Albrecht v Commissioner of Taxation

Category: Catchwords

Counsel for the Applicants: Mr DMJ Bennett QC and Ms LB Price

Solicitor for the Applicants: Jackson McDonald

Counsel for the Respondent: Dr MA Perry QC and Mr JC Vaughan

Solicitor for the Respondent: Australian Government Solicitor

Counsel for the State of Western Australia: Mr GR Donaldson SC, Solicitor General, and Ms KH Glancy

Solicitor for the State of Western Australia: State Solicitor's Office

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 354 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 358 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 359 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 360 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 363 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 390 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 391 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 6 of 2011

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is dismissed.
2. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 444 of 2011

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE OF ORDER: 22 november 2013 WHERE MADE: PERTH

1. The appeal is allowed in part.
2. The parties are to provide a minute of orders within 7 days which reflects the reasons for decision.
3. There be no order as to costs by reason that the applicant's application was funded by the ATO Test Case Litigation Program. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 354 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 358 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 359 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 360 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 363 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 390 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 391 of 2010

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 6 of 2011

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 444 of 2011

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: SIOPIS J DATE: 22 november 2013 PLACE: PERTH

REASONS FOR JUDGMENT 1 In 1997, the Parliament passed two Acts, the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) (the Assessment Act) and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) (the Imposition Act). In essence, these Acts (referred to below as the Protected Funds Acts) provided for the imposition of a superannuation surcharge on contributions in respect of constitutionally protected funds established under State legislation. 2 From 1997 to 2006, the applicant, Mr Arno Claus Albrecht, held the position of Inspector in the Western Australian police force. Mr Albrecht was during that time, a member of a constitutionally protected superannuation fund to which the Protected Funds Acts applied. 3 During the period November 2002 to May 2006, the respondent (the Taxation Commissioner) issued to Mr Albrecht superannuation contribution surcharge assessments under the Assessment Act for each of the financial years during the period 1998 to 2005. The Taxation Commissioner also issued superannuation contribution surcharge assessments to other commissioned officers of the Western Australian police force who were members of a constitutionally protected superannuation fund. 4 Mr Albrecht objected to the superannuation contribution surcharge assessments. By a decision of 20 September 2010, the Taxation Commissioner disallowed Mr Albrecht's objection. The Taxation Commissioner adopted the same approach to the objections which had been made by a number of other commissioned officers in the Western Australian police force, to their assessments in respect of a superannuation contribution surcharge. 5 Mr Albrecht appealed to this Court against the Taxation Commissioner's disallowance of the objection. A number of other commissioned officers also appealed against the Taxation Commissioner's decision to disallow each of their objections. These persons and their respective ranks in the hierarchy of commissioned officers in the Western Australian police force at the time of filing their respective appeals are:

1. Arno Claus Albrecht (Inspector) (WAD 354/2010)
2. James Martin Migro (Superintendent) (WAD 358/2010)
3. Malcolm William Shervill (Superintendent (resigned)) (WAD 359/2010)
4. Graeme Trevor Power (Commander (retired)) (WAD 360/2010)
5. Andris Alfred Garkaklis (Superintendent) (WAD 363/2010)
6. Dominic Anthony Staltari (Assistant Commissioner) (WAD 390/2010)
7. Richard Martin Lane (Superintendent (retired)) (WAD 391/2010)
8. Edwin Graeme Lienert (Assistant Commissioner (retired)) (WAD 6/2011)
9. Timothy John Atherton (Deputy Commissioner (resigned)) (WAD 444/2011). 6 Each of the applicants filed detailed affidavits which described the duties which had been performed during the period 1998 to 2006. The appeals were all heard at the same time. 7 Each of the applicants, other than Mr Atherton, was a member of the Gold State Superannuation Scheme (Gold State scheme). Mr Atherton was a member of the West State Superannuation Scheme (West State scheme). Both of the superannuation schemes were administered by the Government Employees Superannuation Board (GESB), a Western Australian statutory body, and were constitutionally protected superannuation funds to which the Protected Funds Acts applied. 8 Under the Gold State scheme, each of the members of the fund made regular contributions which were deducted from their salaries and paid to the GESB. However, the officers' employer, the Commissioner of Police did not make contributions to the fund in respect of the officers. Under the scheme, each of the applicants was to receive, on retirement, a lump sum payment which was referrable to the amount of his final remuneration and his period of service. That lump sum payment was to comprise the contributions made by each of the applicants to the fund and an amount paid from the Consolidated Fund of the State. 9 The West State scheme is an accumulation style fund whereby both the member and the employer make contributions. On retirement, the employee receives a lump sum, comprising the contributions and investment earnings. In respect of police officers, however, there were no actual regular contributions made by the officers' employer. The superannuation liability was met from the Consolidated Fund of the State. 10 The Protected Funds Acts imposed a liability on the individual members of the State superannuation schemes to pay a surcharge. The annual surcharge was based on actuarial calculations. 11 Following the passing of the Protected Funds Acts, the State Superannuation Regulations 2001 (WA) were amended to provide a means whereby those liable for the surcharge could pay that amount from their final lump sum payment. On 1 July 2002, reg 49A of the State Superannuation Regulations became effective. This regulation provides that a member of the Gold State scheme who was liable to pay a superannuation contribution surcharge under the Imposition Act could apply to GESB to make arrangements to meet that liability from the final payment of the lump sum benefit. 12 On the same day, reg 81A which was to the same effect in respect of members of the West State scheme, came into force. 13 In support of their respective appeals, each of the applicants contended that, insofar as the Protected Funds Acts (which have subsequently been repealed) sought to impose the superannuation surcharge on him, the Acts were, by reason of the principle in the case of Melbourne Corporation v The Commonwealth (1947) 74 CLR 31, invalid. In brief, the applicants contended that the Protected Funds Acts infringed the implied constitutional limitation because they impaired the capacity of the State to function as a government by seeking to regulate the means whereby the State sought to remunerate the commissioned officers of the Western Australian police force. 14 The Attorney General for Western Australian intervened pursuant to s 78A of the Judiciary Act 1903 (Cth) and made submissions which supported the contentions advanced by the applicants.

the applicants' contentions 15 The applicants relied on the cases of Austin v The Commonwealth (2003) 215 CLR 185 (Austin) and Clarke v Commissioner of Taxation (2009) 240 CLR 272 (Clarke). In their submissions, the applicants paid close attention to the decision in Austin. 16 In Austin, the High Court held that the Protected Funds Acts were invalid by reason of the Melbourne Corporation principle, insofar as, by that legislation the Commonwealth had sought to impose liability for the payment of a superannuation contribution surcharge liability on a judge of the Supreme Court of New South Wales. 17 In Austin, at [152], the plurality (Gaudron, Gummow and Hayne JJ) referred to the case of Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 (AEU) and observed: The joint judgment of six members of the Court in Australian Education Union is of central importance for the present case, in particular for two propositions. They are that (a) it is "critical to a State's capacity to function as a government" that it retain ability to determine the "terms and conditions" on which it engages employees and officers "at the higher levels of government", and (b) "Ministers, ministerial assistants and advisers, heads of departments and high level statutory officer holders, parliamentary officers and judges would clearly fall within this group." (Footnote omitted.) 18 The plurality observed that a result of the AEU case was to support the foundation for the case made by the plaintiff judge. 19 The plurality went on to say that it was for the State of New South Wales to determine the terms and conditions on which it appointed and remunerated judges of its courts. The State had chosen to discharge its responsibilities for the establishment and maintenance of its judicial branch by providing an unfunded and non-contributory pension for judges. 20 The plurality found that the Protected Funds Acts was not general legislation but specifically applied to "high-income members of constitutionally protected superannuation funds". The plurality observed at [158] that the fact that the physical burden fell upon an individual and not upon a State did not mean that there had been only a "speculative and uncertain" impairment of the exercise of the State's constitutional function in relation to the remuneration of the judiciary. 21 The plurality further observed that the provision of secure judicial remuneration at significant levels served to advance and protect the interests of the body politic. The plurality held that the legislation constituted a "sufficiently significant impairment of the exercise by the State of its freedom to select the manner and method for discharge of its constitutional functions respecting the remuneration of the judges of the courts of that State", as to infringe the implied constitutional limitation. The plurality found that it was of considerable significance to the government of the State for its legislature to be able to choose how to provide for judicial remuneration. In this regard, the plurality referred to the importance of judges being sufficiently well remunerated to encourage those without independent wealth to become judges and to foster the independence of the judiciary. At [166], the plurality cited, with approval, the following observations of Brennan J in State Chamber of Commerce and Industry v The Commonwealth (The Second Fringe Benefits Tax Case) (1987) 163 CLR 329 at 362-363: The essential organs of government - the Governor, the Parliament, the Ministry and the Supreme Court - are the organs on which the "existence and nature" of the body politic depends. (I mention only the Supreme Court, for that is the court of general jurisdiction in which, subject to the jurisdiction of this Court, the laws of the State are finally interpreted and the constitutional and administrative law of the State is applied.) The existence and nature of the body politic depends on the attendance to their duties of the officers of the essential organs of government and their capacity to exercise their functions. The emoluments which a State provides to the officers of the essential organs of government ensure or facilitate the performance by those organs of their respective functions. 22 The plurality then went on to consider what it referred to as the "practical question" identified by Starke J in Melbourne Corporation, which they identified as follows: [W]hether, looking to the substance and operation of the federal laws, there has been, in a significant manner, a curtailment or interference with the exercise of State constitutional power. 23 The plurality then went on to observe that by reason of the size of the surcharge payable by the plaintiff judge (at "more than 61 per cent of his annual remuneration"), the imposition of the tax would have a detrimental effect upon the remuneration of the plaintiff. Also, the operation of the compounding interest element if the surcharge was not paid at the earliest retirement date, when eligible for a pension, operated as a disincentive for the judge to continue beyond that date. Accordingly, by the imposition of the surcharge tax the interest of the State in providing an adequate level of remuneration for its judiciary would have been significantly undermined. 24 Further, the plurality observed that the Protected Funds Acts had resulted in the enactment of legislation to amend the Judges' Pension Act 1953 (NSW) so as to provide for the commutation of pensions under that statute for the purpose of the payment of the superannuation contribution surcharge. At [173], the plurality observed: The occasion for the provision of that mechanism thus was supplied solely by the operation of the federal legislation; a provision of the mechanism was a response which changed what had been the legislative scheme respecting the terms and the conditions for the remuneration of State judges… 25 The plurality concluded by finding that the Protected Funds Acts were invalid. The plurality said that nothing in their reasons indicated any conclusion respecting the position of constitutionally protected superannuation funds to which the federal legislation applies. 26 In Clarke, the High Court also held that the Protected Funds Acts were invalid, insofar as they sought to impose a liability for the superannuation contribution surcharge upon a member of the House of Assembly of South Australia. 27 The applicants' primary position is that "policing is a core and essential function of government" and that it is protected by the Melbourne Corporation principle "at all levels". The applicants went on to contend that the important constitutional role and function of the commissioned officers in the Western Australian police force attracted the operation of the Melbourne Corporation principle, so as to invalidate the operation of the Protected Funds Acts in respect of each level of commissioned officers. 28 The applicants' alternative contention was that the reasoning in Austin was applicable to them because the function and role of commissioned officers in State governmental operations were such as to cause them to be included within the category of persons at the higher levels of government. 29 The applicants referred to the following fundamental statutory provisions relating to the police force in Western Australia. 30 Section 5 of the Police Act 1892 (WA) provides for the Governor of Western Australia to have the power to appoint and remove a Commissioner of Police, and reads as follows: The Governor may from time to time appoint a fit and proper person to be Commissioner of Police throughout the said State, and as occasion shall require may remove any Commissioner of Police and appoint another in his stead; and every Commissioner of Police shall be charged and vested with the general control and management of the Police Force of the said State, and also of any special constables who may be appointed as hereinafter provided. 31 Section 6 of the Police Act provides for the appointment of commissioned officers by the Governor of Western Australia. It provides as follows: The Governor may appoint such officers of police as may be found necessary, who shall hold commissions under the hand of the Governor for such appointments; and such commissioned officers shall be subject to the control and discipline of the Commissioner of Police, and shall be respectively charged with the government and superintendence of such portion of the police force as such Commissioner may from time to time direct. 32 The applicants also pointed out that s 74 of the Constitution Act 1889 (WA) vested the power to make appointments to public office in the Governor of Western Australia in Council. Further, said the applicants, s 8 of the Police Act provided that, as commissioned officers, they could only be removed from their commissions by the Governor of the State. 33 The Commissioner of Police, said the applicants, had the general control and management of the police force, and was required under s 9 of the Police Act, to frame rules, orders and regulations for the general government of the members of the police force. Mr Atherton deposed that the initiative for changes to these rules, orders and regulations usually came from proposals passed to the Commissioner's executive team. Once the executive team approved the proposed changes, the proposal was sent to the Commissioner for approval. 34 The applicants contended that the police force has a special position in the executive organ of government and that the applicants are commissioned officers at the higher levels of the police force. In fact, the applicants contended, the police force was the most significant of the executive organs of the State. The applicants referred to the following observations of Viscount Simonds in Attorney-General for New South Wales v Perpetual Trustee Company Limited (1955) 92 CLR 113 (Perpetual Trustee) at 120, in relation to the function of the police force: And he is to be regarded as a servant or minister of the King because, as Lord Blackburn said in Coomber v Justices of Berks, the administration of justice, both civil and criminal, and the preservation of order and the prevention of crime by means of what is now called the police, are among the most important functions of government and by the Constitution of this country these functions do of common right belong to the Crown. (Footnotes omitted.) 35 The applicants also contended that members of the police force are in a special position when compared to other employees or officers of the State. The applicants observed that members of the police force were independent of the executive and swore an oath directly to the Governor. Further, they had the power of arrest which was an independent power and which was not to be exercised at the direction of any minister of the State. Also, said the applicants, the State was not vicariously liable at common law for the actions of the police force. 36 In support of these contentions, the applicants relied upon observations of Lord Denning MR in R v Commissioner of Police of the Metropolis; Ex parte Blackburn [1968] 2 QB 118 at 135-136 to the following effect: I have no hesitation in holding that, like every constable in the land, [the Commissioner] should be, and is, independent of the executive. He is not subject to the orders of the Secretary of the State, save that under the Police Act, 1964, the Secretary of State can call upon him to give a report, or to retire in the interests of efficiency…But in all these things he is not the servant of anyone, save of the law itself. No Minister of the Crown can tell him that he must, or must not, keep observation on this place or that; or that he must, or must not, prosecute this man or that one. Nor can any police authority tell him so. The responsibility for law enforcement lies on him. He is answerable to the law and to the law alone. 37 The applicants also highlighted the operational role of the commissioned officers in the governance and superintendence of the police force and thereby in the discharge by the State of its law and order function. The applicants went on to contend that, as commissioned officers of the Western Australian police force, they had a significant role to play "in providing policing for the peace, order and good government of the State". 38 The applicants went on to observe that the police force was responsible for maintaining law and order in the State of Western Australia, which geographically was the largest police jurisdiction in the world. Between 1997 and 2005, there were approximately 5,000 sworn police officers in the police force. In 1997, there were 150 commissioned officers and by 2005, there were 172 commissioned officers. 39 Each of the applicants deposed at some length to the nature of the duties which each had performed during the period in question. Their evidence was not challenged. The individual applicants deposed that, to varying degrees and depending on his rank, they undertake an executive role in police management and operational policies. In that capacity, said the officers, they utilise advanced policing and management skills at the highest level. They also deposed that, as commissioned officers, they have a high public profile. Some of the applicants gave evidence that from time to time, they had provided assistance and advice with respect to policy and legal issues to Ministers of the State. It was also said that, as commissioned officers, they develop partnerships with government agencies and public interest groups to develop policy and facilitate legislative change for better policing. 40 In relation to the effect of the surcharge tax upon the remuneration of each of the applicants, senior counsel for the applicants said that the evidence did not disclose that the imposition of the surcharge had affected any of the applicants in making a career choice such as applying or not applying for a promotion or retiring early or the like. However, said senior counsel, this evidence was not necessary for the constitutional limitation to be attracted in this case. The applicants pointed to the fact that the State had passed the legislative amendments referred to in [11] above, in response to the Protected Funds Acts. 41 In relation to the question of determining whether persons were at "the higher level of government" for the purpose of their alternative argument, the applicants went on to contend that the primary fundamental criteria for inclusion within the category, were the following: (a) the functions which they performed were unique, or exercised by a small identifiable class of persons; (b) the functions were essentially important to the functioning of government; (c) the functions required the exercise of care and skill at the highest levels; (d) the functions required a high level of independence from government; and (e) the functions are non-routine in nature or relate to complex matters. 42 Of particular importance, said the applicants, was the criterion that the function performed was of essential importance to the functioning of government. 43 Senior counsel for the applicants summarised the position by contending that the applicants, as commissioned officers, were discharging high level responsibilities relevant to the constitutional function of the State to provide for the peace, order and good government of the State.

the state of western australia intervening 44 The State of Western Australia intervened in support of the applicants' case. 45 The Solicitor General's submissions gave particular attention to the application of the Melbourne Corporation principle by the High Court in the AEU case. 46 The Solicitor General contended that Commonwealth legislation that discriminated against a State or States or imposed "a particular disability or burden upon an operation or activity of a State or the execution of its constitutional powers" engaged the Melbourne Corporation principle. The Solicitor General observed that the AEU case was influential in the High Court decisions in Austin and Clarke. 47 The Solicitor General submitted that it was artificial to seek to determine the full scope of the Melbourne Corporation principle as it applied in relation to the restrictions on legislation in relation to office holders at the higher levels of government by simply considering whether the office held by the person in question was analogous to "Ministers, ministerial assistants and advisers, heads of department and high level statutory office holders". The question, said the Solicitor General, was more nuanced than that. 48 The Solicitor General drew attention to the observation made by Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ in Victoria v The Commonwealth (1996) 187 CLR 416 (Industrial Relations Act Case) as to the effect of the AEU case. The Solicitor General referred particularly to the observations at 498 to the effect that the majority in AEU had observed that the Melbourne Corporation principle was directed towards precluding the exercise of Commonwealth legislative or executive power to control the State for that would constitute an exercise of power which was inconsistent with the continued existence of the States as independent entities and their capacity to function as such. 49 The Solicitor General drew attention to the following aspects of the applicants' positions as commissioned officers in the Western Australian police force in support of his contention that the Protected Funds Acts imposed a burden on the State's capacity to function as a government. 50 First, that policing was a core component of the constitutional powers of executive government as a State. The Solicitor General contended that this could also be expressed as "the provision of policing is central to the capacity of the State to function as a government". 51 Secondly, integral to the provision by the State of policing was the ability of the State to engage police officers of high quality. This involved being able to engage high quality personnel on competitive remuneration packages. A remuneration package, said the Solicitor General, included provisions for retirement and superannuation. 52 Thirdly, due to the essential nature of policing and the specialised nature of the skills necessary to administer police services, engagement of the most senior officers in the police force could only be effected by promotion from within the police force or by recruitment from other Australian police forces. In this sense, said the Solicitor General, the police force was different from other branches of executive government where heads of department and high level statutory office holders could be transferred from one department to another. It was by promotion, said the Solicitor General, that the most senior police officers attained that office. 53 Fourthly, central to the provision of policing is that the most capable officers be promoted to senior positions and that there be no financial impediment to promotion.

the taxation commissioner's contentions 54 The Taxation Commissioner contended that none of the applicants held a position which was so critical to the discharge of constitutional functions by the State of Western Australia as to be characterised as a person employed at the higher levels of government so as to attract the application of the Melbourne Corporation principle. 55 It followed, said the Taxation Commissioner, that in their application to the applicants, the Protected Funds Acts did not significantly impair or interfere with the State's capacity to exercise its constitutional functions, and did not, therefore, infringe the Melbourne Corporation principle. 56 The Taxation Commissioner went on to contend that when regard was had to the "structural mechanisms" by which the State exercised "its constitutional powers and functions" in the area of policing, it was only the Commissioner of Police who was at the higher levels of government. The "structural mechanisms" to which the Taxation Commissioner referred were those identified in the Public Sector Management Act 1994 (WA) (the PSMA), the Police Act and the Police Force Regulations 1979 (WA). This legislation provided that commissioned officers, other than the Commissioner of Police, were subject to the Commissioner's control and discipline and are only ever charged with such administration of the Western Australian police force as the Commissioner may from time to time direct. 57 The Taxation Commissioner accepted that the AEU case showed that the Melbourne Corporation principle applied to legislation which regulated certain aspects of the employment relationship of employees of the State engaged in positions below those characterised as being at the higher levels of government. However, the extent to which that limitation would preclude the Commonwealth from legislating in respect of the employment relationship, varied depending on whether the employee concerned was to be regarded as being at the higher levels of government. 58 Thus, said the Taxation Commissioner, the High Court had in the AEU case, found that the Australian Industrial Relations Commission was precluded from making an award in relation to the number and identity of State employees who were employed or the number and identity of persons who could be dismissed on the grounds of redundancy. This showed, said the Taxation Commissioner, that the constitutional limitation could operate in respect of legislation which affected the State's capacity to deal with its employees. However, said the Taxation Commissioner, in AEU, the High Court had held that the Melbourne Corporation principle did not preclude the Commission from making an award in respect of minimum wages, save in respect of persons engaged at the higher levels of government. 59 The Taxation Commissioner went on to contend that determining whether the constitutional limitation applied in respect of the remuneration of persons at the higher levels of government, was not simply a question of drawing analogies with those categories of officers identified by the High Court as being clearly at the higher levels of government. The touchtone, said the Taxation Commissioner, was found in the fact that the limitation relevantly operated in relation to the terms and conditions of engagement of officers "critical to the capacity of a State to function as a government". The Taxation Commissioner contended that the scope of the Melbourne Corporation principle, in this context, was defined by reference to the propensity of the Commonwealth legislation to interfere with, or impair the liberty of the States, in respect of the selection and remuneration of persons who hold offices or positions by which the State discharges its constitutional powers or functions. 60 The Taxation Commissioner went on to contend that the determination of who falls within the characterisation of being at the higher levels of government, was essentially functional. It turned on an analysis of the relationship of the office or position held and the exercise of the State constitutional, as opposed to governmental, powers or functions. 61 In support of this proposition, the Taxation Commissioner referred to the same observations of Brennan J in The Second Fringe Benefits Tax Case, as were referred to by the plurality in Austin, and which are set out at [21] above. These observations, said the Taxation Commissioner, emphasised the importance to the existence of the State as a body politic of the essential organs of government and of "the attendance to their duties" by the officers of these essential organs. 62 The Taxation Commissioner went on to contend that what was required was an analysis of the organisation and processes by which the State exercises its constitutional powers and functions. The Taxation Commissioner contended that "it was no coincidence" that each of the examples of the office holders specified in AEU as at the higher levels of government exercised functions "directly" related to the discharge of the constitutional functions of the State. The decisions in Austin and Clarke, applying to the remuneration of a judge and of a parliamentarian respectively, were consistent with this proposition, said the Taxation Commissioner. 63 The Taxation Commissioner contended that the importance of maintaining an effective police force for the maintenance of law and order could not be open to doubt. However, that fact in itself did not demonstrate the relationship between the functions undertaken by individual members of the police force and the discharge of the constitutional functions of the State. 64 The Taxation Commissioner observed that this case, however, raised the question of how the constitutional immunity upheld in Austin and Clarke applied to employees and office holders of the State executive. 65 The Taxation Commissioner went on to argue that the link between the executive, on the one hand, and the discharge of constitutional functions of the State, on the other, existed by virtue of the doctrines of responsible and representative government. This is because, Ministers of the executive are responsible both at a collective and individual level to Parliament and, through Parliament, ultimately to the people. 66 The Taxation Commissioner contended that it was this doctrine of responsible government which informed the rationale for the inclusion of Ministers, their advisers and heads of departments within those persons who were clearly at the higher levels of government. The Taxation Commissioner advanced the following reasons in support of this contention: (a) Ministers exercise functions that are critical to the capacity of the State to function as a government, and they are directly accountable individually and collectively to Parliament. Also, Ministers are directly accountable to the Parliament individually for the administration of the departments allocated to them. Ministers are also delegates and agents of the Crown. (b) Ministerial advisers who work directly with or under a Minister are so closely associated with the discharge of the functions of the Minister that they were treated no differently for the purposes of the constitutional limitation. They were, said the Taxation Commissioner, in effect treated as "an extension of the Minister". (c) The function of the head of a department was also critical to the function of a State as a government. This was because the Ministers exercised control over their departments by direction to the head of department, and the head of department was directly responsible to the Minister. Further, the head of a department had the "constitutionally significant responsibility" of managing the department which was the mechanism through which the State administered legislation and carried out its executive function. 67 The Taxation Commissioner, then, contended that the hierarchical structure of the police force in Western Australia was consistent with the structure referred to above. 68 Pursuant to s 4(3) of the PSMA, the Commissioner of Police is deemed to be the chief executive officer of the police department. 69 Section 6 of the Police Act provides that commissioned officers are subject to "the control and discipline of the Commissioner of Police". Under s 7 of the Police Act, non-commissioned officers and constables of different grades are appointed by the Commissioner subject to the approval of the Governor. Further, the Police Force Regulations provide that every member or cadet shall carry out such functions, duties and responsibilities as he or she is directed by or on behalf of the Commissioner. 70 The Taxation Commissioner contended that it could "readily be understood" that the exercise by the State of its constitutional powers and functions may be impaired by significant interference by a Commonwealth law with the State's capacity to determine the levels of remuneration of the Commissioner of Police as the independent statutory office holder vested with the control and management of the police force under the Police Act, and as the chief executive officer of the police department under the PSMA. There were two reasons for this, said the Taxation Commissioner. 71 First, the "key functionary" in the structure of the State executive, apart from the Ministers, were the chief executive officers of the departments. The chief executive officers had a responsibility immediately below that of the Minister and reported directly to the Minister for the administration of the department and the laws within the Minister's responsibility. 72 Secondly, the role and function of the Commissioner of Police is within the category of significant public officers such as the Auditor General, the Ombudsman, the Electoral Commissioner, the Director of Public Prosecutions, the Solicitor General and the Sheriff. The Taxation Commissioner submitted that the following observations of Selway B, The Constitution of South Australia (Federation Press, 1997) at 157, were appropriate in the circumstances of this case: [T]hese independent officers perform critical and vital roles within the State Constitution. In general terms, they act so as to ensure that important government activities are carried out in accordance with the law, even if it would be appropriate to make those activities directly subject to parliamentary (ie political) or judicial control or supervision. The accountability and integrity of the constitutional framework rests to a significant degree upon the honesty and abilities of these officers. 73 The Commissioner of Police, said the Taxation Commissioner, was in a direct link with the Minister engaged in the discharge by the State of its constitutional functions. However, the Taxation Commissioner went on to say that the direct link was missing in respect of all other officers because they reported to the Commissioner of Police. 74 The Taxation Commissioner contended: It is the Commissioner and the Commissioner alone who provides the direct link to the relevant discharge of the State's constitutional function in the field of policing. In the absence of such a link, it is not apparent why fixing the amount and terms of remuneration of such persons, in addition to determining such matters as their identity and number, should be regarded as "a critical aspect of the capacity of a State to conduct the parliamentary form of government" or perhaps more accurately, to conduct the Westminster system of representative and responsible government. It follows that, without more, such persons cannot be regarded as holding offices that fall within the higher levels of government for the purposes of the constitutional limitation. (Original emphasis.) 75 The emphasised words in the Taxation Commissioner's contentions above, are words used by Gummow, Heydon, Keifel and Bell JJ in Clarke at [69]. It was not enough, said the Taxation Commissioner, that some of the applicants had liaised with Ministers from time to time, or had on occasions, provided advice or briefing notes to Ministers on draft legislation and policy. This was because it was "trite", said the Taxation Commissioner, that in the course of carrying out their functions, Ministers sought and obtained advice from persons in the public service, at many different levels. 76 Accordingly, contended the Taxation Commissioner, the Protected Funds Acts were only invalid to the extent that they sought to inhibit the State's capacity to fix the remuneration of the Commissioner of Police. 77 Thus, said the Taxation Commissioner, he was prepared to accept that Mr Atherton's appeal should be allowed in part in respect of the surcharge payments which applied during the time when he served as Acting Commissioner of Police, but the appeal should be otherwise dismissed. 78 Further, said the Taxation Commissioner, Mr Albrecht and all the other applicants were not persons who were engaged at the higher levels of government, for the purposes of the Melbourne Corporation constitutional limitation and their appeals should be dismissed with costs.

consideration 79 In light of the central role of the AEU case to the issues in this case, it is necessary to pay attention to that case. 80 In that case, the High Court considered the application of the Melbourne Corporation principle on the powers of the Australian Industrial Relations Commission to make awards. 81 The matters before the High Court arose out of the budgetary policies pursued by the State of Victoria which entailed a considerable reduction in the size of its public service and the number of its public sector employees, attendant upon the enactment of the Employee Relations Act 1992 (Vic) and the Public Sector Management Act 1992 (Vic) (the PSM Act). I refer below to these Acts collectively as the 1992 Acts. 82 The pre-existing Industrial Relations Act 1979 (Vic) (the IR Act) made provision for the compulsory arbitration of the terms and conditions of employment of public service employees, with the consequence that these public service employees were covered by State industrial awards. 83 The Employee Relations Act repealed the IR Act and applied the provisions of the Employee Relations Act to employees in the Victorian Public Service. Further, the Employees Relations Act provided that all awards made under the IR Act and then in force, would expire on 1 March 1993; and that employers and employees who had been bound by that award, would become parties to individual employment agreements on the same terms and conditions as those in the expired awards. The PSM Act provided for the repeal of the Public Service Act 1974 (Vic) (which provided for a similar system of arbitration and awards to the IR Act) and for the substitution of individual contracts of employment. 84 When the 1992 Acts came into effect, a number of severance agreements were offered to school teachers in government schools in Victoria as a measure to reduce the number of school teachers. Similar offers of voluntary separation were made to public service health workers in Victoria. 85 A consequence of these developments was that the unions whose members' terms and conditions of employment had been previously the subject of the State industrial awards, decided to seek for their members, the coverage and protection of federal awards. 86 In all but one of the matters before the High Court in AEU, a federal union of employees had served a comprehensive log of claims on the States relating to the terms and conditions of employment of employees of State government departments and agencies, and had applied to the Commission for the making of a finding of a dispute and the making of a federal industrial award under s 111 of the Industrial Relations Act 1988 (Cth). 87 The categories of government employees and office holders covered by the logs of claims were extensive, and included, public sector employees and office holders performing clerical, administrative and professional duties, teachers, nurses, cleaners, security personnel, domestic service workers and persons employed by the fire brigades. In all 14 of the proceedings, the Commission made the finding of dispute under s 101 of the Industrial Relations Act; and in nine of the proceedings the Commission had gone on to make an award under s 111 of that Act. 88 A number of the interim awards and orders related to logs of claims which were comprehensive in scope, relating to all aspects of employment. In relation, for example, to the school teachers, there was an interim award which substantially preserved the terms and conditions of employment which prevailed as at 20 October 1993, and an interim award requiring the State of Victoria, as the employer of the teachers, to take no further steps to process the voluntary separation packages. There were also interim orders made which permitted a person who had accepted a voluntary separation package to withdraw his or her acceptance and required the employer not to terminate the employment of government school teachers otherwise than in accordance with the provisions of the Act referred to in the earlier interim award. 89 The remaining matter which was before the High Court is of particular relevance to this case. This is because it involved an application by the Australian Federal Police Association to the Commission for consent to an alteration of the rules of eligibility of membership of the association to permit members of the police forces of any State or Territory to become members of that association. The Commission had, on 15 November 1993, consented to the alteration to the rules as had been sought. 90 The State of Victoria (referred to by the High Court as "the prosecutor") sought orders for writs of prohibition and certiorari to quash the decisions made by the Commission and preclude any further proceedings before the Commission. The prosecutor contended that the Commission had no power to make any of the findings of dispute or the awards or to grant an application for alteration to the rules of the Australian Federal Police Association. 91 The prosecutor relevantly contended that if awards were made on the logs of claims before the Commission, the State's capacity to determine the terms and conditions of its workforce would be transferred to the Commission because of the comprehensive nature of matters covered by the logs of claims. This exercise of power by the Commission, said the prosecutor, would constitute interference with, or curtailment of the governmental functions of the State, or its capacity to function as a government, and was, therefore, precluded by the implied limitation on the exercise of Commonwealth legislative powers under the Melbourne Corporation principle. 92 The majority of the High Court (Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ) reviewed the scope and content of the implied limitation. 93 The majority referred to the fact that in Commonwealth v Tasmania (1983) 158 CLR 1 (Tasmanian Dam Case), Mason J, Brennan J and Deane J considered that the implied limitation, in its relevant aspect, was directed against the exercise of Commonwealth legislative powers in a manner which would be inconsistent with "the continued existence of the States or their capacity to function". The majority went on to observe that Mason J and Brennan J had considered that this aspect of the limitation was directed against "the impairment of the capacity of a State to function as a government, rather than against interference with or impairment of any function which the State government undertakes". 94 The majority rejected the prosecutor's submission that the observations of Mason J and Brennan J in the Tasmanian Dam Case which referred to "impairment of a State's capacity to function as a government" extended to "any impairment of capacity to exercise government functions". 95 In response to the prosecutor's submission, the majority also observed at 229: In the Pay-roll Tax Case, Menzies J referred to the implied limitation in the context of interference with a State carrying out its "constitutional functions of government", a narrower expression than "government functions". Gibbs J referred to a law which curtailed or interfered with the "exercise of constitutional power by the States", but left open the question of what is the constitutional power that is protected. (Footnotes omitted.) 96 Further, at 229-230, the majority observed: In our view, the prosecutor's submission on this point is against the weight of modern authority and draws a distinction which is unsatisfactory. To say that the limitation protects the existence of the States and their capacity to function as a government is to give effect more accurately to the constitutional foundation for the implied limitation identified by Dixon J in the passages earlier quoted from Australian Railways Union, including s 106 of the Constitution. To press the limitation as far as the prosecutor seeks to take it would travel beyond the language of s 106 and would confer protection on the exercise of powers by the States to an extent which is inconsistent with the subordination of those powers to the powers of the Commonwealth through the operation of s 109 of the Constitution. And the argument, if successful, would protect a substantial part of a State's workforce from the impact of federal awards, notwithstanding that the operation of those awards in relation to school teachers, health workers and other categories of employees would not destroy or curtail the existence of the State or its capacity to function as a government. 97 The majority went on to observe at 230: The fact is that the existence of the States and their Constitutions and their capacity to function as governments should not be impaired by the operation of federal awards made in respect of the vast majority of the employees sought to be covered by the log of claims, at any rate if the award provisions were confined to minimum wages and working conditions which take appropriate account of any special functions or responsibilities which attach to them. 98 Further, the majority also declined to accept the distinction which the prosecutor sought to draw between "governmental functions" and "trading functions". The majority, at 230, observed: We are unable to accept the distinction which the prosecutor sought to draw between "governmental functions" and trading functions. The argument was that the State functions as a government when carrying out public functions for a public purpose. On this view, health, education and police functions are government functions. Indeed, it is difficult to see why, on this view, trading functions are not governmental, if they are undertaken by the government in the public interest. The distinction is unsatisfactory for that reason. 99 The majority also rejected the contention that the implied limitation applied to protect what they referred to as the "administrative services exemption", such that it would preclude interference in respect of the employees of a State who are employed in providing the "administrative services" of a State. At 231, the majority, in referring to this exemption, observed: [T]he exception is not related in any way to the implied limitations or to the purpose which it serves. That purpose protects the State and its capacity to function as a government. The exception consists of a category of the employees and is not directed to functions of government and even less to capacity to function as a government. 100 The majority then considered the argument by the Solicitor General for South Australia, who contended that the implied limitation protected from impairment the "integrity" or "autonomy" of a State. It was in that context, at 232, that the majority made the following crucial observations: At this point it is convenient to consider South Australia's argument based on impairment of a State's "integrity" or "autonomy". Although these concepts as applied to a State are by no means precise, they direct attention to aspects of the State's function which are critical to its capacity to function as a government. It seems to us that critical to the capacity of the State is the government's right to determine the number and identity of persons whom it wishes to employ, the term of appointment of such persons and, as well, the number and identity of the persons whom it wishes to dismiss with or without notice from its employment on redundancy grounds. An impairment of a State's rights in these respects would, in our view, constitute an infringement of the implied limitation. On this view, the prescription by a federal award of minimum wages and working conditions would not infringe the implied limitation, at least if it takes appropriate account of any special functions or responsibilities which may attach to the employees in question. There may be a question, in some areas of employment, whether an award regulating promotion and transfer would amount to an infringement. That is a question which need not be considered. As the other provisions in a comprehensive award, the answer would turn on matters of degree, including the character and responsibilities of the employee. In our view, also critical to a State's capacity to function as a government is its ability, not only to determine the number and identity of those whom it wishes to engage at the higher levels of government, but also to determine the terms and conditions on which those persons shall be engaged. Hence, Ministers, ministerial assistants and advisers, heads of department and high level statutory office holders, parliamentary officers and judges would clearly fall within this group. The implied limitation would protect States from the exercise by the Commission of power to fix minimum wages and working conditions in respect of such persons, and possibly others as well. And, in any event, Ministers and judges are not employees of a State. (Footnotes omitted.) 101 Importantly, for this case, the majority also dealt with the prosecutor's argument that the implied limitation also applied in relation to the exercise of the Commission's powers in granting consent to the amendment to the rules of the Australian Federal Police Association. At 241, the majority observed: The prosecutor argued that the implied limitation precludes the exercise of the Commission's powers with respect to a dispute between a State and its police officers and that such a dispute cannot amount to an industrial dispute within the meaning of s 51(xxxv). The prosecutor's argument was an extension of its principal contention relating to governmental functions on the footing that the police discharge a primary and inalienable governmental function. The short answer is that the granting of consent by the Commission to an alteration of the eligibility rules of the Australian Federal Police Association would not in itself work any impairment of the capacity of the prosecutor to function as a government. Further, having regard to conclusions earlier stated in these reasons, there is no basis for holding that the Commission is precluded from exercising some powers in relation to the fixing by award of minimum wages for State police officers. 102 The applicants' primary argument is that policing is a core and essential function of government and that the Melbourne Corporation principle will, accordingly, operate to invalidate the Commonwealth legislation which seeks to impair the arrangements which the State wishes to make for the remuneration of commissioned officers who perform this core governmental function. Further support for the unique position of the members of the police force in the apparatus of the State, said the applicants, was reflected in the fact of their independence and that the State was not vicariously liable for their negligent acts and omissions. 103 For the following reasons, I accept the Taxation Commissioner's argument that the fact that the maintenance of a police force is a core function of government, will not in itself mean that the Melbourne Corporation principle will operate to invalidate Commonwealth law which seeks to impact upon the arrangements made by a State for the remuneration of the commissioned officers of the police force. 104 An argument based on the essential role of policing to the State as attracting the Melbourne Corporation principle, was also made by the prosecutor in the AEU case. More specifically, in support of its contention that the Melbourne Corporation principle operated to invalidate the Commission's consent to the amendment of the rules of the Australian Federal Police Association, the prosecutor argued that the maintenance of the Victorian police force was "an important, or a primary and inalienable government function" (see the summary of the prosecutor's argument at 195 of AEU). It is instructive that, in support of that proposition, the prosecutor relied upon the same observations in the case of Richard Coomber (Surveyor of Taxes) v The Justices of the County of Berks (1883) 9 App Cas 61 as were cited by Viscount Simonds in Perpetual Trustee and were relied upon by the applicants in support of their primary proposition (see [34] above). 105 As already mentioned, the majority in AEU found that the implied limitation operated in respect of Commonwealth awards that purported to regulate certain aspects of the employment relationship between the State and its employees. However, save for those at the higher level of government, the majority found that the implied limitation did not preclude a Commonwealth award from regulating remuneration payable by the State to its employees, including to members of the police force. It is apparent, therefore, that the majority in AEU did not accept the prosecutor's submission that the Melbourne Corporation principle invalidated this exercise of the Commission's power on the basis that the maintenance of a police force was a core or "primary and inalienable" governmental function. 106 In other words, despite being asked to do so, the majority in AEU did not find that there was a special quality inherent in the role of policing to the functioning of a State such as to cause policing to be treated differently from other government functions, insofar as the application of the Melbourne Corporation principle was concerned. 107 Accordingly, in my view, the majority reasoning in AEU precludes the applicants from succeeding on their primary argument. The majority reasoning in AEU also applies to the submissions made by the Solicitor General, insofar as the Solicitor General sought to rely upon the special role of policing as being critical to the capacity of the State to function as a government. 108 I turn now to consider the applicants' alternative argument. This argument relies upon the observations of the majority in AEU to the effect that, "critical to a State's capacity to function as a government is its ability, not only to determine the number and identity of those whom it wishes to engage at the higher levels of government, but also to determine the terms and conditions on which those persons shall be engaged". 109 The difference between the parties on this issue was the basis upon which a person would be included within the category of being at the higher levels of government. 110 The Taxation Commissioner construed the reference by the majority in AEU to the implied limitation applying in respect of the impairment of the capacity of a State to function as a government, as precluding the exercise of legislative power which undermined the continued existence of the essential organs of government by which the State exercised its constitutional functions. It followed, said the Taxation Commissioner, that the implied limitation applied to preclude the impairment of the State's capacity to remunerate as it saw fit, those persons who were critical to the discharge of the functions of each of the organs of government of the democratic system of government embodied in the constitutional framework of Australia. Insofar as the executive organ of government was concerned, consistent with the doctrine of responsible government reflected in the constitutional framework, the implied limitation would apply to preclude impairment of the State's capacity to remunerate as it saw fit, those persons who are directly responsible to Parliament, or directly associated with, and responsible, to those persons. 111 The applicants, however, took a broader view of the ambit of persons included within the category of those at the higher levels of government. The true test, said the applicants, flowed from certain of the observations which were made in Melbourne Corporation: "activities which are essential to the very existence of a Government" (per Latham CJ at 52-53) and "normal and essential functions of government" (per Rich J at 66). The applicants' contention was that the question was to be determined by an assessment of the importance of that person's function to the State, rather than by reference to whether it was "constitutional". 112 For the following three reasons, there is, in my view, a greater degree of congruity in the submissions of the Taxation Commissioner, than those of the applicants, with the tenor of the majority judgment in AEU. Accordingly, I prefer the submissions of the Taxation Commissioner. 113 First, the majority in AEU found that implied limitation operated to preclude impairment of a State's capacity to choose the means of remunerating those at the higher levels of government on the basis that implied limitation operated to preserve the "integrity" or "autonomy" of a State within the constitutional framework. At 232, the majority, referring to those concepts of "integrity" and "autonomy" said: Although these concepts as applied to a State are by no means precise, they direct attention to aspects of the State's function which are critical to its capacity to function as a government. 114 Some guidance as to the nature of the impairment which the majority in AEU perceived might threaten the "integrity" or "autonomy" of a State, is to be discerned from the following observations the majority made (to which I have already referred) as to what was said about the implied limitation in the Tasmanian Dam Case: Mason J, Brennan J and Deane J considered that the prohibition, in its relevant aspect, was directed against the exercise of Commonwealth legislative powers in a manner which would be inconsistent with the continued existence of the States and their capacity to function. Mason J and Brennan J considered that this aspect of the limitation was directed against the impairment of a capacity of a State to function as a government, rather than against interference with or impairment of any function which a government undertakes. (Footnotes omitted.) 115 In my view, it is also, informative that the majority included in a footnote (citing the abovementioned references to the Tasmanian Dam Case) the following reference: …Koowarta v Bjelke-Petersen (1982) 153 CLR 168 at 216, where Stephen J referred to the implied limitations "which will serve to protect the structural integrity of the State components of the federal framework, State legislatures and State executives". 116 These observations, which refer to the structural integrity of the State by reference to the organs of government and draw a distinguish between the capacity of a State to function as a government and the functions which a government performs, are more compatible with the submissions of the Taxation Commissioner than with those of the applicants. 117 Secondly, there is a resonance between the applicants' argument based, as it is, on policing being a core and essential function of government, and the prosecutor's argument to similar effect which was rejected in AEU. 118 The majority in AEU observed that in Victoria v The Commonwealth (1971) 122 CLR 353 (Pay-roll Tax Case), Windeyer J was not prepared to accept that there was a satisfactory distinction between essential functions of government and other functions undertaken by government; and that Barwick CJ, Walsh and Gibbs JJ shared that view. The majority did not, accordingly, accept a distinction between essential and other functions of government (which is relied upon by the applicants) as a sufficient basis upon which to found the guiding principle for determining the scope of the Melbourne Corporation principle. Nor, as I have already noted, did the majority accept that the impairment to the capacity of the State to function as a government extended to any impairment of the capacity to exercise government functions. 119 Further, as I have also already noted at [101] above, it is apparent that the majority did not consider that the exercise of the State's constitutional power to maintain a police force, was so critical for the capacity of the State to function as a government, as to attract the implied limitation. 120 Accordingly, in my view, the tenor of the majority decision in AEU does not support the applicants' contention that it would be a sufficient condition for a person to be regarded as being at the higher levels of government, that the person perform an essential government function. 121 Thirdly, in my view, the Taxation Commissioner's submissions derive support from an examination of the categories of the office holders which the majority in AEU chose to identify as clearly being at the higher levels of government. In my view, it is significant the majority chose to include judges within that category. 122 The question of pay and conditions of judges was not in issue before the High Court in AEU, but nevertheless, judges were referred to by the majority as being within the category. In my view, the reference to judges within that category is consistent with the Taxation Commissioner's contentions that the majority in AEU had in mind that the implied limitation was directed to protecting from impairment the continuing existence of the essential constituent organs of State government; and so, consistent with the observations of Brennan J in The Second Fringe Benefits Tax Case (see [21] above), protecting from impairment the capacity of a State to engage those persons who directly discharge the functions of the essential organs of government, on such terms as it may decide. 123 There are also a number of other reasons why, in my view, the submissions of the Taxation Commissioner should be accepted. 124 First, the High Court in Austin held that the Protected Funds Acts infringed the implied limitation in that it impaired or curtailed the capacity of the State to remunerate a member of its judiciary on such terms as it chose. The High Court came to the same conclusion as to the impact of the legislation in Clarke, where the appellant was a member of the legislature of the South Australian parliament. In each case, the appellant was a person who was engaged in performing duties which directly discharged the functions of an essential organ of government. In Brennan J's words in The Second Fringe Benefits Case, each was an "officer of the essential organs of government". 125 The decisions in Austin and Clarke are consistent with the Taxation Commissioner's submissions, but not, of course, inconsistent with the applicants' submissions. However, the applicants did not point to any decision which was inconsistent with the Taxation Commissioner's submissions. Further, the recognition of the importance of the impairment to the State's exercise of its constitutional, as opposed to the governmental, function in relation to the operation of the implied limitation, is recognised in the following observations of French CJ in Clarke at [32]: [T]he Commonwealth cannot, by the exercise of its legislative power, significantly impair, curtail or weaken the capacity of the States to exercise their constitutional powers and functions (be they legislative, executive or judicial) or significantly, impair, curtail or weaken the actual exercise of those powers or functions. The Constitution assumes the existence of the States as "independent entities". This implies recognition of the importance of their status as components of the federation. 126 Secondly, the Taxation Commissioner's submissions propose a principled approach to determining which office holders or employees are to be regarded as being at the higher levels of government for the purpose of determining the ambit of the application of the Melbourne Corporation principle. By contrast the test proposed by the applicants founded on the "importance" of the functions performed by the office holder or employee in question, whilst having the virtue of flexibility, suffers from the vice of imprecision. The adoption of the applicants' argument would require the formulation of further criteria by which to adjudicate the importance to the State of the function performed by the officer holder or employee in question; and then the application of those criteria to persons performing a wide range of government functions in many different fields of endeavour. 127 It is the case, as the applicants contended, that the Taxation Commissioner's contentions give rise to at least one apparent anomaly. The anomaly referred to by the applicants was that, on the Taxation Commissioner's contention, relatively junior level employees within the public service such as ministerial advisers and assistants, would be at the higher levels of government, but a very senior officer such as a deputy head of a major department of government would not fall within that characterisation. 128 Whilst, it is the case that the Taxation Commissioner's approach does give rise to this apparent anomaly, it is an anomaly explicable by reference to the rationale advocated by the Taxation Commissioner. However, the fact of this apparent anomaly, does not, in my view, dictate an acceptance of the applicants' test. This is because that test entails the inherently complex and invidious task of trying to assess the relative importance of a particular officer holder's or employee's function to the State. The test would be uncertain in application, and on that account would be as likely, if not more likely, to give rise to apparent anomalies as would the Taxation Commissioner's test. 129 It follows that the appeal of each of the applicants, other than Mr Atherton, is dismissed. 130 As to Mr Atherton, his appeal is allowed in part to reflect the period when he served as the Acting Commissioner of Police. I will order that the parties confer, and within 7 days, file a minute of orders which reflects this result. 131 The applicants are to pay the respondent's costs. I certify that the preceding one hundred and thirty one (131) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.