(1)  In the original observations¹ it was assumed, for the purposes of the remarks on section 51(xxxi), that acquisition by the Commonwealth Bank had the same effect as acquisition by the Commonwealth. The Commonwealth, it is felt, could hardly argue otherwise.

(2)  The preparation of the preliminary observations in this matter was begun before the proceedings in Brisbane, when the High Court gave leave to the States to intervene. These further observations deal, therefore, principally with an argument likely to be brought forward by those States which intervene to attack the Act, namely, to use the words of Dixon J. in Brisbane, ‘the Engineers’ Case does not apply to the banking power’.

(3)  This argument may be put in the form that the Commonwealth cannot direct its legislative powers towards destroying or weakening the constitutional functions or capacities of a State. The argument may be put in the alternative form that the Commonwealth cannot use its legislative powers to destroy either the essential governmental functions or the normal activities of a State. This argument cannot, it is suggested, in its application to the present case, be based on the exclusion of State banking from the banking power but on an underlying constitutional principle. Indeed, it is difficult to see how the argument could be based otherwise than on the constitutional principle.

(4)  The answer of the Commonwealth to such an argument is that the constitutional power over banking (other than State banking) is unlimited and in pursuance of that power the Commonwealth could prevent the private trading banks from carrying on any business at all; and that section 48 of the Banking Act may be the first, and a convenient, instalment of the exercise of that power. A further argument on the part of the Commonwealth is that section 51(xiii), by reason of the express exclusion of State banking, is not subject to any implied limitation. An argument of the latter type is referred to by Higgins J in Australian Workers’ Union v. Adelaide Milling Co. Ltd. (26 C.L.R. 460 at p. 471) as follows:

So far as the Constitution is concerned, there is certainly nothing expressed in it that indicates an intention to exclude the operations of States from the power to legislate for the ‘peace, order, and good government’ of Australia ‘with respect to conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State’ (sec. 51(xxxv.)). The power to legislate with respect to banking excludes State banking if confined to the State that carries on banking business (p1. xiii.); the power to legislate with respect to insurance excludes State insurance if confined to the State that carries on the business of insurance (p1. xiv.); but there is no such exclusion expressed as to State operations with respect to any industrial disputes that extend beyond one State. The words of the Constitution are general and without qualification or exception. It is true that the Constitution of each State continues as at the establishment of the Federal Constitution (sec. 106), but it exists ‘subject to’ the Federal ‘Constitution’.

(5)  In support of the first argument reference might be made to the fact that the Commonwealth has taken by statute the exclusive right to conduct ‘postal, telegraphic, telephonic, and other like services’ (Constitution, section 51(v); Post and Telegraph Act 1901–1946, sections 80 and 98; Wireless Telegraphy Act 1905–1936). Is there any reason to suppose that to deprive a State of a postal service strikes more deeply at ‘the essential governmental functions’ or ‘the normal activities of the State’ than to deprive it of a banking service? On the contrary, a State can ensure that it shall possess such banking services as it requires by setting up a State bank, which is immune from Commonwealth interference, although it cannot set up a State postal, etc service.

(6)  It may be argued on behalf of the States that, while a law giving the Commonwealth a complete monopoly of banking (other than State banking) would be valid, a law such as section 48, which singles out States and State authorities, is not valid. The answer of the Commonwealth to this argument is that the financial transactions of States and State authorities are of such an extent and nature that it is essential for the proper operation of a central bank that the central bank should have command of their banking accounts and knowledge of their banking business. The States would presumably counter such an argument by saying that if the States choose to entrust their business to a State bank this object will be defeated, but the reply of the Commonwealth to that is that the Commonwealth desires, and validly so, to exercise the power to the fullest extent possible where a State does not choose to set up a State bank and conduct its banking transactions therewith.

(7)  It is proposed to follow briefly the development, decline and resurgence of the constitutional principle of immunity of instrumentalities. Perhaps the best summary is to be found in the judgment of Lath C.J. in the Uniform Tax Case (65 C.L.R. 373, commencing at page 419).

(8)  The rule is thus expressed in D’Emden v. Pedder (1 C.L.R. 91) ‘when a State attempts to give to its legislative or executive authority an operation which, if valid, would fetter, control or interfere with, the free exercise of the legislative or executive power of the Commonwealth, the attempt, unless expressly authorized by the Constitution, is to that extent invalid and inoperative’. In the Railway Servants’ Case (4 C.L.R. 488) it was held that a corresponding rule exists in favour of the States. The High Court, however, in Sir Robert Garran’s phrase, ‘has never denied itself the occasional privilege of overruling its own decisions’ and in the Engineers’ Case (28 C.L.R. 129) held that as a general proposition there was no ground for reading into the Constitution an implied reciprocal immunity of federal and State instrumentalities; that the protection given by the Constitution to the States was the specific nature of the Commonwealth powers, beyond which the Commonwealth could not go; and that the protection to the Commonwealth was the supremacy under section 109 of Commonwealth law over State law. The subject matters of Commonwealth legislative power must be given their natural meaning, unlimited by any implied prohibition of interference with the States. The States retained such legislative powers as were not expressly denied them but the exercise of those powers must not be inconsistent with any valid commonwealth legislation.

(9)  The next case of significance was Pirrie v. McFarlane (36 C.L.R. 170), in which it was held that the question whether the Motor Car Act, if it were held to apply to members of the Defence Force, would fetter or interfere with the executive powers of the Commonwealth was irrelevant having regard to the decision in the Engineers’ Case, the sole question being whether there was any Commonwealth law inconsistent with the Motor Car Act.

(10)  In West v. The Commissioner of Taxation (N.S.W.) (56 C.L.R. 657) Dixon J. referred to the notion which, he said, seemed to have gained currency that in interpreting the Constitution no implications could be made. There were, he said, two questions left open by Engineers’ Case—the first whether the principle of that decision warranted legislation affecting the prerogative of the Crown in right of the States and the second whether the Parliament is authorized to enact legislation discriminating against the States or their agencies. In the same case Evatt J. pointed out that the Engineers’ Case is no warrant for the extreme view that the result reached in relation to section 51(xxxv) applies indifferently to all the other placita in section 51 and that still less is it a warrant for the view that the Commonwealth is at liberty to nullify the ordinary constitutional powers of a State by purporting to exercise one or other of the powers of legislation set out in section 51.

(11)  A somewhat opposed view is taken by Latham C.J. in the Uniform Tax Case, in which the States relied upon the alleged implied prohibition as to non-interference by the Commonwealth with State constitutional functions, capacities or activities. Latham C.J. pointed out that there is no universal or even general opinion as to what are the essential functions, capacities, powers or activities of a State and that it was not for a court to impose upon any Parliament the task of identifying such functions etc. (It may be noted that neither Dixon J. nor Evatt J. was a member of the Court deciding the Uniform Tax Case).

(12)  In the recent case (as yet unreported) City of Essendon v. Criterion Theatres Ltd. and Others Dixon J. returned to the effect of the decision in the Engineers’ Case. He repeated the statements made in West’s Case and held that the principles laid down in the Engineers’ Case did not apply to taxation and that the State had no power to tax the Commonwealth.

(13)  It is proposed to examine in some detail the various cases in which the decision in the Engineers’ Case has been considered and to discuss their application to the present case.

(14)  In West’s Case Dixon J. said (56 C.L.R. at p. 681)—

It will be seen that the grounds I have given for deciding the present case concede that if a State tax discriminated against pensions, salaries, or other payments made by the Commonwealth, it could not be supported. If the right to the payment were conferred by a law of the Commonwealth, prima facie the scope and intention of that law would be enough to make inoperative any attempt by the States to impose upon the payee a special burden because of his occupying that character. The State tax would be inconsistent with the law of the Commonwealth in making enjoyment of the right or benefit conferred by the latter the special occasion of a burden. The invalidity of the State law would then be a result of sec. 109 of the Constitution. But I do not think that this is the only ground upon which a discriminatory State tax on salaries, pensions or other payments received from the Commonwealth would be invalid. In the ordinary course of administration many obligations not created or defined by statute are contracted by the Commonwealth and discharged out of moneys lawfully available for the purpose. This is done in the exercise of the powers conferred by the Constitution, as for instance, under the operation of secs. 61, 67, 69, 70, 81, 82 and 83, or one or more of them. Surely it is implicit in the power given to the Executive Government of the Commonwealth that the incidents and consequences of its exercise shall not be made the subject of special liabilities or burdens under State law. The principles which have been adopted for determining for the purposes of sec. 109 whether a State law is consistent with a Federal statute are no less applicable when the question is whether the State law is consistent with the Federal Constitution. Since the Engineers’ Case a notion seems to have gained currency that in interpreting the Constitution no implications can be made. Such a method of construction would defeat the intention of any instrument, but of all instruments a written constitution seems the last to which it would be applied. I do not think that the judgment of the majority of the court in the Engineers’ Case meant to propound such a doctrine. It is inconsistent with many of the reasons afterwards advanced by Isaacs J. himself for his dissent in Pirrie v. McFarlane. Indeed, he there refers to ‘the natural and fundamental principle that, where by the one Constitution separate and exclusive governmental powers have been allotted to two distinct organisms, neither is intended, in the absence of distinct provision to the contrary, to destroy or weaken the capacity or functions expressly conferred on the other’. He adds: ‘Such attempted destruction or weakening is prima facie outside the respective grants of power.’ There is little justification for seeking to find in the Engineers’ Case authority for more than was decided. The importance alike of the principle there applied and of the application given to it is sufficiently great and far reaching. It is a principle adopted for the interpretation of the legislative powers of the Parliament. The principle is that whenever the Constitution confers a power to make laws in respect of a specific subject matter, prima facie it is to be understood as enabling the Parliament to make laws affecting the operations of the States and their agencies. The prima facie meaning may be displaced by considerations based on the nature or the subject matter of the power or the language in which it is conferred or on some other provision in the Constitution. But, unless the contrary thus appears, then, subject to two reservations, the power must be construed as extending to the States. The first reservation is that in the Engineers’ Case the question was left open whether the principle would warrant legislation affecting the exercise of a prerogative of the Crown in right of the States. The second is that the decision does not appear to deal with or affect the question whether the Parliament is authorized to enact legislation discriminating against the States or their agencies.

The decision applied the principle of interpretation thus adopted to sec. 51 (xxxv.), which was accordingly construed as extending to operations notwithstanding that they are carried on by or on behalf of the States.

In so describing the effect of the decision, I have done little but repeat what I said on a former occasion (Australian Railways Union v. Victorian Railways Commissioners). But, in spite of its compendiousness, I believe it to be an accurate enough statement of the law laid down by which we are to be guided. It is perhaps, desirable to add that, in applying the general principle to a legislative power of the Commonwealth, the words at the head of secs. 51 and 52, ‘Subject to this Constitution,’ must not be overlooked and that these words together with sec. 106 and perhaps sec. 107 may be of great importance in a question how far a law of the Commonwealth may affect the States;

(15)  An important point in the foregoing extract is the suggestion that the Parliament cannot enact legislation discriminating against the States or their agencies. In form it may be thought that section 48 does discriminate against the States or their agencies. The answer to this, however, is that the object of section 48 is to prohibit transactions in relation to public funds being made with private banks. This is not really discriminatory of the States and their agencies since in the very nature of things it is only States and their agencies (apart from the Commonwealth) which have public funds under their control.

(16)  The following are extracts from the decision of Evatt J. in West’s Case.

At page 697—

The outstanding feature of the Engineers’ Case is that the only question before the court was this—Did the Parliament of the Commonwealth have power ‘to make laws binding on the States’ under sec. 51(xxxv.)—the legislative power in relation to arbitration for the settlement of disputes extending beyond the limits of one State. The question was answered: Yes.

At page 698—

But, however the result was reached, it must now be accepted that the ‘rule’ of immunity from mutual interference was too broadly stated in the earlier cases, and as so stated it is now an exploded doctrine. But it does not follow that discriminatory legislation passed by the Commonwealth or a State and directed against the other can be properly passed upon the Court without recourse to principles of the Constitution which are not immediately discoverable in it words. Something of what I mean is indicated by Gavan Duffy J. in his dissenting judgment in the Engineers’ Case where he declares that ‘the existence of the State as a polity is as essential to the Constitution as the existence of the Commonwealth,’ the converse proposition, of course, applying equally. The remainder is admittedly a vague one, because the dangers to be guarded against cannot be precisely defined, and will seldom, if ever, occur. But I am not prepared to accept all the obiter dicta in the Engineers’ Case as having achieved the impossible task of anticipating every future difficulty in the working of our Federal constitutional scheme.

Although, therefore, the attempt of Griffith C.J. to enunciate the rule of non-interference ended in disaster, this was due, perhaps, to over-anxiety as to the dangers which confronted the newly established Commonwealth. These dangers were greatly, and, as we would now suppose, even absurdly, exaggerated. For instance, how the Commonwealth itself could possibly be injured because its officers had to bear the same taxation burdens as their fellow citizens, it is almost impossible to appreciate.

At page 701—

No doubt, the decision to reject the general rule of ‘mutual immunity of instrumentalities’ was a wise one, and it must be followed by us. But it is quite erroneous to regard the Engineers’ Case as having established a new and valid constitutional principle, under which either by direct declaration as to the termination of specified State legislation, or as to the State’s legislative power, or by indirectly creating conditions or qualities under Commonwealth legislation which will achieve the same objectives, the Commonwealth Parliament is enabled, by the exercise of its own legislative power, to rid itself of any State legislative ‘interference’ or ‘impediment.’ This constitutional principle or doctrine is a dangerous feature of the Engineers’ Case, and any proposed application of it should be most carefully watched. Already there have been startling consequences, to which reference will be made. I do not think that it was ever intended by the decision of the majority in the Engineers’ Case to set in operation any such principle as I have stated, because it was stated, though without emphasis, that there could be no case of State legislation being annulled except by the operation of ‘valid Commonwealth legislation expressly or impliedly by marketing limits conflicting with State legislation which is valid except for the operation of sec. 109’.

At page 706—

It is indisputable that the Engineers’ Case finally established two important points in relation to sec. 51 of the Constitution. First, a rule of construction according to which the theory that all State powers or activities must be treated as having been previously reserved from the scope of sec. 51 is rejected, the true rule being that each subject matter in sec. 51 must be regarded as a separate subject matter, so that if, upon its fair construction, any State activity is included within the subject, it is for the Commonwealth Parliament alone to decide upon the desirability of applying its legislation to such activity. Second, that, under sec. 51(xxxv.), the activities of a State as employer in industries are within the scope of the subject matter of that sub-section. But the Engineers’ Case is not warrant for the extreme view that the result reached in relation to sec 51(xxxv.) necessarily applies indifferently to all the placita in sec. 51, still less is it a warrant for the view that the Commonwealth is at liberty to nullify the ordinary constitutional powers of a State by purporting to exercise one or other of the powers of legislation set out in sec. 51. For instance, even the Commonwealth’s power to restrict or restrain by legislation under sec. 51(xxxv.) the proceedings and determinations of State industrial tribunals is qualified, not absolute (Australian Timber Workers’ Union v. Sydney and Suburban Timber Merchants’ Association). Further, it must not be supposed that, in dealing with ‘bankruptcy and insolvency,’ the Commonwealth could make a sequestration order against a State, though it could bind a State in relation to its position as creditor in a bankruptcy. Outstanding factors in interpreting the thirty-nine placita in sec. 51 are the separable nature of each of the placita and the principle that the legislative powers of the States are concurrent with those of the Commonwealth (James v. The Commonwealth).

Further, as I endeavoured to illustrate in the case of Stock Motor Ploughs Ltd. v. Forsyth, attempts by the Commonwealth Parliament to manufacture ‘inconsistency’ between its own legislation and that of the States will often be essayed only at the price of making the Commonwealth legislation ultra vires. Of course, lawful attempts by the Commonwealth may occur, as in R. v. Brisbane Licensing Court; Ex parte Daniell, where State referenda and general elections were forbidden to be held on the same day as Commonwealth elections. No doubt, the State’s legislation, actual and prospective, was avoided pro tanto. But the Commonwealth’s legislative power over its own electoral system was deemed sufficient to enable it to prevent the awkwardness and confusion which might well result from a simultaneous Commonwealth and State election. In fact, the State was not impeded in its constitutional functions, for 364 other days in the year were left for it to choose from. On the other hand, a Commonwealth electoral law which forbade the holding of State elections for six months prior to a Commonwealth election would obviously be invalid.

(17)  In the foregoing passages it is suggested that Commonwealth legislation discriminatory against a State would not be valid if it imperilled the existence of the State as a polity but, it is pointed out, the dangers to be guarded against cannot be precisely defined and will seldom, if ever, occur. An example given is that the Commonwealth could not make a sequestration order against a State. Evatt J. gives an interesting example of a Commonwealth Act which did not impede the State in its constitutional functions (namely, the Act prohibiting the holding of a State election on the same day as a Commonwealth election) for the reason that 364 other days in the year were left for the States to choose from. In the present case the States are not completely deprived of banking facilities but are left to choose between the Commonwealth Bank and any State bank which may be available.

(18)  The following are extracts from the judgment of Latham C.J. in the Uniform Tax Case.

At page 419—

The Act therefore must meet the challenge of the plaintiffs that the Commonwealth cannot direct its legislative powers against the constitutional functions or capacities—against the essential functions or the normal activities—of a State.

…

It is argued for the plaintiffs that the authorities as they now stand leave it open to the Court to hold that, while there is no general principle of exemption of State instrumentalities from the exercise of Federal power, the Federal nature of the Constitution, involving as it does the continued existence of the States, does involve the principle that the Commonwealth cannot use its legislative powers to destroy or weaken the constitutional functions or capacities or to control the normal activities of the States.

At page 422—

In this case the plaintiffs do not rely on any express provision in the Commonwealth Constitution for the purpose of showing that the Tax Act and the Grants Act, as well as the other Acts considered together with them, are invalid. They rely upon the alleged implied prohibition as to non-interference by the Commonwealth with State constitutional functions, capacities or activities. They point to secs. 106 and 107 of the Constitution, which have already been quoted. These sections, however, do not confer any powers upon a State or upon a State Parliament. They preserve existing powers, but, as to State Constitutions (sec. 106) ‘subject to the’ (Commonwealth) ‘Constitution,’ and, as to State legislative powers, (sec. 107) only after withdrawals and exclusions effected by the Constitution, and then subject to the effect of overwriting Commonwealth laws where the Commonwealth Parliament has power to legislate (sec. 109). These provisions cannot be relied upon to limit by either express or implied prohibition any provision conferring powers upon the Commonwealth. They do make it clear that the Commonwealth possesses only the powers granted by the Constitution. But they do not limit the sphere or restrict the operation of the powers which are so granted.

At page 423—

There is no universal or even general opinion as to what are the essential functions, capacities, powers or activities of a State … It is not for a court to impose upon any parliament any political doctrine as to what are and what are not functions of government, or to attempt the impossible task of distinguishing, within functions of government, between essential and non-essential or between normal or abnormal. There is no sure basis for such a distinction. Only the firm establishment of some political doctrine as an obligatory dogma could bring about certainty in such a sphere, and Australia has not come to that.

Thus the principle for which the plaintiffs contend must be applied, if at all, in protection of all that a State chooses to do, and it must mean that Commonwealth legislation cannot be directed to weaken or destroy any State function or activity whatsoever.

But it cannot be denied that Commonwealth legislation may be valid though it does in fact weaken or destroy, and even is intended to weaken or destroy, some State activity. Sec. 109 shows that this must be so in many cases. Commonwealth laws have in fact put an end to the existence of State Courts of Bankruptcy and State Patent, Trade Mark and Copyright Departments. The Commonwealth laws are not invalid on that account. They have produced the results stated just because they are valid.

At page 424—

A law may produce an effect in relation to a subject matter without being a law with respect to that subject matter. Questions of motive and object are irrelevant to the question of the true nature of a law. The nature (or ‘substance’ if that word is preferred) of a law is to be determined by what it does, not by the effect in relation to other matters of what the law does. A prohibition of import or a very high duty in a customs tariff may bring about the closing of business enterprises in a State. But the tariff is not a law with respect to those enterprises. Similarly a State law may prohibit the carrying on of occupations with the result that they are necessarily abandoned, with perhaps great consequential loss to the Commonwealth in customs duties or income-tax receipts. But the State law does not for this reason become a law with respect to customs duties or income tax. The true nature of a law is to be ascertained by examining its terms and, speaking generally, ascertaining what it does in relation to duties, rights or powers which it creates, abolishes or regulates. The question may be put in these terms: ‘What does the law do in the way of changing or creating or destroying duties or rights or powers?’ The consequential effects are irrelevant for this purpose. Even though an indirect consequence of an Act, which consequence could not be directly achieved by the legislature, is contemplated and desired by Parliament, that fact is not relevant to the validity of the Act (R. v. Barger; Osborne v. The Commonwealth; Attorney-General for Queensland v. Attorney-General for the Commonwealth; Sonzinsky v. United States, and see note in the Lawyers’ Edition.

This principle should be remembered when it is said that a Parliament of limited powers cannot do indirectly what it cannot do directly.

At page 429—

It is perhaps not out of place to point out that the scheme which the Commonwealth has applied to income tax of imposing rates so high as practically to exclude State taxation could be applied to other taxes so as to make the States almost completely dependent, financially and therefore generally, upon the Commonwealth. If the Commonwealth Parliament, in a grants Act, simply provided for the payment of moneys to States, without attaching any conditions whatever, none of the legislation could be challenged by any of the arguments submitted to the Court in these cases. The amount of the grants could be determined in fact by the satisfaction of the Commonwealth with the policies, legislative or other, of the respective States, no reference being made to such matters in any Commonwealth statute. Thus, if the Commonwealth Parliament were prepared to pass such legislation, all State powers would be controlled by the Commonwealth—a result which would mean the end of the political independence of the States. Such a result cannot be prevented by any legal decision. The determination of the propriety of any such policy must rest with the Commonwealth Parliament and ultimately with the people. The remedy for alleged abuse of power or for the use of power to promote what are thought to be improper objects is to be found in the political arena and not in the Courts.

(19)  The foregoing extracts are almost exactly in point in the present case. It may be argued that section 48 is undoubtedly a law with respect to banking and that it is not limited by any express or implied prohibition necessary to preserve the essential functions of the States. There is no universal or even general opinion that freedom to bank where it chooses is an essential function of a State. Examined according to its terms the true nature of section 48 is a law with respect to banking; its consequential effects are irrelevant.

(20)  It is useful to note the view of the Chief Justice (at p. 429) that the end of the political independence of the States which would be brought about if the Commonwealth were to impose rates of taxes so high as practically to exclude all State taxation is a result which cannot be prevented by any legal decision and that the remedy for the adoption of such a policy is to be found in the political arena and not in the courts. It may be submitted that this is the position in the present case.

(21)  The following is a further extract from the Judgment of Latham C.J. at page 430—

It is conceded that, under a general legislative provision, such as the Defence Act or reg. 4 of Statutory Rule No. 77 of 1942 (regulations under the National Security Act (1939–1940), the Commonwealth can in time of war, compel the services of any person (including State public servants) for any purpose connected with the defence of the country. But it is a different thing to select a particular class of persons as such and to compel their services only. For example, though under a defence Act the Commonwealth Government can call up citizens for service in the military forces, it would be quite a different thing to pass a law imposing liability only. Such a law would be prohibited by sec. 117 of the Constitution, which provides that:

‘A subject of the Queen, resident in any State, shall not be subject in any other State to any disability or discrimination which would not be equally applicable to him if he were a subject of the Queen resident in such other State.’

So also the Commonwealth can and does compel the services of citizens in the army irrespective of their religious beliefs. But it could not legislate to apply compulsion only to persons who professed a particular religion (sec. 116). Thus there is a very real difference between general legislation and legislation limited to a particular class.

(22)  At first sight it may appear that the Chief Justice is holding that all ‘legislation limited to a particular class’ is discriminatory and therefore not a valid exercise of the power. It would appear, however, that the Chief Justice is not here referring to all legislation limited to a particular class but only to discriminatory legislation which is opposed to a particular provision in the Constitution relating to such legislation, e.g. sections 117 and 116.

(23)  Reference may also be made to the decision of Latham C.J. in the Holidays’ Case (66 C.L.R. 488 at p. 507) as follows—

Since Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd., however, no conclusion as to the validity of Commonwealth legislation can be based upon any supposed reservation of particular matters to the States. There is nothing in the words last quoted to support the proposition that only measures which are wanton and manifestly capricious are beyond the defence power or that wantonness and capriciousness are special tests of the constitutional validity of statutes in relation to that power. The principle which would destroy the validity of wanton and capricious measure may, I venture to think, be expressed by stating that a law must have a real connexion with a subject matter to be validly enacted under a power to make laws with respect to that subject matter. This is the criterion which the Court has always applied, whatever may have been the legislative power in question—whether trade and commerce, taxation, arbitration in relation to industrial disputes or any other subject matter. The question always must be: ‘Is the challenged law really (i.e., in substance) a law with respect to the subject matter in question?’ If the answer is in the negative the law cannot be valid under the power to make laws with respect to that subject matter.

In the same case Starke J. said at p. 515—

The maintenance of the States and their powers, as I have said before, is as much the object of the Constitution as the maintenance of the Commonwealth and its powers. It is inconsistent with the Federal system set up by the Constitution that the Commonwealth should enact legislation compelling the States, as such, to take or to refrain from taking any action, or to expend their revenues, in manner prescribed by the Commonwealth. It is plain that the Commonwealth cannot repeal the legislation of the States, though it may render it inoperative to the extent that it is inconsistent with Commonwealth legislation within its power. But I cannot assent to the proposition that the Commonwealth can by legislation issue commands to the States as such. Such a doctrine would be subversive of the Federal system. The Engineers’ Case (Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd.) is no authority for that view. There the Commonwealth had power to legislate with respect to conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State. No one State had any such power; it was beyond the limit of the constitutional powers of the States. The Commonwealth is thus exclusive in respect of that subject matter. Accordingly it was held that, necessarily and by reason of the subject matter, the Commonwealth power extended to all parties, States as well as persons, engaged in industrial disputes extending beyond the limits of any one State. But the Engineers’ Case, which denied the doctrine of the immunity of instrumentalities propounded in earlier judgments of the Court, is no authority for the general proposition that the States are subject, as such, to the legislation of the Commonwealth. The legislation of the Commonwealth within its powers renders State law, inconsistent with it, inoperative by reason of sec. 109 of the Constitution, but that is a different proposition.

Section 48 does not, of course, in terms, issue any commands to the States. In terms it is directed to the private trading banks although it obviously affects the States indirectly.

(24)  It is reasonably well established that the validity of legislation is not to be determined by the motives of Parliament or the ultimate end of the law. (See Barger’s Case, 6 C.L.R. at pp. 66, 67, 89, 90 and 118; Radio Corporation Pty. Ltd. v. The Commonwealth, 59 C.L.R. 170 at pp. 179, 180 and 185; Uniform Tax Case, 65 C.L.R. at p. 412).

(25)  Reference may also be made to the judgments of Latham C.J. and Dixon J. in City of Essendon v. Criterion Theatres Ltd. and others (not yet reported). The following passages from the judgment of Dixon J. are particularly relevant:

The imposition of the tax that is attempted is directly upon the Commonwealth itself and to make it worse the occasion of the imposition is the act of the Commonwealth in so taking and retaining possession of the land. I believe that I am on sound ground in saying that the Constitution does not allow this. I say sound ground because I do not think it is a proposition involved in the general overthrow of the discredited doctrine by which a wide immunity from State legislation was given to agents and instruments employed by the federal government. There is a world of difference between, on the one hand, a denial to the States of a power to tax the Commonwealth in respect of the execution of its duties or the exercise of its authority and, on the other hand, the earlier doctrine protecting so call instrumentalities of government, federal or state, from the exercise of some legislative power of the other government on the ground that to concede that they fell within the operation of the power at all would concede to the second government a means, an indirect means, of burdening, or interfering with, the first. But even when the earlier doctrine was abandoned by this Court an express reservation was made covering, among other things, the power of taxation. The reservation is expressed in a somewhat indefinite manner, perhaps designedly, but it appears at least certain that, because of the special nature of the power to tax, it was considered that there might be implied restraints upon its use to which the legislative powers of neither government were generally subject. Amalgamated Society of Engineers v. Adelaide S.S.Co. Ltd. 1920 28 C.L.R.129 at p. 143 26 A.L.R. 337 at p.340.

…

As yet in America there has been neither the occasion nor need for a definite formulation of the principle which invalidates an attempt by the tax power on the part of one member of the federal system to interfere with the other. A study of the opinions in the case of the Saratoga Springs, beginning with the treatment which the problem receives from Frankfurter J., will show that if it is not easy to frame a test, it is still more difficult to obtain its acceptance. Frankfurter J. considers that Congress may not in a tax discriminate against State activities and may not tax a State, as a State, but proposed no other restrictions. With this Rutledge J. tentatively agreed as did the Chief Justice. But Reed, Murphy and Burton JJ. thought that these limitations on the power were not enough and Douglas and Black JJ. dissented altogether.

…

To my mind the incapacity of the States directly to tax the Commonwealth in respect of something done in the exercise of its powers or functions is a necessary consequence of the system of government established by the Constitution. It is hardly necessary at this stage of our constitutional development to go over the considerations which make it impossible to suppose that the Constitution intended that the States should levy taxes upon the Commonwealth—the nature of the federal government, its supremacy, the exclusiveness or paramountcy of its legislative powers, the independence it is fiscal system and the elaborate provisions of the Constitution governing the financial relations of the central government to the constituent States. To describe the establishment of the Commonwealth as the birth of a nation has been a commonplace. It was anything but the birth of a taxpayer.

The idea that a tax liability might be directly imposed upon the Commonwealth by State law would not, I think have been entertained, if it had not been for misapprehensions which obtain concerning the effect of the Engineer’s Case (1920 28 C.L.R. 129). One such misapprehension is that the decision meant that the Constitution implies nothing; it means nothing that it does not say in express words. I shall repeat two statements upon this subject which I thought it necessary to make in West’s case 1937 C.L.R. 657 at pp. 681–2. One deals with what implications that are to be made in the Constitution:

‘There is little justification for seeking to find in the Engineers’ case (1920 28 C.L.R. 129) authority for more than was decided. The importance alike of the principle there applied and of the application given to it is sufficiently great and far reaching. It is a principle adopted for the interpretation of the legislative powers of the Parliament. The principle is that whenever the Constitution confers a power to make laws in respect of a specific subject matter, prima facie it is to be understood as enabling the Parliament to make laws affecting the operations of the States and their agencies. The prima facie meaning may be displaced by considerations based on the nature or the subject matter of the power or the language in which it is conferred or on some other provision in the Constitution. But, unless the contrary thus appears, then, subject to two reservations, the power must be construed as extending to the States. The first reservation is that in the Engineers’ Case the question was left open whether the principle would warrant legislation affecting the exercise of a prerogative of the Crown in right of the States. The second is that the decision does not appear to deal with or affect the question whether the Parliament is authorized to enact legislation discriminating against the States or their agencies.’ (56 C.L.R. at p. 682). To this should be added a third reservation, namely, that to which I have already referred concerning the taxation powers of the governments.

(26)  It appears to be accepted by Dixon J. that laws may, prima facie, affect the operations of the States and their agencies although this prima facie meaning may be displaced. One of the circumstances suggested by Dixon J. in which legislation affecting the operations of the States might be invalid is where the legislation discriminates against the States. This has already been referred to above.

(27)  Assuming that the Court holds that section 48 is invalid in so far as it relates to the banking business of a State the question arises whether it would not be valid in relation to banking business of a local authority such as the plaintiff. It I submitted that it would be so valid (assuming severability) on the authority of the following cases:

Federated Engine Drivers’ and Firemen’s Association of Australasia v. The Broken Hill Proprietary Co. Ltd. (12 C.L.R. 398).

Federated Engine Drivers’ and Firemen’s Association of Australasia v. The Broken Hill Proprietary Co. Ltd. (16 C.L.R. 245).

The Federated Municipal and Shire Council Employee’s Union of Australia v. The City of Melbourne (26 C.L.R. 508).

The Merchant Service Guild of Australasia v. The Commonwealth Steamship Owners Association and Others (No. 2) (28 C.L.R. 436).

(28)  The foregoing observations have made considerable reference to the banking power. It should not be assumed, however, that section 48 is solely a law with respect to banking. The title of the Act states that the Act is one—

to regulate Banking, to make provision for the Protection of the Currency and of the Public Credit of the Commonwealth, and for other purposes.

Section 51(xii) authorizes the Parliament to legislate with respect to currency and coinage and it may be argued that this extends beyond the mere provision of currency (and incidental matters) to laws designed to ensure a safe and stable monetary and currency system. To ensure this, it may be desirable to enact a provision such as section 48 and it may be argued that, viewed in this light, section 48 is not discriminatory of States but indeed a necessary provision for the adequate and proper exercise of the Commonwealth’s powers.

[Vol. 37, p. 498]

Note: This opinion deals with Melbourne v Commonwealth [1947] HCA 26; (1947) 74 CLR 31.

¹ Opinion No. 1807.