Victoria v Commonwealth
[1971] HCA 16(1971) 122 CLR 353
(1971) 45 ALJR 251
[1971] ALR 449
(1971) 2 ATR 249
(Judgment by: Menzies J)
Victoria
v Commonwealth
Judges:
Barwick CJ
McTiernan J
Menzies JWindeyer J
Owen J
Walsh J
Gibbs J
Judgment date: 14 May 1971
Judgment by:
Menzies J
The State of Victoria has, by action in this Court, challenged the power of the Parliament of the Commonwealth to require the State to pay pay-roll tax upon wages paid by it to its Crown servants, claiming that the imposition is contrary to implications to be derived from the federal nature of the Australian Constitution. The Commonwealth has demurred.
That the Constitution is of a federal nature is beyond question. The Constitution not only establishes the Commonwealth; it continues the constitution of the federating colonies as States of the Commonwealth: s 106. The preamble to the Constitution Act recites that the people have agreed "to unite in one indissoluble Federal Commonwealth under the Crown. . . and under the Constitution".
Does the fact that the Constitution is "federal" carry with it implications limiting the law-making powers of the Parliament of the Commonwealth with regard to the States ?
To this question I have no doubt, both on principle and on authority, that an affirmative answer must be given. A constitution providing for an indissoluble Federal Commonwealth must protect both Commonwealth and States. The States are not outside the Constitution. They are States of the Commonwealth: s 106. Accordingly, although the Constitution does, clearly enough, subject the States to laws made by the Parliament, it does so with some limitation.
Authority supports what principle dictates: Melbourne Corporation v The Commonwealth (1947) 74 CLR 31. This decision, both accepting and taking into full account the authority of the Engineers' Case (1920) 28 CLR 129 -- which both destroyed the doctrine of the immunity of instrumentalities and established the ruling principles of constitutional interpretation -- leaves it in no doubt that implications limiting Commonwealth legislative power over States do arise from the federal nature of the Constitution. There it was decided that a Commonwealth law, ie s 48 of the Banking Act 1945, prohibiting banks from conducting banking business for a State and for any authority of the State, including a local government authority, was invalid. It had been argued that the law in question was not a law within s 51(xiii) because it was not a law with respect to banking, and the extent to which this contention was accepted may be open to argument notwithstanding its expressed rejection by Rich J (1947) 74 CLR 31, at p 64 and by Starke J (1947) 74 CLR 31, at pp 69, 70. It was, however, also argued that the grant of power in s 51(xiii) must be read subject to limitations in favour of the State because it appears in a federal Constitution, so that, even if s 48 could be treated as a law with respect to banking, it was nevertheless invalid because its operation interfered with the States in the exercise of their governmental functions. This second contention was clearly accepted by a majority of the court: see Rich J (1947) 74 CLR, at p 67, Starke J (1947) 74 CLR, at pp 74, 75, and Dixon J (1947) 74 CLR, at pp 83, 84. It appears also to have been accepted by Latham CJ (1947) 74 CLR, at pp 55, 56, 60. Williams J said (1947) 74 CLR, at pp 99, 100: "S 48 is legislation which clearly discriminates against the States and their agencies. We were not asked, and I would not be prepared to hold that legislation which conforms to the language of a placitum is necessarily invalid if it discriminate against a State or States. Many emergencies could arise which would justify the Commonwealth enacting legislation under the defence power during hostilities which would discriminate against a State or States. But the presence of discrimination points strongly to the law being aimed at the States, and if the law is in pith and substance a law which seeks to give directions to the States as to the manner in which they shall exercise their executive, legislative or judicial governmental functions it is not a law for the peace, order and good government of the Commonwealth, but an unlawful intervention in the constitutional affairs of the States." This statement of the learned judge which, while not denying that the law was a law with respect to banking, did virtually accept the second contention made on behalf of the Corporation asserting the existence of some limitation upon Commonwealth legislative power arising from the federal nature of the Constitution.
That it was this second contention which prevailed, can, I think, be demonstrated by recalling the issue as it arose in the case. The action was not an action by a State; it was an action by a municipality -- the Melbourne Corporation. If a law prohibiting a bank from conducting banking business for specified persons was not in itself a law with respect to banking, then it would not have been necessary to be concerned with the position of the States vis-a-vis the Commonwealth Parliament. The whole thrust of the case for the Corp depended, however, upon the circumstance that it was governed by a section which prevented banks from conducting business for States in circumstances where the prohibition against banking for municipalities could not be severed from the prohibition against banking for States: see Starke J (1947) 74 CLR, at p 70. The decision, however it may be explained, depended entirely upon the special position of the States under the Constitution.
Although I am not in doubt that a majority of the Court held the section invalid upon a more fundamental ground than that s 48 was not a law with respect to banking, it is difficult to state the ratio decidendi of the Court's decision. Two bases appear and in the judgments they seem to coalesce. They are first that s 48 imposed a special burden on the States; secondly that the operation of s 48 was to interfere with the States carrying on their functions of government.
It was, I think, part of the decision of Latham CJ that the law was invalid because laws which discriminate against States or which unduly interfere with States in the exercise of their functions of government are not laws authorized by the Constitution, even if they are laws with respect to a subject matter within the legislative power of the Parliament of the Commonwealth. After discussing the American authorities, the learned Chief Justice said (1947) 74 CLR, at p 60: "The relevant result which emerges is the same as that which is suggested by the more recent cases in this Court to which reference has been made -- namely that federal laws expressed in general terms may apply to the States (as was shown in the Engineers' Case (1920) 28 CLR 129) but that federal laws which 'discriminate' against the States are not laws authorized by the Constitution. Laws 'discriminate' against the States if they single out the States for taxation or some other form of control and they will also be invalid if they 'unduly interfere' with the performance of what are clearly State functions of government."
Later in his judgment the Chief Justice explained that Commonwealth laws discriminating against States fail because "the legislation is really legislation by the Commonwealth 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". Similarly, the Chief Justice explained why it was, in his opinion, that laws unduly interfering with the performance by the States of the functions of government were invalid. He said (1947) 74 CLR, at p 62: "In my opinion the invalidity of a federal law which seeks to control a State governmental function is brought about by the fact that it is in substance a law with respect to a subject as to which the Commonwealth Parliament has no power to make laws."
Rich J was more explicit. He said (1947) 74 CLR, at p 66: "There is no general implication in the framework of the Commonwealth Constitution that the Commonwealth is restricted from exercising its defined constitutional powers to their fullest extent by a supposed reservation to the States of an undefined field of reserved powers beyond the scope of Commonwealth interference. But this is always subject to the provisions of the Commonwealth Constitution itself. That Constitution expressly provides for the continued existence of the States. Any action on the part of the Commonwealth, in purported exercise of its constitutional powers, which would prevent a State from continuing to exist and function as such is necessarily invalid because inconsistent with the express provisions of the Constitution, and it is to be noted that all the powers conferred by s 51 are conferred 'subject to this Constitution'. Such action on the part of the Commonwealth may be invalid in two classes of case, one, where the Commonwealth singles out the States or agencies to which they have delegated some of the normal and essential functions of government, and imposes on them restrictions which prevent them from performing those functions or impede them in doing so; another, where, although the States or their essential agencies are not singled out, they are subjected to some provision of general application, which, in its application to them, would so prevent or impede them. Action of the former type would be invalid because there is nothing in the Commonwealth Constitution to authorize such action by the Commonwealth. A general income tax Act which purported to include within its scope the general revenues of the States derived from State taxation would be an instance of the latter."
Starke J was of a like opinion. He said (1947) 74 CLR, at p 70: "The federal character of the Australian Constitution carries implications of its own. As I have said before, 'the government of Australia is a dual system based upon a separation of organs and of powers. The maintenance of the States and their powers is as much the object of the Constitution as the maintenance of the Commonwealth and its powers. Therefore it is beyond the power of either to abolish or destroy the other' (South Australia v The Commonwealth (1942) 65 CLR 373, at p 442; R v Commonwealth Court of Conciliation and Arbitration; Ex parte Victoria (1942) 66 CLR 488, at p 515). The same principle was applied to the dual system of government under the Constitution of the United States of America. 'Neither Gvoernment may destroy the other nor curtail in any substantial manner the exercise of its powers' (Metcalf v Mitchell (1926) 269 US 514, at p 523 (70 Law Ed 384, at p 392))."
Dixon J took narrower ground and based his judgment upon the circumstance that the section imposed a special burden on the States. After referring to the dual aspect of laws with respect to a subject within the powers of the Parliament which affect the functions of the States, his Honour said (1947) 74 CLR, at pp 79-81: "Conceivably that connexion (ie 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.
The basis of the judgment of Williams J has already been stated. McTiernan J dissented.
It is apparent that the decision in Melbourne Corporation v The Commonwealth (1947) 74 CLR 31, although of far-reaching effect, makes no inroad upon the rule established by the Engineers' Case (1920) 28 CLR 129 that a power to make laws with respect to the subject matter prima facie enables the Parliament, by a general law, to bind the States, nor does it require any reconsideration of the cases which establish that a Commonwealth law with respect to taxation may validly extend to the States: R v Sutton (1908) 5 CLR 789 and Attorney-General (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818.
It follows, therefore, that, if the Pay-roll Tax Assessment Act 1941-1969 (Cth) and the Pay-roll Tax Act 1941-1969 (Cth) cannot, as they purport to do, bind the State of Victoria, it must be because of some special consideration which puts the State beyond the exercise of the Commonwealth taxation power which is to be found in the two Acts.
With the possible exception, with regard to s 15(bb) of the Pay-roll Tax Assessment Act, it was not contended that there was discrimination against the States in the sense that there were imposed upon the States obligations which did not fall upon other taxpayers. Tax is levied on all wages paid by any employer including the Crown in the right of the State, ss 3 and 12, but no special obligation is imposed upon an employer who is a State. It is apparent, therefore, that so much of the decision in Melbourne Corporation v The Commonwealth (1), which protects a State from Commonwealth laws imposing special burdens, cannot assist the State here. It follows, therefore, that, if the Acts now in question do not apply to the State of Victoria, it can only be upon the ground that their operation does interfere with the performance by the State of its functions of government.
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) 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.
For the foregoing reasons I have found no circumstance to take the tax here imposed outside the prima facie rule that a State may be bound by general laws made by the Commonwealth Parliament under the taxation power (s 51(ii)).
I should add that I do not find in s 15(bb) sufficient to warrant any conclusion that the Act does impose a special burden on the States.
In the course of argument reference was made to s 114 of the Constitution. In my opinion pay-roll tax is not a tax on property belonging to a State and s 114 is not an exhaustive statement of the protection of the Commonwealth or of a State from the taxation laws of the other.
In my opinion the demurrer should be allowed.