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The Grants Power
2. The Grants Power
S 96 states "during a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit" o
Though intended to be a transitional provision its continued operation has proved a significant vehicle for the CTH's arrogation to itself of additional regulatory power
? The early cases
* Victoria v Commonwealth (Federal Roads Case) (1926) 38 CLR 399 is a short but significant judgment of the HCA
Facts: The Federal Aid Roads Act 1926 authorized the CTH parliament to make agreements with states for making/remaking roads with CTH financial support through s 96 grants. To finance these roads it was envisaged that
PS20m over 10 years would be made available to States according to population/area. Two states sought a declaration that it was invalid
The Court: The Act is a valid enactment, plainly warranted by s 96 and not affected by s 99 or any other provisions of the Constitution.
Deputy Federal Commissioner of Taxation (NSW) v WR Moran Pty Ltd (1939) 61 CLR 735
Deputy Federal Commissioner of Taxation (NSW) v WR Moran Pty Ltd (1939) 61 CLR 735 Facts: The Wheat Industry Assistance Act was part of an exercise of 'cooperative federalism' for AU wheat growers - a CTH excise tax on flour was collected from millers and distributed to States under s 96 so long as that money be distributed to growers in proportion of the quantity of wheat they produced. The effect was to maintain a price of 5s + 2d/bushel
- if it went higher the growers would be taxed and the proceeds given to recompense the millers.
But in TAS no wheat was grown and hence the total revenue from millers was granted to the State Government. By virtue of TAS legislation this was used to reimburse millers.
It was argued that the CTH legislation infringed s 51(ii) and (iii) of the Constitution which require, respectively, that taxation laws shall not "discriminate between States or part of
States" and that "bounties on the production or export of goods...shall be uniform throughout the CTH". The HC (Evatt J dissenting) rejected this - holding it was valid.
Latham CJ treated s 96 as being virtually unreviewable by the Court - giving the Parliament power to make grants and impose conditions as it "thinks proper". He went on...
? Though taxes cannot discriminate, and laws of trade/commerce/revenue must not give preference to states - "these "equal" laws may produce very unequal results in different parts of Australia" o
Uniform laws can confer benefits on some states but can also operate to create a "Federal disability" in others - thus s 96 provides a means for adjusting such inequalities in accordance with Parliament's judgment
S 96 isn't limited by a vague thing called "discrimination" (which even though can connote injustice can be both just or unjust - wise differentiation based on circs is a necessary element of national policy)
The remedy for any abuse of power conferred by s 96 is political and not legal in character
The judgment of the Privy Council affirmed this decision in "the language of caution" (
AC 838) Viscount Maugham (for their Lordships) also noted that there are no restrictions in the section apart from those in s 51. They went on:
? Though s 51(ii) prohibits discrimination it does not deal with the equality of burden
? Furthermore s 96 does not prohibit discrimination - hence it is difficult to see any ground to attack the scheme since it is really based on the CTH's power under s 96 (which is being used to prevent injustice to TAS)
? Reliance was placed on the scheme - but the scheme adds nothing to the argument a. Nothing in s 51 prevents the CTH from passing measures with States with a view to fairly distributing the burden of a tax as long as the Act imposing taxes does not in itself discriminate in any way between States or part of States
? But their lordships made clear that this doesn't mean the CTH can exercise its power under s 96 in complete disregard of s 51(ii) to completely nullify the safeguard provided a. For examplea case may be imagined where purported grants of financial assistance under s 96 would be "merely colourable". Under a guise/pretence of assisting a State, the real purpose of the Act may be to effect discrimination in regards to taxation b. Such an act could be ultra vires the CTH Parliament (this language of caution reflected the fact that such a case mightn't arise and also the practice in constitutional cases to decide no more than is necessary)
The CB writers draw attention to the tenor of the different paragraphs in the judgment which, first, suggest an unqualified power but second suggest that the case is limited to its particular application to the Wheat Industry Assistance Act o
They further note that Moran's Case as well as the Federal Roads Case both support the proposition that s 96 has no judicially enforceable limits
? The Uniform Tax Cases
* In many federations taxes are collected at both central/regional levels - until WWII Australia was the same. Traditionally the State collected the CTH's income tax on its behalf so that even under a double tax system each payer paid one lot of tax o
But since 1942 there has been a reversal of this arrangement - income tax is only levied by the CTH with a proportion redistributed to states by s 96
The validity of these arrangements were upheld in the First and Second Uniform Tax Cases that bore out the prophecy of Deakin that States would find themselves "legally free, but financially bound to the chariot wheels of the Central Government"
South Australia v Commonwealth (First Uniform Tax Case) (1942) 65 CLR 373 Facts: The case arose out of 4 CTH enactments together creating the CTH monopoly over income Tax. The: Income Tax Act 1942 - that fixed very high tax rates (up to 18 shillings/pound) States Grant (Income Tax Reimbursement) Act 1942 (SGITR) - which provided that if the Treasurer was satisfied the State didn't impose income tax, they would pay financial assistance to them Income Tax (War-time Arrangements) Act 1942 - provided for transfer to the CTH of State public servants who assessed/collect income tax along with the property of State taxation departments
Income Tax Assessment Act 1942 - provided that to ensure CTH revenue for 'efficient prosecution of the war', tax payers shouldn't pay State income tax until they'd paid CTH income tax in a relevant year.
4 States challenged this regime - and the HCA rejected it. While it is sometimes alleged that the FUTC was decided on the basis of the "defence power" in wartime and the SUTC reaffirmed in peacetime on the doctrine of precedent, this is an over-simplification as only the third piece of legislation was justified on the defence power.
The decisive holding in the FUTC was not the fact that any one of these four were valid - but that if all were valid, the scheme as a whole was valid. Hence any argument based on 'cumulative effect' was rejected Latham CJ made it clear at the outset that the inquiry was not directed at any question of fairness and justice, which is a political question, but rather the related legal controversy.
In considering the Acts as a scheme his honour pointed out that the argument that Acts could be invalidated by other Acts had a number of difficulties since:
? When Parliament passes an Act it either has the power to pass it or it does not
In the former case it is plain that the enactment of other valid legislation cannot affect the validity of the first-mentioned Act if that Act is left unchanged
The enactment of other legislation which is invalid equally cannot have any effect on the first-mentioned valid Act since the other legislation is nugatory and the valid Act remains so
His honour then went on to consider the Income Tax Act - holding it to be valid since the court cannot impose any limit of a rate of tax that it proposes as there was no legal principle to do so. He then went on to consider the Grants Act.
? The objection is based on a universal principle on CTH legislation that "the CTH cannot direct its legislative powers towards destroying or weakening the constitutional functions or capacities of a State". He made 4 particular comments as to this: I.
The Act doesn't purport to repeal State income-tax legislation - the CTH parliament can't do this since it can't repeal an Act it has no power to enact
II. The Grants Act doesn't require that a State, to qualify for a grant, should abdicate its power to impose taxes on incomes
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