Opinion Number. 1696

Subject

PROPOSED UNIFORM FEDERAL INCOME TAX SCHEME PROPOSED UNIFORM FEDERAL INCOME TAX: VALIDITY OF PROPOSAL TO GIVE PRIORITY TO PAYMENT OF FEDERAL INCOME TAX AND GRANTS TO STATES THAT DO NOT RAISE INCOME TAX: POWER TO PREVENT RAISNG OF INCOME TAX BY STATES: WHETHER IMPLIED INTENTION: REQUISITION OF SERVICES OF STATE PERSONNEL AND ASSETS

Key Legislation

Draft Bill for INCOME TAX ASSESSMENT ACT 1942: Draft Bill for INCOME TAX (WAR-TIME ARRANGEMENTS) ACT 1942

Date

This draft Bill(1) is based on the assumption that it is not permissible directly and explicitly to exclude the States from their right to impose a State Income Tax.

For present purposes we accept that assumption, but we have not independently examined this matter for ourselves.

To get the purposes of the draft War–time Arrangements Bill into proper perspective it should not be considered merely in isolation but as a link in a larger plan.

The larger plan is a plan by the Commonwealth to impose a uniform income tax under which it would collect as income tax not only the amount of income tax it required for its own purposes but a larger amount including such sums as it thought was necessary for the States to have for the purposes of the internal peace order and good government of the States. These surplus sums over and above what the Commonwealth desired for its own purposes could be distributed back to the States as grants of assistance representing compensation to the States for being deprived of the right to collect income tax for themselves.

This larger plan would be worked out by a series of acts as follows: (a) a Commonwealth Income Tax Act which would provide for the collection of an amount sufficient for the needs of the Commonwealth and the States; (b) a Grants Act granting the States assistance or compensation for being deprived of the right to collect income tax for themselves; (c) an Income Tax Assessment Act whereby the Commonwealth without itself prohibiting the States from entering the income tax field would protect itself against State action by giving priority to Commonwealth taxes and delaying the time at which the State could proceed to collect income tax; (d) this Income Tax (War–time Arrangements) Act, the precise purpose of which is not expressed but which would commandeer the staff or part of the staff of the State Income Tax Department, and would commandeer the offices and accommodation of the State Income Tax Department, and would take possession of all past returns and records and rescind or suspend the agreement under which the States act to collect income tax for themselves and for the Commonwealth.

It would no doubt be contended on behalf of the States that the purpose of the War–time Arrangements Act was to impede the activities of the State to collect income tax and that this would be the effect of the Act. No such purpose is to be found expressed on the face of the proposed War–time Arrangements Act, and the question arises if no such purpose is so expressed on the face of the Act, how could the Court be enabled to say that such purpose though unexpressed is none the less to be implied.

This very matter was dealt with fully in the recent judgment of the Privy Council in the Alberta Case.(2) In its judgment the Judicial Committee stated as follows:

The next step in a case of difficulty will be to examine the effect of the legislation. For that purpose the Court must take into account any public general knowledge of which the Court would take judicial notice and may in a proper case require to be informed by evidence as to what the effect of the legislation will be. A closely similar matter may also call for consideration, namely the object or purpose of the Act in question. Here again matters of which the Court would take judicial notice must be borne in mind and other evidence in a case which calls for it.

The Alberta Case 1939, A.C. page 130, 131.

Applying these principles we are of opinion that it would be competent for the High Court to infer for itself and also to allow evidence to be called to show that the intention and effect of the proposed War–time Arrangements Act was to coerce the States to keep out of the field of taxation of incomes and to make it impossible practically for the State to operate in that field. And if we accept the thesis that it is not permissible to expressly and directly prohibit the States from entering that field then this is doing indirectly that which cannot be done directly. If the High Court reached this conclusion (as we think it would) then in our opinion the proposed Act would not be upheld.

Having dealt with the matter in general terms we now propose to address ourselves to the clauses of the proposed Act in detail. The proposed Act is called a War–time Arrangements Act, and is to last only until the expiration of the war and some period thereafter. Apart from the title some of the clauses purport to be based upon the needs of public safety and the successful prosecution of the war, but other clauses do not refer in terms to war emergencies. For example clauses 3 and 11 refer to the efficient prosecution of the war, and clauses 4–9 inclusive may be incidental to clause 3, though they run counter to the State Public Service Acts, but clauses 10, 13, 14, 15, 16 are not expressed as being referable to the war emergency powers and it is not altogether easy to say under what head of Commonwealth power they are to be enacted. However we will deal shortly with the various sections which require to be noticed.

Clause 3 as drawn would, we think require to be amended. As drawn the clause enables the officers to be transferred if the Treasurer notifies that it is necessary for the defence etc. of the Commonwealth that this step should be taken, but as drawn the section does not require that the matter should in fact or in the opinion of the Treasurer be necessary for war emergency purposes.

We think that if the Act is to be passed the opinion should be that of the Governor–General and not of a single Minister.

The same comments apply to clause 11.

Clauses 4–9, excluding clause 8, may run counter to the State Public Service Acts but if clause 3 is valid these clauses may perhaps be considered incidental to clause 3.

Clause 10 is not referred to the war power. It deals with property in the possession of the State which may or may not be State property. These joint returns were sent in for the dual purposes of Federal and State returns. So far as the State has an interest in the returns or records quaere whether the Commonwealth has any constitutional right to take possession of them.

Clause 11 has already been referred to under comments on clause 3. It does not appear altogether convincing to suggest that the successful prosecution of the war requires the State Income Tax staff to be ejected from their premises.

Clauses 13, 14, 15, 16 may on the face of the Act furnish a clue to the real purposes of the Act, namely to force the States to vacate the field of taxation. Clause 15 which suspends the tax collection agreements suggests that this is the purpose of the Act, and that this purpose is to be achieved by utilizing the same officers, the same office premises and the same records as are now being used by the States. Substantially there would only be this difference that the Commonwealth would be installed and the State ejected.

It may be true that there will be a certain saving of staff and some saving of money, but this would be incidental only and not the real or substantial purpose of the Act. Whether the suggested saving of 1000 in staff would be men or women may be uncertain, and whether there would in fact be a saving of staff might depend upon whether the States acquiesced or resisted. But as already stated these are incidental matters only.

[Vol. 34, p. 414B]

(1) The Income Tax Assessment Bill 1942 and the Income Tax (War–Time Arrangements) Bill 1942 were both introduced into the House of Representatives by the Treasurer (Mr Chifley) on 15 May 1942: Commonwealth of Australia, Parliamentary Debates, House of Representatives, 15 May 1942, pp. 1285; 1291.

(2) [1939] AC 117.

(3) Sir Alan Russell Taylor. Born 25 November 1901, Newcastle, NSW; died 3 August 1969, Vaucluse, NSW. Clerk, Postmaster–General’s Department 1917–1921. Officer, Commonwealth Crown Solicitor’s Office 1921–1924. Admitted NSW Bar 1926. Challis Lecturer in Legal Interpretation, University of Sydney 1936–1942. Appointed Justice Supreme Court of NSW 1952; High Court of Australia 1952. Appointed KBE 1955. Appointed to Privy Council 1963.