#7314 - The Grants Power - Federal Constitutional Law

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”

  • 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” ([1940] 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

  1. 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

  1. 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

  2. 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)

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:

1. 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

2. The Grants Act doesn’t require that a State, to qualify for a grant, should abdicate its power to impose taxes on incomes

3. The Grants Act doesn’t purport to deprive the State of the power to impose a tax – the CTH Parliament cannot do this (s 106, 107). As such the State can at any time impose an income tax which would be valid

4. The Grants Act offers an inducement to State Parliaments not to exercise a power – the States may or may not yield to this but there is no legal compulsion to do so

• The CTH is well within power to induce a State to exercise its powers by offering a money grant (like in VIC v CTH – power to make roads)

  • But the position is radically different if the inducement practically amounts to coercion

    • Clearly a law compelling a State to surrender power cannot be passed

    • Equally the CTH cannot lawfully make an offer of money under circumstances where conditions exist such that the State cannot, on political/economic grounds, really refuse

• But the identification of very attractive inducement with legal compulsion isn’t convincing.

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