Opinion Number. 23



Key Legislation

CONSTITUTION, ss. 85 (iii), 87, 89, 94

The Treasurer

The words 'incurred solely for the maintenance or continuance, as at the time of transfer, of any department transferred', are vague and general. It is not easy to draw a definite line of demarcation between the two kinds of expenditure-that for 'maintenance or continuance' debited to the States and the 'other expenditure' debited to the Commonwealth. These may be designated as 'transferred' and 'other' expenditure.

For a short account of the history of these words in the Convention, see Quick & Garran, p. 834. The distinction in the Adelaide draft was between expenditure incurred (1) 'in the performance of the services and the exercise of the powers transferred', and (2) 'in the exercise of the original powers' of the Commonwealth. This was a clear distinction between the transferred departments and the new departments, but it would have left all expenditure, whatever its nature, in the Customs, Post Office, and Defence Departments to be debited to the States and only the cost of such of the other departments as was occasioned by the exercise of 'original powers' to be borne by the Commonwealth. The object of altering the provision to its present form was-as stated in the debates-to alter this division of expenditure so that expenditure in regard to 'new developments' in the transferred departments should be charged not as transferred expenditure, but as 'other' expenditure. The clause was drawn in connection with the proposal of the Finance Committee in Melbourne that at the end of five years all expenditure should be charged per capita; and it was thought unfair that new works of a permanent character should even during the five years be charged to the States in which they were constructed. As examples of such works, these were cited: 'a post office, a telegraph office, or perhaps some important fortification of a permanent character' (Mr Reid, Convention Debates, Melbourne, p. 775).

Turning to the clause itself, we find that expenditure, in order to be classed as transferred expenditure, must satisfy the following conditions:

  1. it must be expenditure for a transferred department;
  2. it must be incurred solely for the maintenance or continuance of that department as at the time of transfer.

The words 'maintenance' and 'continuance' seem nearly synonymous; but if a meaning is to be given to both, it would appear that 'maintenance' refers rather to the actual up-keep 'as at the time of transfer', whilst 'continuance as at the time of transfer' may be taken to include the natural and necessary expansion to meet the growing needs of the community.

The chief difficulty here is as to the precise meaning of the words 'as at the time of transfer'. Does 'as' indicate expenditure 'to the same extent as'-an interpretation which would cut down the latitude of the meaning above given to 'continuance'-or does it include all expenditure 'of the same kind as'-an interpretation which might be wide enough to include all expenditure for new buildings and works required in the natural course of development, and to exclude only expenditure for new purposes and objects; that is to say, to include an extension of the scale, but not of the scope of the department.

The former construction seems too narrow. It would require the charging per capita of the salary of additional officers, and even of increments in salary, notwithstanding that (in the case of the revenue-producing departments) the resulting increase of revenue would be credited to the State. It would also involve immense difficulties in the work of apportioning all the different items of expenditure-unless the simple test of the total amount of the expenditure of the department at the time of transfer were taken over and any excess over that amount were treated as other expenditure. But it does not appear that the clause means this, or the expression chosen would have been more definite, as in that case it could have easily been.

On the other hand the latter construction seems too wide. It would include expenditure for new post offices, and perhaps even for new fortifications; it would in fact include the whole expenditure of the transferred departments as long as that expenditure was along lines laid down at the time of transfer.

The words of the section being so general as to leave room for a wide latitude of construction, we must look for further guidance to the general purpose of the provision, in order to arrive at a fair and reasonable interpretation. An equitable arrangement would involve the following considerations:

  1. The revenues collected in each State are to be placed to its credit. Every outlay which immediately increases the revenue may therefore be fairly charged against each State. This might be done in some instances in which the cost ought to be strictly included under capital expenditure. Of course when any considerable outlay is made upon permanent works only the interest upon that outlay should be debited to the State. Otherwise the provision is to be liberally construed. The bookkeeping period is understood to be temporary. Different conditions will obtain possibly after 5 years (section 94) or probably after 10 years (section 87) but in the meantime substantial justice would be done if all expenditure not considerable and not for permanent works be treated as part of the 'maintenance or continuance' of each transferred department. Capital outlay properly so called and not involving immediate returns could not be so charged to the States.
  2. Other expenditure means first the expenditure not included as maintenance or continuance. It is, notably, that upon new departments, and next all considerable capital outlay for permanent works in transferred departments, such as was excepted from the previous definition.

There will remain, of course, the difficulty of applying this distinction in individual cases. There must always be, in the annual expenditure, items incurred not wholly for the service of one year, but yet not of such a large or permanent character as to justify their payment otherwise than out of revenue. The guiding rule in these cases during the bookkeeping period should be to treat the items as being presumptively 'transferred expenditure', except in the case of substantial amounts which are clearly in the nature of capital expenditure. There is nothing in the section to conflict with this reading, which seems on the whole to be that intended to be adopted.

I now come to the precise questions submitted:

  1. Is compensation (principal and interest), in respect of property acquired by the Commonwealth in connection with the transferred departments, 'transferred'or'other' expenditure?

    The principal is 'other' expenditure; the interest 'transferred' expenditure. Property exclusively used by the transferred departments became vested in the Commonwealth upon their transfer. Other property 'used, but not exclusively used' has been or may be yet acquired. Compensation under these heads is a large transaction required by the Constitution. The Commonwealth has a free hand as to the mode of compensation, but not as to the fact. It may elect to deal with the matter as a cash transaction, by paying the capital down, and if necessary borrowing money for that purpose; or on the basis of deferred payments, at interest; or even on the basis of a perpetual annuity. But it must compensate the States for the value of any property passing to it (section 85 (iii)).

    Payments under section 89 are made out of the revenue (whether on account of capital or interest) and must be debited in one of two ways. After Parliament has legislated under section 93, they will be dealt with in such ways as may be then prescribed. During the bookkeeping period, interest upon the value of the property taken over by the Commonwealth is chargeable to the States as 'transferred' expenditure. It is part of the 'maintenance or continuance' of the departments. But it cannot be contended that the capital has to be paid off in the whole during that period. At some time or other the States have to be compensated for the capital value, but the sum necessary for this cannot be regarded as solely for the maintenance or continuance of the departments. It is spent in compliance with a special mandate of the Constitution. If this were 'transferred' expenditure, the express provisions of the Constitution for the payment of compensation would have been idle, because every payment made to any State would have been met by an equal debit against the State, and the compensation would have been nominal only.

  2. New buildings and additions to buildings, paid for out of loan or revenue, and either for extension of a department or for more convenient working (e.g. new building in place of rented building) or for replacement of destroyed building.

    The Parliament has a full discretion as to paying out of loan or revenue, and the apportionment of the burden ought not to depend on the mode selected.

    The capital cost of new buildings of a permanent character (except when the cost is trifling) erected where there was previously no building, must be charged as 'other' expenditure, but the interest on loans raised for that purpose is transferred expenditure. Extension of existing buildings, where considerable and permanent, is also 'other' expenditure; but where they are mere extensions to meet growing business, and are not permanent in material, they may be charged as maintenance or continuance. There is no financial difference between (1) a post office in a town where there was none before, (2) a new city branch, or (3) an addition to an existing building; but the above distinction is reasonable.

    Where a new building replaces a rented one, its cost is 'other' expenditure, but the interest upon the cost during the bookkeeping period is transferred expenditure; and so also if the building replaces one destroyed, by fire or otherwise, since the transfer of the department-excepting always trifling outlays upon small buildings which are not considerable enough to be classed with permanent works.

  3. Extra officers for new buildings, or on account of increased business (e.g. telephone exchange).

    These come under the head of'maintenance or continuance as at the time of transfer', and ought to be charged as transferred expenditure, since increased revenue must be taken to be implied as a necessary consequence, and this increased revenue is credited to the States.(1)

[Vol. 1, p. 148]

(1) An extract, dated 28 October 1901, of this opinion was published in Commonwealth of Australia, Pari. Papers 1903, Vol. II, p. 937.