The Chairman, Royal Commission on Taxation:

The Chairman of the Royal Commission on Taxation has forwarded me the following memorandum for advice:

In our deliberations on the question of the delimitation of spheres of taxation between the Commonwealth and States, certain matters have arisen upon which we should be glad to have your opinion. We should be grateful therefore if you would favour us with answers to the following questions:

1. Would the withdrawal by either Commonwealth or States from any particular field of direct taxation necessitate an amendment of the Federal Constitution?
2. Could the voluntary surrender of the right to impose any direct tax for a given period by either Commonwealth or States be legally effected by-
1. executive action by Governments concerned;
2. ratification by the respective Parliaments?
3. If so, would any agreement made under such executive action or Parliamentary ratification be mutually binding for the term agreed upon?
4. To what extent would future Parliaments be bound by such agreement?
5. Is it competent under the Constitution for the Commonwealth to-
1. permanently, or
2. temporarily,

surrender powers of direct taxation to the States? If so, what procedure would be necessary to give effect to such permanent or temporary surrender?

6. Could the States-
1. permanently,
2. temporarily, or
3. irrevocably,

surrender such powers to the Commonwealth under clause 51, sub-section 37, of the Constitution? If so, what procedure would have to be followed?

7. Assuming that a delimitation of spheres of direct taxation be given effect to, which would involve on the present basis of taxation a loss of revenue to one or other authority-
1. Could the States (if they profit by the change) enter into a binding agreement with the Commonwealth-
1. to pay over to the Commonwealth (on an agreed-upon basis and for a specific term) part of their enhanced revenue;
2. to refund part of the present per capita payment received from the Commonwealth in proportion to the revenue benefit derived by them respectively by such delimitation?
2. Could the Commonwealth (should it profit by the change) pay over to the States individually-
1. out of the specific revenue gain, or
2. in any other way (as for example in the case of the special grant now made to Tasmania) in proportion to the benefit derived from each respective State?
3. If such proportionate refund could not be legally made to individual States, could the Commonwealth compact with the States jointly as to such refund, leaving it to the States to agree between them to divide the proceeds upon a proportionate or other agreed-upon basis?
8. If direct taxation on the individual be confined to the States-
1. Could the Commonwealth levy a tax upon the States, leaving it free to each State to collect the required amount from its citizens in any way it may determine?
2. Would it be competent for the Commonwealth to determine the method by which the States should raise the money?
3. In such determination, would it be essential to preserve non-discrimination as between both State and citizens?

Reference to the attached schedule⁽¹⁾ will perhaps best indicate concrete examples of the necessary or possible revenue adjustments which more or less underlie the somewhat abstract questions submitted.

I answer the questions submitted as follows:

1. If a withdrawal permanent and binding on future Governments is intended, constitutional amendment is necessary in order to restrict the powers of the respective Governments. A voluntary arrangement to withdraw from a field of taxation would not require constitutional amendment to give it effect.
2. Such surrender would involve the repeal of any permanent statute imposing taxation. Where the imposing Act is annual (e.g. Commonwealth Income Tax) the mere failure of the Government concerned to pass the usual Act would effect the purpose in question.
3. An agreement expressed to be binding upon statutory ratification would, it is considered, be binding for the term specified therein.
4. Although theoretically a future Parliament could repeal the ratifying Act and annul the agreement, such a course is so unusual that the possibility may, I think, be disregarded.
5. The Commonwealth cannot divest itself either permanently or temporarily of its constitutional powers of enacting taxation measures and confer those powers upon the States.
6. Such action could be taken by State legislation. The question whether a State power so referred to the Commonwealth could afterwards be taken away is one of some doubt. I am unable to cite any authority, but I incline to the view that the conferring State could not revoke its grant of power by subsequent legislation-at all events when the power had been acted on by the Commonwealth under the grant.
7. (1) I think such an agreement could be made. If the agreement involved the withdrawal of the Commonwealth from a field of taxation it could be made subject to the condition of payments by the States to the Commonwealth. Reduction of the present per capita payments could be effected by amendment of the existing Commonwealth legislation.

(2) Yes, under the authority of Commonwealth legislation directed to that purpose. Whether such individual treatment of different States might constitute a preference to one State over another within the meaning of section 99 of the Constitution could only be determined in reference to the facts of a particular case.

8. The Commonwealth has no constitutional power to levy taxes on a State.

In the above advice the taxation referred to must be taken to exclude revenue derived from Customs and Excise and from services (e.g. Post and Telegraph).

[Vol. 18, p. 160]

(1)Schedule not found.