The following memorandum has been submitted to me for advice:

When at the close of any year, after payment to the States of what is due to them under sections 4 and 5 of the Surplus Revenue Act 1910, and after payment of all other accounts which have come in course of payment during the year, there remains a balance in the Consolidated Revenue Fund, it has been the practice to transfer such balance from the Consolidated Revenue Fund to the credit of a Trust Account established under the Audit Act. The account, which usually has been credited, is known as the 'Invalid and Old-age Pensions Account'. The object of the transfer to the Trust Account has been to place the money in a pocket, so that there shall be no doubt as to the right of the Commonwealth to withhold the amount from the States, which might have claimed it under section 6 of the Surplus Revenue Act 1910.

This method of putting the money aside is inconvenient both from a financial and a bookkeeping point of view. Whatever may be its legal position, the money practically forms part of the Consolidated Revenue Fund; and while there may be two or three millions at the credit of the Trust Account, the other moneys in the Treasury may be insufficient to meet current demands. The bookkeeping entailed by the practice is involved, and the general public, it is believed, cannot understand the intricacies.

A perusal of the judgment of the High Court in this matter suggests that the transfer to the Trust Account is unnecessary for the object in view, the Commonwealth being entitled to retain the money if there are appropriations made by Parliament and not yet satisfied.

The Treasurer will be glad to know whether, in the Attorney-General's opinion, the money, if not transferred to the Trust Account, may be legally withheld from the States, if there are appropriations of equal or greater amount unsatisfied at the close of the year.

The judgment above referred to is apparently that in the case of State of New South Wales v. Commonwealth 7 C.L.R. 179. In that case the validity of sections 4 and 5 of the Surplus Revenue Act 1908 was attacked as being contrary to those provisions of the Constitution which provide for the payment monthly to the States of the surplus revenue of the Commonwealth.

The High Court held that the 'expenditure' of the Commonwealth which might be debited against the States included all appropriations lawfully made by Parliament whether money had been disbursed on account of them or not, and whether the authority to disburse was one which the Executive might or might not exercise during the current financial year. The High Court further held that the payment of money into trust funds was not necessary in order to secure it against the provisions of the Constitution requiring payment of surplus revenue to the States.

I am, therefore, of opinion that any sums which have been appropriated and not expended may be withheld from the States so long as the actual disbursement of the money, for the purposes for which it was appropriated, would be lawful. I am also of opinion that it is not necessary that the money should be paid to a trust account in order that the above result may be obtained.

[Vol. 16, p. 233]