Whether the levy constitutes a "tax"?
285 As stated by Gleeson CJ in Luton v Lessels [2002] HCA 13; 210 CLR 333 at [10], in deciding whether an exaction of money or the imposition of some other financial obligation is a tax, involves an exercise in characterisation. Care must be taken to understand that the often-quoted words of Latham CJ in Matthews v Chicory Marketing Board (Vic) [1938] HCA 38; 60 CLR 263 at 276, were not relied upon to represent a definitive statement of the essence of a tax but directed to the facts of that case. In Chicory, his Honour described the levy as being a tax because it was:
…a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered…
286 However, as stated by Gaudron and Hayne JJ in Luton, at [49], whilst these features identified by Latham CJ are typical of a tax, their presence or absence is not determinative of whether legislation, or particular provisions of it, are characterised as a tax. This is clear from cases which have decided this issue since Chicory: Whilst not exhaustive, for example, in Australian Tape Manufacturers Association Ltd v Commonwealth [1993] HCA 10; 176 CLR 480 at 501, the majority of the High Court held that the exaction of money need not be by a public authority to be a tax. Furthermore, the exaction of money need not be primarily for revenue raising purposes to be a tax. In Roy Morgan Research Pty Ltd v Commissioner of Taxation & Anor [2011] HCA 35; 244 CLR 97, a superannuation guarantee charge was found to be a tax even though it was found not to have been imposed primarily for revenue raising purposes: at [16], [48] (per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); [62] (per Heydon J).
287 The applicant contends that the levy comprises a tax by the adoption of the features identified by Gordon J in an extra-curial paper (Gordon J, "The Commonwealth's taxing power and its limits - Are we there yet?" (2013) 36(3) Melbourne University Law Review 1037-1063). Justice Gordon examined various authorities, and at pages 1041 to 1044 identified distinguishing features from those authorities relevant to determining whether an exaction of money or the imposition of some other financial obligation is a tax (for which when applied to this case would lead to the conclusion that the levy comprised a tax) which the applicant summarised as follows:
(a) there is a public purpose to it;
(b) the receipt of funds into consolidated revenue, whilst not conclusive, points to a public purpose;
(c) a legislative objective of the raising of revenue is not necessarily a determinant;
(d) it is not a charge or payment for services rendered; and
(e) the imposition of the tax must not be arbitrary and must be imposed by reference to some ascertainable criteria.
288 I am of the view that the levy comprises a tax for the reasons identified by the applicant. I would note that I do not accept that the additional levy is a tax by reason of it being a penalty for the reasons set out later in these reasons at [341]-[354].
289 First, it is clear from the nature of the Scheme that it serves public purposes. As identified by the Full Court in Coal LSL v Cmmr Taxation, the Scheme administers a fund which was initially set up after the coal miners' strike in 1949 to ensure that there was a "portable" long service leave entitlement for employees who might be employed successively by several different employers in the industry: at [2]. If such a scheme was not available, a consequence would then be that, when an employee ultimately became entitled to take that leave, the full financial liability would fall upon that particular employer even if the employee had only worked for them for a short period. As stated by the Full Court, at [2]:
…Unless means were provided of spreading the burden equitably among employers in the industry, at least two consequences might follow. Some collieries might be subjected to financial burdens which they were unable to meet; and collieries would be discouraged from employing experienced miners.
290 In addition, the Full Court opined that the purpose of the Scheme "was not simply to protect private employers from some of the consequences of the long service leave arrangements established by the award" but was "for the protection of the public interest in maintaining an industry which produced a commodity of particular importance to Australia's export trade": at [22]. The Full Court did not consider it "particularly significant" that the direct beneficiaries of the fund were private employers, rather that purpose was a "public purpose" and "the Corporation has been given extraordinary power and authority to perform a public purpose of government". Those functions included, on behalf of the Commonwealth, administering and recovering a tax: at [17].
291 The public purpose of the Scheme may also be gleaned from the history of the 1992 reforms which replaced the previous long service leave scheme in the black coal mining industry. The previous scheme was funded by way of an excise on the production of black coal, paid into consolidated revenue, for which amounts equal to these collections were appropriated for payment into a trust fund which reimbursed the relevant States which in turn reimbursed participating employers (who had paid long service leave payments). A key purpose of the reform and creation of the current scheme was to address the accrued unfunded liability for untaken long service leave estimated at $250.2 million (as at 30 June 1990). As stated in the Explanatory Memorandum 1992:
… the objective of the reforms is to ensure that the currently unfunded liability for long service leave is accounted for without imposing an unreasonable burden on the industry.
292 Furthermore, as identified by Emmett J, the primary judge whose decision was the subject of the appeal in Coal LSL v Cmmr Taxation, when quoting from the Second Reading Speech for the 1992 Bill in Coal Mining Industry (Long Service Leave Funding) Corporation v Commissioner of Taxation (Cth) (1998) 85 FCR 401 at 404, the public purposes of the Scheme included the attraction and retention of labour, including removing disincentives for employers to employ people with previous employment in the industry (such that the employer would have had to bear the additional liability for long service leave) and to provide protection to employees against employers going insolvent.
293 It is also clear that the Scheme's purpose is to ensure parity of entitlement to long service leave by employees who, whilst employed in the industry for lengthy periods, may be employed by numerous employers. Its purpose is also to ensure that the burden of risk arising from that entitlement is spread across employers within the industry to ensure its availability and the financial viability of employers.
294 In Luton, the High Court distinguished Tape Manufacturers on the basis that the scheme was "no more than a mechanism for the enforcement of a pre-existing private liability" (at [14] per Gleeson CJ): The amounts payable under the relevant scheme were to be paid to the Commonwealth by a particular debtor in relation to a particular child or children, and an equivalent amount was then to be paid to the particular person entitled to that amount of child support. Relevantly, Gleeson CJ stated (at [12]):
What constitutes a sufficient public purpose may be a matter of contention, as in Australian Tape Manufacturers Association Ltd v Commonwealth. Quick and Garran, writing in 1901, said:
"Taxation may be now defined as any exaction of money or revenue, by the authority of a State, from its subjects or citizens and others within its jurisdiction, for the purpose of defraying the cost of government, promoting the common welfare, and defending it against aggression from without."
That, perhaps, illustrates the risks of definition. Depending upon what is meant by "promoting the common welfare", it may be difficult to reconcile with the decision in the Australian Tape Manufacturers Association case. Directly or indirectly, all legislation is aimed at promoting the common welfare. The legislative powers of the Parliament are to be exercised for the peace, order and good government of the Commonwealth. A law which imposes on one person an obligation to pay money to another, or to the government, will, by hypothesis, be enacted in pursuance of some policy or purpose which is regarded by the Parliament as in the public interest. The concept of "public purposes" in the present context is narrower than that.
(Footnotes omitted.)
295 The respondent relies on the above paragraph to submit that the concept of a public purpose is narrower than just the public interest, and as such the Scheme does not answer the descriptions of a public purpose.
296 For the reasons identified by the Full Court in Coal LSL v Cmmr Taxation, and as is plain from a review of the Scheme, even if the narrow definition of public purpose as opposed to public interest is embraced, the Scheme falls within this description.
297 Secondly, the levy is a debt that is due to the Commonwealth: s 9 of the Collection Act. When collected that levy is placed into the Consolidated Revenue Fund, and appropriations are then made out of the Consolidated Revenue Fund to the Fund established by the Administration Act: s 36 of the Administration Act. As Parliament explained in the Explanatory Memorandum 1992, when commenting on draft clause 3 (which is in very similar terms to the current s 3 of the Administration Act, the object provision): "The scheme is to be funded by a levy on payroll of participating employers. This levy is to be collected by or on behalf of the Corporation and paid into the Consolidated Revenue Fund. Levy Monies are to be appropriated from the Consolidated Revenue and paid into the Fund".
298 Whilst I accept the respondent's submission that the fact that the proceeds of an exaction are paid into the Consolidated Revenue Fund (as it is here) is not decisive in determining whether it is a tax (see Luton at [13] (per Gleeson CJ); [55] (per Gaudron and Hayne JJ)), it is a factor which I consider is in favour of the levy constituting a tax. The payment of the levy into the Consolidated Revenue Fund is an indication that it has been exacted for public purposes: Tape Manufacturers at 503.
299 Thirdly, the existence of a revenue raising purpose is not necessarily determinative. The respondent contends the levy is not a tax because the Scheme lacks a revenue raising purpose. On the respondent's submission, the Scheme involves inter partes payment obligations, facilitating the prepayment of an employer's share of a contingent long service leave liability to substitute entitlements that would otherwise apply under an award or a state long service leave act. The respondent submits that the absence of a revenue raising purpose (which is relevant for whether it is imposed for a public purpose) weighs against characterising the levy as a tax and although it is not determinative it "will often be significant": Luton at [13] citing Airservices Australia v Canadian Airlines [1999] HCA 62; 202 CLR 133 at [90]-[91] (per Gleeson CJ and Kirby J); see also Luton at [16] (per Gleeson CJ), [116]-[117] (per Kirby J) [177] (per Callinan J).
300 As identified in Airservices Australia at [90]-[91], and referred to with approval in Luton at [13], the objective of raising revenue for the government is not a universal determinant as to whether an exaction is a tax or not, but I accept its absence will often be significant. As described by Gordon J in her extra-curial paper, referred to at [287] above, "the importance of a legislative objective to raise revenue is not without some controversy": at 1042. This position is consistent with previous High Court authority: For instance, a training guarantee charge, despite not having a revenue raising objective, was characterised as a tax: Northern Suburbs General Cemetery Reserve Trust v Commonwealth [1993] HCA 12; 176 CLR 555 at 568-569 and 572.
301 Furthermore, by illustration, paragraph [13] of Luton was cited with approval by the plurality in Roy Morgan (where the High Court concluded that the superannuation guarantee charge constituted a tax) at [16]:
It should be added that the discernment of a legislative objective to raise revenue is not necessarily a determinant that the exaction in question bears the character of taxation. For example, the objective of the imposition of a customs tariff at a high level may be to protect domestic industry by providing a disincentive to the importation of competing products. The point was made by Kitto J in Fairfax v Federal Commissioner of Taxation with reference to the statement in United States v Sanchez:
"It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. Sonzinsky v United States. The principle applies even though the revenue obtained is obviously negligible, Sonzinsky v United States, or the revenue purpose of the tax may be secondary, J W Hampton [Jr] & Co v United States. Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate".
(Footnotes omitted.)
302 In a similar way, the plurality in Roy Morgan observed at [48]-[49]:
48. The Court in Northern Suburbs also emphasised a point made earlier in these reasons: that the raising of revenue is secondary to the attainment of some other legislative object is no reason for treating an impost otherwise than as a tax. As Latham CJ pointed out in Radio Corporation Pty Ltd v The Commonwealth, this is so even if the legislation is designed for the purpose of carrying out a policy affecting matters not directly within the legislative competence of the Parliament of the Commonwealth.
49. The submission by the appellant that the Charge is invalid because the legislation confers upon employees a "private and direct benefit" cannot be accepted. Nor does this "linkage" indicate that the Charge is not imposed by the Parliament for "public purposes". It is settled that the imposition of a tax for the benefit of the Consolidated Revenue Fund is made for public purposes. That is not to say that the receipt of funds into the Consolidated Revenue Fund conclusively establishes their character as the proceeds of a tax. But it does establish in the present case that the Charge is imposed for "public purposes" and thus, if other necessary criteria are met, as they are in this case, the Charge is a valid tax.
303 Accordingly, in Roy Morgan the High Court found that the lack of a revenue raising purpose was not fatal to the finding that the charge had a public purpose (for which it was significant but not determinative that the funds went into consolidated revenue).
304 Furthermore, it is worth pausing to consider the respondent's description of the levy being "inter partes". Whilst this is strictly the case, this case is very different from Luton, where the payment related to a "distinctly personal liability" arising out of the natural and moral obligation of a parent to support a child, in the form of a debt payable by the liable parent to the eligible carer. By contrast here, the levy is imposed on an employer of eligible employees at the relevant time, not because it is that employer (who is liable to pay the levy) who will ultimately hold the liability to pay out the entirety of those eligible employees' long service leave entitlements. Nor is there any connection between what the employer pays the employee (for which reimbursement will be made), and the contribution made by that particular employer on the eligible wages of that specific eligible employee. The concept of accrual of leave (and payment once leave has accrued) is conceptually separate in the Scheme from the liability of an employer to pay the levy - there is no statutory link between the two concepts.
305 Fourthly, I do not accept the respondent's contention that the mechanics of quantifying the levy produce arbitrary results which would go against characterising the levy as a tax, for the reasons identified in Issue 1 above at [190]-[195].
306 As to the levy's purported arbitrary effect, the respondent referred to its earlier submissions that employees may fall in and out of the black coal mining industry such that eligibility could change day by day, and submitted that the Collection Act does not allow for that "degree of nuance". Section 4 of the Collection Act provides that the levy is referable to eligible wages payable "during a month". It follows, the respondent contends, that even if an employee is an eligible employee for a day or even an hour during a whole month, the construction on the face of the text of ss 3B and 4 of the Collection Act is that levy be paid for the hours worked in the whole month, rather than the period of time one was an eligible employee. According to the respondent, this outcome results in the levy being an arbitrary exaction, as the amount paid may exceed the number of hours actually worked by an eligible employee.
307 In this regard, the respondent refers to Gordon J's extra curial paper referred to above at [287], at 1060-1061:
The Commonwealth's taxing power does not permit the Commonwealth to impose 'arbitrary exactions'. In this context, I am not dealing with contestable and incontestable taxes. Rather, to satisfy the requirement that the exaction not be arbitrary, not only must it 'be possible to point to the criteria by which the Parliament imposes the liability to pay the tax', but also, arguably, the exaction must have 'a sufficiently general application'.
(Footnotes omitted).
308 The respondent thus contends that the Scheme operates in an "arbitrary and capricious" way where there's no rational relationship between the amount levied and the qualifying service actually incurred under the scheme.
309 In response, I am of the view, first, that the respondent has overstated the potential result of the Scheme and it is not arbitrary nor does it have a capricious effect for the reasons identified above at [190]-[194]. Further, it is clear from the terms of s 43 (and sub-s (5)) of the Administration Act, as submitted by the applicant, that this section "makes clear that the setting of the levy is subject to an actuarial process". In addition, s 43 of the Administration Act provides a mechanism by which reimbursements can be made to employers of eligible employees and the rate of the levy can, and has, changed over time (as located in the Levy Regulations).
310 Fifthly, I do not accept the respondent's argument that the levy is akin to a "fee for service". For a charge to be considered a fee for service, it must be "exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment": see Air Caledonie International v Commonwealth [1988] HCA 61; 165 CLR 462 at 470 (per Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ). There must also be a sufficient relationship between the liability to pay the charge and the provision of services by the ultimate expenditure of the money collected: Northern Suburbs at 568 (per Mason CJ, Deane, Toohey and Gaudron JJ).
311 The respondent has not identified what the "service" provided is, or that there is a sufficient relationship between the liability to pay the charge and the provision of services by the ultimate expenditure of the money collected. As submitted by the applicant, here there is a collection of a 2.0% levy on eligible wages. Ultimately, some of those funds are used to fund long service leave entitlements to employees, but that is a contingency which may never arise, and even if it does arise, may arise with respect to an employer different to the one that made the contribution, or one who only made a small contribution. In this respect, the applicant relied upon an example:
A simple example can suffice. Hitachi may engage an employee today who already has qualifying service in the industry and then completes his or her aggregate period of service of 8 years while employed with Hitachi. In that instance, if Hitachi today pays that employee for the long service leave, it will be reimbursed irrespective of the fact that it never made any contribution or only made an insignificant contribution to the fund. Equally, the converse also proves the point. Hitachi may have made a contribution in respect of an employee for over 7 years of that person's employment and yet when the employee becomes entitled to long service leave, that employee may be engaged with a different employer, in respect of which entitlement it obtains no reimbursement for the levy it contributed the fund for 7 years of that person's service. That is because the trigger for reimbursement is the taking of the leave, and that payment for the leave by the current employer (who is the one that is reimbursed). The point is even more profound once it is accepted that employers may leave or enter the industry with or without any reimbursement. Seen in this way, the levy is not a fee for service, it is a tax imposed on those who decide to engage employees in the black coal mining industry, to promote the public purpose underlying the scheme. This makes it plain that the levy is imposed as an exaction to generate revenue for the public purpose of funding the long service leave of employees, and where applicable, to reimburse those employers who foot the cost of an actual payment to a relevant employee.
312 For these reasons, it is my view that the levy comprises a tax.