Opinion Number. 1632


national health and pensions insurance
supplementary opinion: national health and pensions insurance: law imposing taxation: requirement for separate Acts, one fixing contributions from employees and the other fixing contributions from employers: validity of proposed scheme: constitutional powers

Key Legislation

British North America Act 1867 (U.K.) (30 & 31Vict. c. 3) s 92(13): Constitution s


I advised on one aspect of this proposed legislation in an Opinion dated 26th April, 1938,(1) and my opinion is now asked upon other aspects. I am instructed that it is proposed to have a machinery bill including provisions for voluntary contributions from certain persons, and another bill to impose liability to make contributions to the fund. A question has arisen as to whether it would be proper in this taxing bill, to impose in one Act the obligation to make contributions both upon employers and upon employees, or whether there should be separate Acts, the one imposing the obligation on employers, and the other relating to the contributions by employees. It has been suggested that, conceding that the obligation cast upon employers is taxation, it might be held that the obligation cast upon employees was in the character of premiums for insurance for their own benefit, and not taxation. It is suggested that support for this contention is to be found in Attorney-General for Canada v. Attorney-General for Ontario, 1937 A.C. 355. I am instructed that it is proposed to provide in the Bills an obligation to pay the contributions into the Commonwealth Treasury, and not to the Commission direct.

It is not very satisfactory to give an opinion upon a Bill in the absence of any draft of the whole Bill, but upon the material available, in my opinion both the contributions from the employers and those from the employees are taxation. In my previous Opinion I extracted various quotations from The Commonwealth v. The Colonial Combing, Spinning & Weaving Co. Ltd., 31 C.L.R. 421, which indicate the wide scope of the word ‘taxation’. For the purposes of the Opinion, I think that for the Parliament to impose directly upon classes of persons the obligation to make monetary payments into the Treasury, which it proposes to earmark for the purpose of providing funds for an Invalid and Old Age Pension scheme, is to impose taxation. As regards the employers, there is no question. As regards the employees, the obligation to pay money to the Treasury is the same, but under the non-taxing Acts they may anticipate in certain events receiving benefits. It does not follow that all the employees will welcome the obligation to make the payments in consideration of the possibility of obtaining these benefits. An employee who, for a short period, was in receipt of wages, but who might reasonably anticipate that he would cease to be an employee before he qualified for any benefits, might greatly prefer to enjoy his full salary without making any contribution. So far as such employees are concerned, the compulsory payment would be a burden, and the correlative benefit might, in his or their view, be illusory. In any case, however, I do not think that if a tax is imposed, it ceases to be a tax because the taxpayer anticipates benefits to himself by reason of the common obligation of other taxpayers to contribute to the Treasury for a purpose in which all or some may be interested.

As regards The Attorney-General for Canada v. Attorney-General for Ontario, 1937 A.C. 355, I do not think that this case indicates that the employees’ contributions would not be taxation. In that case a compulsory Unemployment Relief Scheme was passed by the Canadian Dominion Parliament, and it was objected that it was invalid by reason of the fact that it was an insurance Act affecting the civil rights in each Province, and accordingly was in the exclusive competence of the Provincial legislators under section 92 Head 13 of the British North America Act 1867, which provided that ‘in each Province the Legislature may exclusively make laws in relation to … (13) property and civil rights in the Province’. It was sought to be supported, among other reasons, upon the ground that it was a law with respect to ‘the raising of money by any mode or system of taxation’. At p. 366 their Lordships say:

That the Dominion may impose taxation for the purpose of creating a fund for special purposes, and may apply that fund for making contributions in the public interest to individuals, corporations or public authorities, could not, as a general rule, be denied. Whether in such an Act as the present, compulsion applied to an employed person of making a contribution to an insurance fund, out of which he will receive benefit for a period proportionate to the number of his contributions, is in fact taxation, it is not necessary finally to decide. It might seem difficult to observe how it differs from a form of compulsory insurance, or what the difference is between a statutory obligation to pay the insurance premiums to the State or to an insurance company.

This clearly leaves the question undecided, and is only directed to show that the pith and substance of the Act was an Insurance Act, and that it was contrary to the terms of section 92 of the British North America Act, whether the moneys collected were regarded as taxation or not. The other matters to which I have been referred do not seem to me to cast much light on the subject.

In Wynes on Legislative and Executive Powers in Australia,(2) pp. 144–145, the author suggests that a Bill on the lines of that proposed would not be authorised by the Constitution, section 51 placitum 14, which gives power to pass laws with respect to ‘insurance other than State insurance, also State insurance extending beyond the limits of the State concerned’ and also expresses the opinion that such a Bill would not be supported under placitum 23, which gives power to pass laws with respect to ‘Invalid and Old Age Pensions’.

He quotes an article in 2 Australian Law Journal p. 219(3) but says he does not agree with the author in saying that the compulsory levy would not be valid because individuals are thereby required to provide for their own relief. He, however, says that the legislation authorising such compulsory levy would amount to taxation, and in any event could not be said to relate to pensions. As regards this author’s opinion, having regard to the fact that the Commonwealth Parliament has power to pass laws with respect to ‘Invalid and Old Age Pensions’ and also power to pass laws with respect to ‘Taxation’, I cannot follow wherein the suggested want of authority lies. If the Parliament has the power of implementing a law with respect to Invalid and Old Age Pensions by providing for compulsory contributions, which are a taxation, there seems to me to be nothing wrong; and on the point at issue, so far as his opinion goes, it appears to support the view that the compulsory contributions by both classes are taxation. As regards the article in 2 A.L.J. p. 219, the author there practically limits himself to the question as to whether legislation of this character can be supported under placitum 14 with respect to ‘insurance’. He does not draw any distinction between the two classes of contribution, but suggests that as the contributions are taxation, they should be provided for under a separate bill, and should be paid to the Consolidated Revenue. As I am instructed that it is proposed that they shall be paid to the Consolidated Revenue, the opinion of this author on that point seems to add nothing to the suggestion that two Taxing Acts are required.

In my opinion, a stronger reason for suggesting that the employees’ contributions should be provided for by a separate Bill, as there is a doubt whether they are taxation or not, is to be found in the proposition applied in The Vacuum Oil Co. v. State of Queensland, 51 C.L.R. 108. The question in that case was with regard to an Act of the Queensland Parliament requiring vendors of petrol to purchase a quantity of power alcohol, at a price fixed by the State, proportionate to their sales of petrol, and that price was held not to be either a customs duty nor a bounty to the vendors of power alcohol, upon the ground that the money was not payable to the State ‘or to any public authority or to any definite body or person authorised by law to demand or receive it’. (Per Dixon, J. p. 125).

It might be suggested that, as regards employees, there was no liability to pay a tax to the State, but a statutory obligation to enter into a contract of insurance under which the premiums become payable. If the Bill were so framed as merely to impose this statutory obligation to enter into a contract, and if the money became due under the contract and not by reason of the imposition of the Statute, I think it would be right to say that the money contributed was not taxation. But, as I understand that the Bill will provide that the money is to be paid to the Treasury, by virtue of the Statute, I do not myself see why it should not be regarded as taxation. In fact, in accordance with the language quoted from Mr. Justice Dixon above, it would appear that the same thing would apply if the money were paid direct to the Commission under Parliamentary authority in favour of the Commission to demand and receive it. Although as appears above, I do not think that any part of the contributions can be said to be something other than taxation, still I understand that other opinions are doubtful on the matter, and the question is arguable, and therefore, to avoid controversy, and to be on the safe side, it may be better to put the two obligations the one on employers and the other on employees, into different Acts, unless there is some countervailing argument against so doing.

I am also asked to advise on the question of general validity of a National Health and Pension Insurance measure such as enacted above. Here, again, I am at a disadvantage in not having an actual draft of the proposed Bill before me. But on the material available, I think that an Act upon these lines would be within the power of the Commonwealth. The position in the Australian Commonwealth is almost the opposite of that under the Canadian Constitution. In the British North America Act the Provinces were given an exclusive power to legislate as regards ‘property and civil rights in the Provinces’. The Privy Council has held that insurance legislation falls within those words. Therefore, the Dominion had no power to pass insurance legislation, and the case above referred to Attorney-General for Canada v. Attorney-General for Ontario, merely decides that an Insurance Act under that Constitution cannot be saved because in the Act there is a power to levy taxation. Under the Australian Constitution, on the other hand, there is express power in placitum 14 to pass laws with respect to ‘insurance’, and under placitum 23 with respect to ‘Invalid and Old Age Pensions’; and under placitum 2, with respect to ‘taxation’. In my opinion, placitum 23 and placitum 2 are the main subjects of legislation supporting the proposed Act. In so far as the opinion of Mr. Wynes above referred to, and the opinion of the author of the article in 2 A.L.J. is concerned, they direct their attention mainly to whether the proposed Act can be supported under placitum 14. If placitum 14 were the only subject of legislation to support the proposed Act, I would be inclined to agree that upon the analogy of the High Court decision in Robert Harper & Co. v. Moorehead, 8 C.L.R., p. 330, it would be insufficient. But in view of the power granted by placitum 23, to pass laws with respect to Invalid and Old Age Pensions, coupled with the incidental power in placitum 39, I think there is clearly an implied power to provide for a scheme of insurance, and to implement that scheme by compulsory contributions in the way proposed.

I therefore think that there is nothing in the proposal submitted to me which would render the proposed Act invalid.

[Vol. 31, p. 321]

(1) Opinion No. 1629.

(2) 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.

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