ.
The States Grants (Tax Reimoursement) Act 1946-1948 is a valid enactment of the Parliament of the Commonwealth finding its basis in s. 96 of the Con stitution which empowers the Parliament to grant financial assistance to any State on such terms or conditions as it thinks fit.
missioner of Taxation (N.S.W.) v. W. R. Moran Rty. Ltd. (1939) 61 C.L.R. 735 ; (1940) A.C. 838 ; (1940) 63 C.L.R. 338, and South Australia v. The Com monwealth (1942) 65 C.L.R. 373 on this point, applied ; Melbourne Corpora tion V. The Commonwealth (1947) 74 C.L.R. 31, distinguished.
So held by the whole Court.
576 HIGH COURT
[1957.
H. C. OF A.Per Dixon C.J. and Kitto J . : There is nothing in the power conferred by
1957.s. 96 of the Constitution which enables the making of a coercive law, that is one demanding obedience. The essence of an exercise of such power must be
T he
a grant of money or its equivalent and beyond that the Parliament can go no
State of
further than attaching conditions to the grant.
Once a law either valid under
Victoria
V.s. 96 or not a t all is seen to contain a grant of financial assistance to the States,
T he
Common
the further inquiry into its validity must be limited to the admissibility of the
wealth.terms and conditions sought to be imposed. The grant of money may supply the inducement to comply with the terms or conditions, but beyond this no law passed under the section can go.
The interpretation placed upon s. 96 of the Constitution by the decisions in Victoria v. The Commonwealth (1926) 38 C.L.R. 399 and Deputy Federal Com missioner of Taxation (V.S.IV.) v. W. R. Moran Pty. Ltd. (1939) 61 C.L.R. 735 ; (1940) A.C. 838 ; (1940) 63 C.L.R. 338 is inconsistent both with the view that there must be a need for relief or a reason for giving assistance which is not itself created by the Commonwealth legislation connected with the grant and with the view that the terms or conditions attached to such grant cannot require the exercise of governmental powers of the State and the compliance of the State with the desires of the Commonwealth in their exercise.
Per Webb J. : Section 96 empowers the Commonwealth to make a grant of financial assistance to a State on terms or conditions. Such terms or con ditions must be consistent with the nature of a grant, that is to say, they must not be such as would make the grant the subject of a binding agreement and not leave it the voluntary arrangement contemplated by the section.
Per Fullagar J. : The nature of the terms or conditions attached to a grant made pursuant to s. 96 ought not to be limited in any way, save that where such terms or conditions call for action by the State such action must be within its constitutional powers.
Section 221 of the Income Tax and Social Services Contribution Assessment Act 1936-1956 provides : “ (1) For the better securing to the Commonwealth of the revenue required for the purposes of the Commonwealth—(a) a tax payer shall not pay any tax imposed by or under any State Act on the income of any year of income in respect of which tax is imposed by or under any Act with which this Act is incorporated until he has paid that last-mentioned tax or has received from the Commissioner a certificate notifying him that the tax is no longer payable.”
Held, by Dixon C.J., McTiernan, Kitto and Taylor JJ ., Williams, Webb and Fullagar J J . dissenting, that par. (a) of s. 221 (1) is ultra vires, in that it is not a provision incidental to the power to make laws with respect to taxation conferred on Parliament by s. 51 (ii.) of the Constitution.
South Australia v. The Commonwealth (1942) 65 C.L.R. 373, on this point disapproved by Dixon C.J., McTiernan and Kitto J J .
Per Taylor J. : The question which here arises in relation to s. 221 (1) (o) is clearly distinguishable from the question which arose before the Court in
99 C.L.R.]
OF AUSTRALIA.
South Australia v. The Commonwealth (1942) 65 C.L.R. 373 and nothing then
H. C. o r A.
said requires a conclusion that the present section is valid. When the section
1957.
ceased to be a temporary measure designed to deal with a very special situat
ion and became a permanent provision intended to operate in undefined
The
State of
and unpredictable circumstances it assumed a character and operation
ViCTOEIA
which could not be justified under Commonwealth legislative power.
V.
The
Common
Per Dixon C.J. and Kitto J. : The exceptional course of declining to follow the decision of South Australia v. The Commonwealth (1942) 65 C.L.R. 373 on
wealth.
the constitutional validity of s. 221 (1) (a) should be taken for the reasons that (i) it is an isolated decision, receiving no support from prior decisions and forming no part of a line of authority ; (ii) it gives an application to the con stitutional doctrine of incidental powers which may have great consequences and which is thought to be unsound ; and (iii) the question falls within s. 74 of the Constitution and affects the States in many aspects besides “ uniform tax ”.
The cases of The Commonwealth v. State of Queensland (1920) 29 C.L.R. 1 ; Federal Commissioner of Taxation v. Official Liquidator of E. 0. Farley Ltd. (In Liquidation) (1940) 63 C.L.R. 278 and In re Silver Bros. Ltd. (1932) A.C. 514, distinguished and their application by the Court in South Australia v. The Commonwealth (1942) 65 C.L.R. 373 disapproved, as to all three by Dixon C.J. and Kitto J., as to the case last mentioned by McTiernan J.
Per Williams and Fullagar J J . : Having regard to the facts that the very questions here raised were litigated fifteen years ago in actions brought by four States of which the plaintiff State of Victoria was one, that the challenged enactments assumed their present permanent character in 1946 and have since then subsisted without challenge from any State and that the present challenge is sustained by only two States, the questions decided in 1942 ought not to be reopened and the case is the clearest possible for the application of the rule of stare decisis.
Dicta by Dixon C.J., McTiernan, Williams, Fullagar and Kitto JJ . as to the validity of par. (b) (i) and (ii) of s. 221 (1) of the Income Tax and Social Services Contribution Assessment Act 1936-1956 and as to the paragraphs of s. 51 of the Constitution which would justify its enactment.
D e m u r r e r s .
The State of Victoria and its Attorney-General on 23rd December 1955 and the State of New South Wales and its Attorney-General on 23rd November 1956 issued writs out of the High Court of Aus- traha against the Commonwealth of Australia by which they sought to challenge the validity of certain enactments of the federal taxa tion legislation. By their amended statements of claim as filed the plaintiffs challenged several enactments, but ultimately they claimed only that States Grants {Tax Reimbursement) Act 1946-1948, the States Grants (Special Financial Assistance) Act 1955 and s. 221
578 HIGH COURT
[1957.
| H. | C. OF A.of the Income Tax and Social Services Contribution Assessment Act | |
|
T hemonwealth and were accordingly invalid and they sought declara
State of tions accordingly.
Victoria
V.The statements of claim set out the history of the challenged
T helegislation and the limiting effect which such legislation and the
Common
wealth.operations of the Commonwealth thereunder was alleged to have
had upon the fiscal pohcy and arrangements of the plaintiff States and charged that the amounts of grants made by the Common wealth by way of tax reimbursement to the States from taxation collected by it pursuant to the legislation were not distributed amongst the States—(a) in proportion to the population of each State ; or (b) in the same proportion as the amounts of income tax collected in each State by the Commonwealth under the Income Tax Act and the Income Tax and Social Services Contribution Assess ment A c t; or (c) in the same proportions as the amounts of revenue derived by each State from taxes upon income imposed by each such State in the year 1942 or in any year prior thereto. In addition such statements of claim contained a great deal of material in tabulated form showing actual tax collections by the plaintiffs prior to 1942 and by the Commonwealth thereafter and, as regards the latter, actual distributions made and suggested methods by which they might have been made, but for present purposes such material need not be set out.
To each amended statement of claim the defendant Common wealth of Australia demurred upon the grounds :—(1) that the Acts of Parliament sought to be declared invahd are valid enactments of the Parhament of the Commonwealth and are within its powers under the Constitution ; (2) the power to enact the aforementioned Acts and the mode of exercising the powers adopted bv the Parlia ment of the Commonwealth have already been held by the Full Court of the High Court to be within the powers of the Parhament under the Constitution and to be vahd thereunder respectively. The demurrers came on for argument before the Full Court of the
High Court.
The history of the legislation in question and the relevant pro visions thereof appear fully in the judgments of the Court hereunder.
II. A. Winneke Q.C., Solicitor-General for the State of Victoria, and Sir Garfield Barwick Q.C. (with them D. I. Menzies Q.C. and C. I. Menhennitt), for the State of Victoria and the Attorney-General for that State.
99 C.L.R.] OF AUSTRALIA.
579
H. C . O F A.
H. A. Winneke Q.C.
The constitutional validity of certain Acts
of the Commonwealth Parliament which operate substantially to 1957.
destroy the power of the State to impose and collect tax on incomes,
The
State of Victoria
is here challenged.
The acquisition of such control by one partner
in a federal Commonwealth is irreconcilable with basic federal
V.
principles. [He referred to Acts Nos. 22 and 23 of 1942 and to s. 31
T he
Common
of the former Act introducing a new s. 221 in the Income Tax Assess
wealth.
ment Act 1936-1941.] The substantial effect of s. 221 is to defer a taxpayer’s liability to a State for State income tax and make it impossible of collection as a matter of practical administration. It is not properly a priority section and s. 221 (a) finds no support in the taxation, incidental or bankruptcy powers. The need for the States Grants {Income Tax Reimbursement) Act 1942 (No. 20) empha sises the Commonwealth recognition that the earlier enactments had effectively deprived the States of the power to raise their own revenue. (See s. 4). [He referred to the Income Tax {War-time Arrangements) Act 1942 (No. 21), ss. 4, 11, 13, 16.] The 1942 enact ments were a war-time measure designed to economise on man power in the collection of income tax revenue and to provide the system considered best suited to obtaining the maximum revenue
for income tax for the effective prosecution of the war.
In 1946
s. 221 (a) of the Assessment Act was amended to assume a permanent form in the legislation. [He referred to the States Grants {Special Financial Assistance) Act 1956 and the States Grants {Tax Reim bursement) Act 1946-1948, ss. 5, 11.] The latter Act is unlimited in point of duration, operating on a permanent formula to create an annual liability in the Commonwealth. [He then dealt in detail with the history of State income tax both before and since 1942, illustrated the impracticability of State taxation whilst the Com monwealth legislation remained, and submitted that the overall effect was to make the State dependent upon the Commonwealth for a substantial part of its revenue for governmental services.] The plaintiffs do not press any claim for a declaration of invalidity of the Tax Act, but seek to bring down s. 221 (1) (a) of the Assess ment Act and the whole of the Grants Act. In refraining from pres sing for such declaration of invalidity, however, the plaintiffs reserve their right to question the validity of any future use of the Commonwealth tax power in such manner as to prevent the imposi tion or collection of State income tax. [He then handed to the Court a document containing seven heads of argument on the Grants Act 1946-1948, s. 221 (1) (a) and {b) of the Assessment Act, the earlier case of South Australia v. The Commonwealth (1) and
(1) (1942) 65 C.L.R. 373.
580 HIGH COURT
[1957.
| H. | C. OF A. tihe protection of the independence of the States under the Con- | |
|
TheBarwick in his argument to the Court reported hereunder.] The
State of operation of the challenged enactments is completely incompatible
Victoria
V.with the existence of the States as separate but co-ordinate bodies
Thepolitic under the Constitution, and further they are destructive of
Commonthe “ federal principle [He referred to
Birch on Federalism
wealth.
(1955) p. 119 ; Wheare on Federal Government 3rd ed. (1953), on pp. 11, 13, 15, 17, 32, 112-114; Australian Communist Party v. The Commonwealth (1).] The real issue here is whether the Con stitution provides any legal protection for the rights of the State. The remarks of Latham C.J. in South Australia v. The Common wealth (2) are incorrect. If State rights are not so protected there would seem little purpose in the imion of the States into one “ indis soluble Federal Commonwealth.”
Sir Garfield Barwick Q.C. The tax imposed by the Common wealth in 1942 was to be uniform not merely in the sense that the federal tax was to be the same for each State but also in the sense that the total rate of tax to be paid by the individuals was to be uniform. Three features were essential to that plan. First, the rate of tax levied was to be higher than a rate necessary to yield revenue sufficient to service the Commonwealth departments. Secondly, no State was to levy income tax. Thirdly, there must be a system of grants, rmiform in the sense that they were deter mined by a common formula. The scheme must provide the States with the grant as of rig h t; it could not remain of grace. The same features were necessary for the continuance of the scheme after the war. The conclusion is inescapable that by the Grants Act the Commonwealth intended to place the States in a situation where they were not free to follow the course which they otherwise might have taken. When legislation has as its object the control of a State in the manner of the exercise of its powers, and secures such object not by prohibiting such exercise but by ensuring its exercise in a particular way then there is an unwarranted inter ference with the integrity of the State. [He referred to Melbourne Corporation v. The Commonwealth (3).] The problem should be approached from the object of the exercise of the Commonwealth power, and to discern such object it is important to bear in mind that the legislation expressly challenged here forms a part in the
(1) (1951) 83 C.L.R. 1, at pp. 202,
(2) (1942) 65 C.L.R., at p. 429.
203.(3) (1947) 74 C.L.R. 31, at pp. 78, 79.
99 C.L.R.] OF AUSTRALIA.
581
H. C. o r A.
overall plan, some sections of which are not attacked.
The Con
stitution is fundamentally federal in that it provides for the Com1957.
monwealth and States as separate organs independent of each other
The
State of Victoria
and co-ordinate in their respective spheres and prevents any law
of the Commonwealth operating to destroy or weaken the inde
V.
T he Common
pendence or integrity of a State or to place a particular disability
or burden upon an operation or activity of a State and more especi
wealth.
ally upon the execution of its constitutional powers : see the Mel bourne Corporation Case (1). In the distribution of powers under the Constitution there are granted powers and residual powers. Coming to a residual power, a State may not subject the Common wealth specifically to the burden of its laws, but that limitation on the State’s power cannot be read out of mere construction of its residual powers. I t comes out of the federal structure itself. What is true of the State is true of the Commonwealth, save that in the construction of a granted power, unless there be something to the contrary, a State may be bound. But it is submitted that under a granted power the federal structure places upon the Commonwealth a limitation so far as the State’s constitutional powers are concerned. A clear majority of this Court has adopted the principle for which the plaintiffs here contend. [He referred to the Melbourne Corpora tion Case (2) ; The Commonwealth v. Bogle (3) ; In re Richard Foreman & Sons Pty. Ltd. ; TJther v. Federal Commissioner of Taxation (4) ; Federal Commissioner of Taxation v. Official Liquida tor of E. 0. Farley Ltd. {In Liquidation) (5); Essendon Corporation V. Criterion Theatres Ltd. (6).] Tax is imposed at the point of time at which income falling within the description of the levy is earned. The income tax to which s. 221 of the Assessment Act refers is the final tax assessed, which assessment is usually made in the year following that in which the income is earned, by which time tax for such following year has been imposed within the meaning of the Act so that there is hardly a point of time at which an individual is not subject to a liability to pay tax imposed. Under s. 221 a State could be paid tax in respect of a past year but would have to wait really two years before it could accept any tax from a tax payer. [He referred to ss. 204, 206 of the Assessment Act.) Sec tion 221 is thus a direct command to a citizen not to pay a State tax until some date which is in control of the Commonwealth. The command relates only to State tax, leaving the taxpayer free to
(1) (1947) 74 C.L.R., at p. 75.
(3) (1953) 89 C.L.R. 229, at pp. 259,
(2) (1947) 74 C.L.R., at pp. 46, 47,
260.
52, 53, 55, 56, 57, 58, 59, 60, 61, (4) (1947) 74 C.L.R. 508, at p. 528.
62, 65, 66, 70, 71, 75, 77, 78, 80(5) (1940) 63 C.L.R. 278, at p. 308.
83, 84, 87, 89, 91, 94, 98, 99.
(6) (1947) 74 C.L.R. 1, at pp. 17-24.
582 HIGH COURT
[1957.
H. C. OP A.liquidate any other of his liabilities.
The State is singled out and
1957.is effectively subjected to the control of the Commonwealth. South
TheAustralia v. The Commonwealth (1) was determined not so much by
State of argument as by authority, and the authorities relied upon do not
Victoria
| support the proposition that s. 221 is valid. [He referred to | South |
V.
The
Australia v. The Commonwealth (1), per Latham C.J. (2), per Rich
CommonJ. (3), per
Starke J. (4), per Williams J. (5).] In the passages cited
wealth.
their Honours relied strongly upon In re Silver Bros. Ltd. (6), but this case does not support the view that the Commonwealth may direct the citizen not to pay his State tax until some later date within the control of the Commonwealth, nor as a matter of decision that the Commonwealth could give its debt priority in the strict sense over a State’s debt in the case of bankruptcy or liquidation. [He referred to In re Silver Bros. Ltd. (7).] What was there decided was that the debts would rank fari passu, that is that the provincial attempt to give priority was not effective, but there was no specific claim or argument that one party might assert a priority over the other. The questions here raised were never considered by the Privy Council, and this view appears to be confirmed by the judg ments in the court below : see (8).
[McT ie r n a n J. Is what Latham C.J. said (2) concerning Silver's Case (6) based simply on concession made and not upon a con clusion reached by the Privy Council ?]
Yes, and not strictly a relevant assumption in relation to this case because it was not sought to solve the problem here raised, but to see whether the inconsistency doctrine could work a priority of one Crown over the other, because it was conceded that each Crown could give itself absolute priority. Nothing said in Silver's Case (6) requires the conclusion that s. 51 (ii.) of the Constitution justifies s. 221 of the Assessment Act. The taxation power will not go the length of including the so-called priority provision, nor can the incidental penumbra within and around the power include such a provision, bearing in mind what is sought to be done in relation to the power of taxation given. [He referred to Federal Commissioner of Taxation v. Official Liquidator of E. 0. Farley Ltd. {In Liquida tion) (9).] The decision in The Commonwealth v. State of Queens land (10) relied upon in South Australia v. The Commonwealth (1)
(1) (1942) 65 C.L.R. 373.(7) (1932) A.C. at p. 520 et seq.
(2) (1942) 65 C.L.R., at pp. 434, 435.
(8) (1929) 1 D.L.R. 681 ; (1929)
(3) (1942) 65 C.L.R., a t p. 436.Can. S.C.R. 557, at p. 559;
(4) (1942) 65 C.L.R., at pp. 440, 441,
(1930) 1 D.L.R. 141.
442.(9) (1940) 63 C.L.R., at p. 317.
(5) (1942) 65 C.L.R., at pp. 464, 465.(10) (1920) 29 C.L.R. 1.
(6) (1932) A.C. 514.
99 C.L.R.] OF AUSTRALIA.
583
H. C. OF A.
was not a decision on the extent of the tax power.
No argument
1957.
such as here put was there raised. [He referred to
The Common
wealth V. State of Queensland (1).]
| The Commonwealth was there T he |
State of Victoria
saying not, as here that what was already due should not be paid
but rather that property would be created which would never fall
V.
within the description of property subject to State income tax, so
The
Common
that there would never be any debt due to the State. There is
wealth.
nothing in R. v. The Commonwealth Court of Conciliation and Arbi tration (2), per Isaacs J. (3) which supports the proposition that the equivalent of s. 221 is warranted or that the Commonwealth can exert its taxation powers to prevent the State from collecting its revenue. [He referred to West v. Commissioner of Taxation (N.S.W.) (4) ; Federal Commissioner of Taxation v. Official Liquida tor of E. 0. Farley Ltd. (In Liquidation) (5) ; Silver’s Case (6).] The validity of s. 221 was decided in South Australia v. The Common wealth (7) as a matter of authority, but as already submitted none of the authorities relied upon bear out the proposition or conclude the matter against the plaintiffs and it now falls for consideration by the Court as a matter of principle. The only American authority approximately in point is United States v. Fisher (8) and it does not support the proposition. The taxation power is sui generis and there is nothing in the power or the word “ taxation ” or anything incidental to it to warrant the present section. Taxation is a con current power under the Constitution and it cannot be converted into an exclusive power, which in its practical effect is what the challenged section seeks to do by driving the State out of the con current field. The taxation power is one which does not naturally lead to conflict, the imposition of two taxes does not involve any inconsistency, and the full extent of any paramountcy of the Com monwealth law over State law is to be formd in s. 109 of the Consti tution. This particular exercise of power does not lead to incon sistency, for it does not set up a substantive rule of conduct which clashes with some other substantive rule of the State. [He referred
to Ex parte McLean (9).]
Section 221 does not prescribe a rule of
conduct as to federal tax but as to State tax. Here there are two obligations, one to pay federal tax, the other to pay State tax and between these there is no conflict. To attempt to postpone one to the other is not to raise an inconsistency but to make a law about
(1) (1920) 29 C.L.R., at pp. 6, 10, 11,
(5) (1940) 63 C.L.R., at p. 324.
20 ,
(6) (1932) A.C., at p. 521.
21.
(2) (1936) 38 C.L.R. 663.(7) (1942) 65 C.L.R. 373.
(3) (1936) 38 C.L.R., at p. 570.
(8) (1903) 6 U.S. 214, at p. 235 [2
(4) (1937) 56 C.L.R. 657, at pp. 670,
Law Ed. 304, at p. 317.]
675, 677.
(9) (1930) 43 C.L.R. 472, a t p. 483.
584 HIGH COURT
[1957.
| H. | C. OF A.the other’s relationship and rights. Section 221 (1) (5) (i) is con | |
|
Theto all other unsecured debts other than debts etc.” therein should
State of be limited in construction by the words “ other than debts due to
Victoria
V.the State in respect of taxes.” To allow the definition its full
T heverbal force would be to interfere with the States in the collection COMMOK-
of their revenues and so with their independence : see the
Melbourne
WEALTH.
Corporation Case (1). What has been submitted on s. 221 (1) {a), except so much as depends upon singling out the State for special mention, applies also to s. 221 (1) (6) (ii). The Grants Act, without s. 221, would still disadvantage the States and force them not to exercise their powers. If one State were to seek to exercise its right to levy taxation it would be in a hopeless position qua the others. The option to levy or not to levy is in reality an option to all not to any one. Looking at the Grants Act from the Common wealth end the effect of its operation and its evident purpose as is admitted by the pleadings is to make the imposition of tax impracti cable : see South Australia v. The Commonwealth (2). The States are thus coerced into not exercising their powers, and that signifi cance can be given to practical as opposed to legal coercion is recognised in Attorney-General (iV./S. IF.) v. Homehush Flour Mills Ltd. (3). [He referred to Federal Council of the British Medical Association v. The Commonwealth (4).] WTien the question is whether a statute is designed and does operate to control a State in its exercise of governmental functions, it is nothing to the point to say that it is not done by direct legal enforceable command. MTien the apparent freedom of the State is for all practical purposes gone and it is obliged to conform in the manner intended, then aU the necessary elements are present to make the use of the power impro per. In IF. R. Moran Pty. Ltd. v. Deputy Federal Commissioner of Taxation (iV.iS.TF.) (5) the question of the improper use of s. 96 was left open. The purpose of s. 5 of the Grants Act is to control the State in the exercise of its discretion as to whether it will tax or not. I t was intended to secure the result that it will not, and make the situation such that it is impracticable for the State to levy a tax. The Grants Act is not a valid exercise of the power contained in s. 96. The existence of s. 96, although not prefaced by the words “ subject to this Constitution ”, does not in any way change the nature of the Constitution and the fact that the federal government is one of specific granted powers. [He referred to Attorney-General {Viet.) v.
(1) (1947) 74 C.L.R., a t p. 66.
(4) (1949) 79 C.L.R. 201, at pp. 252,
(2) (1942) 65 C.L.R., a t p. 411.
253, 256.
(3) (1937) 56 C.L.R. 390, at pp. 398,
(5) (1940) A.C. 838, at pp. 857, 858 ;
400,404,405,411-413,418,421.
(1940) 63 C.L.R. 338, at p. 349.
99 C.L.R.] OF AUSTRALIA.
585
H. C. o r A.
The Commonwealth (1).]
Section 96 contemplates only ad hoc grants,
and a system of standing grants to which there is a right on per1957.
formance of a consideration with a predetermined uniform formula
T he
State of Victoria
irrespective of the current need of a State or States is inconsistent
with the section. [He referred to ss. 87, 88, 89, 93-96 of the
V.
Constitution.] In the first ten years of the Commonwealth the
T he
Common
function of s. 96 was to enable the Commonwealth to debit ad hoc
wealth.
grants to the States as Commonwealth expenditure in determining surplus revenue under s. 94, and it does not lose that function on the expiration of the ten year period. The terms and conditions referred to are terms and conditions touching the thing granted. [He referred to Inglis Clark Studies in Australian Constitutional Law 2nd ed. (1905) pp. 214-216 ; W. Harrison Moore : The Con stitution of the Commonwealth of Australia 2nd ed. (1910) pp. 524-527 ; Quick & Garran : The Annotated Constitution of the Australian Commonwealth (1901) pp. 869-871.] A system of standing grants is thus seen to be foreign to the underlying idea of s. 96. Section 5 of the Grants Act does not grant within the meaning of s. 96. The idea of “ grant ” suggests bounty not purpose, and s. 5 is purely a means of determining a fact. The original idea of s. 96, con templating a distribution to States in the case of some emergency or inequality and the deduction of the sum so distributed as Com monwealth expenditure before ascertaining the amount of surplus revenue for division between all the States, accords well with the idea of gift or bounty and the word “ grant ” is an appropriate way of expressing that idea. Section 5 is in essence a purchase and falls outside s. 96 in limine. The Commonwealth purchases the States’ concurrence in the non-imposition of State income tax by creating a debt in favour of those who have furnished the consideration. The provision made by the Grants Act cannot fulfill the description of “ financial assistance ” in s. 96, for, whether or not the particular State is in need of money, under the system of standing grants it gets it as of right provided only that it does not impose a tax on income. To ignore the need of the State in question in relation to the moneys granted is to step beyond the contemplation of s. 96. Nor can the Commonwealth create the need by the conditions attached to the grant. The Privy Council’s decision in W. R. Moran Pty. Ltd. v. Deputy Commissioner of Taxation (iV./S.lF.) (2) is not a considered authority against the arguments put on s. 96 and in this Court in the same case (3) whilst the point was taken that
(1)’(1945) 71 C.L.R. 237, at pp. 263,
(2) (1940) A.C. 838 ; (1940) 63 C.L.R.
271, 272.
338.
(3) (1939) 61 C.L.R. 735.
VOL. xcix—38
586 HIGH COURT
[1957.
H.C. OF A.the legislation there was not a grant of financial assistance (1), it
| 1957. | seems to have been implicitly rather than expressly answered by |
| T he | identifying the need of the farmer with that of the State. I t was |
State of acknowledged that the grant had to be for the financial assistance
Victoria
V.of the States and the facts of the case were fitted within that pro
Theposition. The Grants Act does not result in a grant but in an accru
Common
ing right to be quantified on a formula uniform amongst the States. It is not related to any individual State’s condition. The debt arises on the performance of a condition that is in some sense foreign to the grant. [He referred to Deputy Federal Commissioner of Taxation (iV./S.IT.) v. W . R. Moran Pty. Ltd. (2).] The defence power loomed large in the first uniform taxation case, see South Australia v. The Commonwealth (3), and the matter would thus require reconsideration in the light of the changed circumstances. That case is not here decisive because the legislation here in question is materially different from that there considered, particularly in that the 1942 legislation was limited to the duration of the war and one year thereafter and was supported by the defence power in the circumstances then obtaining. Since 1942 the true nature and character of the uniform tax legislation have become apparent by experience and illustrate that the legislation does not give the States a free choice whether to tax or not to tax. Furthermore later decisions of this court are inconsistent with the earlier uniform taxation case, viz., the Melbourne Corporation Case (4) and BoglFs Case (5). The Constitution is fundamentally federal in that it provides for the Commonwealth and States as separate organs independent of each other and co-ordinate in their respective spheres and prevents any law' of the Commonwealth operating to destroy or weaken the independence or integrity of a State or to place a particular disability or burden upon an operation or activity of a State more especially upon the execution of its constitutional powers : see the Melbourne Corporation Case (4). The Grants Act and the Assessment Act, s. 221, do this. [He then handed to the Court the following list of authorities touching the matters argued : Australian Railways Union w. Victorian Railways Commissioners [G) ; New South Wales v. The Commonwealth {No. 1) (7); TTesf v. Com missioner of Taxation (iV.<S.TT’.) (8); Tasmanian Steamers Pty. Ltd.
wealth.
(1) (1939) 61 C.L.R., at p. 743.
(6) (1930) 44 C.L.R. 319, at pp. 390
(2) (1939) 61 C.L.R., at pp. 760-762,
393.
763, 774, 775.
(7) (193i) 46 C.L.R. 155, at pp. 176,
(3) (1942) 65 C.L.R., a t pp. 463, 464.
177.
(4) (1947) 74 C.L.R. 31.
(8) (1937) 56 C.L.R. 657, at pp. 668,
(5) (1953) 89 C.L.R. 229.
669. 679, 681, 683, 687, 688, 690,
693, 695, 698, 701, 706, 707.
99 C.L.R.] OF AUSTRALIA.
587
H. C. O F A.
V. Lang (1) ;
Federal Commissioner of Taxation v. Official Liquida
tor of E. 0. Farley Ltd. {In Liquidation) (2) ; South Australia
1957.
V. The Commonwealth (3) ;
R. v. Commonwealth Court of Concilia
The
State of Victoria
tion and Arbitration ; Ex f arte Victoria (4); Pidoto v. Victoria (5);
Victoria v. Foster (6) ; Essendon Corporation v. Criterion Theatres
V.
T he Common
Ltd. (7) ; Melbourne Corporation v. The Commonwealth (8) ; In
re Foreman (& Sons Pty. Ltd. ; Uther v. Federal Commissioner of
wealth.
Taxation (9) ; Bank of A.<S.TF. v. The Commonwealth (10) ; The
Commonwealth of Australia v. Bogle (11).]
R. R. Downing, Attorney-General of New South Wales, and R. Else-Mitchell Q.C. (with them K. J. Holland), for the State of New South Wales and the Attorney-General for that State.
R. R. Downing. These plaintiffs adopt in general the arguments already advanced. The sovereignty of the plaintiff State is impaired by the application of the Assessment Act and ss. 5 and 11 of the Grants Act, and we seek to destroy the controlling and limiting effects which these enactments have had upon the State and its activities. The challenged legislation threatens to destroy the federal nature of the Commonwealth and is rendering dissoluble that which the preamble to the Constitution declared to be indis soluble. The meaning of the word “ federal ” as applied to the Constitution is illustrated by the passage in Wheare on Federal Government 3rd ed. (1953) p. 97 and W. Harrison Moore : The Con stitution of the Commonwealth of Australia 2nd ed. (1910) pp. 68, 407, 509. The uniform tax legislation is aimed at the control of the State in the exercise of its governmental functions and is unauthorised by the Constitution. The vice of the challenged legislation is that it concentrates the power to level and collect income tax exclusively in the Commonwealth. By creating this monopoly in itself the Commonwealth has chosen the most effective method of bringing about the subordination of the States, there being no other source of revenue available to the States sufficient to replace that which would otherwise be derived from a tax on incomes. Having a
(1) (1938) 60 C.L.R. I l l , at pp. 125,
(7) (1947) 74 C.L.R., atpp. 14, 18-25.
126.(8) (1947) 74 C.L.R., at pp. 52-62,
(2) (1940) 63 C.L.R., at pp. 312-317.
65-67, 70-75, 78-84, 98-101.
(3) (1942) 65 C.L.R., at pp. 441-444.(9) (1947) 74 C.L.R., a t pp. 527-534.
(4) (1942) 66 C.L.R. 488, at pp. 505,
(10) (1948) 76 C.L.R. 1, at pp. 240,
513-515 533.
242, 243, 299, 304, 305, 336-338,
(5) (1943) 68 C.L.R. 87, at pp. 103,
397.
106, 116.
(11) (1953) 89 C.L.R., at pp. 249, 255,
(6) (1944) 68 C.L.R. 485, at pp. 492,
259, 260, 274, 284.
497, 500.
588 HIGH COURT
[1957.
| H. | C. OF A.monopoly on the collection of income tax the Commonwealth is | |
|
T hemade available and thus to force the States to carry out Common
State of wealth policies. The rmiform tax scheme virtually reduces the
Victoria
V.States to the level of Commonwealth departments save that they
Theare not yet called upon to submit detailed estimates. By appro
Common*
WEALTH.priating moneys to trust funds the Commonwealth has ensured that
there is no surplus revenue available for distribution and this prac tice has been given greater significance since the operation of the uniform taxation scheme, for it means that the States are obliged to take the moneys made available by the Grants Act. If this legis lation is valid then the Constitution has failed to erect and preserve the federation. Such a result can only be reached if the Court were to hold that there is nothing in the Constitution requiring the powers of the Commonwealth enumerated therein to be so limited as to preserve the federal nature of the Commonwealth. We would sub mit that there is such a limitation on Commonwealth power.
R. Else-Mitchell Q.C. The rate of tax imposed by the Common wealth has the practical effect of precluding the States from entering the income tax field. The suggestion made by Starke J. in South Australia v. The Commonwealth (1) is impractieable and may be added to the other matter mentioned by other counsel as iUustrating the coercive nature of the Grants Act. The provisions of Div. 3 Pt. VI of the Assessment Act relating to provisional tax and advance payments are an added factor to be taken into account in looking at the operation of the Grants Act and s. 221 of the Assessment Act because they operate to postpone further the date when the State can exercise its legal right of attempting to collect tax due to it. We rely upon the federal character of the Constitution to support our submissions and adopt what has already been put in this regard. The taxation power, however aided by the incidental power, only enables tax to be imposed and collected but does not permit of the deferment of some other liability, and in particular a liability to State tax, to the liability to pay Commonwealth tax. Support for the view taken by the plaintiff in these actions is to be found in a consideration of certain provisions of the Constitution. The powers conferred by s. 51 of the Constitution are all concurrent and should be contrasted with those conferred by s. 52 which are exclusive in the sense that the Conmronwealth was intended to dominate the field, and the solution to the present case is to be found in the distinction between the two types of powers. The
(1) (1942) 65 C.L.R., at pp. 442, 443.
99 C.L.R.] OF AUSTRALIA.
589
powers conferred by the former section cannot be used by the Com
H. C. OF A.
monwealth so as to exclude the States from the employment of similar 1957.
powers. We also call in aid the provisions of Chap. IV of the Constitu
The
State of Victoria
tion to assist in this approach particularly those dealing with Com
monwealth-State financial relations. These provisions are not
V.
intended to confer legislative power, but indicate that the source of
T he
Common
legislative power to which they are to be applied is to be found in
wealth.
ss. 51 and 52. [He referred to Attorney-General (Viet.) v. The Common wealth (1).] Support is there found for the view that s. 96 does not give any legislative power but simply prescribes a purpose for which appropriations may be made and conditions prescribed and also for the view that the delimitation of powers is a factor governing s. 96 by implication just as it governs s. 51 expressly. Chapter IV by its detailed provisions in ss. 87, 89-94, shows that the question of Commonwealth-State financial relationships was one of some con sequence and although most of those provisions were regulatory for a period of ten years it was apparent that the balance of rights was of no small consequence and one which should not be left to any overriding legislative power of the Commonwealth. The pro visions of Chap. IV taken in conjunction with the delimitation of powers in the Constitution support three broad propositions. First, the taxation and finance powers of the Commonwealth and of the States were to be concurrent in the sense that neither the State nor the Commonwealth was intended to dominate except in the field of customs and excise and this apart altogether from the financial agreement and s. 105a. Secondly, there can be no inconsistency between Conmionwealth and State taxation or Commonwealth and State borrowing laws which can lead to the overriding effect of the Commonwealth laws with the consequence of giving the Common wealth exclusive power in either field. [He referred to Stock Motor Ploughs Ltd. v. Forsyth (2).] Thirdly, s. 96 and the powers it con fers are equally subject to the principle that the Commonwealth cannot destroy the States by the exercise of its power to make grants. [He referred to South Australia v. The Commonwealth (3).] Section 11 of the State Grants {Tax Reimbursement) Act 1946-1948 shows the true purpose which Parliament had in enacting this statute and its critical importance is that it converts advances of grants into debts if the conditions be not fulfilled. This statute differs in significant respects from its 1942 counterpart. In the
1942 Act there was no provision comparable to s. 11.
The 1942
(1) (1945) 71 C.L.R., at pp. 263, 264,
(3) (1942) 65 C.L.R., at pp. 415, 419,
268-270, 282.
424, 429, 441-444.
(2) (1932) 48 C.L.R. 128, at pp. 147,
590 HIGH COURT
[1957.
H. C. OF A.
Act was of limited operation relating to the war, whilst s. 6 of such
1957.Act gave some indication of financial assistance.
Lastly, the 1942
T he
Act differs from the 1946 Act in that it specified actual amounts in
State o r the schedule which the States would have expected to obtain in
Victoria
V.1942 by levying their own income tax. The States Grants {Tax
T heReimbursement) Act is not a grant of financial assistance and this is
Common
particularly so when the basis for the calculation set out in the schedule is looked at. The need for reimbursement is itself created by the Commonwealth by virtue of the provisions of the Taxing Acts and is a calculated consequence of such Acts. As to ss. 5 and 11 the condition imposed in respect of these grants is a void con dition and it may be that both sections fall and thus the whole Act fails. The only source of power for a condition of this character is s. 96 of the Constitution and s. 51 (xxxvi.) does not enlarge the powers contained in that section. [He referred to Quick & Garran : The Annotated Constitution of the Australian Commonwealth (1901) pp. 869, 870.] The condition is in form and in substance an inter ference with the States’ independence and powers and we adopt the reasons given by Starke J. for that view in South Australia v. The Commonwaelth (1). Finally the condition is coercive and does not leave any real practical freedom of choice and we adopt the argument already put on this by Sir Garfield Barwick for the other plaintiffs. The situation has to be considered against the back- groimd of the Surplus Revenue Act and it is clear that the rejection of the grants does not mean that the States will become entitled to anything by way of surplus revenue. That is another coercive element in the legislation. Section 221 of the Assessment Act is, properly characterised and construed, not within the taxation power, nor the taxation power aided by the incidental power. Secondly, it infringes the principle of the federal system by singling out the States for adverse action. The Assessment Act is addressed to the taxpayer and penalises him if he pays the State in breach of its terms, but for the purpose of the federal doctrine it is nonetheless directed against the States. The injunction of s. 221 if the tax payer cannot pay applies irrespective of the amount involved, irrespective of any deficiency or insufficiency of assets in the tax payer, irrespective of the reason for non-payment of the federal tax, irrespective of wffiether there has been a dispute over liability for the federal tax, irrespective of whether proceedings are pending in respect to the payment of the federal tax. Notwithstanding that, it postulates in its terms a valid and existing State liability and a valid and existing State liability under a State Act still in force. I t is not the case of the Commonw’ealth substituting for the
w e a l t h .
(1) (1942) 65 C.L.R., a t pp. 441-444.
99 C.L.R.] OF AUSTRALIA.
591
provisions of a State law some body or rules inconsistent with it
H. C. OF A.
and excluding its operation. A law having those characteristics 1957.
and that operation is not and cannot possibly be within the scope
T he
State of Victoria
of s. 51 (ii.) as a law with respect to taxation.
Finally a power to
make laws with respect to taxation is a power limited to the imposi
V.
T he Common
tion or levy of a tax and to the collection and enforcement of the
exaction, meaning the collection and enforcement by the authority
wealth.
making the imposition. Such a law travels outside power as soon as it seeks to deal with a liability imposed by any other authority. [He referred to Bank of iV.yS.lF. v. The Commonwealth (1).] The incidental power cannot extend to denying the operation of a State law or altering the period of obligation imposed by a State law for payment of an assessment. [He referred to West v. Commissioner of Taxation (N.S.W.) (2).] A law which seeks to do more than provide for the imposition, collection and recovery of tax by the Commonwealth is not a law about taxation at all. On the second argument addressed to invalidity we adopt what has already been said on the subject. In so far as any Commonwealth law seeks to impinge upon the forbidden field and to gain the benefit of s. 109 by postponing or denying the State right, then that law will be invalid as going beyond the taxation power. [He referred to Federal Commissioner of Taxation v. Official Liquidator of E . 0. Farley Ltd. (In Liquidation) (3).] Legislation of this type cannot be supported and cannot give the Commonwealth the right to absolute priority and compel the citizen to pay his federal tax in the way in which s. 221 does. The decision in South Australia v. The Com monwealth (4) rested, largely if not expressly so, on the defence power so that it ought not here be relied upon. The Acts then in question were limited in operation to the duration of the war, whereas the present Acts are imlimited in point of time. If the decision in the present case is not distinguishable, then it should be overruled as no longer having any application.
K. H. Bailey, Solicitor-General of the Commonwealth of Australia, and P. D. Phillips Q.C. (with them K. A. Aickin), for the Common wealth of Australia.
K. H. Bailey. The defendant contends that it is from the Con stitution as it is and not from any a priori or abstract concept of federalism or the federal principle that implications are to be drawn, and that the Constitution is not susceptible of any implication
(1) (1948) 76 C.L.R., at p. 187.(3) (1940) 63 C.L.R., at pp. 312, 313.
(2) (1937) 56 C.L.R., at p. 686.
(4) (1942) 65 C.L.R. 373.
692 HIGH COURT
[1957.
H. C. OF A.
which will strike down the Grants Act. The grounds of challenge
1957.to s. 221 have nothing to do with uniform tax or with the relation
Theof s. 221 to the system of the Grants Act and the Rates Act of the
State of Commonwealth. If uniform tax were to be abandoned the con
Victoria
| tention of the plaintiffs would be unchanged. No conclusions such |
V.
The
as those drawn by the Solicitor-General for Victoria and the
Common
wealth.Attorney-General for New South Wales could properly have been
drawn from the provisions of the Constitution as they stood in 1900. Any such conclusion is contrary to the express provisions of the Constitution, principally s. 87. States which had previously relied substantially upon receipts from customs and excise for the raising of their revenues, being now excluded by the operation of the Constitution from the imposition of their former taxes, were left with their remaining taxes plus a grant provided by the Con stitution itself from the Commonwealth of a total which was in the discretion of the Commonwealth. One could not postulate of the Constitution at that time that it was inconsistent with the character of the Constitution that a State should find itself in the position in which a substantial portion of its revenue lay in the discretion of another authority, because that was exactly the position in which the Constitution by its express words unequivocally placed all the States. The machinery provisions are much less significant in this regard than the first paragraph of s. 87. Secondly Chap. IV did in other material provisions contemplate the support of the States from Commonwealth revenue : see particularly ss. 94, 96. We do not regard s. 96 as a purely transitional provision but as a sub stantive provision linked as it was with the financial clauses of the Constitution and left to ultimate termination by the Parliament. The whole development of Commonwealth-State relationships, par ticularly in the sphere of finance, has been in the very opposite direction from that indicated by the plaintiffs’ propositions and has indeed been a development in the direction of interlocking responsi bility rather than mutual non-interference. Section 51 (xxxvi.) does at least set at rest any doubts that might otherwise exist as to the constitutional position that would arise if and when Parlia ment exercised its power under any of the provisions to which the paragraph relates to provide otherwise than the provisions made in the Constitution. It is in fact a law with respect to the matter in respect of which the Constitution made provision. [He referred to Quick & Garran : The Annotated Constitution of the Australian Com monwealth (1901) pp. 647, 648.] The question of what is the matter in respect of which the Constitution has made provision in s. 96 is not itself free from doubt since the substance of the section is the
99 C.L.R.] OF AUSTRALIA.
593
H. C. OF A.
provision that Parliament may do something.
I t is open to argu
ment that the matter in respect of which the Constitution has made 1957.
provision is merely the period during which the Parliament may
The
State of ViCTOEIA
exercise the power stated, but the preferable view of the section is
to treat the matter in respect of which the Constitution does make
V.
provision as the provision by Parliament of grants of financial
The
Common
assistance to the States. I t cannot be said that a State is destroyed,
wealth.
or its independence taken away, by the mere fact that some other authority has the discretion to determine, and by a determination to grant, a substantial portion of that State’s revenue. That is too wide an implication to be drawn from the federal system. On that analysis of the structure and history of the Constitution, the raising of substantial sums by the Commonwealth and their distribution by way of grants to the States is consistent with the letter, spirit and essence of the Constitution, notwithstanding that the States are in the practical position that a substantial portion of the revenues which they expend is in the discretion of the Commonwealth, and no implication to the contrary can be drawn from the federal character of the Constitution. The same issues raised by the present plaintiffs were raised substantially by four of the States in 1942 and by majority were determined in favour of the Commonwealth. Unless demonstrated to be manifestly wrong the decision in South Australia v. The Commonwealth (1) ought not to be departed from. That decision so far as the enactments now under attack are con cerned did not rest upon the defence power and it cannot now be distinguished on the ground of inapplicability to the peace-time powers of the Commonwealth. A majority of the Court as then constituted upheld both s. 221 and the Grants Act under ss. 51 (ii.) and 96 of the Constitution and no judge held either measure valid under the defence power alone. [He referred to South Australia v.
The Commonwealth (2).]
The amendments made to the Act since
1942 do not in any sense go to validity.
P. D. Phillips Q.C. The plaintiffs err in submitting that there is here no grant within s. 96 because of the nature of the condition attached. The nature of the condition cannot change what would otherwise be a grant into a non-grant. The true test is whether the impugned condition is one such as s. 96 contemplates. I t is not right to assimilate the idea of a grant upon conditions to a bargain between individuals, to assimilate constitutional capacity
(1) (1942) 65 C.L.R. 373.
(2) (1942) 65 C.L.R., at pp. 412-429, 429-433, 434, 435, 436, 440, 441, 442, 448, 449, 453, 454, 456, 460, 461, 463.
594 HIGH COURT
[1957.
H. C. OF A.to the institutions of private law.
Such an assimilation is foreign
1957.to the concept of s. 96.
Section 5 of the Grants Act is no more and
no less than an exercise of the power contained in s. 96.
I t is said
T he State of
by the plaintiffs that this is not a grant of financial assistance. In
Victoria
V.the light of Moran^s Case (1) the qualifying words “ of financial
T heassistance ” must now be taken as meaning no more than of money,
Common
wealth.quite apart from conditions. The nature of a condition cannot
turn a grant not of financial assistance into one of financial assistance and vice versa. Upon the authority of Moran^s Case (1) need or its satisfaction is not a necessary element in the idea of granting financial assistance. The mere handing over of money or money’s worth upon terms that it will be parted with upon receipt complies with the conception of grant of financial assistance as expressed in s. 96. The present case falls within this conception. If it be said that the element of need is necessary, then there is a need here, albeit that it may arise from the observance of the conditions. The grant does not cease to be a grant of financial assistance within s. 96 because the need arises from some action of the Commonwealth and not from some independent activity of or situation obtaining in the States. The characteristic form of need—if it be a necessary element—is that it is created by the Commonwealth in the imple mentation of federal policy. The founders of the Constitution had that very matter in their mind and this is a typical feature of a federal system. The association of the power with the Braddon clause is important. So far as conditions are concerned the nature
of the conditions is not a justiciable issue.
I t is not for the judiciary
to deduce criteria of permissible conditions, or the contrary.
That
right is given to Parliament. The judicial control of the conditions which Parliament sees fit to impose is not necessary to maintain the division of powers between the Commonwealth and States and therefore to maintain the essential working of the Constitution. If the States do not want grants they will not take them ; there is no constitutional interest to be protected by any kind of control of Parliament’s selection of conditions. If contrary to the submission the legal propriety of a condition is a justiciable issue then the only kind of condition w’hich would be vicious would be one which infringes some implied constitutional prohibition on the legislative power of Parliament. Put another way, one cannot spell out of the subject matter any criterion for limiting the kind of conditions. There is nothing in the Constitution which indicates that it is not permissible for Parliament to include in the conditions matters unrelated to grants or which requires conditions to be significant
(1) (1939) 61 C.L.R. 735; (1940) A.C. 838; (1940) 63 C.L.R. 338.
99 C.L.R.] OF AUSTRALIA.
595
H. C. O F A.
to the grants.
If it be necessary to show a logical relation between
the grant and the condition it exists here. The condition is financial
1957.
in its character. If there is anything in the suggestion of induce
The
State of Victoria
ment or coercion made by the plaintiffs it is not that it destroys the
condition as a permissible one but that it leads to some other vice
V.
T he Common
in the law as a whole after the law is found to be one granting
financial assistance on conditions. The
Grants Act is clearly a law
wealth.
granting financial assistance to the States upon conditions which Parliament thinks fit and in all those terms it is constitutionally unobjectionable and is within s. 96. If it be invalid, it is so despite the fact that it is a law within s. 96 and because of other conse quences. The question then arises whether it is obnoxious to some implied constitutional prohibition affecting a law upon a granted subject matter. The Act caimot infringe any implied prohibition upon the exercise by the Commonwealth of its constitutional powers except by what it does by its direct operation. The present law does no more than make a grant and, that being so, the matter is concluded in favour of the Commonwealth. If a law otherwise within subject matter is by virtue of its actual compulsive legal operation as opposed to its ultimate operation destructive of the continued existence of the State, the implied constitutional limita tion steps in to strike such law down. No law under s. 96 can ever infringe these implied constitutional limitations because it is never compulsive in its operation and such a law does not come within the sphere of operation of such limitations. All such a law does is to make a grant on condition, nothing more. [He referred to Attorney-General (A./S.IF.) v. Homehush Flour Mills Ltd. (1) ; Mel bourne Corforation v. The Commonwealth (2).] With the ultimate effect of a law as opposed to its direct actual operation the Court has no concern ; there is no difference in this regard between the question of whether the law is within some permitted subject matter or whether it offends against some implied limitation. [He referred to Fish Board v. Paradiso (3) ; Wragg v. State of New South Wales (4).] The distinction between the cases cited is that in the first the legislation was legally compulsive and bad, whilst in the second it was not legally compulsive, though economically per suasive, and good. [He referred to British Medical Association v. The Commonwealth (5).] Subject to the submission made that the problem never arises in relation to laws under s. 96, laws may be
(1) (1937) 56 C.L.R., at pp. 398, 400,
(4) (1953) 88 C.L.R. 353, at pp. 385,
402, 403, 407, 408.
386.
(2) (1947) 74 C.L.R., at p. 80.
(5) (1949) 79 C.L.R., at pp. 251, 252,
(3) (1956) 95 C.L.R. 443, at pp. 451,
253, 268, 269, 277.
596 HIGH COURT
[1957.
| H. | C. OF A.vitiated in two ways, either because they are not within subject | |
|
Theas to destroy or substantially to hinder or embarrass the operation
State ofof the States as independent partners in the federation. A law
ViCTOEIA
V.within subject matter is valid notwithstanding that it may be
Thepointed against a State or States. Implied prohibitions or limita
Common
wealth.tions will not strike it down unless its effect is seriously to interfere
with the existence of the States as independent integers in the federal structure. [He referred to West v. Commissioner of Taxa tion (A./S.If.) (1) ; Melbourne Corporation v. The Commonwealth (2).] The case secondly cited, provides no sound basis for the view that a law having a legitimate connexion with subject matter will nevertheless be bad if it is confined in its operation to the State and is prejudicial to the State in its operative effect or consequence. [He referred to Melbourne Corporation v. The Commonwealth (3); West V. Commissioner of Taxation (N.S.W.) (4) ; Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd. (5).] A valid law under s. 96 can never be attacked because it deals only with the States because, necessarily, the power is confined to that subject and it does not bind the State. Upon the foregoing considerations the Grants Act involves no such threat to the existence of the States as integers in the federation. WTiat has been said about the Grants Act involves the view that the indirect ultimate effect of political power is irrelevant and, however wide the doctrine expressed by Latham C.J. in the Melbourne Corporation Case (6) may be applied, it can never be applied when the indirect effects are the consequence of voluntary action and not the consequence of com pulsive power. There is no political pressure here which could offend against any implied prohibition. Turning to the Assessment Act, s. 221 stands or falls as a law with respect to taxation. It is such a law (see In re Silver Bros. Ltd. (7)) and, notwithstanding that it is a law on subject matter, it can only be bad if it is the use of federal power to control or burden the exercise of State executive authority in the very widest sense of that doctrine. The federal taxation power extends to all laws the operative effect of which is to secure the collection of more tax moneys than would be collected without such a law. Apart from questions of implied limitations on Commonwealth power a law providing for the effective collec tion of revenue by subjecting State tax debts to inferiority is within
(1) (1937) 56 C.L.R., at p. 687.(4) (1937) 56 C.L.R., a t p. 702.
(2) (1947) 74 C.L.R., a t pp. 60, 61.(5) (1920) 28 C.L.R., a t p. 155.
(3) (1947) 74 C.L.R., at pp. 47, 48,
(6) (1947) 74 C.L.R., at p. 80.
49, 61, 78, 79, 80, 81, 82, 83.
(7) (1932) A.C. 514,
99 C.L.R.]
OF AUSTRALIA.
597
the taxation power. [He referred to Federal Commissioner of
H. C. o r A.
Taxation v. Official Liquidator of E. 0. Farley Ltd. {In Liquida
1957.
tion) (1).] Such a law in its impact upon the States does not so
The
State of Victoria
drastically affect them as to bring it into conflict with the implied
prohibitions. The nature of the implied limitations was discussed
V.
in the Melbourne Corporation Case (2), per Rich J. (3), per Starke
The
Common
J. (4), per Dixon J. (5), and per Williams J. (6). None of the four
wealth.
tests expressed in these passages is the same. Looking at s. 221 in the light of the tests expressed in the passages cited it is support able on certain of them and does not involve the grave interference with State functions necessary to contravene the implied limita tions. So far as the bankruptcy portion of s. 221 is concerned the bankruptcy power includes power to postpone the States and the fact that the States are postponed in relation to a prerogative right cannot affect the validity of the section. [He referred to Federal Commissioner of Taxation v. Ojficial Liquidator of E. 0. Farley Ltd. {In Liquidation) (7).]
R. Else-Mitchell Q.C., in reply.
D. I. Menzies Q.C., in reply.
Cur. adv. vult.
The following written judgments were delivered :—
Aug. 23.
D ix o n C.J. The validity of two distinct provisions of laws of the Commonwealth is attacked in these proceedings. The pro visions are s. 221 of the Income Tax and Social Services Contribution Assessment Act 1936-1956 and ss. 5 and 11 of the States Grants {Tax Reimbursement) Act 1946-1948. If ss. 5 and 11 are invalid the whole Tax Reimbursement Act must, it is said, go with them, for they can not be severed from the rest of the provisions of that Act, but that is not a necessary part of the attack.
On behalf of the two States who seek to establish the invalidity of the provisions in question we are told that the provisions are indispensable to the system which is called uniform taxation and that without them that system must come to an end. No satis factory legal reason could be advanced in support of this prophecy. So far as the law goes, all that can be said is that the invalidation of s. 221 of the Income Tax and Social Services Contribution Assess ment Act would remove one obstacle to the States breaking away
(1) (1940) 63 C.L.R., at pp. 314, 315.(5) (1947) 74 C.L.R., at pp. 80, 81.
(2) (1947) 74 C.L.R. 31.(6) (1947) 74 C.L.R., at pp. 98, 99.
(3) (1947) 74 C.L.R., at p. 66.
(7) (1940) 63 C.L.R., at pp. 313, 314,
(4) (1947) 74 C.L.R., at p. 75.
316.
598 HIGH COURT
[1957.
H . C . OF A .
from the system and the invalidation of the States Grants {Tax
1957. Reimbursement) Act would remove one powerful inducement to
The
the States to abide by it.
State of No attempt is made to invalidate the imposition by the Common
Victoria
V.wealth Parliament of income tax at rates which suffice to produce
Therevenue large enough to cover payments to the States of grants
Common
wealth.on the same scale as heretofore made to the States by way of tax
reimbursement. Nor is there any attempt to deny that the power
Dixon C.J.of the Commonwealth Parliament would enable it to authorise such
payments unconditionally as grants of financial assistance. The denial of power is very much more hmited. What is denied amounts to two things. First, it is denied that the power of that Parhament enables it to enact, as a condition of the grant, that the federal Treasurer must be satisfied that the State has not imposed a tax on incomes, or to enact that, if he makes advances, they shall be repaid by a State that in the event fails to observe the condition. Second, the power is denied to say that a taxpayer upon whom a State Parliament might impose a liabihty to pay to the State a tax upon income for any given year must not pay the tax until first he has discharged his liability to the Commonwealth to pay income tax in respect of the same year. This in effect is what is done by s. 221 (1) (a) of the Income Tax and Social Services Contribution Assessment Act. These provisions, the States say, are the buttress of the system of uniform taxation.
As between the States all Commonwealth taxation must be uniform if it is to be constitutional. To call the system one of uniform taxation may seem therefore to be strange. But the name was not chosen for the constitutional lawy^er. I t was chosen to describe the operation of the system as one replacing that existing in which, besides a federal income tax, there were taxes on income imposed by all the States which varied greatly in the burden they placed upon the respective taxpa_yers of the different States. Under the new system the proceeds of a necessarily uniform income tax would provide the moneys which otherwise the States must respect ively raise for themselves by their own varying income taxes. Thus the incidence of the aggregate burden of tax would not differ as between States and in that sense a uniform burden of income tax would be imposed upon taxpayers throughout Australia, and at the same time there would be no change in the unequal degree in which the different States relied upon the proceeds of the taxation of income as a source of revenue.
The system was introduced at what perhaps may for this country be regarded as the crisis of the war. I t was done by four Acts of
99 C.L.R.] OF AUSTRALIA.
599
Parliament that were assented to on 7th June 1942, the day after
H. C. o r A.
the battle of Midway Island ended.
1957.
First : the Income Tax Act 1942 (No. 23) imposed taxes upon income at rates which reached an unprecedented level, the pro
The
State o r VlCTOBIA
ceeds of which would cover the reimbursement of their lost income
V.
The Common
tax to the States as well as contributing to the wartime budgetary
necessities of the Commonwealth what that source of revenue could w e a l t h .
be expected to bear.
Dixon C.J.
Second ; the States Grants [Income Tax Reimbursement) Act 1942 (No. 20) provided, upon a condition, for the payment to the six States of sums which in fact, though it did not so appear on the face of the statute, were fixed by reference to the amounts which the respective States had, in their more recent budgets, raised by the taxation of incomes and substantially represented the aimual revenue which might then have been expected from that source. The Act was expressed to continue in operation until the last day of the first financial year to commence after the date on which His Majesty ceased to be engaged in the war and no longer.
Third : the Income Tax Assessment Act 1942 (No. 22), s. 31, inserted in the principal Act of 1936-1941 s. 221, forbidding a tax payer to pay his State tax for any given year in which such a tax
might be imposed until he had first paid his federal tax.
In s. 221
in its then form the introductory words were “ For the better securing to the Commonwealth of the revenue required for the prosecution of the War and by sub-s. (2) its operation was limited to the war in the same terms as were used in the Income Tax Reimbursement Act of 1942. The words “ for the prosecution of the War ” w’ere replaced in 1946 by the expression “ for the purposes of the Commonwealth ” and sub-s. (2) containing the Umitation
was repealed.
(No. 8 of 1946, s. 20.)
Fourth : by an Act the long title of which was “ An Act to make provision relating to the collection of taxes and for other purposes ” and the short title the Income Tax (War-time Arrangements) Act 1942 (No. 21), provision was made requiring the transfer to the Commonwealth service of State officers who were engaged in duties which, in the opinion of the Treasurer, were connected with the assessment and collection of taxes upon incomes. The transfer required was to be temporary and after the Act ceased to operate there was to be a retransfer of the officers. ‘ The Act contained ancillary and consequential provisions relating to the terms and conditions on which the temporarily transferred officers were to be employed by the Commonwealth, and the like. It provided further for the transfer of offices and furniture and of records so far
600 HIGH COURT
[1957.
H. C. O F A.
as they touched Commonwealth taxation. The operation of the
1957.Act, like that of the Income Tax Reimbursement Act and of s. 221,
T he
was limited to the last day of the financial year in which His Majesty
State of should cease to be engaged in the war. Further, by a preamble it
Victoria
V.was recited that it was necessary or convenient to make the pro
T hevisions with a view to the public safety and defence of the Common
Common
wealth.wealth and of the several States and for the more effectual pro
Dixon C.J.secution of the war.
Four States at once brought suits claiming declarations that the statutes were invaUd in whole or in part. The leading argument for the States was dehvered by Mr. Ligertwood K.C., as he then was, who appeared for South Australia. His opening sentence as reported provides the foundation of the attack. The learned counsel said, “ An examination of the four statutes under consider ation shows that they are in fact a single legislative scheme, and that the substance, purpose and effect of it is to make the Commonwealth Parliament the exclusive taxing authority in the Commonwealth in respect of income tax, and to prevent the States from exercising their constitutional powers in relation to income tax.” (1)
The counsel for the Commonwealth met the attack in detail but the general tone is made manifest by the first proposition with which the leading counsel (Mr. Ham K.C.) began, viz., “ In times of national emergency, as at present existing, the defence power is limited only by the necessity of self-preservation ” (2).
The decision of the Court was in favour of the vahdity of all four Acts of Parliament. As to the War-time Arrangements Act, which was supported only under the defence power, Latham C.J. and Starke J. dissented. As to the Income Tax Reimbursement Act, which was supported under s. 96 of the Constitution, Starke J. dissented. The decision, which is reported under the title of South Australia v. The Commonwealth (3), was delivered on 23rd July 1942. In New South Wales an Act was passed on 17th Nov ember 1942 called the Income Tax Suspension Act 1942 (No. 18) by which the further imposition of income tax was suspended as from 30th June 1942. In Victoria the annual taxing Act applied only to each financial year beginning on 1st July (see Act No. 4826) and none was passed imposing a tax for the year beginning 1st July 1942 or for any subsequent year. The other four States also ter minated their imposition of taxation upon incomes and so qualified for “ tax reimbursement ” by the Commonwealth. The States Grants [Income Tax Reimbursement) A d 1942 has been replaced by
(1) (1942) 65 C.L.R., at p. 385.(3) (1942) 65 C.L.R. 373.
(2) (1942) 65 C.L.R., at p. 396.
99 C.L.R.] OF AUSTRALIA.
601
the States Grants {Tax Reimbursement) Act 1946-1948, the duration
H. C. O F A.
of which is not limited, and for the last fifteen years there has been 1957.
no State taxation of incomes, the only income tax being that of the
The
State of Victoria
Commonwealth.
The whole plan of uniform taxation has thus become very much a recognised part of the Australian fiscal system. How far it
V.
The
Common
really rests on the validity of the condition which forms an integral wealth.
part of the Tax Reimbursement Acts and of s. 221 (1) (a) of the
Dixon C.J.
Income Tax and Social Services Contribution Assessment Act is, I think, open to question. But on the footing that it does so, the Court is now invited to depart from the decision in South Australia v. The Commonwealth (1), either by treating it as wrongly decided or by distinguishing it as a decision resting in an essential degree on the scope of the defence power in time of war. Having regard to the lapse of time in which no State has taken proceedings seeking judicial relief against the statutes, to overrule the decision or even so to distinguish it must involve a grave judicial responsibility.
In the present proceedings the argument for the States took a course which differed from that adopted in the earlier case. It was more restricted. Then all four enactments assented to on 7th June 1942 were impugned as together forming a legislative scheme or plan of an imconstitutional character. The “ Arrange ments ” Act has of course done its work and is spent. Of the three remaining statutory elements necessary to the “ plan ” or “ scheme ” upon which the argument in the earlier case based the attack, it was recognised that the validity of the Taxing Act must be con ceded. There are two such Acts at present, the Income Tax and Social Services Contribution Acts 1956 (Nos. 28 and 102). On its face such a measure is simply a taxing Act every word of which is within the power to make laws with respect to taxation. All that could be said is that the rates of tax are doubtless higher than they would have been if there were no “ tax reimbursement ” to
the States.
Each of the two provisions left, that is to say, s. 221
of the Assessment Act and the Tax Reimbursement Act, is made the subject of a separate attack, on the ground that it lies outside the legislative power to which it has been referred and moreover attempts an unconstitutional interference with the States. The constitutional power to which s. 221 is referred is of course that given by s. 51 (ii.) of the Constitution with perhaps s. 51 (xxxix.) operating in aid, and that to which the Tax Reimbursement provisions are referred is the power contained in s. 96 of the Constitution.
(1) (1942) 65 C.L.R. 373.
VOL. xcix—39
602 HIGH COURT
[1957.
| H. | C. OF A.But while the ground for impugning validity in the case of each | |
|
T henot based on the disclosure of an unconstitutional plan or scheme
State ofby the enactments considered in combination, reliance is placed on
ViCTOKIA
V.the planned interconnexion of the provisions as giving each a
Thepurpose which may be material in considering whether it is a true
Common
w e a l t h .
exercise of the legislative power upon wdiich its validity depends.
Dixon C.J.The question whether s. 96 suffices to support the enactment of
the States Grants {Tax Reimbursement) Act 1946-1948 is the first matter to decide. I t is affected more by decided cases than is the validity of s. 221 which, as it seems to me, has the support of no judicial decision except South Australia v. The Commonwealth (1). A brief description of the statute itself is enough for present purposes. The short title is States Grants {Tax Reimbursement) Act, a title which differs only from the Act of 1942, which it repeals, by the omission of one word. The earlier Act used the expression “ {Income Tax Reimbursement)”. The later Act commenced on 1st July 1946 (s. 2). The material part of its main provision (s. 5) is to the effect that in respect of any year during its operation, in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State an amount calculated in accordance with the provisions of the Act. Section 6 then fixes a figure of forty million pounds for 1947 and 1948 and, having done that, provides a base figure for the future from which the aggregate grant for the successive years is to be calculated annually. The base figure is forty-five million pounds and the calculation is to be made by finding how much that was per head of the population of the six States as at 1st July 1947, and then multiplying the amount per head by the population of the subsequent year. The sum obtained is to be further increased by the addition of a percentage, if there be an increase in average wages in the pre\uous year. The same percentage is to be added as the percentage of the increase in the average wages in the previous year. Section 7 proAudes elaborately for the division of the aggregate among the six States. I t fixes three periods viz. (1) the financial years 1946-1947 and 1947-1948 ; (2) the succeeding financial years until 30th June 1957 ; (3) sub sequent financial years. In each period a proportionate dis tribution of the aggregate is prescribed. It is perhaps not necessary to say more about these proportions than that in the third period which has now commenced the distribution is in accordance with the adjusted populations of the States, a term which although
(1) (1942) 65 C.L.R. 373.
99 C.L.R.] OF AUSTRALIA.
603
defined elaborately may be left as in itself sufficiently descriptive
H. C. OF A.
for present purposes. By s. 10 provision is made for consultation 1957.
between the government of a State and that of the Commonwealth
T he
with a view to the Parliamentary increase of the grant to the State.
State of Victoria
Section 11 contains two sub-sections. The first empowers the
V.
Treasurer of the Commonwealth to make in any year monthly or
The
Common
other advances to a State of portions of the grant to which it appears w ealth .
to him that the State will be entitled under the Act in respect of
that year. The second sub-section is as follows :—“ (2) Any such
Dixon C.J,
advance shall be made on the condition that the State shall not impose a tax upon incomes in respect of that year, and if, after the close of that year, the Treasurer gives notice in writing to the Treasurer of the State that he is not satisfied that the State has not imposed such a tax, the advances shall be repayable and shall be a debt due by the State to the Commonwealth.” This of course means that if a State receives by way of advances during a financial year a large part of the grant appropriated and then before the end of the financial year seeks to raise additional revenue by imposing an income tax, that State must at once refund the advances. Section 12 provides that payments in accordance with the Act should be made out of the Consolidated Revenue Fund which shall thereby be appropriated accordingly.
The constitutional basis for this enactment is s. 96.
Section 96
forms part of the financial clauses of the Constitution which we know as a matter of history were the final outcome of the prolonged attempts to reconcile the conflicting views and interests of the colonies on that most difficult of matters.
The fact that it came out of the Premiers’ Conference of 1899 (see the Victorian statute Australasian Federation Enabling Act 1899 (No. 1603) particularly s. 2 and first schedule), when the opening words of s. 87 (the Braddon clause) were inserted, does not assist in its construction nor ought the fact to be used for such a purpose, notwithstanding that now it has a place, however inconspicuous, as part of the history of the country. But it may explain why the terms in which it was drafted have been found to contain possibilities not discoverable in the text as it emerged from the Conventions, and also why the same opening words were adopted as in the Braddon clause as to the duration of the power, although in a context where they seem to have no purpose or effect that is intelligible, or at all events credible. I t is, perhaps, as well to set out s. 96. I t is as follows :—“ 96. During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant
604 HIGH COURT
[1957.
H . C. O F A.
financial assistance to any State on such terms and conditions as
1957.the Parliament thinks fit.” One may guess that s. 96 was regarded
Theas connected with the Braddon clause, s. 87, and that the purpose
State of of the opening words was to enable the Parhament to terminate the
Victoria
V.operation of both together. See Quick and Garran: The Annotated
The
Constitution of the Australian Commonwealth (1901) pp. 869, 870,
Common
and per Evatt J., in Deputy Federal Commissioner of Taxation (N.S. W.) V. W. R. Moran Pty. Ltd. (1). But s. 51 (xxxvi.) confers upon the
wealth.
Dixon C.J.
Parliament legislative power “ with respect to matters in respect of which this Constitution makes provision until the Parhament otherwise provides ” . On its face par. (xxxvi.) presupposes that the Parliament is authorised to provide otherwise as to “ matters ” with respect to which the Constitution immediately provides : they will be matters defined, like those enumerated in s. 51, in such a way as to be subjects “ with respect to ” which laws may be made. Section 87 does deal with such a matter, viz. the disposal of the net revenue of the Commonwealth. In the same way subject matters “ with respect to ” which legislative powers may be exercised are specified by the other provisions of the Constitution, except s. 96, in which the phrase occurs “ until the Parhament otherwise provides ” (cf. ss. 3, 7,10, 22, 24, 29, 30, 31, 34, 39, 46, 47, 48, 65, 66, 67, 73 and 97). In all such cases the Constitution makes directly an interim provision for the subject matter and s. 51 (xxxvi.) operates to confer power on the Parhament to make thereafter such pro\dsions with respect thereto as from time to time may appear appropriate. But s. 96 does not deal with a legislative subject m atte r; it does not make some interim provision with respect thereto. I t confers a bare power of appropriating money to a purpose and of imposing conditions. Either the power is terminated or it continues. It would be easy to understand if it terminated when another pro5dsion under or “ with respect to ” s. 87 was made but, however much one may suspect it, there is nothing in the Constitution itself to warrant any such construction. The conclusion reached in Quick and Garran: The Annotated Constitution of the Australian Commonwealth (1901) p. 870 was that the section might be considered for all practical purposes as a permanent part of the Constitution ; and the Constitutional Commission of 1927-1929, after hearing the meaning discussed of the limitation to “ a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides ”, reported that they considered the words to be ineffective and recommended that they be repealed. In the cases in this Court in which s. 96 has been considered, except
(1) (1939) 61 C.L.R., at p. 803.
f)48 HIGH COURT
[1957.
| H. | C. OF A.in excess of £4,000 at the rate of 18s. in the pound. Theoretically, | |
|
T hekind of tax, which may be imposed either by the Commonwealth
State ofor by a State. But it is clear that the
Tax Act of 1942 was calculated
^TCT0BIA
V.to strain the capacity of taxpayers to the utmost and, as a matter
T heof practical politics, to leave httle room for the effective imposition
Common
w e a l t h .of income tax by the States for the year to which the Act applied.
The Assessment Act of 1942 contained a number of provisions,
Fullagar J.but the only relevant provision is that which was contained in
s. 31.
That section introduced a new s. 221 into the Incoyne Tax
Assessment Act 1936-1941. This s. 221 was in the following terms :— “(1) For the better securing to the Commonwealth of the revenue required for the efficient prosecution of the present war—{a) a tax payer shall not pay any tax imposed by or under any State Act on the income of any year of income in respect of which tax is imposed by or under any Act with which this Act is incorporated until he has paid that last-mentioned tax or has received from the Commis sioner a certificate notifying him that the tax is no longer payable ; and (6) notwithstanding anything contained in any other Act or State Act—(i) a person who is a trustee within the meaning of the Bankruptcy Act 1924-1933 shall apply the estate of the bankrupt in payment of tax due under this Act (whether assessed before or after the date of the order of sequestration) in priority to all other unsecured debts other than debts of the classes specified in paragraphs (a), {d) or (e) of sub-section (1) of section eighty-four of that A c t; and (ii) the liquidator of a company which is being wound up shall apply the assets of the company in pavment of tax due under this Act (whether assessed before or after the date of the commencement of the winding up) in priority to all other unsecured debts : Provided that, where, under the law of any State relating to the payment of debts on the winding up of a com pany, debts of the classes specified in paragraph (a), (d) or (e) of sub-section (1) of section eighty-four of the Bankruptcy Act 1924 1933 are preferred to all unsecured debts due to the Crown in the right of that State, debts of those classes may also be paid in priority to any tax due under this Act. Penalty; One himdred pounds or imprisonment for six months or both, and, in addition, the court may order the person, trustee or liquidator, as the case may be, to pay to the Commissioner a smn not exceeding double the amount of tax due by hun, or by the bankrupt estate or company in liquidation, as the case may be, on the date on which the offence occurred. (2) This section shall have operation during the present war and imtil the last day of the first financial year to commence
99 C.L.R.] OF AUSTRALIA.
649
after the day on which His Majesty ceases to be engaged in the
H . C. O F A.
present war, and no longer.”
1957.
The Arrangements Act of 1942 contained a preamble in the following terms : “ Whereas, with a view to the public safety and
T he
State of Victoria
defence of the Commonwealth and of the several States and for
V.
the more effectual prosecution of the war in which His Majesty
T he
Common
is engaged, it is necessary or convenient to provide for the matters w ealth .
hereinafter set o u t” . Sections 4 and 11 contained the main
FuUagar J.
operative provisions. Section 4 provided : ” The Trea.surer may at any time and from time to time, after receipt of a recommendation from the Public Service Board, by notice in writing addressed to the Treasurer of any State, notify him that, as from the date specified in the notice, it is, in his opinion, necessary for the efficient collection of revenue required for the prosecution of the war, for the effective use of manpower, or otherwise for the defence of the Commonwealth, that any officers of the State service specified in the notice who have been engaged on duties which, in the opinion of the Treasurer, are connected with the assessment or collection of taxes upon incomes should be temporarily transferred to the Public Service of the Commonwealth, and any officer so specified shall, by force of the notice, be temporarily transferred to the Public Service of the Commonwealth accordingly as from that date.” Section 5 (1) pro vided that, unless sooner re-transferred, every transferred officer should be re-transferred to the State Service inunediately after the Act ceased to operate. Section 11 (1) provided ; “ The Treasurer may at any time and from time to time, by notice in writing addressed to the Treasurer of any State, notify him that, as from the date specified in the notice, it is, in his opinion, necessary for the efficient collection of revenue required for the prosecution of the war, for the effective use of manpower, or otherwise for the defence of the Commonwealth, that the Commonwealth should, during the operation of this Act, have the possession and use of any office accommodation, furniture and equipment specified in the notice (whether specified particularly or in general terms) and the Commonwealth shall have the possession and exclusive use of that office accommodation, furniture and equipment accordingly as from that date.” The rest of the Act contained provisions relating to such incidental matters as the rights of transferred officers and the payment of compensation for office accommodation etc. which might be taken over by the Commonwealth. These provisions were amended as to matters of detail in 1943 and again in 1944. Section 16 provided : “ This Act shall continue in operation until the last day of the
V O L .
xorx—42
650 HIGH COURT
[1957.
H. C. O F A.
first financial year to commence after the date on which His .Majesty
1957.ceases to be engaged in the present war, and no longer.”
The Grants Act of 1942 provided by s. 4 that ;
“ In every financial
T he
State of
V ictoriayear during which this Act is in operation in respect of which the
V.Treasurer is satisfied that a State has not imposed a tax upon
T he
Commonincomes, there shall be payable by way of financial assistance to
w ealth .that State the amount set forth in the Schedule to this Act agaimst
FiUlagar J.the name of that State, less an amount equal to any arrears of tax
collected by or on behalf of that State during that financial vear.” The expression “ arrears of tax ” was defined by s. 3 as meaning (in effect) income tax payable to the State concerned for anv financial year prior to that commencing on 1st July 1942. Section 5 provided for payment to the States, after the expiration of the Act, of an amount equal to arrears of tax collected by them, which amount was to bear interest at a rate not less than three per cent. Section 6 provided for certain additional grants to the States if the Treasurer was of opinion that the payments under s. 4 were “ insufficient to meet the revenue requirements of the States ” . Section 7 provided that payments in accordance with the Act should be made out of the Consolidated Revenue Fund, which was appro priated accordingly. Section 8 provided : “ This Act shall con tinue in operation until the last day of the first financial year to commence after the date on which His Majesty ceases to be engaged in the present war, and no longer.” In the schedule were set out the respective amounts referred to in s. 4. The largest sum (£15,356,000) was payable to New South Wales, and the smallest (£888,000) to Tasmania. It would appear from South Australia v. The Commonwealth (1) that the amounts set out in the schedule represented substantially the average of the amounts raised by each State by way of income ta.x in the financial years ended 30th June 1940 and 30th June 1941. It may be mentioned that exactly parallel provisions were made in relation to Entertainments Tax by Act No. 43 of 1942, which came into force by proclamation on 1st October 1942. The Commonwealth, by Act No. 42 of 1942. unposed an entertainments tax, but nothing corresponding to s. 221 of the Assessment Act or to the Arrangements Act appears ever to have been enacted in relation to entertainments tax.
Immediately after the passing of these Acts, all the States except New South Wales and Tasmania took steps to challenge their validity, and writs were issued out of this Court against the Common wealth and the Treasurer of the Commonwealth, claiming declarations that the Acts were unconstitutional and mj unctions to restrain
(1) (1942) 65 C.L.R., at p. 380.
99 C.L.R.] OF AUSTRALIA.
651
their being put into effect. Applications for interlocutory injunc
tions, treated by consent as the trial of the actions, came on for
hearing on 22nd June 1942 before a Court consisting of Latham C.J.
T he
and Rich, Starke, McTiernan and Williams JJ .
The judgment
State of Victoria
of the Court was given on 23rd July 1942 : South Australia v.
V.
The Commonwealth (1). All the Acts were held to be valid. As to
T he
Common
the Tax Act and the Assessment Act, the Court was unanimous. w ealth .
As to the Arrangements Act, Latham C.J. and Starke J. dissented. FuUagar J.
As to the Grants Act, Starke J. dissented.
It is now necessary to refer to the subsequent history of the legislation in question, which may be stated shortly.
The Tax Act of 1942 was simply an ordinary taxing Act. Its only notable intrinsic feature was the heaviness of the burden which it imposed. I t has been succeeded by a series of annual
taxing Acts.
After 1946 there was, broadly speaking, a progressive
reduction in the rates of tax. Under the Act of 1956 the maximum rate for an individual person is reached when the income exceeds £16,000, at which point the rate on the excess is 13s. 4d. in the pound. I t may be mentioned that liability to pay what is called “ provisional tax ” was introduced by the Income Tax Assessment Act 1944, and that in 1950 the title of the Assessment Act was changed to Income Tax and Social Services Contribution Assess ment Act. I t is to be noted, however, that the effect of s. 221ya is that the word “ tax ” in s. 221 does not include provisional tax.
Section 221 of the Assessment Act, which was introduced into that Act by the Assessment Act of 1942, would, if sub-s. (2) thereof had been left to operate, have ceased to be in force on (I think) 30th June 1947. The section was, however, amended by s. 20 of the Income Tax Assessment Act 1946 (No. 6 of 1946), which came into force on 13th April 1946. By this amendment sub-s. (2), which limited the duration of the Act, was omitted, and m the introductory passage the words “ the purposes of the Common wealth ” were substituted for the words “ the efficient prosecution of the present war ” . Section 221 thus became an enactment which purported to operate permanently, and any connexion which it might have been thought to have had with the defence power of the Commonwealth was severed.
As to the Arrangements Act 1942, the powers given to the Treasurer by ss. 4 and 11 of this Act appear to have been exercised immediately after the decision of this Court that they were valid was pronounced on 23rd July 1942. I t does not appear whether the effect of those two sections was thereby completely exhausted, though one would
(1) (1942) 65 C.L.R. 373.
652 HIGH COURT
[1957.
H . C. O F A.
suppose that to all intents and purposes it was. It doe.s appear,
1957.however, that from 1942 onwards there has been no imposition
T h eof any income tax by any State, and the assessment and collection
State of of income taxes imposed from time to time by Commonwealth
Victoria
V.legislation has been exclusively in the hands of the Commonwealth.
T h eThe Act would, by virtue of s. 16, have expired on (I think) 30th
CommonJune 1947. In 1946, however, the Parliament of the Commonwealth
w e a l t h .
enacted the Income Tax {War-time Arrangements) Act 1946 (Xo. 3
FuUagar
J .
of 1946) which received the Royal Assent on 13th April 1946. This Act repealed ss. 4, 6, 7, 7a, 8, 9 and 10 but not s. 11 of the Arrangements Act of 1942. I t also amended s. 5, which had pro vided for the automatic re-transfer of State ofl&cers to the State service on the expiration of the Act by giving the transferred officers an option, to be exercised within a limited time, of re-transfer to the State service.
The Grants Act of 1942 would also, by virtue of s. 8 thereof, have expired on (I think) 30th June 1947. But again the Parlia ment of the Commonwealth took action in 1946. By s. 3 of the States Grants {Tax Reimbursement) Act 1946 (Xo. 1 of 1946), which came into force on 1st July 1946, the whole of the Grants Act of 1942 was repealed. Section 5 provided : “ In respect of any year during which this Act is in operation and in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State an amount calculated in accordance with the prolusions of this Act (other than this section), less an amount equal to any arrears of tax collected by or on behalf of that State during that year.” The expression “ arrears of tax ” is defined by s. 4 as having the same meaning as in the repealed Grants Act. Section 6 stated the aggregate amount which was to be distributed in grants to the States in each ensuing year. For the years ending 30th June 1947 and 30th June 1948 the amount was £40,000,000. For every subsequent year the amoimt was to be calculated in a maimer, which need not be stated in detail, by reference to the populations of the respective States and the average wages per person employed in the respective States. Sections 7 and 8 pro vided for the manner in which the aggregate grant should be diffided among the States. For the years ending 30th June 1947 and 30th June 1948 it was to be divided in accordance with the table in the first schedule to the Act. For ensuing years it was to be diffided according to a somewhat complicated method which may be sufficiently described for present purposes as a population basis. Section 11 provided : “ (1) The Treasurer may, in any
99 C.L.R.] OF AUSTRALIA.
653
year, make monthly or other advances to any State of portions of H. C. of A.
the grant to which it appears to him that the State will be entitled
under this Act in respect of that year. (2) Any such advance
T he
shall be made on the condition that the State shall not impose a
State of V ictoria
tax upon incomes in respect of that year, and if, after the close of
V.
that year, the Treasurer gives notice in writing to the Treasurer
T he Common
of the State that he is not satisfied that the State has not imposed w ealth .
such a tax, the advances shall be repayable and shall be a debt
FuUagar J.
due by the State to the Commonwealth.”
The Grants Act of 1946
was amended in minor respects in 1947 and 1948. In 1949 and in each succeeding year up to and including 1956 Acts were passed by the Parliament of the Commonwealth which appropriated for “ financial assistance ” for the States very considerable sums in addition to those calculated under ss. 6, 7 and 8 of the Grants Act of 1946 : see Acts Nos. 48 of 1949, 25 of 1950,10 of 1951, 35 of 1951, 56 of 1952, 63 of 1953, 38 of 1954, 44 of 1955 and 108 of 1956.
The position which subsists today, fifteen years later, is thus seen to be substantially that which came into existence immediately after the passing of the tetralogy of Acts of the Parliament of the Commonwealth in 1942. The Commonwealth has in each year imposed an income tax at uniform rates throughout Australia. In no year has any State imposed an income tax. The Arrangements Act has, so to speak, been fully executed, and the greater part of it has been repealed : the result of its operation has been that the assessment and collection of income taxes has been exclusively in the hands of the Commonwealth. In each year each State has received its grant of “ financial assistance ” with additions. Section 221 of the Assessment Act remains, or purports to remain, in force, but, since no income tax has been imposed by any State, there has never been any occasion for its application in any respect.
When the former actions were before the Court in 1942, each of the four Acts in question was attacked individually, but the main contention of the plaintiff States was that the four statutes con stituted a single legislative scheme, the purpose and effect of which was to make the Commonwealth the exclusive taxing authority in respect of income tax, and to prevent the States from exercising their constitutional power to impose and collect a tax on incomes : see the argument of Mr. Ligertwood K.C. (as he then was) (1). In the present cases the existing Tax Act could hardly have been challenged as being anything but a plain exercise of the taxation power of the Commonwealth, and the Arrangements Act, having
(1) (1942) 65 C.L.R., at p. 385.
654 HIGH COURT
[1957.
| H. | C. OF A.been fully carried into effect long ago, had for practical purposes | |
|
T hethe statute book. Accordingly, counsel for the States confined their
State ofViOTOEIAattack to the Grants Act and s. 221 of the Assessment Act, though
V.the grounds of their attack were basically the same as those which
T hewere put forward in 1942 against the alleged “ legislative scheme ” . COMMON-
NS'EAX.THThe argument rested on the essentially federal nature of the Con
FuUagar J.stitution, and, although it naturally ranged over a wide field and
invoked a number of decided cases to support or illustrate it, it is clearly enough summarised in the last paragraph of the written precis of argument handed to the Court by counsel. That para graph reads ;—“ The Constitution is fundamentally federal in that it provides for the Commonwealth and the States as separate organs independent of each other and co-ordinate in their respective spheres, and prevents any law of the Commonwealth from operating to destroy or weaken the independence or intregrity of a State or to place a particular disability or burden upon an operation or activity of a State, and more especially on its constitutional powers.”
I t is clear that no estoppel is created by the decision of 1942. The statutes attacked are not identical with those which were attacked in 1942. In any case, one of the plaintiffs, the State of New South Wales, was not a party to the proceedings of 1942. Although, however, there is no estoppel, and it was never suggested that there was any estoppel, the substance of the legislation now attacked is precisely the same as that of the Grants Act and the Assessment Act, which were attacked in 1942, and the ground of the attack is precisely the same. I t is clear, in my opinion, that the present actions carmot be decided in favour of the plaintiffs without overruling South Australia v. The Commonwealth (1). I t was indeed sought to distinguish that case on the ground that the Grants Act and the Assessment Act were at the time of that decision limited in operation to the duration of the war, and could be supported by the defence power in the circumstances then existing. I t is true, I think, that the validity of the Arrangements Act was rested on the defence power, and, so far as it applied to personnel, perhaps could not have been rested on any other power. But the Arrange ments Act is not now in question. I t is true also that McTiernan J. upheld the Assessment Act as an exercise of the defence power, and, while regarding the Grants Act as fully justified by s. 96 of the Constitution, was of opinion that that Act also might possibly be justified as an exercise of the defence power (2). But Latham C.J.
(1) (1942) 65 C.L.R. 373.
(2) (1942) 65 C.L.R., a t p. 456.
99 O.L.R.] OF AUSTRALIA.
655
and Rich, Starke and Williams JJ. regarded the Assessment Act as
H. C. OF A.
authorised by the taxation power (s. 51 (ii.) and (xxxix.) ) and the
1957.
Grants Act as authorised by s. 96. I t would in truth, as it seems to
T he
State op ViCTOEIA
me, have been impossible, if the objection taken to them had been
otherwise valid, to sustain either the Grants Act or the Assessment
V.
Act as a lawful exercise of the defence power. For the objection
T he
Common
taken then, which is the objection taken now, is fundamental. w e a l t h .
I t asserts what is said to be a basic principle of the Constitution—
FuUagar J.
that the Commonwealth cannot prohibit or fetter or control the exer cise by the States of their constitutional powers. If this principle exists and is violated by the Grants Act or the Assessment Act as they now stand, it existed and was violated by those Acts as they stood in 1942, whatever the head of power by reference to which the Common wealth might have sought to justify them. I t is, in my opinion, impossible, so far as those two Acts are concerned, to distinguish the decision of 1942 from the present cases by referring that decision to the defence power.
The very questions which are now raised by the States of New South Wales and Victoria were thus litigated and decided fifteen years ago in actions brought by four States, of which the State of Victoria was one. The enactments now challenged assumed their present permanent character in 1946. The state of affairs which resulted from the original enactments in 1942 followed immediately on those original enactments, and has subsisted ever since without challenge from any State. Even now the enactments are challenged by only two of the six States. In all the circumstances the questions decided in 1942 ought not, in my opinion, now to be reopened. Indeed I would say that, if ever there was a case for the application of the rule of stare decisis, this is that case. I t is not really necessary for me to say more, but I wish to make one or two observations on each of the provisions in question.
So far as the Grants Act is concerned, it seems to me impossible to maintain that it is not a valid enactment. I t is authorised by s. 96 of the Constitution. Section 96 does not confer legislative power in the same sense in which s. 51 confers legislative power. I t authorises the appropriation of money for a specific purpose, declaring, in effect, that the purpose of providing financial assistance for any State is a “ purpose of the Commonwealth ” within the meaning of s. 81. Very great difficulty is occasioned by the words “ until the Parliament otherwise provides ”, which have to be read with s. 51 (xxxvi.). I cannot agree with the suggestion that the effect is to give to the Parliament power pro tanto to amend the Constitution by restricting or expanding its own powers. The
656 HIGH COURT
[1957.
| H. | C. OF A.difficulty, however, need not be faced in the present case, because | |
|
T h emay therefore still today “ grant financial assistance to any State
State of on such terms and conditions as it thinks fit” . Even if the reference
V ictoria
V.to terms and conditions had been omitted, it wmuld not, I think,
T hehave been easy to maintain that the Commonwealth could not
Commonimpose conditions on the making of a grant to a State. But it is
w e a l t h .
expressly provided that conditions may be imposed, and I can see
FuUagar J.
no real reason for limiting in any way the nature of the conditions which may be imposed. I t may be said that, if a condition calls for State action, the action must be action of which the State is constitutionally capable. But I can see no reason for otherwise limiting the power to appropriate for payment to a State subject to a condition.
The Federal Aid Roads Act 1926 authorised the Commonwealth to enter into agreements with the States under which the Common wealth was to pay moneys to the States, and the States were to expend those moneys on the construction and reconstruction of roads. Moneys were appropriated by the Act for payment to the States under the agreements. The Commonwealth had, of course, no power directly to appropriate moneys for application to the making or maintenance of roads, and in Victoria v. The Commonwealth (1) the State attacked the validity of the Act. I t was argued that the terms and conditions mentioned in s. 96 were financial terms and conditions, e.g. as to time and mode of payment or repayment. Alternatively it was argued that the terms and conditions must relate to matters with respect to which the Commonwealth has legislative power. Both arguments received what can fairly be described as short shrift. In South Australia v. The Commonwealth (2) Latham C.J., after pointing out that the Grants Act had no compulsive effect, said :—“ The Commonwealth may properly induce a State to exercise its powers (e.g. the power to make roads : see Victoria v. The Commonwealth (1)), by offering a money grant. So also the Commonwealth may properly induce a State by the same means to abstain from exercising its powers ” (3). The first part of this passage was quoted with approval by a Court consisting of Dixon, Williams, Webb, FuUagar and Kitto JJ . in Pye v. Renshaw (4). If the first part of the passage is true, the second follows.
A word should be said about s. 11 of the Grants Act of 1946, because that section did not appear in the Act of 1942. That section enables the Treasurer to make periodical advances to a
(1) (1926) 38 C.L.R. 399.(3) (1942) 65 C.L.R., at p. 417.
(2) (1942) 65 C.L.R. 373.
(4) (1951) 84 C.L.R., at p. 83.
99 C.L.R.] OF AUSTRALIA.
657
State of portions of the grant to which it appears to him that the
H. C. OF A.
State will become entitled at the end of the financial year. If 1957.
after payment of an advance the State does impose an income tax,
T he
State of Victoria
the advance is repayable to the Commonwealth. This seems to
me to be merely an ancillary or incidental provision, obviously
V.
T he Common
designed for the benefit of the States.
If s. 5 is valid, it follows that
s. 11 is valid.
w e a l t h .
The question of the vahdity of s. 221 of the Assessment Act is,
to my mind, a more controversial question, though it is probably
of less practical importance.
FuUagar J.
It cannot be doubted, as a general proposition, that the Common wealth could not by a naked prohibition prevent the States from exercising any of their constitutional powers, including the power to impose taxes. Nor could the Commonwealth by a naked pro hibition prevent the States from collecting taxes lawfully imposed in the exercise of that power. But the powers which are preserved by ss. 106 and 107 of the Constitution are preserved subject to the Constitution, and the legislative power granted to the Common wealth by s. 51 enables the Commonwealth, in the course of exercising affirmatively its power with respect to any of the subjects men tioned, to exclude expressly or by implication State legislation on the same subject, and in effect to say that its own law shall be the whole law and the only law on the subject. There has been such an express exclusion in the Bankruptcy Act, the Life Insurance Act, the Patents Act and other Acts. The power to make laws with respect to taxa tion (s. 51 (ii.) ) has generally been regarded as standing on a special footing ; see Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd. (1). This is, of course, because the power to make laws with respect to taxation has been regarded as a power to make laws imposing taxation, and a legal conflict between a Commonwealth power to impose taxation and a State power to impose taxation is seen as an impossibility. A very real conflict, however, may arise between the taxing powers of the States and some other power of the Commonwealth, and, apart altogether from South Australia v. The Commonwealth (2), I would regard it as settled law that the Commonwealth, when it legislates within its powers to confer rights upon itself or create rights against itself, may by express enactment make those rights subject to, or immune from, the taxing power of the States : Chaplin v. Commissioner of Taxes (S.A.) (3); The Engineers’ Case (4); The Commonwealth v.
(1) (1920) 28 C.L.R., at pp. 143,
(3) (1911) 12 C.L.R. 375.
144.(4) (1920) 28 C.L.R. 129, at p. 157.
(2) (1942) 65 C.L.R. 373.
658 HIGH COURT
[1957.
| H. | C. or A.State of Queensland (1). By a parity of reasoning, I think that the | |
|
T hetheir taxing powers, must have power, by virtue of its own taxing
State of power, to take all necessary steps to ensure the collection of its
V ictoria
V.own taxes, and to that end to give priority to the obhgation to
T he
pay its own taxes over the obligation to pay State taxes.
Common
w e a l t h .When s. 221 of the Assessment Act is examined in the light of these
considerations, the only real question which emerges is seen, I
FuUagar J.think, to be a very narrow question, and just the very kind of question
as to which this Court should regard itself as bound by a clear prior
decision.
Sub-section (1) (6) (i) of s. 221 gives to Commonwealth income tax priority in a bankruptcy. This part of s. 221 is clearly valid: it could be supported either under the bankruptcy power (s. 51 (xvii.) ) or, in the light of what I have said, under the taxation power (s. 51 (ii.)). Sub-section (1) {b) (ii) of s. 221 gives to Common
wealth income tax priority in the winding up of a company.
I t is
equally clear, in my opinion, that this provision is vahd. The ques tion which remains relates to the validity of sub-s. (1) (a), and is as I see it, whether that paragraph goes beyond what can reasonably be considered necessary for securing that Commonwealth income tax shall be paid in priority to any State income tax. I t may be said that adequate protection is given to the Commonwealth by the provisions of sub-s. (1) (6). On the whole, however, I am disposed to agree with what was said by Williams J. in South Australia v. The Commonwealth (2) and, even if I were not, I do not think, as I have said, that any sound reason has been shown for overruling the decision in that case.
The demurrers should, in my opinion, be allowed.
K itto J. My consideration of the very important questions which these cases raise has led me to the same conclusions as the Chief Justice. I agree entirely in his Honour’s judgment, and there is nothing that I would add.
T aylor J. In my opinion the attack made by the plaintiffs upon the provisions of the States Grants {Tax Reimbursement) Act 1946-1948 must fad. I t is, of course, only too clear that the reasons of this Court in South Australia v. The Commonu'ealth (3) made the annihilation of ss. 5 and 11 of that Act a task of unusual difficulty. Indeed it may have been enough to say that no sufficient reasons
(1) (1920) 29 C.L.R. 1.(3) (1942) 65 C.L.R. 373.
(2) (1942) 65 C.L.R., at pp. 464, 465.
99 C.L.R.] OF AUSTRALIA.
659
appear to justify us in reconsidering what is, in effect, the very
H. C. o r A.
question which was decided adversely to the plaintiffs’ contentions
1957.
some fifteen years ago. But in deference to the arguments advanced
T he
State o r Victoria
on behalf of the plaintiffs I wish to add that I am satisfied that
acceptance of the plaintiffs’ arguments would involve not only
V.
overruling the decision in that case but also an unjustified departure
T he
Common
from the considered views expressed and acted upon m Victoria v. w e a l t h .
The Commonwealth (1) and in Deputy Federal Commissioner of
Taylor J.
Taxation (iV.S.IF.) v. W. R. Moran Pty. Ltd. (2). I agree with the observations of the Chief Justice concerning the relevance of those views to the present problem and, accordingly, I am of the opinion that the plaintiffs must fail on this branch of the case.
The question of what should now be said concerning the pro visions of s. 221 of the Income Tax and Social Services Contribution Assessment Act 1936-1956 is, however a matter of greater difficulty. I t is true, of course, that in the form in which it then stood, s. 221 sustained the attack made upon it in South Australia v. The Common wealth (3). And it is equally true that for all practical purposes s. 221, as it now stands, is in the same form. But, to my mind, the circumstances in which the earlier section was designed to operate were vastly different from those in which we are now called upon to consider the effect and operation of the present section and to pronounce upon its true substance and character.
Before referring to the nature and relevance of these differentiating circumstances it is of importance to observe that in 1942 the members of the Court regarded the provision (s. 221) introduced by Act No. 22 of 1942, merely, as a measure designed to secure “ priority ” for Commonwealth income tax as against claims of the several States for like imposts and this view was of the very essence of the decision that the section was a valid legislative enactment: see South Aus tralia V. The Commonwealth, per Latham C.J. (4) ; per Rich J. (5); per Starke J. (6); per McTiernan J. (7) and per Williams J. (8). I agree at once that the provisions of s. 221 (1) (6) were and are provisions of this character and I see no reason to doubt that the Commonwealth Parliament may, with respect to circumstances such as those in which this sub-section was designed to operate, legislate to give priority to outstanding claims for income tax validly imposed. Such a provision may, in the language of Starke J.,
(1) (1926) 38 C.L.R. 399.(5) (1942) 65 C.L.R., at p. 436.
(2) (1939) 61 C.L.R. 735 ; (1940) A.C.
(6) (1942) 65 C.L.R., at p. 441.
838 ; (1940) 63 C.L.R. 338.
(7) (1942) 65 C.L.R., at p. 453.
(3) (1942) 65 C.L.R. 373.(8) (1942) 65 C.L.R., at pp. 464, 465.
(4) (1942) 65 C.L.R., at pp. 4.34, 435.
660 HIGH COURT
[1957.
H. C. OF A. be regarded a.s an exercise of “ . . . Commonwealth authority to Z057.make its taxation effective and to secure to it the full benefit
T hethereof” (1), and so achieve validity. But I recognise a clear
State of distinction between a provision which secures “ priority ” to a
Victoria
V.Commonwealth claim for income tax in the administration of a
T h ebankrupt estate or in the winding up of a company on the one hand
Common
w ealth .and, on the other, a provision which, irrespective of the means
available to a taxpayer to satisfy his outstanding obligations, makes
Taylor 3.it an offence for him to discharge a liability for income tax levied
by a State until such time as his Commonwealth income tax for the same year has been assessed and paid. There can be no point in the creation of “ priorities ” with respect to the payment of debts except to provide for cases where it is seen that a debtor is or may be unable with the means at his disposal to discharge his obligations in full or where assets to which creditors may resort for payment are or may prove to be insufficient to satisfy all claims that may be made upon them. Except in such cases no additional security is provided for any outstanding debt by the prescription of a “ priority ” and, except in cases of that character, the pro visions of s. 221 (1) (a) can do nothing to make the Commonwealth’s “ taxation effective ” or “ to secure to it the full benefit thereof ” ; in cases where a taxpayer’s estates are sufficient to meet all his outstanding obligations those provisions will operate, merely, to postpone payment of State income tax without providing for the Commonwealth any additional guarantee that its claim for income tax will be met.
It may be said that the criticism of s. 221 (1) (a) which is evident in these observations is concerned with the form of that sub-section rather than with its substance and operation. To some extent this may be true but the point which it is necessary to stress is that the sub-section is designed to apply to and, if valid, will apply to every taxpayer whatever his financial circumstances may be. It may, therefore, be said with some degree of coimction that the section fails to specify as a condition of its operation the existence of any circumstance relevant to the exercise by the Commonwealth of a legislative power to protect its revenues.
I do not suggest and I do not believe that these rather ob\dous considerations were overlooked or discarded when s. 221 m its original form was previously considered by the Court. Indeed there is every reason for thinking that the problem which then arose was of a very special character. As has been said already, the
(1) (1942) 65 C.L.R., a t p. 441.
99 C.L.R.] OF AUSTRALIA.
661
section was originally enacted at a critical stage of the war and
H. C. o r A.
income tax rates had been increased to an imprecedented level. 1957.
Indeed they had been increased to such an extent that it was no
T he
far-fetched assumption that the burden so created was one which
State of Victoria
could not, together with income tax levied by the several States, be
V.
borne by the general body of taxpayers. Moreover the provisions of
T he
Common
s. 221 were designed as a temporary measure. They were to con
w ealth .
tinue in operation only until the expiration of a short period after
Taylor
J .
the war and there was every reason for thinking that the demands of the war would maintain taxation at the same level during that period. In these circumstances it was a simple matter to assume that the general body of taxpayers would, at the very least, find diffi culty in meeting both Commonwealth and State demands for income tax and to regard the provisions of s. 221 (1) (a) as a measure designed to secure, in competition with the States, priority for payment of Commonwealth income tax. At all events these were the circumstances in which the question was decided and they were circumstances which were vastly different from those which now present themselves. The present section is no temporary provision designed to deal with a special and transient situation. Nor, much as experience may pessimistically incline one to think otherwise, is there any sound reason for concluding that rates of income tax will remain indefinitely at a level which will require the Commonwealth and the States—if any of the latter should see fit to levy income tax—to endeavour, in competition with one another to collect their respective imposts from a body of taxpayers which, in general, will be unable or likely to be unable to pay both.
These considerations induce me to think that the question which now arises in relation to s. 221 (1) (a) is clearly distinguishable from the question which arose in South Australia v. The Commonwealth (1) and that nothing that was then said requires us to conclude that the sub-section, as re-enacted, is valid. Indeed, when regard is had to the complexion which it now bears and to the effect and operation which, as a permanent provision of the Income Tax and Social Services Contribution Assessment Act, it now so plainly has, it may be possible to say that the reasoning in that case would not, alone, justify such a conclusion. Accordingly I am of the opinion that when s. 221 (1) (a) ceased to be a temporary measure designed to deal with a very special situation and became a permanent provision intended to operate in undefined and unpredictable circumstances it assumed a character and operation which cannot
(1) (1942) 65 C.L.R. 373.
662 HIGH COURT
[1957.
| H. | C. OF A. be justified under Commonwealtb legislative power. That being | |
|
T heprovisions of that sub-section are invalid and that the demurrers
State of must, therefore, be overruled.
Victoria
V.
T he
Order in each case :—
Common
Demurrer overruled. Declare that par. (a) of s. 221 (1) of the Income Tax and Social Services Con tribution Assessment Act 1936-1956 is ultra vires and void. Refuse all other relief claimed. Order that the parties abide their own costs.
w ealth .
Sohcitor for the plaintiffs, the State of Victoria and the Attorney- General thereof, Thomas F. Mornane, Crown Solicitor for the State of Victoria.
Sohcitor for the plaintiffs, the State of New South Wales and the Attorney-General thereof, F. P. McRae, Crown Sohcitor for the State of New South Wales.
Sohcitor for the defendant Commonwealth of Austraha in each action, H. E. Renfree, Crown Sohcitor for the Commonwealth.
R. A. H.
Key Legal Topics
Areas of Law
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Constitutional Law
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Tax Law
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Statutory Interpretation
Legal Concepts
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Jurisdiction
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Standing
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Statutory Construction
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