Opinion Number. 1630


national health and pensions insurance
national health and pensions insurance: whether law imposing compulsory contributions on employers and/or employees for purposes of scheme is exercise of taxation power: requirement that law deal only with imposition of taxation: payment of contributions into consolidated revenue fund

Key Legislation

CONSTITUTION ss 51(ii), (xiv), 55, 81


The proposed Bill for the establishment of a system of National Health and Pensions Insurance makes provision for the creation of a Fund or Funds out of which benefits are to be paid.

The funds for payment of such benefits are to be derived from compulsory contributions by employers and employees supplemented by contributions from the Commonwealth. The compulsory contributions will be paid either directly or indirectly to the Commission. I am asked to advise whether a law imposing such compulsory contributions on employers and/or employees for the purposes of the foregoing scheme is an exercise of the taxation power contained in placitum (ii) of section 51 of the Constitution so as to attract the provisions of section 55, or whether it may be regarded as merely incidental to the insurance power (placitum xiv). I am further asked to advise whether the compulsory contributions of employers and employees under the foregoing scheme are revenues or monies raised or received by the executive Government of the Commonwealth within the meaning of section 81 with consequential obligations to take such contributions into the Consolidated Revenue Fund and withdraw the same therefrom by means of appropriation, or whether such contributions may be paid to and disbursed by the Commission without being included in the Consolidated Revenue Fund.

I will first address myself to the question whether the draft Bill which incorporates into its other provisions the rates for compulsory contributions is within the meaning of section 55 of the Constitution a law imposing taxation, so as to be subject to the procedural and other requirements of section 55.

This incidental question whether a Bill or an Act for compulsory contributions from employers and employees to a compulsory insurance scheme was legislation imposing taxation came definitely before the Canadian Supreme Court in 1936 in the case: Re Employment and Social Insurance Act 1936, 3 D.L.R. p. 644.

In that case upon an Act indistinguishable in the material matter from the Commonwealth draft Bill the Chief Justice of Canada and Mr. Justice Davis were of opinion that the Canadian Act was an Act imposing taxation and was for that reason within the powers of the Dominion Parliament. The other Justices were of opinion that the Act as a whole was beyond the powers of the Dominion Parliament because it dealt with matters of Property and Civil rights in the provinces a subject matter of legislation exclusively reserved to the provinces. The judgments of the other Justices were delivered by Rinfret and Kerwin J.J. It is not clear how far they dealt definitely with the question whether the compulsory contributions fixed in the Act were taxes because they decided the matter on the broader issue that in pith and substance the legislation was an unwarranted invasion of the powers belonging to the provinces. There are some observations to be found in the judgments which suggest that it was in the view of the majority of the Canadian Judges immaterial whether compulsory contributions were or were not taxes because even if they were taxes none the less the Act regarded as a whole was invalid.

It must be remembered that as regards the proposed Commonwealth legislation the problem is entirely different. There is no section 55 in the Canadian Constitution.

As regards the proposed Commonwealth legislation the question is whether assuming the general scheme of the legislation is within the Commonwealth’s powers, must the provisions of section 55 be applied to those parts of the Act which exact the compulsory contributions.

However, the Canadian Insurance Case went to the Privy Council and is reported at 1937 A.C. p. 355. In its judgment the Judicial Committee at p. 366 adverted to the opinion of the Canadian Chief Justice and Mr. Justice Davis that the Canadian Act was an Act imposing taxation, but stated that that question was not necessary to be finally decided for the purposes of the case then before the Privy Council. The judgment threw some doubt upon the question whether the contribution from the employee could rightly be called a tax, but said nothing about the contribution from the employer. But so far as the Privy Council was concerned the matter was left open though the Privy Council was content to assume that the contributions might be taxes and yet nevertheless under the Canadian Constitution it was held that in pith and substance the legislation was an encroachment by the Dominion upon the Provincial field.

The question of what is or is not taxation within the meaning of that expression in the Commonwealth Constitution has been recently examined and discussed by the High Court in: Attorney-General v. Homebush Flour Mills, 56 C.L.R. 400.

When transactions amount to the exaction of money by a Government in obedience to a compulsive demand, the money paid is paid as a tax. (per Latham C.J. at p. 400).

My own opinion is that for the purposes of the Commonwealth Constitution the draft Bill would for the purposes of the Commonwealth Constitution be held to be legislation imposing taxation. It is true that Rinfret J. in 3 D.L.R. at p. 666 speaks of these contributions in one passage as being ‘only incidents in the proposed scheme’ but in another passage higher up at the same page he describes the contributions as ‘taxes’. In the Canadian Case Kerwin J. at 3 D.L.R. at p. 670 says he cannot regard the legislation as an exercise of the power to tax, but at p. 672 he appears to regard the position as the imposition of taxation which must fall because it is linked up with an object which is illegal.

Having in view the opposing opinions of the Chief Justice and of Mr. Justice Davis and having in view also the fact that the matter is left as an open question by the Privy Council, my opinion is that the only safe course for the Commonwealth is to treat the legislation as legislation imposing taxation and to draft the rates acts in accordance with section 55. If these compulsory contributions are ‘taxes’ (as I think they are) then it follows that they are to be paid into Consolidated Revenue Fund and appropriated in accordance with section 81. My answers to the specific questions are:

(1) Yes, section 55 is attracted.

(2) Yes, section 81 applies.


I have dealt in my opinion only with the specific matters submitted.

I merely point out that I have not considered the general aspects of the legislation. Articles have been written suggesting that the legislation is on a whole ultra vires and these views appear to be approved by the text writers.

See Wynes, pages 144, 145.(1)

Article 2 A.L.J. page 219.(2)

The Canadian legislation was also held to be ultra vires under the Canadian Constitution.

I mention these matters, but I have not considered them, and have formed no opinion at all on the questions involved.

[Vol. 31, p. 270]

(1) Wynes, WA 1936, Legislative and executive powers in Australia: being a treatise on the legislative and executive powers of the Commonwealth and States of Australia, under the Commonwealth of Australia Constitution Act, 1st edn, Law Book Co of Australasia, Sydney.

(2) Cantor, MEL, ‘National insurance in its constitutional aspects’ (1928) 2 Australian Law Journal 219–220.