The following memorandum has been referred to me for an opinion:

1. Would a vote 'To pay into the Harbour and Coastal Defences Account.................... £250,000' be constitutional, it being taken for granted that such a Trust Account had been established by the Treasurer in accordance with section 62A of the Audit (amended) Act? (NOTE-If the money voted were paid into the account, it would not be handed over to the State on 30th June next but would form part of a fund available for future expenditure.)
2. Taking for granted that a Trust Account called 'The Harbour and Coastal Defences Account' had been established by the Treasurer in accordance with section 62a of the Audit Act,would it be legal without further appropriation to pay to the credit of such account the unexpended balance of the vote appearing on page 281 of the estimates 1907-8

'Division 8 Item 1 Harbour and Coastal Defences.......................... £250,000'?

(NOTE-in this connection please see section 62a 5 (a) of the Audit Act.)

3. Can Parliament constitutionally enact that there shall be paid into a Trust Account established by the Treasurer under section 62a of the Audit Act the difference between the expenditure of the Commonwealth and the sum of one-fourth of the Customs and Excise Revenue and the Postal and other Revenue of the Commonwealth?

The financial provisions of the Constitution make provision for the distribution of the surplus Federal revenues during three periods, viz.:

1. Before the imposition of a uniform tariff (section 89).
2. During the transition period immediately following the imposition of a uniform tariff (section 93).
3. After the expiration of the transition period (sections 93 and 94).

Section 87 of the Constitution, known as the Braddon clause, so long as it remains in operation applies to each period. The effect of the Braddon clause is (until it is superseded) to prevent the Commonwealth from applying more than one-fourth of the net revenue of customs and excise towards its expenditure, and to require it to pay over to the States annually at least three-fourths of the net revenue of customs and excise. The existence of the Braddon clause does not affect the following arguments, as they are based on the assumption that it will be complied with.

The first period mentioned expired on 8 October 1901.

The second period is still in existence, but may now be determined by the Parliament at any time; and on its termination the third and final period will begin.

Section 93, which provides for the distribution of the unexpended balance of revenue during the second period, is as follows:

During the first five years after the imposition of uniform duties of customs, and thereafter until the Parliament otherwise provides-

1. The duties of customs chargeable on goods imported into a State and afterwards passing into another State for consumption, and the duties of excise paid on goods produced or manufactured in a State and afterwards passing into another State for consumption, shall be taken to have been collected not in the former but in the latter State:
2. Subject to the last subsection, the Commonwealth shall credit revenue, debit expenditure, and pay balances to the several States as prescribed for the period preceding the imposition of uniform duties of customs.

In Quick & Garran's Annotated Constitution, at p. 814, the opinion is expressed that the view appears to be justified both as a matter of construction and by considerations of expediency, that the provisions of sections 89 and 93, requiring the Commonwealth, after crediting revenue and debiting expenditure to the several States, to pay the balances monthly to the several States, amount to a special appropriation.

Mr Attorney-General Deakin, in an opinion dated 25 February 1902⁽¹⁾, expressed a similar view.

In the case of the State of Tasmania v. The Commonwealth of Australia and State of Victoria 1 C.L.R. 329, Chief Justice Griffith in his judgment referring to section 89 said: 'That section, if there is no more in the Constitution, gave the State of Victoria an absolute vested right to receive the money now in question, and to keep it'. The money in question was part of the monthly balance paid to the State under section 89. The words quoted apply equally to the balances under section 93.

It would seem therefore that each State has an absolute vested right to receive from the Commonwealth monthly the balances ascertained after crediting revenue and debiting expenditure in the manner directed by the section.

The only difficulty of interpretation of these two sections, so far as the questions raised are concerned, relates to the meaning of the word 'expenditure'. What is necessary to constitute 'expenditure of the Commonwealth' within the meaning of those sections?

To expend (according to the Oxford Dictionary) means to pay away, lay out, spend; and the word differs from the word spend in being less colloquial, and (in modern use) in implying some determinate direction or object of outlay. 'Expenditure' is the action or practice of spending or expending.

On the strictest construction, 'expenditure' would only apply to money actually expended by the Commonwealth by payment to the creditor.

There are, however, considerations which incline me to the opinion that the word ought not to be so strictly construed. In the first place the object of the section was to prevent the Commonwealth from accumulating a floating surplus, and to secure the monthly return to the States of all money not required for Commonwealth expendi-ture. Moreover, a monthly settlement on the strict basis would, as a matter of practical finance, be absolutely impossible. It is necessary to make large advances out of the Commonwealth Public Account to the various departments, and a monthly adjustment of the exact amount actually expended by each department out of these advances with a monthly refund-from every post office, Custom house, etc. in the Com-monwealth-of all unexpended balances, would be inconceivable.

Moreover, the operations of public finance often require the periodic payment of large sums-e.g. the annual payments under article 11 of the Naval Agreement, pay-ments for mail subsidies, interest, etc. Unless money could from time to time be set aside to meet accruing claims of this kind, it might often be impossible to meet the claims as they came due.

The necessity for a broad and reasonable construction of these constitutional pro-visions favours the view-which I do not think does any violence to the text-that expenditure may be deemed to have been incurred, within the meaning of these sec-tions, when, in pursuance of a lawful appropriation, money has been drawn from the Commonwealth account for the definite object of meeting an actually accruing obligation.

I think that this construction is supported by section 105, which provides that in the event of the Parliament taking over the public debts of the States-

thereafter the interest payable in respect of the debts shall be deducted and retained from the portions of the surplus revenue of the Commonwealth payable to the several States.

Strictly speaking, interest is not 'payable' to the creditor until it is due, but it is im-possible to suppose that the Convention did not contemplate that moneys should be set aside from the monthly revenue to meet the periodic payments of interest. They were aware that the interest on the public debts of the States, in the aggregate, was approxi-mately equal to the customs and excise revenue of the Commonwealth; and that this interest was, as a general rule, payable half-yearly; so that one month's Com-monwealth revenue from all sources could not possibly suffice for the payment of the interest on all the debts. It is therefore reasonable to suppose that 'payable' in section 105, like 'expenditure' in sections 89 and 93, is to be interpreted in a broad sense.

Even on this broad construction, I am of opinion that the answer to question (c) must be in the negative-the suggested Trust Fund not having in view the definite object of meeting an actually accruing obligation. Questions (a) and (b), in the broad terms in which they are stated, must also be answered in the negative; though I am in-clined to think that, if limited to the case where the moneys paid to the Trust Fund were definitely appropriated to meet an actually accruing obligation, these two ques-tions could be answered in the affirmative.

But though I incline to the broad construction of 'expenditure' in sections 89 and 93, it is not without much doubt; and I do not consider that it would be wise to rely on a doubtful point of interpretation when a better way can be found.

Both sections (89 and 93) are temporary sections, providing for the first and second periods above mentioned.

The Parliament now has power to determine the second period and to provide a new basis in place of that provided in section 93. The power of the Parliament is contained in sections 51 (xxxvi), 93 and 94. Of these sections 94 is the most important, and is as follows:

After five years from the imposition of uniform duties of customs, the Parliament may provide, on such basis as it deems fair, for the monthly payment to the several States of all surplus revenue of the Commonwealth.

Section 94 is framed as an enabling clause, but it was probably intended as a direction to the Parliament. Quick & Garran at p. 864, in commenting on the section, say:

The words as originally proposed by the Finance Committee were 'on such basis as shall be fair'; but these words were altered to prevent any possibility of its being contended that any assumed unfairness might be made the subject of an appeal to the High Court, thereby making that tribunal the arbiter of a purely political matter. (See Conv. Deb., Melb., pp. 1085-9.) The Parliament is therefore laid under a solemn constitutional obli-gation to provide a 'fair' basis, but it is made the sole judge of what is fair. The command is addressed to the conscience of the Parliament and of the people; and such a command, embodied in the Constitution, is not likely to be disregarded.

I am of opinion that the Parliament in making provision to supersede section 93 is bound to provide for the monthly payment to the States of the surplus revenue of the Commonwealth.

'Surplus' ordinarily means that which remains over and above what has been used or is required (Standard Dictionary). In the Oxford Dictionary the synonymous word 'overplus' is denned as meaning 'that which is over in addition to the main amount, or to what is allotted or needed'.

It should be noticed that the words relating to debiting expenditure against rev-enue, and striking a balance, which occur in the two temporary sections (89 and 93) are not repeated in the permanent section (94), and that the new phrase 'surplus revenue' is substituted.

This change of phraseology is coincident with a most important change of sub-stance. Under sections 89 and 93, the 'balances' payable to the States are specially ap-propriated to them, and they have a vested right to receive those balances. But once a new basis, established by Parliament under section 94, comes into operation there is a complete change. The constitutional appropriation ceases, and a Parliamentary ap-propriation is substituted.

Subject to special provisions of the Constitution (such as the Braddon clause, and sections 93 and 94) the Parliament has full power to appropriate Commonwealth rev-enue 'for the purposes of the Commonwealth' (section 81). If the Parliament deems that revenue is required for any purpose of the Commonwealth, it can (after section 93 is exhausted) appropriate revenue for that purpose and set aside such moneys as it thinks are needed to meet the appropriation. Revenue so appropriated and set aside would not, in my opinion, be 'surplus revenue' within the meaning of section 94. It appears to me that it would be a contradiction in terms to say that revenue required for and allotted to a particular purpose is 'surplus revenue', because at the expiration of a particular month it is not yet actually expended.

This view is also supported by the argument that it may be absolutely necessary to set aside money to enable the Commonwealth to carry out its functions. The defence and protection of Australia against invasion is entrusted to the Commonwealth, and in the event of war it might be absolutely necessary to create a war fund to enable it to carry out its obligations. Many other instances might be cited.

But I do not think that legislation under section 94 could enable revenue to be retained, in a Trust Fund or otherwise, unless definitely appropriated by law to a specific purpose.⁽²⁾

[Vol. 6, p. 285]

(1) Opinion'No.48.

(2) This opinion was published in Commonwealth of Australia, Parl. Papers 1908, Vol. II, p. 1081.