Victoria v Commonwealth [1971] HCA 16 | Case summary

Victoria v Commonwealth [1971] HCA 16 | Case summary | Zoe

[18]

9. The plaintiff State however asserts that s. 3 (1) of the Act is outside the ambit of the Commonwealth legislative power in so far as it purports to include the Crown in right of a State in the category of employers liable to assessment for pay-roll tax. The principal ground taken by the plaintiff is that the granted power, "Taxation : but so as not to discriminate between States or parts of States", does not authorize the imposition of any tax upon the Crown in right of a State, because there is an implied constitutional limitation upon that Commonwealth power operating universally, that is to say, as to all activities of a State. Therefore it is said the Act may not validly operate with respect to the Crown in right of the State, no matter what the nature of the relevant activity of the State in which it has employees to whom it pays wages or salaries. A secondary ground, but the ground mostly pressed by the plaintiff, is that the legislative power with respect to taxation does not extend to authorize the imposition of any tax upon any essentially " governmental" activity of a State. Therefore at the least, the power granted by s. 51 (ii.) does not authorize the imposition of a tax upon the Crown in right of a State in respect of the wages paid to its civil servants and that s. 3 (1) is pro tanto invalid. Though the legal propositions submitted by the plaintiff would extend beyond these, the plaintiff in this suit limits its claim to invalidity of the Act in relation to wages paid by it to its employees in the named departments of government. The suggested limitation upon the legislative power of the Commonwealth, whether of universal or of limited operation, is said to be derived by implication from the "federal" nature of the Constitution. In this connexion it is said that to levy a tax upon a State at all, but in any case to levy a tax rated to the wages paid to its servants employed in departments of government, so trenches upon the governmental functions of the State as to burden, impair and threaten the independent exercise of those functions. It is also sought to reach the same result by construction of the legislative power itself. It is said that because of its particular, indeed unique nature, the legislative power with respect to taxation does not extend to authorize the levy of a tax upon a State ; and again, either at all, or at any rate, with respect to its "governmental" activities. (at p366)

[38]

21. The Constitution granted by the Imperial Act was "federal", not in the sense of a union of previously existing States surrendering powers to that union but in the sense that the powers of government were distributed, some by nomination of subject matter and others as residues. Therefore analogies drawn from situations in the United States of America and from judicial conclusions and observations upon the Constitution of that country must, in my opinion, be used, if at all, only with a clear realization of the basic distinction between the constitutional position of the two countries. Thus, though by their union in one Commonwealth, the colonists became Australians, the territorial boundaries of the former colonies were retained for purposes of the distribution of governmental power and function. The constitutional arrangements of the colonies were retained by, and subject to, the Constitution as the constitutional arrangements for the government of those portions of the Commonwealth to be known as States. These, though coterminous in geographical area with the former colonies, derived their existence as States from the Constitution itself : and being parts of the Commonwealth became constituent States. This background must be in mind in considering whether any implication of a limitation upon Commonwealth power may be drawn from the terms of the Constitution itself. Whatever the antecedent history of the passing by the Imperial Parliament of the Constitution Act (63 & 64 Vict. c. 12) it and it alone expresses the will of the Imperial Parliament which alone had legislative power to alter the colonial status. Of course, that Act must be construed in the light of its antecedent history or as it was said in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129, at p 152 , "it must be read naturally in the light of the circumstances in which it was made . . .". But the outstanding fact that the Act created the Commonwealth as the embodiment of the people of Australia and gave it, amongst other things, legislative power over the enumerated subject matters cannot be gainsaid. The extent to which the former colonial constitutions and powers of government were transmuted into and continued by the Constitution as the constitutional and governmental powers of the States is fully expressed in s. 106 and s. 107 which are both subject to the Constitution. There is no room, in my opinion, for an implication of a kind which might be appropriate in the construction of a treaty of union between States, some unexpressed contractual term of a fundamental nature. Indeed, in my opinion, the approach of the Court in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 to the construction of the Constitution as an Act of the Imperial legislature in reality denies the possibility of any such implication. (at p372)

[39]

22. However, it is to my mind clear that the Constitution in providing for the States did not give the Commonwealth legislative power over them, or their powers and functions of government, as subject matters of legislation. That the Government cannot "aim" its legislation against a State, its powers or functions of government is both true and fundamental to our constitutional arrangements. But, in my opinion, this does not derive from any implied limitation upon any legislative power granted to the Commonwealth. It is true simply because the topics of legislation allotted to the Commonwealth by the Constitution do not include the States themselves nor their governmental powers or functions as a subject matter of legislative power. As will appear from my understanding of the judgments in Melbourne Corporation v. The Commonwealth (2), a law of the Commonwealth which in substance takes a State or its powers or functions of government as its subject matter is invalid because it cannot be supported upon any granted legislative power. If the subject matter of the law is in substance the States or their powers or functions of government, there is no room, in my opinion, for holding it to be at the same time and in the same respects a law upon one of the enumerated topics in s. 51. Sir Owen Dixon in Melbourne Corporation v. The Commonwealth [1947] HCA 26; (1947) 74 CLR 31 , having concluded that s. 48 of the Banking Act "singled out and taxed the States in respect of some exercise of their functions", and that it was "effective to deny to the States the use of the banks", said that "this . . . is not justified by the power to make laws with respect to banking". That followed, in my opinion, because such a law was not in substance a law with respect to banking: but on the contrary, had the States and the banking of their funds as its subject. Of course, a law may be at the same time thought to be a law with respect to either of two of the topics enumerated in s. 51 and it may be satisfactory in such a case not to trouble to say with respect to which of the two subject matters the law should preferably be referred. But when a law may possibly be regarded as having either of two subjects as its substance, one of which is within Commonwealth power and the other is not, a decision must be made as to that which is in truth the subject matter of the law. Although usually not an appropriate course in determining whether a law is a law on an enumerated topic, in such a case, the decision of what is the subject matter of the law may be approached somewhat in the manner the validity of a law claimed to be within one of the two mutually exclusive lists in the Canadian Constitution is determined. The law must be upon one or other of the subjects. It cannot be on both. Thus, in my opinion, to decide that the law in question is a law having the States or their powers or functions of government for its subject matter, is to decide that it cannot be a law "justified by the power to make laws with respect to" one of the topics enumerated in s. 51. In other words, it seems to me to follow necessarily from the decision of the Court in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 , and from the reasons given for that decision, that the validity of a Commonwealth law will be determined by its relation to a granted subject matter of legislative power construed as a provision of an act of the Imperial Parliament, "read naturally in the light of the circumstances in which it was made". By that direct approach no warrant will, in my opinion, be found in the Constitution for a law of which the powers or functions of a State is or are in truth the subject matter. It is for lack of an appropriate subject matter rather than the presence of an implied limitation upon some granted power that such a law, in my opinion, would fail. That, in my opinion, is the real ground of and, in any case, the only acceptable ground for, the decision in Melbourne Corporation v. The Commonwealth [1947] HCA 26; (1947) 74 CLR 31 . (at p373)

[51]

"It is proper, at the outset, to observe that this case does

not involve any prerogative 'in the sense of the word', to

use the phrase employed by the Privy Council in Theodore v.

Duncan

(1919) AC 696, at p 706

, 'in which it signifies the power of the Crown

apart from statutory authority'. Though much of the argument

addressed to us on behalf of the States rested on the prerogative,

this distinction was not observed, but it exists, and, so far as

concerns prerogative in the sense indicated, it is unnecessary

to consider it. In several recent cases the Judicial Committee

has had the broader question under consideration, as in

Canadian Pacific Railway Co. v. Toronto Corporation

(1911) AC 461

and Bonanza Creek Gold Mining Co. v. The King

(1916) 1 AC 566

,

but in none of these was it found necessary to determine it.

It is manifest that when such a question is involved in a

decision, the nature of the prerogative, its relation to the

Government concerned, and its connection with the power

under which it is sought to be affected, may all have to be

considered. In the Bonanza Creek Case

(1916) 1 AC, at p 587

Lord Haldane,

speaking for the Privy Council, after favouring an

interpretation

of the British North America Act by which certain

rights and privileges of the Crown would be reserved from

Canadian legislative power, proceeded to say : - 'It is quite

consistent with it' (that interpretation) 'to hold that executive

power is in many situations which arise under the statutory

Constitution of Canada conferred by implication in the grant

of legislative power, so that where such situations arise the

two kinds of authority are correlative. It follows that to this

extent the Crown is bound and the prerogative affected.'

In this case we have to consider the effect of certain statutory

authority of the States, but in relation to pl. xxxv. only, and

it is necessary to insert a word of caution. If in any future

case concerning the prerogative in the broader sense, or arising

under some other Commonwealth power - for instance,

taxation,

- the extent of that power should come under

consideration

so as to involve the effect of the principle stated in the

passage just quoted from the Bonanza Creek Case, and its

application to the prerogative or to the legislative or executive

power of the States in relation to the specific Commonwealth

power concerned, the special nature of the power may have

to be taken into account. That this must be so is patent from

the circumstance that the legislative powers given to the

Commonwealth Parliament are all prefaced with one general

express limitation, namely, 'subject to this Constitution',

and consequently those words, which have to be applied

seriatim to each placitum, require the Court to consider with

respect to each separate placitum, over and beyond the general

fundamental considerations applying to all the placita, whether

there is anything in the Constitution which falls within the

express limitation referred to in the governing words of s. 51.

That inquiry, however, must proceed consistently with the

principles upon which we determine this case, for they apply

generally to all powers contained in that section."

(1920) 28 CLR, at pp 143, 144

[68]

40. Any other view must, in my respectful opinion, involve concepts incapable of exact expression and certainly of practical application. For example, the concept of an "undue" interference with State functions attracting invalidity provides but a question begging formula. And to attempt to use a distinction between governmental and other functions of a State in the modern world as a legal criterion of validity is, in my opinion, without promise. New York v. United States [1946] USSC 13; (1946) 326 US 572 (90 Law Ed 326) , to my mind, illustrates the difficulties without affording any sure guide to their resolution. In my opinion, the only satisfactory principle is that which the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 adopts, namely, that to be valid the Commonwealth law must be on a granted subject matter. Being in substance on such a matter, it may bind the Crown in right of a State. But States and their functions are not matters committed to the Parliament. In my opinion, application of these principles, and the determination of the subject matter of a law, as with all its difficulties, we are accustomed to do, will ensure the continuance of States as such, according to the Constitution. I respectfully agree with Sir John Latham when he says in Melbourne Corporation v. The Commonwealth (1947) 74 CLR, at p 61 that "the Commonwealth Parliament has no power to make laws with respect to State governmental functions as such. . . . It is upon this ground, in my opinion, that what is called 'discriminatory' legislation may properly be held to be invalid". On the other hand, I am unable to agree that there is a separate ground of invalidity namely "undue interference with the performance of what are clearly functions of government". If, as I have already said, the provisions of an Act because of the nature and extent of their application to the State or its functions can be said to be in substance a law with respect to the State or its functions, the provisions will be beyond the competence of the Parliament. But such "interference" with the exercise of the powers or functions by a Commonwealth Act which otherwise would be within power will not invalidate that Act unless the nature and extent of such interference requires the conclusion that those powers or functions are in reality the subject matter of the Act. (at p383)

[73]

3. A question, raised by the argument put forward on behalf of the State, is whether the Parliament is able to make a law under s. 51 (ii.) binding on the Crown in the right of a State. Section 51 (ii.) is, of course, the taxation power of the Commonwealth. The term "taxation" does not mean in the Constitution only tax paid by a subject. The Commonwealth Constitution Act establishes the supremacy throughout the Commonwealth of all laws validly made under the Constitution. The Act obviously applies to any law validly made under s. 51 (ii.) of the Constitution. The Crown in right of a State is subordinate to the Crown in right of the Commonwealth to the extent of legislative power granted by the Constitution to the Commonwealth Parliament. The Crown is a single juristic person but it has these two capacities respectively. It is clearly consistent with the federal system under the Constitution that the Crown in right of a State should be bound by a law made pursuant to s. 51 (ii.) of the Constitution to pay tax to the Crown in right of the Commonwealth (See the Steel Rails Case [1908] HCA 28; (1908) 5 CLR 818 and Sutton's Case [1908] HCA 26; (1908) 5 CLR 789 ). The suggestion that the word "taxation" in s. 51 (ii.) means taxation of subjects only and imposes a limitation on that basis upon the power granted by the placitum to the Commonwealth Parliament, has no force. It is implicit in the judgment of the majority in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 , that the Parliament has power to make a law under s. 51 (ii.) which is binding on the several States. If not, the relevance of the reference in the judgment to the taxation power is not apparent. That judgment contains the following passage, [1920] HCA 54; (1920) 28 CLR 129, at p 144 "the legislative powers given to the Commonwealth Parliament are all prefaced with one general express limitation, namely, 'subject to this Constitution', and consequently those words, which have to be applied seriatim to each placitum, require the Court to consider with respect to each separate placitum, over and beyond the general fundamental considerations applying to all the placita, whether there is anything in the Constitution which falls within the express limitation referred to in the governing words of s. 51. That inquiry, however, must proceed consistently with the principles upon which we determine this case, for they apply generally to all powers contained in that section". The powers are those granted by s. 51 of the Constitution - and include the taxation power. The question which the Court had to consider in the Engineers' Case was whether the States were bound by a law made under s. 51 (xxxv.). (at p385)

[74]

4. The pay of a person in the employment of a State government is not beyond the reach of s. 51 (ii.). The person who received the pay can be obliged by a law made under s. 51 (ii.) to pay to the Commonwealth income tax levied on the pay. The present tax is not of the nature of income tax. In my opinion a law of the Commonwealth levying pay-roll tax on the pay of persons in private employment and in the employment of the Crown in right of a State, and providing that the tax be paid by their employers to the Commonwealth, is wholly a law with respect to taxation. The inclusion of the Crown in the right of a State, amongst others, in the definition of "employer" is not contrary to any restriction or limitation imposed by the Constitution upon s. 51 (ii.). The payment by the Crown in right of the State of the remuneration of its officers and employees who work in the State departments of government ought not to be declared immune from the tax here in question. The tax is not laid on the appropriation of revenue to pay for services. If it were, the question would arise whether the tax, so far as it burdened that activity, was, in substance, a law with respect to the States. The Constitution does not grant power to the Commonwealth Parliament to make a law of that kind. Conceding that the functions of the departments mentioned in the statement of claim pertain to affairs which are distinctive of government, the question which then arises is whether upon the true construction of the Constitution there is a necessary implication by which the Commonwealth is restrained from making a law under s. 51 (ii.) levying a tax on the pay of persons employed in the departments and making the State liable to pay the tax. In considering this question it should be borne in mind that the employment of a person to perform services, where the Crown is the employer, is an ordinary transaction such as is engaged in between subject and subject and that payment for services is an activity common to employment by governments and employers in the private sector. It is not unconstitutional to tax equally payment of salaries or wages or other remuneration by private employers and State governments as such. (at p386)

[94]

"Conceivably that connexion (i.e. with the subject of

legislative power) may be made so insubstantial, tenuous or

distant by the character of the control or restriction the law

seeks to impose upon State action that it ought not to be

regarded as enacted with respect to the specified matter

falling within the Commonwealth power. If so, the law fails

simply because it cannot be described as made with respect

to the requisite subject matter. But, if in its second aspect

the law operates directly upon a matter forming an actual

part of a subject enumerated among the federal legislative

powers, its validity could hardly be denied on the simple

ground of irrelevance to a head of power.

. . . .

In the case of most legislative powers assigned to the

Commonwealth

some ingenuity would be needed to base a law

squarely upon the subject matter of the power and at the

same time effect by it a restriction or control of the State in

respect of some exercise of its executive authority or for that

matter in respect of the working of the judiciary or of the

legislature of a State. The difficulty of using most federal

powers in that way arises from the character of the subjects

of the powers. It is, for instance, difficult to see how any law

based on the power with respect to lighthouses, astronomical

observations, fisheries, weights and measures, bills of exchange

or marriage could be aimed at controlling States in the

execution

of their functions. But to attempt to burden the exercise

of State functions by means of the power to tax needs no

ingenuity. . . .

. . . .

What is important is the firm adherence to the principle

that the federal power of taxation will not support a law

which places a special burden upon the States. They cannot

be singled out and taxed as States in respect of some exercise

of their functions. Such a tax is aimed at the States and is an

attempt to use federal power to burden or, may be, to control

State action. The objection to the use of federal power to

single out States and place upon them special burdens or

disabilities does not spring from the nature of the power of

taxation. The character of the power lends point to the

objection but it does not give rise to it. The federal system

itself is the foundation of the restraint upon the use of the

power to control the States. The same constitutional objection

applies to other powers, if under them the States are made

the objects of special burdens or disabilities." (at p391)

[99]

14. The difficult and important task of formulating a limitation of the kind for which the State here contends is not, I think, to be undertaken except in a case where the law impugned does operate to interfere with a State carrying out its constitutional functions of government. In Melbourne Corporation v. The Commonwealth [1947] HCA 26; (1947) 74 CLR 31 the Court was dealing with such a law and the justices said sufficient to dispose of that case. What was said, as has already appeared, was not uniform and there is not to be found in that case an authoritative formulation by the Court of a limitation that can be applied in all circumstances. I do not propose to offer an exhaustive formulation here because I am satisfied that the requirement to pay pay-roll tax does not constitute an interference with the States of the sort which could result in the invalidity of the laws which impose it. Of course the payment of the tax by an employer upon wages paid is a burden, whether or not the employer is a State. Every tax is a burden. This tax could not, however, be described as an interference with the function of employers who are not States. Such employers remain free to carry on their businesses as they choose. All that is required is that they pay the tax. Similarly, the payment of the tax by a State does not interfere with the performance of its functions. Crown servants may still be employed at the will of the State. It was argued that, because the State needs Crown servants to carry out its functions of government, the payment of tax upon wages paid to such servants interfered with the performance of those functions. This I do not accept. At this point, I think, the argument for the State moved from the operation of the laws to their economic consequence, an entirely different matter. The most that can be said is that, because the State pays the tax to the Commonwealth, it has so much less money with which to carry out the functions of government. Such a consequence does not spell invalidity. The same sort of consequence follows, if, by reason of the imposition of a customs duty, a State has to pay the Commonwealth tax upon imports which it needs to carry out its functions, or if, by reason of an award of the Commonwealth Conciliation and Arbitration Commission, a State has to pay its railway employees higher salaries. None of such laws operate to interfere with the performance by the State of its constitutional functions. A Commonwealth tax upon State tax revenues would be an instance of a very different kind. (at p393)

[110]

5. I have on other occasions adverted to differing legal consequences that flow from the different origins, historically and juristically, of our Constitution from that of the United States. I shall allude to that again here. I do so because to my mind the phrase "dual sovereignty", which we sometimes hear, is for law a misleading misnomer when applied to the Commonwealth of Australia. There is dual authority but only one sovereignty. The Commonwealth Constitution was enacted at Westminster in 1900 as a product of the assent and agreement of the peoples of the Australian Colonies. It was sought by Australians, not imposed upon them. The Constitution Act itself was carefully worded so as not to be coercive. Section 3 provided that Western Australia should not become part of the new Commonwealth unless Her Majesty was satisfied that the people of that Colony had agreed thereto. As an agreement of peoples, British subjects in British Colonies, and the enactment thereafter by the sovereign legislature of the British Empire of a law to give effect to their wishes, the Australian federation can be described as springing from an agreement or compact. But agreement became merged in law. The word "compact" is still appropriate but strictly only if used in a different sense - not as meaning a pact between independent parties, but as describing a compaction, a putting of separate things firmly together by force of law. The Colonies which in 1901 became States in the new Commonwealth were not before then sovereign bodies in any strict legal sense ; and certainly the Constitution did not make them so. They were self-governing colonies which, when the Commonwealth came into existence as a new Dominion of the Crown, lost some of their former powers and gained no new powers. They became components of a federation, the Commonwealth of Australia. It became a nation. Its nationhood was in the course of time to be consolidated in war, by economic and commercial integration, by the unifying influence of federal law, by the decline of dependence upon British naval and military power and by a recognition and acceptance of external interests and obligations. With these developments the position of the Commonwealth, the federal government, has waxed ; and that of the States has waned. In law that is a result of the paramount position of the Commonwealth Parliament in matters of concurrent power. And this legal supremacy has been reinforced in fact by financial dominance. That the Commonwealth would, as time went on, enter progressively, directly or indirectly, into fields that had formerly been occupied by the States, was from an early date seen as likely to occur. This was greatly aided after the decision in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 , which diverted the flow of constitutional law into new channels. I have never thought it right to regard the discarding of the doctrine of the implied immunity of the States and other results of the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 as the correction of antecedent errors or as the uprooting of heresy. To return today to the discarded theories would indeed be an error and the adoption of a heresy. But that is because in 1920 the Constitution was read in a new light, a light reflected from events that had, over twenty years, led to a growing realization that Australians were now one people and Australia one country and that national laws might meet national needs. For lawyers the abandonment of old interpretations of the limits of constitutional powers was readily acceptable. It meant only insistence on rules of statutory interpretation to which they were well accustomed. But reading the instrument in this light does not to my mind mean that the original judges of the High Court were wrong in their understanding of what at the time of federation was believed to be the effect of the Constitution and in reading it accordingly. As I see it the Engineers' Case (1), looked at as an event in legal and constitutional history, was a consequence of developments that had occurred outside the law courts as well as a cause of further developments there. That is not surprising for the Constitution is not an ordinary statute : it is a fundamental law. In any country where the spirit of the common law holds sway the enunciation by courts of constitutional principles based on the interpretation of a written constitution may vary and develop in response to changing circumstances. This does not mean that courts have transgressed lawful boundaries : or that they may do so. (at p397)

[119]

12. The power to make laws with respect to a particular subject matter means that the validity of any questioned law depends on what it commands and to whom its command is addressed. "With respect to" is a compound preposition. It does not differ in effect from the corresponding phrase "in relation to" in the British North America Act 1867. Each is a periphrasis for such single words as "of", "about", "on", "concerning", "touching". I may say that I have not chosen those just at random. They, with the phrases "referring to", "relating to" and "treating of", happen to be the headings under which the laws of Athens on various topics were mentioned in Potter's Antiquities of Greece, Ch. 26. I do not think that much is to be gained by either elaboration or paraphrase of the phrase "with respect to". "Characterization" is the now common jargon. And in some cases it may for some people be helpful to translate this by asking what is the pith and substance of a law. That phrase, "pith and substance", became common currency in the Privy Council in cases under the British North America Act. Examples are Attorney-General (British Columbia) v. Attorney-General (Canada) (1937) AC 368, at p 389 ; and Canadian Federation of Agriculture v. Attorney-General (Quebec) (1951) AC 179, at p 195 . In that context the expression was first used, so far as I have noticed, by Lord Watson in Union Colliery Co. of British Columbia Ltd. v. Bryden (1899) AC 580, at p 587 . It was perhaps then a modification of "pith and marrow", a natural old English metaphor, which became well known in patent law. It was there commonly used to describe the essence, or quintessence, of an invention from the time Bowen L.J. so used it in Wenham Gas Co. Ltd. v. Champion Gas Lamp Co. (1891) 9 RPC 49, at p 56 . It can be readily understood and applied as the test of infringement of a patented invention. And it has been useful in cases under the Canadian Constitution for determining whether a law of the Dominion or a Province encroaches upon a field reserved for the other. That too is readily understandable. But, unless we were to revert again to the discarded view of mutual immunities, no question of encroachment upon a forbidden State field, or of infringement of State rights, can arise in the same way under our Constitution. The question under s. 51 is always whether a particular enactment is within Commonwealth power. It is never whether it invades a State's domain. The question is one of sub-sumption under a particular description. It is not one of classification into categories mutually exclusive; for a law may be quite properly described as with respect to more than one subject, one perhaps within and another without Commonwealth power. I shall return later to this aspect. (at p400)

[125]

16. In Melbourne Corporation v. The Commonwealth (1947) 74 CLR, at p 70 Starke J. said: "The federal character of the Australian Constitution carries implications of its own." That I respectfully endorse. I think that it is the firm ground on which the judgments in that case must stand. The decision might I think have been put in another way: that, eschewing any kind of implication, the enactment in question, although couched as a command to bankers, could be regarded as in substance not a law with respect to banking, but simply as a command to States and State authorities as to the way they must carry on their affairs. It might therefore perhaps have been treated as being with respect to a subject not within the competence of the Commonwealth Parliament, and not with respect to one that was. Latham C.J. got close to deciding the case in that way. But when his judgment is read as a whole I think he did not. He said that legislation by the Commonwealth would be invalid if it were "really with respect to a State or State functions as such and not with respect to the subject in respect of which it is sought to bind the State" (1947) 74 CLR, at p 61 . But he had already rejected the argument that the enactment in question was not a law with respect to banking (1947) 74 CLR, at p 50 . He had, however, left open the question of its validity having regard to its impact on the governmental functions of the States: and that I take it was the dominant influence in his conclusion. As I read the judgments of other members of the Court it seems to me that they too did not say that the law was not with respect to banking. Rather they said that it was: but in varying terms they condemned it because it was directed against the States. Latham C.J. acknowledged in Uther's Case (In re Richard Foreman & Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation) [1947] HCA 45; (1947) 74 CLR 508, at p 519 that this was the basis of the decision. The law thus contravened assumptions or implications arising from the federal nature of the Constitution and the position of the States. I shall not set out passages in the judgments, the verbiage of which had so much detailed scrutiny in the arguments that we heard. I accept the decision and the ground on which I think it stands. But to suppose that the words used in judgments must be taken as binding pronouncements of received doctrine is I think to take a path that can lead one astray. I have said elsewhere, especially in Damjanovic's Case (Damjanovic & Sons Pty. Ltd. v. The Commonwealth) [1968] HCA 42; (1968) 117 CLR 390, at pp 407-409 , that I distrust taking the words of judicial exposition of the language of the Constitution as if they were themselves the language that they seek to explain and expound. Exegesis must not be substituted for the text. I can now add, to what I have previously said of this, a respectful reference to Lord Upjohn's pertinent remarks when delivering the judgment of the Privy Council in Ogden Industries Pty. Ltd. v. Lucas [1968] UKPCHCA 1; (1968) 118 CLR 32, at p 39: (1970) AC 113, at p 127 . (at p403)

[128]

19. A Commonwealth Act that levied a tax upon the States alone would, I consider, be beyond Commonwealth power ; but not because it was not a law with respect to taxation. I cannot conceive of a law imposing a tax, or regulating the assessment and collection of a tax, that would not be properly called a law with respect to taxation. It might be equally well called a law with respect to some other subject : but, as I have said, the Constitution does not require that every law be catalogued under one heading only. A law may be with respect to more than one subject matter. To take two or three examples : A law imposing land tax is properly called a law with respect to taxation and landowners. The wool tax considered by this Court in Logan Downs Pty. Ltd. v. Federal Commissioner of Taxation [1965] HCA 16; (1965) 112 CLR 177 was a law with respect to taxation and not the less so because it could also be properly called a law with respect to wool, wool marketing, wool brokers and wool growers. Gift duty is imposed by a law with respect to taxation which is also a law with respect to gifts. A Commonwealth law simply imposing a tax upon the revenues of the States would be a law with respect to taxation. But I consider that it would be an illegitimate use by Parliament of its power to make laws because of the principles and limitations, call them implications or what you will, recognized in the Melbourne Corporation Case [1947] HCA 26; (1947) 74 CLR 31 . However, the pay-roll tax is far removed from that. There is in it no "discrimination against" the States, to use that awkward but much used phrase, which I take it connotes an adverse distinction with regard to something or somebody. The pay-roll tax applies without any discriminations between employers generally including the States. Some reference was made to the exemption that the Act allows to independent schools, as distinct from government schools, in respect of salaries and wages paid. This, it was said, was a discrimination against the States. But it seems to me a far-fetched proposition that a special exoneration of some persons within a State from a general obligation results in the exoneration of the State itself from the liability expressly imposed on it and otherwise valid. (at p404)

[135]

3. The plaintiff contends however that the foregoing submissions on behalf of the defendant are not in accordance either with the principal judgment in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 itself or with the interpretations given to that judgment in subsequent cases. It is clear that the general rule of interpretation adopted in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 has been declared repeatedly to be subject to reservations or qualifications, additional to those which are imposed expressly in relation to particular powers by provisions of the Constitution other than s. 51 or are imposed specifically by the terms of a paragraph in s. 51, for example, the words in s. 51 (ii.) itself - "but so as not to discriminate between States or parts of States". It has been argued in the present case that in some respects those judicial declarations go beyond what was said in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 and beyond what is consistent with its basic principles. But whether that be so or not, there is a substantial body of authority for the proposition that the federal nature of the Constitution does give rise to implications by which some limitations are imposed upon the extent of the power of the Commonwealth Parliament to subject the States to its legislation. That proposition has not been regarded as inconsistent with the principles enunciated in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 . It has been affirmed by members of this Court who were authors of the leading judgment in that case as well as by others who were not. It is supported not only by dicta but also by the decision in Melbourne Corporation v. The Commonwealth [1947] HCA 26; (1947) 74 CLR 31 , unless that case should be regarded as having been decided upon the ground that the law which was declared to be invalid was not a law "with respect to" banking, within the meaning of s. 51 (xiii.). But, in my opinion, the majority of those members of the Court who held the law to be invalid decided that it was invalid because the effect of the law upon the States was such that, although it might be a law with respect to banking, it was beyond the power of the Commonwealth Parliament to enact it. The judgments in the Melbourne Corporation Case [1947] HCA 26; (1947) 74 CLR 31 have been discussed by Menzies J. in his judgment in the present case, and I agree, with respect, with what his Honour has written about it. Therefore, my further references to it will be less extensive than otherwise they would have been. But in relation to the question whether the decision was based upon the view that the law was outside the subject matter described in s. 51 (xiii.), I refer to what was said in another case in which argument was heard almost immediately after judgment was given in the Melbourne Corporation Case. In In re Richard Foreman & Sons Pty. Ltd. ; Uther v. Federal Commissioner of Taxation [1947] HCA 45; (1947) 74 CLR 508, at p 519 Latham C.J. said :

[138]

4. On several occasions, both before and after the Melbourne Corporation Case [1947] HCA 26; (1947) 74 CLR 31 was decided and in that case itself, Sir Owen Dixon formulated what was in his opinion the basic principle laid down in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 and he made observations relating to reservations or qualifications which he thought had been made, concerning the prima facie rule of interpretation which it established. On the first and second of those occasions, that is to say, in Australian Railways Union v. Victorian Railways Commissioners [1930] HCA 52; (1930) 44 CLR 319, at p 390 and in West v. The Commissioner of Taxation (N.S.W.) [1937] HCA 26; (1937) 56 CLR 657, at pp 682, 683 , his Honour did not refer specifically to the taxation power. But in Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [1940] HCA 13; (1940) 63 CLR 278, at p 316 , his Honour said, in the course of discussing a question as to what could be regarded as incidental to the taxation power, that in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 "the taxation power was singled out as an instance of a legislative power the extent of which in relation to the States might in the future come up for special consideration". Again in Essendon Corporation v. Criterion Theatres Ltd. [1947] HCA 15; (1947) 74 CLR 1, at p 19 . Dixon J. said that in the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 an express reservation had been made covering the power of taxation. He added : "The reservation is expressed in a somewhat indefinite manner." In the Melbourne Corporation Case [1947] HCA 26; (1947) 74 CLR 31 , Dixon J. made observations relating to the taxation power, which have been quoted in part by Menzies J., and to which I shall make some further reference later. In Ex parte Professional Engineers' Association [1959] HCA 47; (1959) 107 CLR 208, at p 239 Dixon C.J. again adverted to the Engineers' Case [1920] HCA 54; (1920) 28 CLR 129 and suggested that perhaps "the reservations and qualifications therein expressed concerning the federal power of taxation and laws directed specially to the States and also perhaps the prerogative of the Crown received too little attention". (at p408)

[149]

11. In support of the submissions that the laws are beyond power in so far as they apply to the wages paid to the civil servants specified in the statement of claim two propositions were advanced which were said to be overlapping but distinct. One was that the tax was invalid because it selects a criterion of a kind which impinges directly upon the States in that the employment of civil servants is something without which a State cannot continue to exist as a unit of government. The second proposition was that the tax was invalid because it is beyond power to tax the States in respect of functions which are unique to government in the sense that they can be performed only by governments. Assuming that it would be beyond power for the Commonwealth Parliament to make a law which would prevent the States from continuing to exist as independent units of government and from continuing to exercise those functions which governments alone can perform or which are necessary for the continued existence of the States the propositions which I have set out cannot be sustained except upon the assumption that any law by which a tax is imposed directly upon the States in consequence of acts done by them in the exercise of those functions is a law which prevents or controls the exercise of those functions. In my opinion that assumption is not a valid one. The plaintiff must assert that a tax law which affects the States either in relation to the exercise by it of activities in which it is necessarily engaged or in relation to activities of a kind in which no one else engages is beyond power. But unless the reason for the invalidity lies in the nature of the power, the submissions under consideration if accepted ought to lead to the conclusion that other laws which impinge directly upon the carrying out by the State of such activities must likewise be invalid. I have already stated reasons for rejecting the view that a taxation law affecting the States is invalidated simply on the ground that the taxation power is of a special nature which cannot be used so as to bind the States. Once that is rejected, the argument for the plaintiff must be that the placing of any obligation upon it, by a Commonwealth law, in relation to the exercise of functions of the kind under consideration, must be beyond power. (at p413)

[159]

4. By s. 51 (ii.) of the Constitution, the Parliament is given power, subject to the Constitution, to make laws for the peace, order, and good government of the Commonwealth with respect to taxation, but so as not to discriminate between States or parts of States. There is no doubt that a law imposing a pay-roll tax is a law with respect to taxation. However, the State of Victoria contends that in so far as the legislation imposes this tax on the States it is invalid. First, the State advances the general proposition that the power given by s. 51 (ii.) does not enable the Parliament to make laws taxing the States, although it is conceded that there may be exceptions to this general rule, for example in the case of duties of customs and excise. In support of this proposition it is said that the ordinary meaning of the term "taxation" is the raising of money for the purposes of government by exaction from subjects and that the States are not subjects of the Commonwealth. Further, it is submitted that the Commonwealth's power to make laws with respect to taxation is subject to the Constitution, which recognizes and protects the coexistence of the Commonwealth and the States as separate independent governments, and in consequence impliedly forbids the Commonwealth to tax the States, or a State to tax the Commonwealth. If this proposition is not accepted in its generality, it is submitted that at least the Commonwealth has no power to impose on a State a tax on the employment of civil servants who are employed in activities that can only be carried on by a government and whose employment is essential to the very existence of the State. In reply to these arguments it is urged by the Solicitor-General for the Commonwealth that it is settled by Amalgamated Society of Engineers v. Adelaide Steamship Company Ltd. (the Engineers' Case) [1920] HCA 54; (1920) 28 CLR 129 that the Parliament of the Commonwealth has power to make laws binding on the States with respect to the matters set forth in s. 51 of the Constitution, subject only to the limitations arising from the words used in s. 51 to describe the various topics upon which the Parliament may legislate and to such other limitations as are expressly imposed by the Constitution ; no further limitations, he says, are to be implied. He submits that there is nothing in the words of s. 51 (ii.) themselves which gives rise to an implication that a tax should not be imposed on the States, and that the Commonwealth Parliament accordingly has power to impose a tax on the States, provided that the express limitations contained in the Constitution, particularly in s. 51 (ii.) itself and in ss. 55, 99 and 114, are not infringed. (at p416)

[189]

13. In my opinion these authorities do not support the proposition that the power of the Commonwealth Parliament to make laws with respect to taxation is subject to an implied limitation that excepts from the scope of the power any law that imposes taxation on the States. There is, on the contrary, authority that the Commonwealth Parliament may validly pass such a law. R. v. Sutton [1908] HCA 26; (1908) 5 CLR 789 and Attorney-General (N.S.W.) v. Collector of Customs (N.S.W.) (Steel Rails Case) [1908] HCA 28; (1908) 5 CLR 818 establish that Commonwealth laws imposing duties of customs are binding on the States. It is true that in those cases the Court attached some significance to the fact that the Commonwealth's power to impose duties of customs and excise is exclusive and to the unfortunate consequences that might result if the States were not subject to the customs legislation of the Commonwealth. Nevertheless, the duties were clearly taxes imposed by the Commonwealth Parliament by virtue of the power conferred by s. 51 (ii.) and these decisions, which have remained authoritative for over sixty years, could not have been correct if the taxation power were subject to a prohibition against its exercise so as to affect the States. Moreover, the inclusion in the Constitution of s. 114, which expressly forbids the Commonwealth to impose any tax upon property of any kind belonging to a State, would hardly have been necessary if the Commonwealth had lacked power to impose any tax upon the States. In any case, it seems to me that the federal nature of the Constitution, and its scheme and purpose, do not give rise to any implication that no general law imposing taxation may validly be extended to the States. Such an implication goes beyond what is required to preserve and protect the position of the States as independent members of the federation, and would, on the other hand, lead to complexities and difficulties in many cases. I hold that there should not be implied in the Constitution a limitation upon the legislative powers of the Commonwealth that would render invalid any law to the extent to which it purports to impose a tax upon the States. No doubt, however, laws imposing taxation upon the States will be more likely than many other laws to offend against the limitations that apply generally to Commonwealth powers. (at p424)

[190]

14. It then becomes necessary to determine whether the legislation in the present case is rendered invalid by any such general limitation on Commonwealth power. It is unnecessary to discuss fully the subject of the implied limitations on the power of the Commonwealth to make laws binding on the States. Such matters as the extent of the Commonwealth power to affect the prerogative, or whether the Commonwealth can compel the States to make appropriations of money in satisfaction of liabilities imposed on them, or can impair or affect the Constitution of a State, do not fall for consideration. Still less is it necessary to discuss the implications that may be made as to the immunity of the Commonwealth from action by the States. In my respectful opinion, the view of Sir Owen Dixon, that a Commonwealth law is bad if it discriminates against States, in the sense that it imposes some special burden or disability upon them, so that it may be described as a law aimed at their restriction or control, should be accepted. With all respect, however, I am not disposed to agree that a law which is not discriminatory in this sense is necessarily valid if made within one of the enumerated powers of the Commonwealth. A general law of the Commonwealth which would prevent a State from continuing to exist and function as such would in my opinion be invalid. It is true that in many cases a law which offended in this way would prove to be discriminatory, and I am conscious of the imprecision of the test so far as it applies to general and nondiscriminatory laws. The further formulations of the test by Rich and Starke JJ. in the Melbourne Corporation Case [1947] HCA 26; (1947) 74 CLR 31 are not free from difficulty. To say that what the Constitution impliedly forbids is a law which would prevent the States from performing the normal and essential functions of government or impede them in doing so is to draw a distinction between essential and inessential functions of government which is inappropriate to modern conditions and has probably never been valid (cf. per Windeyer J. in Ex parte Professional Engineers' Association (1959) 107 CLR, at pp 274-276 ). To inquire whether a law curtails or interferes in a subsantial manner with the exercise of constitutional power by the States leads only to the further question what is the constitutional power of the States that is protected. For the purposes of the present case it is, however, unnecessary to attempt to resolve these difficulties because the pay-roll tax in its present form would not be invalid on any view of the question. Although in some cases it may be possible to show that the nature of a tax on a particular activity, such as the employment of servants, renders the continuance of that activity practically impossible, it has not been shown that the tax in the present case prevents the States from employing civil servants or operates as a substantial impediment to their employment. The tax has now been imposed upon and paid by the States for nearly thirty years, and it has not been shown to have prevented the States from discharging their functions or to have impeded them in so doing. They may have less money available for public purposes because they have to pay the tax, but that could be said in every case in which a tax is imposed on the States, and in itself it cannot amount to an impediment against State activity sufficient to invalidate the tax. (at p425)

[193]

The provision exempts from the tax the wages paid to the employees of most private schools in Australia but it does not exempt wages paid by the States to teachers whom they employ. The wages paid to teachers in State schools amount in total to a large sum and their inclusion for the purpose of the assessment of pay-roll tax is far from being insignificant. It might, therefore, be said that the State is under a substantial burden which is not placed generally on other persons who employ school teachers. Although I do not regard this as altogether an easy question, I have reached the conclusion that it is not right to look at the matter in that way. It was understandable that the legislature should have wished to assist the advancement of education by exempting the wages paid by schools which were not conducted for profit or gain. Most taxing statutes contain provision for exemptions and exceptions, and it is of the nature of such statutes that not all taxpayers are treated with absolute equality. The fact that certain private employers are given an exemption which is denied to the States does not necessarily mean that the statute discriminates against the States in the sense defined by Sir Owen Dixon. The question is, to some extent, one of degree. The most that can be said is that in respect of one field of employment the State is taxed although certain private employers escape. If the position of the States is compared with that of private employers generally, it is not possible to say that the States are under such a special burden or disability that the legislation is aimed at the restriction or control of the States. The provisions of s. 16V of the Assessment Act, which I have already quoted, seem to place the States in a special position, but we were informed by the Solicitor-General for the Commonwealth that the real aim and apparent effect of the section is to give an advantage to the States in the collection of rebates, and those who attacked the validity of the legislation did not challenge this statement or place any reliance upon the provisions of the section in their submissions. I, therefore, conclude that the legislation does not discriminate against the States in the sense to which I have referred. (at p426)

Victoria v Commonwealth

At a glance

Court

Decision date

Source

Judgment (195 paragraphs)

Victoria v Commonwealth ("Payroll Tax case") [1971] HCA 16; (1971) 122 CLR 353; [1971] ALR 449; (1971) 45 ALJR 251 (14 May 1971)

Parties

Legislation Cited (8)

Cases Cited (32)