The purpose of this paper is to present an account of the recent High Court
decision in
Ha and Hammond, a ruling which promises to be a landmark in
the development of State -Federal financial relations. Its main findings are as
follows:
- the decision has the effect of preventing the States from
levying business licencing fees on alcohol (and, by extension, tobacco and
petrol) (page 3);
- Ha and Hammond has the potential to exacerbate the
already severe fiscal imbalance between the States and the Commonwealth (page
3);
- the financial dependence of the States on the Commonwealth was
founded on the twin rocks' of: (1) the 1929 financial depression, when the
States were persuaded to sign the Financial Agreement under which they
effectively surrendered their capacity to borrow on the international capital
market; and (2) the Second World War, when the Commonwealth centralised the
imposition and collection of income tax, thereby denying the States access to
this most significant tax base. That move was endorsed by the High Court in
1942 in the First Uniform Tax case (page 4);
- the key constitutional provision relating to excise duties is
section 90, notably the first paragraph which prevents the States from levying
excise duties (page 5);
- an excise duty is an inland tax on goods' (page 6);
- however, opinion on the High Court has differed markedly on the
scope of the term excise duties'. In particular, there is a narrow
interpretation which defines an excise as a tax on goods produced or
manufactured in Australia. Against this, there is the broader
interpretation which identifies an excise duty with the production,
manufacture, sale or distribution of goods. In a practical sense the
difference is far-reaching, for the obvious reason that the narrower view would
permit States to levy taxes on the sale and distribution of such goods as
tobacco or alcohol (as long, that is, as the tax did not single out goods
produced in Australia), whereas the broader interpretation does not (page 7);
- the broad interpretation has been in the majority on the High
Court since Parton's case in 1949. That interpretation maintains that
the chief purpose of section 90 is to ensure internal free trade. For the
minority view, on the other hand, excise duties are analogous to customs duties
and the focus of section 90 is on the common external tariff policy (page 10);
- under the Dennis Hotels formula a loophole was created
which permitted the States to levy business licencing fees, notably with
respect to alcohol, tobacco and petrol. These fees have increased dramatically
in magnitude over the years, to a rate of 100% in 1996 (page 9);
- in essence, the majority opinion of Brennan CJ, McHugh, Gummow
and Kirby JJ was a restatement of the broad definition of excise based on the
1949 decision of Dixon J in Parton. In doing so it rejected the two key
arguments of the States and Territories: that, for a tax to be an excise, it
must make local (Australian) production or manufacture the discrimen of
liability'; and, secondly, that the imposts under the NSW Act were merely fees
for a licence to carry on the business of selling tobacco and not a tax on the
tobacco sold (page 17);
- the minority opinion of Dawson, Toohey and Gaudron JJ was, in
essence, a restatement of the narrow definition of excise (as a tax that falls
selectively on the local production or manufacture of goods) in Peterswald v
Bartley(page 21);
- in terms of the clash of federal and national images' of the
Australian polity created under the Constitution, the High Court has more or
less consistently emphasised the national against the federal image, with
significant consequences for the expansion of the powers of the Commonwealth
Government (page 24);
- the NSW Treasurer, the Hon Michael Egan MLC, is reported as
saying that The Commonwealth doesn't have to abolish the States; it just lets
them wither on the vine'. As a result of Ha and Hammond, this year's State
Budget outcome has been revised down from a forecast surplus of $26 million to
a $300 million deficit. Matters are made worse by another recent High Court
judgment, Allders International Pty Ltd v Commissioner of State Revenue,
in which the High Court found that the States could not tax businesses located
on property owned or controlled by the Commonwealth (page 31).
ACKNOWLEDGMENTS
I would like to acknowledge the helpful contributions of Professor George
Winterton of The Faculty of Law, the University of New South Wales.
