|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).
I would like to acknowledge the helpful contributions of Professor George Winterton of The Faculty of Law, the University of New South Wales.