AG Fi De tctoria & v KR a a

AG Fi De tctoria & v KR a a - [1942] HCA 14 - HCA 1942 case summary — Zoe

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seen from the increase in income-tax collections of the States, despite decreases in taxation rates. The financial position of the States had been materially eased during the war, owing chiefly to the virtual elimination of unemployment through the expansion of war industries, to the provision by the Commonwealth of certain social services, and to a great expansion of railway revenue arising chiefly from causes connected with the war. The amounts raised by the States from income taxation varied widely from State to State in respect of the amount of income tax per head of population and in respect of the manner in which the burden of the tax was spread over different income levels. By reason of those circum- stances the Commonwealth had not been able to use for its own purposes the full taxable capacity of a taxpayer in a less highly taxed State without imposing an insupportable burden on a taxpayer at the same income level in a more highly taxed State by reason of the aggregate of Commonwealth and State income tax. In some cases, he deposed, the rate of these taxes combined in the financial year 1941-1942 already exceeded 20s. in the £1. Although the taxes imposed in the Income Tax Act 1942 are calculated to raise during the financial year 1942-1943 an amount approximately equal to the total of the amounts which would have been raised during that year by the Commonwealth and the several States from income tax at the rates which have operated during the financial year 1941- 1942, it was estimated that, largely as a result of the rising income level, they would raise a substantial amount more than has been raised during the said financial year 1941-1942. The amount of the increase would be available to the Commonwealth for the purposes of defence. If and so far as the States refrained from imposing income tax during the remainder of the war period, there would be avail- able to the Commonwealth the whole of the increase in the yield of income tax due to the rising income level, derived mainly from war expenditure by the Commonwealth. Previously, this increase had been shared between the Commonwealth and the States. There were at present in the Commonwealth and in the several States some twenty-three distinct taxes on income, most of them differing not only in rate but also in basis of assessment. It was anticipated that to substitute for these diverse taxes the single set of taxes imposed by the Income Taa Act 1942 would, by simplifying the machinery for the assessment and collection of income tax, effect a substantial economy in trained personnel, whose services would thus be released for other duties in connection with the prosecution of the war. With a view to simplifying the machinery for the

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principle was reciprocal so that the Co ""monwealth could not inter- fere with the States any more, than tut tebates could interfere with the Commonwealth. That 5 1 nciple was applied until the decision in Amalgamated Society of Nigineas v. Adelarde Steamship Co. Lid. (Engineers' Case) (1). In that case the Court denied the principle as laid down in the wide terms of D'Hmden v. Pedder (2), but did not deny the principle that neither the Commonwealth nor the States can purposely direct its or their legislation towards destroying or weakening the functions or capacities of the other : see the report (3). This principle was not dealt with by the majority of the Court in the Engineers' Case (1). It was not necessary to and is quite outside the decision in that case (West v. Commissioner of Taxation (N.S.W.) (4)). The scheme shows an interference with and a discrimination against the States. The discrimination in the grants indicates the purpose of the Commonwealth. The real object of the legislation is to force the States out of the taxing field, The States Grants Act is not conditioned by the needs of the States. It is not a proper use of the grant power. Whatever construction is given to the powers of the Commonwealth those powers are subject to the principle that the State Constitutions must be left intact in their essential ingredients: See Pirrie v. McFarlane (5); Australian Railways Union v. Victorian Railways Commissioners (6); West v. Commissioner of Taxation (N.S.W.) (7); Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. (8). The imposing of taxation is an essential function or activity of the States. In order to effectuate its scheme the Commonwealth needs a special power to be conferred upon it, as was the position which resulted in adding sec. 105a to the Constitution: See New South Wales v. Commonwealth [ Nos. 1 and 3] (9). The Commonwealth is endeavour- ing to introduce a unitary system without amending the Constitution. If this scheme be good the State Governments can be completely subordinated to the Commonwealth Parliament (Attorney-General for Alberta v. Attorney-General for Canada (10)). Although the Com- monwealth has the power to impose the tax, the selection or dis- crimination shown in imposing the tax makes it manifest that the object is an ulterior one (Attorney-General for Alberta v. Attorney- General for Canada (11) ). This legislation is intended to put the

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wealth has been given the widest powers in relation to finance, which can be exercised for the purpose of the defence of the realm. There is no limit (a) to the taxing power in sec. 51 (ii.) except that of discrimination; (6) to the borrowing power under sec. 51 (vi.), or (c) to the power to acquire property under sec. 51 (xxxi.), other than that the acquisition must be on just terms. There is, therefore, no need for the Commonwealth to make laws as to finance by excluding the taxing powers of the States. The Income Taa Act read in the light of the States Grants Act and of the facts admitted in the pleadings raises taxes for both Commonwealth and State purposes. The power to raise money by means of taxes is for the peace, order and good government of the Commonwealth, and not for that of the States (Moore, Commonwealth of Australia, 2nd ed. (1910), p. 510; Sydney Municipal Council v. Commonwealth (1); West v. Commissioner of Taxation (N.S.W.) (2)). Notwith- standing that a taxing Act must deal with only one subject, it is permissible to have regard to the taxing Act and the appropriation Act together. The War-time Arrangements Act is challenged because it authorizes the taking over of executive departments of the States which are essential to the carrying on of the essential governing functions of the States. It is not an exercise of the defence power, although it purports to be so. All the work necessary for the collec- tion of all the taxation imposed by the Commonwealth and the States is being performed under existing arrangements, and this Act will not effect any saving in manpower or expense. The priority provision in sec. 31 of the Income Tax Assessment Act 1942 is bad (Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. (3) ). Notwithstanding his capacity and willingness to pay both a taxpayer who pays his State income tax prior to paying all Commonwealth income tax imposed upon him renders himself liable to a penalty. The Commonwealth has other and proper means for the protection of its interests (Lhe Commonwealth v. Queensland (4); Pirrie vy. McFarlane (5); West v. Commissioner of Taxation (N.S.W.) (6)). The statutes discriminate amongst the taxpayers of the different States, and thus offend the provisions of sec. 51 (ii.) of the Constitution. Taxation is always in relation to persons and the burden is borne by persons, and, if there is a dis- crimination between persons by reference to their residence or connection with a particular State in some way, then that is a discrimination between States. The burden, and also the benefit,

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neutralized, rendered nugatory or nullified, by the use of a power which ex facie gives permission to discriminate (Moran's Case (1) ). An examination of the four Acts discloses their character, operation and purpose. The purpose is to drive the States from the income- tax field of taxation. Therefore those Acts do not constitute an exercise of the Commonwealth power with reference to taxation. The powers under sec. 96 of the Constitution cannot be used to effect a discrimination in a matter of taxation. In the circumstances the true character of the States Grants Act is that it is a law in regard to taxation. If the States Grants Act is an Act of taxation and discriminates, then sec. 51 (ii.) would be the same as the passage in sec. 99, but in the opposite way. Whether there is discrimination under sec. 51 (ii.) or preference under sec. 99 is ultimately a question of fact. There can be discrimination in respect of a State or States by taking money, which, it is admitted, may be the proceeds of income tax, from one State, and giving it by means of any inter- mediate machinery, such as an appropriation Act, to another State. This discrimination is a result of (a) the pronounced difference between the income-tax rates of the various States, (b) the difference in population, and (c) the difference in the income of the citizens of each State. There was no uniformity in respect of State taxation. Therefore, although the rate of the Commonwealth tax is uniform, the results vary by reason of the factors mentioned above and hence discrimination takes place. If the Constitution has forbidden a discrimination or preference, the fact that the money is paid into the consolidated revenue is quite immaterial. Shortly, the Tax Act and the States Grants Act should be read together. So read they each become, or the two Acts combined become, a law with respect to taxation and fall within sec. 51 (ii.) of the Constitution. Further, the States Grants Act, a law appropriating revenue, is a law of taxa- tion, and sec. 99 of the Constitution applies.

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essential activities and are quite beyond the powers of the Common- wealth under any power conferred upon it by the Constitution. Those provisions constitute not so much an unlawful exercise of power but rather the purported exercise of a power which does not exist. Taxation, and the personnel and equipment for its collection, is an essential service or function which the State must have and be entitled to retain against the will of the Commonwealth. Although the Commonwealth may be entitled under the defence power to call up all and any citizen as such, it is not entitled under that power to call up persons because they are officers of the Public Service of a State. The principle stated in Federated Municipal and Shire Council Employees' Union of Australia v. Melbourne Corporation (1) is unaffected by the decision in the Hngineers' Case (2), because an essential service was not dealt with in the latter case. The Common- wealth cannot take the servants of a State in an essential service as such. The extent of the Commonwealth powers is no greater in times of war than in times of peace. An éxamination of sec. 51 with its thirty-nine placita shows that the powers conferred upon the Commonwealth Parliament under the different placita are vis-a-vis the rest of the Constitution of the same quality, because all the placita in sec. 51 are'" subject to this Constitution." The Constitution recognizes the continued existence of the States. The States are entitled to exist notwithstanding anything the Common- wealth Parliament can and may do under the defence power or the taxation power. The States Grants (Income Tax Reimbursement) Act, as its title connotes, is an Act for the reimbursement by the Common- wealth of the States in respect of income tax. The so-called grant is not a grant of financial assistance within the meaning of sec. 96 of the Constitution. It does not satisfy the States' needs, because the need was created by the Commonwealth itself. Although the Commonwealth has large powers of making grants under sec. 96, it is not at liberty to use sec. 96 as a means, in effect, of compelling submission by a State to the surrender of its constitutional powers. Looking at the scheme as a whole, the Commonwealth has taken such a course of action that the State is not able to pursue its ordinary course, its inherent right of imposing income tax, and then, the

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The Court is not concerned with the wisdom or fairness of the legislation. The only question is one of power. It is enough if the legislation can possibly operate for the peace, order and good government of the Commonwealth, either with respect to defence, or taxation, or borrowing, or grants, or matters incidental thereto. If the legislation can possibly operate in respect of any one of these things, then the Commonwealth has power, and it does not matter whether it has used the power wisely or unwisely. If other ways of providing the necessary finance for defence are available, that does not affect the question. It is for the Commonwealth Parlia- ment to determine which means should be applied. It is necessary for the Commonwealth Parliament to be enabled to raise unprece- dented sums of money by income tax, and that implies the necessity for rates of tax which leave very little margin for the taxpayer, and, in case of necessity, the Commonwealth Parliament may require the whole of the available taxable surplus of income. In the war conditions prevailing it was necessary to provide, in financing the defence expenditure and making provision for future necessities, that the Commonwealth Parliament should take control of the imposition and collection of income tax. By enacting this legisla- tion, administration was simplified by avoiding the former multi- plicity of taxes and assessments. It releases for manpower require- ments the surplus personnel employed under the then existing system ; it saves unnecessary expense of administration ; it deters the States from increasing their exactions from the margin left after the Commonwealth requirements are provided for, and it limits the quantum of revenue of the States provided for from this source of their normal requirements as determined by their actual reliance on income tax upon the average of the years 1939-1940 and 1940-1941, or the basis of assistance to the States may be varied if it becomes necessary. The Commonwealth Parliament, in the exercise of a power conferred upon it, may pass an Act which does directly or indirectly affect operations of the States. If the exigencies of the war situation required it the Constitution permits the Commonwealth Parliament to take over

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to obtain from the people under its taxation power. The Common- wealth Parliament has power to enact any provision reasonably considered necessary to render its taxing power effective, and has power to bind the States thereby, although, of course, by sec. 114 of the Constitution it is expressly prohibited from imposing a tax on the States. It must follow, quite apart from the incidental power given by sec. 51 (xxxix.), that if the Commonwealth Parliament has power to create an obligation it has power to enact any law necessary to secure the fulfilment of that obligation. Therefore the Common- wealth Parliament was entitled to enact that Commonwealth income tax should be paid in priority to State income tax (Federal Commis- sioner of Taxation v. Official Liquidator of E. O. Farley Lid. (1) ; In re Silver Brothers Ltd. (2)). A law which gives priority to Commonwealth taxation as such is a law with respect to Common- wealth taxation, and therefore valid. A conflict between the Crown in one aspect and the Crown in another aspect was dealt with in Liquidators of the Maritime Bank of Canada v. Receiver-General 'of New Brunswick (3). Whenever the Commonwealth creates rights against itself it is entitled to attach conditions in respect of the protection and exercise of those rights (Lhe Commonwealth v. Queensland (4); The King v. Commonwealth Court of Conciliation and Arbitration (5) ). The same principle must apply to enable the Commonwealth Parliament to legislate to protect and secure the satisfactory performance of obligations to which persons have become subject by reason of Commonwealth law. Sec. 31 of the Assessment Act also is within the defence power. It is required, in the opinion of the Parliament "for the better securing to the Commonwealth of the revenue required for the efficient prosecution of the present war" and has operation "during the present war." The exercise of the defence power cannot be affected by the States (Pirrie v. McFarlane (6) ). The powers conferred by the Constitution should not be construed as limited by considerations of inconvenience or prejudice to the States, or expediency, or imagined abuse (Merchant Service Guild of Australasia v. Commonwealth Steamship Owners' Association [No. 2] (7)) - see also Federated Municipal and Shire Council Employees' Union of Australia v. Melbourne Corporation (8). The case of McCulloch v. Maryland (9) affords no ground for any suggestion that State instrumentalities, merely because they are State instrumentalities, are immune from Commonwealth inter- ference. The doctrine of reciprocity introduced in the Railway

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This question has been considered in the Supreme Court of the United States of America: See Massachusetts v. Mellon (1), where it was held that a Federal statute making money available to States which were willing to co-operate with Congress in reducing maternal and infant mortality imposed no obligation, but simply extended "an option which the State is free to accept or reject." On the other hand, in United States v. Butler (The Hoosac Mills Case, a New Deal case) (2) it was said that an offer to a farmer the refusal of which may involve financial ruin to him amounts to coercion - "coercion by economic pressure. The asserted power of choice is illusory." Stone J., dissenting with Brandeis and Cardozo JJ., took a contrary view: " Threat of loss, not hope of gain, is the essence of economic coercion" (3). A somewhat similar question, but in a different form, arose in Carter v. Carter Coal Co. (4), where the majority took the view that an offer of exemption from a penalty amounted to compulsion. The authority of the latter two cases is, however, greatly diminished, if not destroyed, by the more recent case of Steward Machine Co. v. Davis (5). A Federal law provided fora rebate to taxpayers of up to 90 per cent of a Federal tax if the tax- payer contributed to a State unemployment scheme approved by the Secretary of the Federal Treasury. It was urged that this was an unconstitutional attempt to coerce the States into enacting unemployment legislation approved by the Federal Government - that Government itself having no power to legislate upon the subject of unemployment. The contention was rejected. It was said : - " Every rebate . . . is in some measure a temptation. But to hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties " (6). Sutherland J. (dissenting) agreed in this view : - ''I agree that the States are not coerced by the Federal legislation into adopting unemployment legislation. The provisions of the Federal law may operate to induce the State to pass an employment law if it regards such action to be in its interest. But that is not coercion" (7). Thus the now prevailing opinion of the Supreme Court of the United States is in accord with the view which has been stated above. The Grants Act does not compel the States to abandon their legislative power to impose a tax upon incomes. States which do not abstain from imposing

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consequence of an Act, which consequence could not be directly achieved by the legislature, is contemplated and desired by Parlia- ment, that fact is not relevant to the validity of the Act (R. v. Barger (1) ; Osborne v. The Commonwealth (2) ; Attorney-General for Queensland v. Attorney-General for the Commonwealth (3) ; Sonzinsky v. United States (4), and see note in the Lawyers' Edition (5) ). This principle should be remembered when it is said that a Parlia- ment of limited powers cannot do indirectly what it cannot do directly. This proposition is of value when (as has not infrequently happened in Canada) it is contended that an Act is colourable in character in that, under the guise or pretence of doing something permitted, it is in reality doing something prohibited or beyond power. The relevant Canadian cases generally deal with the diffi- culties arising from the grant of exclusive powers to both Dominion and Provinces. The emphasis placed upon this point may be noted in John Deere Plow Co. Ltd. v. Wharton (6); Great West Saddlery Co. v. The King (7); Attorney-General for Ontario v. Reciprocal Insurers (8). When the areas of such competing powers overlap, and the challenged law is, for example, both a law relating to insur- ance (Provincial power) and to crime (Dominion power), a court must make a choice as to the category to which the law should be assigned: See, e.g., Attorney-General for Ontario v. Reciprocal Insurers (9) ; In re Insurance Act of Canada (10), where the decision against the Dominion was assisted by the fact that the Dominion Parliament has sought to give itself power by a palpably " false definition "" - a provision that a company should be deemed to "immigrate '"' into Canada if it sent to Canada a document appoint- ing an agent there: see the report (11). Upon this difficult question the Privy Council has ultimately decided to abstain from laying down any general principle, leaving the question of ultra vires to "be determined in each case as it arises, for no general test applicable 'to all cases can safely be laid down" (Attorney-General for Alberta v. Attorney-General for Canada (12) ). The Commonwealth Constitu- tion does not confer any exclusive powers upon the States. Subject to the Constitution the States are left with powers not given exclu- sively to the Commonwealth or withdrawn from the States (secs.

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of the present war. The scope of the defence power was discussed by this Court in Farey v. Burvett (1), where Isaacs J., as he then was, in a passage which I quoted in Andrews v. Howell (2), said that in considering whether a measure is supportable as an exercise of the defence power "if the measure questioned may conceivably in such circumstances even incidentally aid the effectuation of the power of defence, the Court must hold its hand and leave the rest to the judg- ment and wisdom and discretion of the Parliament and the Executive it controls - for they alone have the information, the knowledge, and the experience and also, by the Constitution, the authority to judge of the situation and lead the nation to the desired end" (3). Applying this test, and the test laid down by the other members of the Bench in that case, I am unable to see anything in sec. 4, whether it be read alone, or in relation to the rest of the provisions of the Act in which it occurs, or in relation to the group of statutes with which that Act is associated, which justifies the conclusion that it is a colourable and not a real exercise by Parliament of the defence power. It is notoriously essential, for the effective prosecution of such a war as is now being waged, a war in which the continued existence of the Commonwealth and its constituent States is at stake, that the whole resources of the nation, whether of men or of things, should be marshalled and concentrated upon war effort. If the Commonwealth is to wage war effectively, it must command the sinews of war. The taxing of income is an important source from which the funds required for war purposes may be drawn; and the other Acts which have been brought in question show that the Commonwealth Parliament was determined to make unusually large drafts upon this source. In these circumstances, I see nothing sinister in a provision which enables the Commonwealth to take over from the State service and place under its own exclusive control for the period of the war, such of the officers employed in that service as it may specify, if those officers have been engaged on duties con- nected with the assessment or collection of taxes upon income, and are therefore, presumably, specially qualified to assist the Common- wealth by performing this essential service. Nor, if the section be read with an unjaundiced eye, do I see anything sinister, or anything suggesting that the section is intended to be used colourably and for the purpose of destroying each and every new State income tax office as and when it may be created, in the provision that the power may be exercised at any time and from time to time (although only during (1). (1916) 21 C.L.R. 433. (2) (1941) 65 C.L.R. 255, at p. 263. (3) (1916) 21 C.L.R., at pp. 455, 456. VOL, LXV, 30

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Income Tax (War-time Arrangements) Act 1942 (No. 21 of 1942).

by this Act officers of the State service who have been engaged on duties connected with the assessment or collection of income tax may be temporarily transferred to the Public Service of the Com- monwealth, and are by force of a notice given pursuant to the Act transferred accordingly. Any officer may be retransferred to the State, which is obliged to reinstate that officer in a position in the State service upon such terms and conditions as are not less favour- able than the terms, conditions, and rights to which he would have been entitled if the Act had not been passed, and his service as a transferred officer were service with the State. And where during the period of his transfer the transferred officer dies or resigns he is deemed to have been retransferred to the State service immediately prior to his death or the acceptance of his resignation, and all rights of pension, payment, and other benefits arising in respect of the officer's service shall be ascertained as if the Act had not been passed and his service as a transferred officer were service with the State. The liability of the transferred officer to contribute to any State fund established for the purpose of providing superannuation or other benefits is continued, but there are provisions for adjustments as between the Commonwealth and the States. Further, notice may be given to the States that the Commonwealth requires the possession and use of their office accommodation, furniture, and equipment specified in the notice, particularly or in general terms, and the Commonwealth then by force of the Act is given possession and exclusive use thereof accordingly. Provision is made for compensa- tion to the State. And where any returns or records relating either wholly or partly to the assessment or collection of any tax imposed upon incomes by the Parliament of the Commonwealth are in the possession of a State those returns and records are from the com- mencement of the Act transferred to the possession of the Common- wealth provided that the States shall have access to, and may copy such returns and records as relate to the assessment or collection of any tax imposed upon incomes by or under any law of that State.

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It is clear from sec. 4 that the Commonwealth Parliament recog- nizes that the concurrent or separate State powers of taxation will continue. The Act is indeed based on that assumption. The assumption is a correct one. It is to be presumed that the Parlia- ment fully appreciated that it might be inexpedient or impracticable for the States or any one or more of them to collect income tax for their own or its purposes after the increased Commonwealth demands were satisfied. If a State does not impose income tax, that would be only because the taxable capacity of its citizens would be practically exhausted by the payment of the Commonwealth taxation, which, by force of sec. 31 of the Income Tax Assessment Act 1942, takes priority on account of the supremacy accorded by the Con- stitution to Commonwealth law. In these circumstances the amount set against the name of the State and possibly a further amount is payable to the State out of the Commonwealth Consolidated Revenue Fund. The Act leaves to the Commonwealth Treasurer to ascertain whether the State has imposed income tax or not. It is a misunder- standing of the provisions of the Act to say that it requires the States to cease imposing income tax under penalty of forfeiting the amounts set against their names respectively : it is also a misunderstanding of the Act to say that the grant is offered upon condition that the States agree not to impose income tax. The Commonwealth Parlia- ment is neither using a stick to beat the States nor offering a bunch of carrots. The Commonwealth Parliament has, in the exercise of its clear constitutional rights, tremendously increased the burden of Commonwealth taxation, and given priority to that burden. It has left the States free to decide whether they should impose an additional burden of taxation in any financial year. The Act pro- vides that, if "' the Treasurer is satisfied that a State has not imposed a tax upon incomes," the amount specified in the schedule is payable to that State. The payment is in truth and in fact made to relieve a disability arising from the incorporation of the State in the Com- monwealth. The money is paid to reimburse the State for the loss of revenue which it has not been expedient to collect because of the circumstances flowing from the operation of valid Commonwealth law. The money is paid out of Commonwealth revenue. The Act

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expressly designates the Governor-General as the person to determine that question of fact. How can this Court say that it will assume the function of revising his opinion? In this aspect of the case Lloyd v. Wallach (1), decided by the Court last year, is exactly in point, and is conclusive " (2). The question arising under the present Act is whether the legislative powers of the Commonwealth extend to the enactment of the provisions in sec. 4. The preamble has already been quoted. Parliament has declared on the face of the Act that its provisions are " necessary and convenient " for the more effectual prosecution of the war. Referring to such a declaration on the face of the Act challenged in Farey v. Burvett (3), Higgins J. said : - ' It is not for this Court to decide that the Act does aid defence or how it aids defence ; it is enough that it is capable of being an Act to aid defence, enough that the statement of Parliament is not neces- sarily untrue. Appellants' counsel urge that it is for this Court to decide whether the military necessities now existing are sufficient to justify the Act - or, as finally stated, whether this Act is capable of being a defensive Act in the circumstances of the country. In my opinion, this is not our function" (4). I agree with these views. The transfer of these officers to the Commonwealth Public Service which has the duty of collecting the revenue of the Commonwealth is capable of conducing to defence. The dependence of defence on revenue is an obvious truth. The transfer of these officers will provide the Commonwealth with a skilled staff, and enable it to collect its revenue promptly and efficiently : it will place the collec- tion of the revenue in the hands of officers who will be temporarily under its own control. At present in five States Common- wealth income tax is being collected by State officers. This Act will enable the Commonwealth to dispose the officers collect- ing its revenue at whatever places in the Commonwealth it thinks fit. It could not do this if the officers were not trans- ferred to the Commonwealth Service. These are some of the considerations which point to the possibility at least of a relation between the provisions of sec. 4 and defence. In my opinion these provisions are within the powers vested in the Parliament to make laws with respect to defence and matters incidental to the execution of this power. It follows that sec. 4 and the provisions relating to the transfer of office accommodation, furniture, equipment and records operate with the full force of their words as valid Common- wealth laws. There is no special provision in the Constitution

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exempting the States or State officers from the operation of Common- wealth legislation under sec. 51 (vi.), that is, the defence power. The reasoning of the Court in the Engineers' Case (1) applies to sec. 51 (vi.). There the Court was dealing with the question whether Commonwealth legislation under sec. 51 (xxxv.) - ' industrial disputes " - bound the Crown in right of a State when party to an industrial dispute. The Court said : - " Sec. 51 (xxxv.) is in terms so general that it extends to all industrial disputes in fact extending beyond the limits of any one State, no exception being expressed as to industrial disputes in which States are concerned ; but subject to any special provision to the contrary elsewhere in the Constitu- tion. The respondents suggest only sec. 107 as containing by implication a provision to the contrary. The answer is that sec. 107 contains nothing which in any way either cuts down the meaning of the expression ' industrial disputes' in sec. 51 (xxxv.) or exempts the Crown in right of a State, when party to an industrial dispute in fact, from the operation of Commonwealth legislation under sec. 51 (xxxy.). Sec. 107 continues the previously existing powers of every State Parliament to legislate with respect to (a) State exclusive powers and (6) State powers which are concurrent with Common- wealth powers. But it is a fundamental and fatal error to read sec. 107 as reserving any power from the Commonwealth that falls fairly within the explicit terms of an express grant in sec. 51, as that grant is reasonably construed, unless that reservation is as explicitly stated" (2). Sec. 107 does not cut down the natural meaning or general operation of sec. 51 (vi.). The assumption that has to be adopted is that in the present emergency the transfer of officers experienced in the assessment or collection of tax from the State to the Commonwealth service for the duration of the war is capable of conducing to defence. It follows that the Income Tax (War-time Arrangements) Act is a law with respect to defence, and binding on those officers and on the States. The Act is in substance and effect a law of defence, and with respect to matters incidental to the execution of that power. There is nothing in its provisions to support the contention that it is part of a legislative scheme which is in excess of the powers of the Commonwealth Parliament. The Act does not take away from the States their constitutional powers of taxation nor purport to do so. It is nothing to the point to mention the difficulties and trouble which the States may have in engaging other persons to take the place of the officers who are transferred to the Commonwealth service or to replace the material things taken over by the Commonwealth.

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into conflict in the same field in the sense that a taxpayer who has to pay the two exactions is unlikely to be able to meet them both in full. In Jn re Silver Bros. Ltd. (1) Viscount Dunedin said : "The two taxations, Dominion and Provincial, can stand side by side without interfering with each other, but as soon as you come to the concomitant privileges of absolute priority they cannot stand side by side and must clash; consequently the Dominion must prevail." After pointing out, quite rightly, that each of these decisions relates to the liquidation of a company, counsel for the States contended in the alternative that, even if the Commonwealth can make its tax a prior charge upon a taxpayer's assets, it would still not be incidental to the taxation power to prevent a taxpayer from paying his debts, including a State assessment, as they become due. It would be impossible to make an income tax a fixed charge on a taxpayer's assets generally, some of which he is acquiring and disposing of from day to day, while many taxpayers would not possess particular assets of an appropriate nature to be charged specifically. Grave difficulties would be encountered in evolving and heavy expense incurred in administering a system of fixed charges. The only practical way, therefore, to prefer the Common- wealth debt would be to provide that it should be paid in priority to the State debt. To do this would not be to manufacture incon- sistency between Federal and State laws. It would be a means of aiding the effective operation of the power comparable to the right of the Commonwealth under the borrowing power, sec. 51 (iv.), to make its loans attractive to investors by freeing them from State taxation (The Commonwealth v. Queensland (2) ). It would be strange if the Commonwealth could protect interest on its loans from State taxes, but could not take effective measures against the States to ensure the getting in of revenue required to pay the interest. The section is, in my opinion, a valid exercise of power.

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The Arrangements Act provides for the suspension of the existing arrangements with the States for the assessment and collection of income tax, and the assessment and collection of the tax imposed by the Zax Act in all States by the Commonwealth from a date fixed by proclamation until the Act ceases to operate; for the compulsory temporary transfer of officers employed by the States in assessing and collecting income tax to the Public Service of the Commonwealth and their subsequent retransfer to the States; for the compulsory temporary use by the Commonwealth of any office accommodation, furniture and equipment owned by a State; and for the compulsory permanent acquisition by the Commonwealth of any records in the possession of a State relating to the assessment and collection of Commonwealth income tax. The Act applies to all State servants, permanent or temporary. The transfer to the Commonwealth Public Service is effected by the Treasurer of the Commonwealth addressing a notice in writing to the Treasurer of a State. The transfer can be called for if, in the opinion of the Treasurer of the Commonwealth, it is 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. The rights conferred upon the Treasurer of the Commonwealth with respect to the office accommodation, furniture and equipment of the States are also very extensive. He can demand the temporary possession and exclusive use of this property for the Commonwealth when it is required for the efficient collection of revenue, for the effective use of manpower, or otherwise for the defence of the Com- monwealth, The Act provides that, in default of agreement between the parties, compensation for the possession and use of such property and the obligations of the Commonwealth with respect to keeping it in good order and repair and otherwise shall be determined by an arbitrator appointed by the Governor-General. No compensation is provided for the acquisition of the returns and records, but the States are given the right to have access to and inspect those which relate to the assessment or collection of any tax imposed upon income by or under any law of the State. No argument was addressed to the

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accommodation, furniture and equipment or the transfer of the returns and records would be an acquisition by the Commonwealth of State property within the meaning of sec. 51 (xxxi.) ; or whether, if it is, provision for an arbitration by an arbitrator appointed by the Federal Executive Council and therefore in effect by one of the parties is a compliance with the placitum; or whether a right given to a State, from whom the returns or records are acquired, to have access to and to inspect them is a fair equivalent for their value ; so I shall not express any opinion on these points. It is obvious from the framework of the Act as a whole that it is sought to justify its constitutional validity as an exercise of the defence power. In what Mr. Ham described as the piping times of peace there could be no question, I should imagine, that the collection of taxes would be incidental to the execution of the taxation and not the defence power. The defence power does not become in time of war a paramount power (Andrews v. Howell (1), per Starke J.), but, as Dixon J. pointed out in the same case (2), though its meaning does not change, "its application depends upon facts, and as those facts change so may its actual operation as a power enabling the legislature to make a particular law." In Farey v. Burvett (3) Isaacs J. said: (It is) "a power which is commensurate with the peril it is designed to encounter, or as that peril may appear to the Parliament itself ; and, if need be, it is a power to command, control, organize and regulate, for the purpose of guarding against that peril the whole resources of the continent, living and inert, and the activities of every inhabitant of the territory. The problem of national defence is not confined to operations on the battlefield or the deck of a man-of-war ; its factors enter into every phase of life, and embrace the co-operation of every individual with all that he possesses - his property, his energy, his life itself." The necessary steps to meet the peril depend so greatly upon the knowledge of the Parliament and the Executive it controls that the Court, in deter- mining whether a particular Act is within the ambit of the power, is only concerned to see that its provisions are such as to be capable even incidentally of aiding the effectuation of the power. After that the Court must stay its hand, for "no authority other than the central Government is in a position to deal with the problem which is essentially one of statesmanship" (per Viscount Haldane when delivering the judgment of the Privy Council in Fort Francis Pulp and Power Co. v. Manitoba Free Press Co. (4) ).

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national emergency. It is one thing for the Commonwealth Parlia- ment to attempt directly to prevent a State exercising its legislative, judicial, or executive functions, which would be an illegal mterference with the prerogative rights of the State, and quite another thing to claim the services of a body of individuals employed by or the possession of property owned by a State where the employees and property are organized, as they are here, so as to possess some special attribute capable of advancing the total war effort. But legislation which appears to discriminate against a State by the mass transfer of its public officers in one department and the exclusive acquisition of its property must be carefully scrutinized to see that its real substance and purpose is to assist defence and not under colour of such a purpose to intermeddle in the sovereignty of a State. The affidavits filed on behalf of the States them- selves show that the collection of the new tax would be gravely impeded if the Commonwealth had to organize a new depart- ment in every State except Western Australia. It was suggested that the existing arrangements, which have worked satisfactorily since 1923, should be allowed to continue. Their provisions are not before us, but it appears that they would have to be at least revised because, if the Commonwealth is to become during the war the sole income-tax authority, the expense which is now shared between the Commonwealth and the States will become the sole burden of the Commonwealth. The only reason Mr. Ham gave for the Commonwealth requiring a transfer of the officers and accommodation was that, as the tax was being collected on behalf of the Commonwealth, it ought to have control of its own affairs. It is not for us to weigh the merits of this reason. The question whether the Commonwealth should have direct control or should have to rely upon an agent to perform this important work is one of policy which must be decided by the Government and not by the Court. It is clear that an Act to enable the Treasurer to get in expeditiously the sinews of war to the extent of £145,000,000 can assist in the prosecution of the war, and is, therefore, incidental to the execution of the power of defence. If the Commonwealth could call up all officers by some form of legislation, and this must, I think, be conceded, it is a matter of convenience and not of substance that the Act provides for the Treasurer of the Commonwealth giving the notice to the Treasurer of a State instead of to each officer personally.

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service with the Commonwealth. Whilst they are employed by the Commonwealth they are to receive the same pay from the Commonwealth as, but for the transfer, they would have received from the State. Upon retirement they are retransferred to the State and become entitled to the same pension and other benefits they would have received if they had not been transferred. The sections provide for the continuation of payments to superannuation funds by the officers themselves, and, the Commonwealth making the same payments as a State would have made if they had been serving the State. The Commonwealth also contributes to pensions or other payments which dependents of officers who die become entitled to receive from the State, the respective obligations of the Commonwealth and the State being adjusted on the basis of the officers' length of service with the Commonwealth and the State. A transferred officer is deemed to be an officer of the State for the purpose of promotion or transfer from a temporary to a permanent position. The purpose of the sections is to provide a scheme to prevent officers suffering from the temporary transfer, the Common- wealth taking over a fair share of the burdens of any emoluments which would have accrued from long service if their employment by the State had been continuous. In America it has been held that, under the commerce power, Congress can legislate to prevent any person engaging in unfair labour practices which affect com- merce. The National Labor Relations Act 1935, after defining unfair labour practices, by sec. 10 (c) authorized a Board to require the reinstatement of employees who had been discharged for engaging in trade union activities which the Act authorized them to engage in against the wishes of their employers. The Supreme Court held the provision to be valid. It did not interfere with the contractual relationship of the parties except to the extent necessary to give effect to the policy of the Act (National Labor Relations Board v. Jones & Laughlin Steel Corporation (1) ). So, under the defence power, the Commonwealth can, in my opinion, legislate with respect to the reinstatement of citizens called up for some national duty, to prevent them being prejudiced in their civil employment when their services are no longer required for this purpose. The present Act purports to do nothing more. It does not deprive the States of any rights the States would have against the officers on the basis that they had not been transferred. The States can legislate as freely as before to affect any existing rights of public servants with respect to pay, contribu- tions to superannuation funds, amounts of pensions, and so on, and the officers transferred to the Commonwealth will be bound by all

At a glance

Court

Decision date

Before

Source

Judgment (548 paragraphs)

Parties