Opinion Number. 1735



Key Legislation

PHARMACEUTICAL BENEFITS ACT 1944 ss 8(2), 11(3), 12, 21, 22, 23 : CONSTITUTION ss 51(xxxix), 81, 96

The Director-General of Health
  • Subsequently to the rejection by the electors of the Constitution Alteration (Post-War Reconstruction and Democratic Rights) Bill 1944,(1) the Director-General of Health sought my opinion upon the constitutional validity of certain measures necessary for carrying out the Government’s policy in relation to health and social security.
  1. The matters to which my attention has particularly been directed are:
    1. the Pharmaceutical Benefits Act 1944;
    2. the Commonwealth Hospital Benefits Scheme, submitted to and accepted by the Premiers’ Conference in August, 1944;
    3. the proposed Commonwealth Medical Benefits Scheme.
  2. Each of these plans involves two distinct, though related, sets of legislative, provisions–viz:
    1. provisions for making available the necessary money;
    2. provisions for establishing and administering the scheme under which the proposed payments are to be made available to the beneficiaries.

    From the point of view of constitutional validity, these two sets of provisions require separate discussion.

  3. Before considering in detail the three matters specifically referred to me, I wish to make some observations of a general character, under the following headings:
    1. the limits (if any) of the Commonwealth’s power to appropriate moneys from Consolidated Revenue;
    2. the limits of the powers implied in or incidental to this appropriation power;
    3. the parties who are competent to challenge the validity of Commonwealth legislation;
    4. the limits (if any) of the Commonwealth’s powers to grant financial assistance to the States under section 96 of the Constitution.
  4. Section 81 of the Constitution authorises the appropriation of moneys from Consolidated Revenue ‘for the purposes of the Commonwealth’. The full High Court has not so far determined the meaning of the words ‘the purposes of the Commonwealth’. As is well-known, there are two distinct schools of thought on the subject. One view, the wider, is that section 81 permits Parliament to appropriate moneys for any purpose whatever which it thinks fit; ‘the purposes of the Commonwealth’ being thus interpreted as meaning any purpose which the Parliament, by providing a subsidy, makes its own. There is, however, a narrower view, according to which section 81 permits Parliament to appropriate moneys for those purposes only in relation to which Parliament has been given express power to make laws generally.
  5. Throughout the history of the Commonwealth, successive Parliaments and Governments have acted on the assumption that the wider view of section 81 is correct. This was also the considered view of my predecessor, Sir Robert Garran. If and when the matter comes to be decided by the full High Court, this uniform practice of the Commonwealth Parliament and Government will have substantial weight. Moreover, the longer the practice goes on, the greater its persuasive force will become. But it is by no means conclusive, and the Court will not be in any way bound to adopt it.
  6. The narrower view of section 81 has been expressed by a number of eminent constitutional authorities. In 1935, in the Commonwealth Clothing Factory case (52 C.L.R. 533) Starke J. after pointing out the differences, in respect of the appropriation power, between the language of the Constitution of the United States and the language of the Australian Constitution, expressed the definite view that section 81 restricts, to the subjects otherwise expressly assigned to the Commonwealth by the Constitution, the Commonwealth’s power to appropriate moneys. In giving evidence before the Royal Commission on the Constitution in 1927 and before the Royal Commission on Child Endowment and Family Allowances in 1928, Mr. Owen Dixon (as he then was) expressed precisely the same view.
  7. The inescapable conclusion is that serious doubt must attach to the validity of any appropriation from Consolidated Revenue for any purpose which does not fall within one of the express powers of the Commonwealth, and which, therefore, depends for its validity upon the wider view of section 81. Having regard to the established practice of the Commonwealth throughout its history, I think that Parliament would be justified in acting upon the wider view of section 81, so long as the question remains legally an open one. The adoption of the narrower view would have most far-reaching and disconcerting consequences, not only for the present social security programme of the Commonwealth, but for many important existing activities. Obviously, however, I cannot advise that the wider view is certain to be upheld, if and when the issue is squarely raised in the High Court. Indeed my own estimate of present indications is that the High Court would probably take the narrower view of section 81.
  8. I shall deal next with the implied or incidental powers of the Commonwealth, in relation to the matters under consideration. In doing so, I shall of course assume the wider view of the Commonwealth’s appropriation powers under section 81–i.e. that the Commonwealth may validly appropriate moneys for any purpose whatever which it thinks fit.
  9. The only power that section 81 expressly confers is a power to provide for the appropriation of moneys from Consolidated Revenue. Like every other legal power, however, this carries with it, by necessary implication, the power to do whatever is reasonably incidental to the execution of the principal power itself. The ambit of these incidental powers cannot be traced with mathematical precision. It is often a matter of the greatest difficulty to say where they stop. Not every matter which is ‘relevant’ to the principal power can be brought within the category of what is ‘incidental’. On the other hand, incidental powers do embrace whatever can be regarded, from a practical point of view, as reasonably necessary for carrying the principal power into execution. For instance, it would undoubtedly be incidental to the appropriation power to prescribe requirements, under penalty where necessary, for the furnishing of information, the making of returns, the inspection of accounts and the like, in order to ensure that the moneys appropriated were used for the purpose specified by Parliament, and not for other purposes. But it would scarcely be properly incidental to the appropriation of moneys for child endowment, for example, to include provisions regulating marriage and divorce generally. Coming closer home perhaps, it could scarcely be regarded as incidental to the power to appropriate moneys for pharmaceutical benefits to include provisions regulating generally the conduct of the business of a pharmaceutical chemist, or the manufacture of drugs for medical purposes. The principal power, in this case, is the power to provide moneys for pharmaceutical benefits, not the power to regulate pharmacies.
  10. These considerations must be borne carefully in mind in considering the validity of any legislation which rests for its validity on the wider view of section 81. Where (as for example with the Pharmaceutical Benefits Act) the Commonwealth is entering a field of social service not hitherto occupied by any other public authority, the Commonwealth will naturally wish to provide as far as possible that the financial benefits which it is making available will be used by all the agencies administering the scheme, to give the most effective service to the beneficiaries. The attempt to do this, however, may very easily take the Commonwealth beyond the border-line of the incidental powers. The power, it is always necessary to remember, is not a power to promote the desired social purpose generally, but only the power to promote that purpose by providing public funds, and by measures incidental to that provision. The matters covered by the incidental powers must be such as can properly be regarded, not as collateral with, but merely as ancillary, auxiliary or subordinate to, the main purpose. The cart must not be harnessed before the horse.
  11. Where an Act of the Commonwealth Parliament merely provides for the payment of moneys, it is well settled that an individual taxpayer cannot challenge its validity, unless he can show that he is affected personally and specifically–that the Act does not merely affect him in the same way as all other taxpayers: Anderson v. Commonwealth (1932) 47 C.L.R. 50. On the other hand, it seems to be equally well settled in Australia that a State can challenge the validity of a Commonwealth Act appropriating moneys under section 81. See eg Victoria v. Commonwealth (the Federal Aid Roads case) (1926) 38 C.L.R. 399; Attorney-General (Vic) v. Commonwealth (the Clothing Factory case) (1935) 52 C.L.R. 533. The law is otherwise in the United States; but the American authorities, though quoted in the High Court during the argument in the Clothing Factory case, were apparently not accepted by the Court.
  12. It is the provisions enacted in pursuance of the incidental powers which bring in the possibility of challenge by individual citizens. The broad proposition is that if a Commonwealth Act adversely affects some specific proprietary interest of a citizen he can invoke the jurisdiction of the Court to determine a claim that the Act is invalid. Further, any person upon whom the Commonwealth imposes a legal duty, and who is proceeded against by the Commonwealth for breach of the duty, can always set up the invalidity of the Act by way of defence.
  13. The more extensive, therefore, are the incidental provisions contained in a Commonwealth Act that depends principally upon the appropriation power, the more numerous are the opportunities for challenge by individuals. For this reason, it would generally be wise, in framing measures of the kind, to include such incidental provisions only as are really vital to the success of the scheme proposed. I may perhaps illustrate this point by referring to a proposal which I mentioned earlier in the year, when the Pharmaceutical Benefits Act 1944 was being drafted. The first draft submitted by the Department of Health included a clause (33) enabling the Minister, if he had reason to believe that a medical practitioner had prescribed an excessive quantity of pharmaceutical benefits, to require him to repay the value of the excess. As a mere matter of legal power, this clause could probably be supported as incidental to the main purpose of the Act. But the probabilities are that it would not be easy to police, and would not, therefore, contribute substantially to the success of the scheme as a whole; and on the other hand it would provide any individual against whom the power was put into operation with an obvious opportunity for challenging the validity of the whole scheme.
  14. The legal status of organisations such as friendly societies or the British Medical Association presents features of some difficulty. Where a body is itself providing for its members benefits of the kind provided for by Commonwealth legislation, the body concerned could, I think, itself sue, in any case where an individual could. The British Medical Association, however, is I think in a different position. The mere fact that its constitution may authorise it to take measures for the protection of the interests of its members would not, of itself, make the Association a competent plaintiff. In several High Court cases in 1943, the Court indicated unwillingness to regard the Victorian Chamber of Manufactures as a competent plaintiff in matters affecting the interests of individual members. I think that the British Medical Association would be in the same position. Special legislation in the Commonwealth and in some of the States authorises such bodies as trade unions and friendly societies to bring suits on behalf of their members. I am not aware whether the British Medical Association is in a position to bring itself within the terms of any such legislation. If, as I think, it is not, I do not think it would be a competent plaintiff to assert the invalidity of Commonwealth legislation for any of the purposes under discussion.
  15. The High Court’s decisions under section 96 have shown that the powers of the Commonwealth to grant financial assistance to the States, and to prescribe the conditions under which moneys provided by the Commonwealth are to be expended, are very wide. I think myself, however, that much care should be taken in giving effect to any plan of which the substance is to provide through the States benefits for individual citizens of the Commonwealth under conditions prescribed by the Commonwealth itself. The Wheat Industry Assistance Scheme was challenged on the ground, inter alia, that, in substance, what the Commonwealth was doing was not to assist the States financially but to pay a bounty to individual wheat-growers. On the facts, this argument was rejected both by the High Court and by the Privy Council. The Privy Council, however, stated emphatically that cases could be imagined in which a purported exercise of the power to grant financial assistance under section 96 would be merely colourable. Under the guise or pretence of assisting the State with money, the real substance and purpose of the Act, their Lordships said, might simply be to evade some constitutional requirement, and such an Act might well be invalid. The Commonwealth’s object should, I think, be to avoid legislation which wears the appearance of merely using the States as conduit-pipes whereby the citizen may receive assistance from the Commonwealth. This can be achieved if the legislation is so expressed as to make it clear that the Commonwealth and the States are acting in co-operation in promoting a common policy for the benefit of the people, the Commonwealth bearing the expense of the necessary legislative and administrative action by the States.
  16. I proceed to apply these general considerations to the three matters specifically referred to me.
  17. The validity of the Act as a whole obviously rests upon the wider view of the appropriation power. Assuming that view, I think all the incidental provisions contained in the Act for the administration of the Pharmaceutical Benefits Scheme would be held valid.
  18. The draft Bill submitted by the Department of Health included a clause (34) forbidding agreements for the purpose of:
    1. establishing a monopoly in the supply of any pharmaceutical benefit;
    2. increasing, above a fair market value, the selling price of any pharmaceutical benefit; or
    3. defrauding the Government in respect of any of the purposes of the Act.

    I expressed the view that the Commonwealth had no constitutional power to enact this clause, and in deference to that view the clause was omitted. Having regard to the observations I have made in paragraphs 10 and 11 above, I may usefully indicate briefly why I thought the proposed clause would not be valid. The incidental powers would, I think, support any provision whose real object was to ensure that the moneys provided by Parliament were expended upon the object specified by Parliament. The three paragraphs contained in the proposed clause must, I think, be considered separately.

  19. I ought to say at once, that I think paragraph (c) could properly be regarded as incidental to the execution of a principal power, and, therefore, valid. My earlier opinion was, to that extent, too categorically expressed. Paragraph (a), on the other hand, seems to me to stand on an altogether different footing. Its direct object is to regulate the trade in certain medical supplies by forbidding agreements tending towards monopoly. The establishment of a monopoly might, of course, result in the charging of excessive prices, but would not necessarily do so, and the presence of paragraph (b) is enough to show that other aspects of monopoly were probably in view. In fine, the substance of paragraph (a) seems to me to be a regulation of trade and commerce, and its connexion with the proper use of the Commonwealth’s funds is too tenuous to justify its enactment under the incidental powers.
  20. Paragraph (b) seems to me to fall on the one side or the other of the line, according to the meaning it bears. Consistently with what I have said about paragraph (c), I think the Commonwealth could properly make it an offence to agree to charge an excessive price for any pharmaceutical benefits supplied under the Act. I do not think, however, that the Commonwealth could validly make it an offence to charge, or agree to charge, excessive prices for medical supplies listed in the Formulary, no matter whether supplied in accordance with the Act or not. Some medicinal compounds, for example, may be obtained either with or without a doctor’s prescription. For example, I think the Commonwealth could not validly prohibit an agreement for charging an excessive price for A.P.C. in general, though it could validly prohibit an agreement for charging the Commonwealth itself, under the Act, an excessive price of A.P.C. I do not think it is quite certain whether paragraph (b) was intended to have the narrower or the wider meaning though, as a matter of wording, I think it bears the wider.
  21. Having regard to my observations above in paragraph 15, I may add that there are several points at which the Pharmaceutical Benefits Act might be challenged by individuals. The proprietor of a private hospital, for example, who was refused approval under section 11(3.) to supply pharmaceutical benefits, or any hospital authority, approval of which was suspended or revoked under section 12 would, in my opinion, have a sufficient proprietary interest to maintain a suit for a declaration that the Act as a whole is invalid. The result of refusal or revocation of approval might very well be to make the hospital less attractive to prospective patients. The constitutionality of the Act might easily be put in issue by any pharmaceutical chemist who desired to challenge it. He could, for example, bring a suit to recover from a customer the price of pharmaceutical benefits supplied to him. The defendant would naturally set up section 8(2) as a defence, and the plaintiff would reply, contending that the section was invalid. In addition, the validity of the Act could be challenged by way of defence to the prosecution of a pharmaceutical chemist (under section 21), a medical practitioner (under section 22) or a patient (under section 23).
  22. The difficulties involved in the Hospital Benefits Scheme, as agreed to at the Premiers’ Conference in August last, seem to me to be administrative rather than constitutional. The plan can, in my opinion, be so worked out that section 96 will provide the necessary support for all the Commonwealth action that is required.
  23. The central feature of the plan as I understand it is to provide a Commonwealth subsidy in order to relieve all hospital patients, wholly or in part, of any fees otherwise payable by them, irrespective of their means and in whatever type of institution. The money is to be provided in the form of a grant to the States. The States are to be required to pay over the money in full to hospital authorities, to be used by them in lieu of, or as a contribution towards, the payments otherwise due from patients. A State will not be permitted to use the Commonwealth grant for the purpose of reducing any of its own contributions to the hospitals concerned.
  24. In order to give effect to this plan, I understand it will be necessary:
    1. to exempt patients in public hospitals from the liability at present imposed on them by State law to pay, in accordance with their means, for hospital accommodation and treatment;
    2. to ensure that the services of any hospital that receives Commonwealth subsidy are provided at an approved standard;
    3. to institute a system of accounting, audit and inspection which will ensure that patients do obtain the effective benefit of the subsidy, and that hospital authorities do not merely add the amount of the subsidy or any part of it to their previous scale of charges.
  25. The plan seems at first sight open to the criticism that it does not give ‘financial assistance’ to the States, and indeed is so devised as to prevent the States from deriving any financial assistance under it. A distinction could I think be drawn in this regard between this hospital benefits plan on the one hand, and on the other hand the grants under section 96 for main roads or the more recent grants under the Wheat Industry Assistance Scheme. In the case of the roads, the grants were admittedly to be spent by the States themselves in carrying out one of their customary functions. The Wheat Industry Assistance grants were, like the proposed hospital benefits, to be paid over by the States to the individual citizen. It was, however, common ground that, if the States had been left to face the problem of the wheat industry by themselves, they would have lost large sums in marginal areas, in particular, under earlier schemes for the settlement of soldiers and migrants. By coming to the rescue of the industry, the Commonwealth did obviously grant financial assistance to the States. The hospital benefits plan, on the other hand, does seem at first sight to stand on a different footing, because it does not relieve State expenditure, and it deals with a phase of hospitalisation which the States have not felt obliged to make themselves responsible for at all.
  26. I am satisfied that, if the Hospital Benefits Scheme were challenged along these lines, the scheme would be upheld. In drafting the necessary legislation, however, care will have to be taken to make clear that in substance the object of the plan is to improve public health by making approved hospital services more fully available; that the States agree to continue their present contributions to this policy, by way of hospital subsidies; and that the States will administer the moneys provided by the Commonwealth for the further extension of that policy.
  27. In general, I think that it would be most appropriate to follow the legislative plan adopted in 1926 in connexion with the Federal Aid Roads Agreement, rather than the legislative plan adopted in 1938 in connexion with the Wheat Industry Assistance scheme. The Commonwealth Act would provide merely for the payment of grants to any State which enters into an agreement with the Commonwealth to carry out the Hospital Benefits Scheme, under conditions set out in a Schedule to the Act. The Act would make payments conditional upon the Minister being satisfied that a State had carried out its obligations under the agreement. The agreement itself would impose on the State the obligation to make the necessary legislative and administrative provision for carrying out the scheme (see paragraph 25 above).
  28. It is not easy to see how a scheme along those lines could be legally challenged. The taxpayer could not challenge it, because he has not the requisite legal interest. A hospital authority could not, even if charged with an offence under the supervisory provisions already mentioned; for these provisions would be contained in a State law, and would not in any way depend on the legislative power of the Commonwealth. A State itself could, no doubt, challenge the scheme; but the cases already decided under section 96 would make the task exceedingly difficult at best, and the fact that the Premiers have already accepted the scheme should make impossible for all practical purposes a legal challenge by a State.
  29. The object of this plan, as I understand it, is to enable any Australian citizen to obtain medical advice and treatment without cost to himself, the Commonwealth making itself responsible for the necessary payment. The method to be followed, it appears, is that used to establish the Pharmaceutical Benefits Scheme rather than the method of a State grant, as in the Hospital Benefits Scheme.
  30. Most of the legislative provisions which would be necessary to establish this scheme of benefits would follow closely the model of the Pharmaceutical Benefits Act 1944. I refer to, and incorporate without repeating, the observations made in connexion with this Act in paragraphs 18 and 22 above. Provision would be necessary, and would, in my opinion, be valid, for defining the services to be covered by the Act and prescribing the scale of charges authorised therefor; for the appointment of salaried medical officers of the Commonwealth, who would render the authorised services to the public free of charge; for the approval of practitioners who are willing to render the authorised services under the conditions laid down in the Act; for prohibiting the making of any charge to the patient in respect of any authorised service rendered under the Act; and for protecting the Commonwealth against abuse of the Act by patients or doctors.
  31. The question arises whether the Commonwealth could validly impose the requirements of the scheme on all legally qualified medical practitioners. To do this would involve prohibiting practitioners from making any charge upon a patient in respect of medical services rendered. In effect this would mean a prohibition of the practice of medicine for reward otherwise than under the provisions of the Act itself. In my opinion the incidental powers would not authorise such a provision. The courts would, I think, hold that in substance the provision in question was a law with respect to medical practice in general, and not a law with respect to matters incidental to the appropriation of Commonwealth revenue. In fine, therefore, I do not think the Constitution authorises the Commonwealth to impose the scheme directly on any medical practitioner who is unwilling to adopt it.
  32. In view of the probable hostility of some sections at least of medical opinion, awkward questions may also arise, I am given to understand, in connexion with the admission to hospitals of the patients of medical practitioners who are operating under the Act. Private hospitals in particular may perhaps be unwilling to admit the patients of medical men operating under the scheme. The question is whether the Constitution, as it stands, would authorise the Commonwealth Parliament to compel them to admit these patients. No very confident answer can be given. From the point of view of strict legal principle, I am inclined to the opinion that to forbid discrimination, in respect of admission or facilities for entry or treatment, against patients or doctors acting under the scheme should be regarded as reasonably incidental to an appropriation of Commonwealth funds for the purpose of the scheme. Such a provision, however, would only be invoked in the event of determined opposition from the medical profession, and the Courts might well hold in such circumstances that the Commonwealth had gone too far.
  33. Plaintiffs competent to challenge the validity of the Medical Benefits Scheme would not be far to seek. A State could challenge it, either of its own motion or on the relation to the British Medical Association or an individual practitioner. The authority for this is the Clothing Factory case. The opportunities for challenge by individuals would be similar to those provided by the Pharmaceutical Benefits Act 1944; see paragraph 22 above.
  34. I do not feel sure that I have dealt in sufficient detail with the difficulties that may be experienced in the practical administration of these schemes–the proposed Medical Benefits Scheme in particular. I have, however, set out what I think to be the guiding principles, and I would, of course, be willing to consider their application to any specific matters that may be submitted to me.
  35. I summarise my conclusions as follows:
    1. I have no doubt that the proposed Hospital Benefits Scheme is valid, so long as the necessary administrative regulation can be done, by agreement with the States, under State law.
    2. The Pharmaceutical Benefits Act 1944 and the proposed Medical Benefits Scheme rest alike on the wider view of the Commonwealth’s appropriation power under section 81 of the Constitution. This view has been consistently acted upon by the Commonwealth throughout its history. The validity of this view is, however, open, in my opinion, to grave doubt, and it would be rash to assume either that it may not, or that it will not, be challenged in the Courts in the near future.
    3. If the wider view of the appropriation power is upheld by the Courts, the present administrative provisions of the Pharmaceutical Benefits Act 1944 are, in my opinion, valid, as being incidental to the execution of the appropriation power.
    4. If the wider view of the appropriation power is upheld by the Courts, a Medical Benefits Scheme could be established along lines similar to those followed in the Pharmaceutical Benefits Act 1944. I do not think, however, that the medical profession as a whole could be required to operate under such a scheme irrespective of their own consent.(2)

[Vol. 36, p. 215]

(1) See Opinions Nos 1727 and 1731.

(2) The Pharmaceutical Benefits Act 1944 was found invalid by the High Court in Attorney-General (Vic); Ex rel Dale v Commonwealth (Pharmaceutical Benefits case) (1945) 71 CLR 237.